United Natural Foods: Positioned for Healthier Eating Trends

United Natural Foods is one of the largest food distributors in North America, supplying both natural and traditional grocery stores. It connects thousands of food producers with retailers of all sizes, from small local shops to big names like Whole Foods. The company’s huge network, wide range of products, and growing set of services help retailers meet the rising demand for healthy, organic, and sustainable foods. As United Natural Foods focuses on becoming more efficient and building stronger partnerships, the question is: Does this key player in the grocery supply chain deserve a spot in your portfolio?

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The Business

United Natural Foods, (UNFI) is North America’s largest publicly traded wholesale distributor of natural, organic, and conventional grocery products. Founded in 1976 and based in Providence, Rhode Island, the company plays a key role in the food supply chain, connecting manufacturers with more than 30.000 retail locations across the United States and Canada. It delivers everything from fresh produce and frozen foods to wellness items and household goods through a large network of 52 distribution centers that cover about 30 million square feet. Its customers include Whole Foods Market, independent grocers, supermarket chains, e-commerce platforms, and foodservice companies. UNFI’s business runs on a high-volume, low-margin model, meaning it earns small profits on each sale but compensates with very large sales volumes. The company grew significantly after acquiring SuperValu in 2018, which expanded its reach into conventional grocery products and made it a coast-to-coast distributor. Most of its revenue comes from wholesale distribution, but it also operates a smaller retail division, which includes grocery stores like Cub Foods. Beyond product delivery, UNFI offers services such as supply chain management, data analytics, shelf organization, and retail marketing to help its customers run their businesses more efficiently. It also owns several private brands, such as Essential Everyday, Wild Harvest, and Woodstock, which allow retailers to offer affordable alternatives to national brands while giving UNFI slightly higher profit margins. The company’s sustainability strategy, called Better for All, focuses on responsible sourcing, waste reduction, renewable energy, and community support. UNFI’s competitive moat comes mainly from its size, reach, and integration across both natural and conventional grocery distribution. It is the largest distributor of natural and organic foods in North America and one of the largest grocery wholesalers overall, giving it strong buying power and long-term relationships with suppliers. Unlike most competitors, which focus on either natural foods or conventional groceries, UNFI covers both categories. This makes it a one-stop partner for retailers that want to simplify purchasing and logistics. Its nationwide network of distribution centers creates a major barrier for new competitors. These facilities allow UNFI to deliver quickly and efficiently to customers across all 50 U.S. states and every Canadian province. The company also benefits from long-standing contracts, such as its agreement to supply Whole Foods Market through 2032, which provides stability and predictable sales. In addition, UNFI offers a growing range of digital tools and services, such as online ordering platforms, retail data insights, and marketing support, that make it harder for customers to switch to another distributor.

Management

J. Alexander Miller “Sandy” Douglas serves as the CEO of United Natural Foods, a position he has held since August 2021, and he also sits on the company’s board of directors. He brings more than three decades of experience in the consumer goods and distribution industries, with a career marked by leading large organizations through transformation, digital modernization, and operational improvement. Before joining United Natural Foods, Sandy Douglas served as CEO of Staples, Inc., where he led its North American business-to-business distribution division through a period of major restructuring and growth. Prior to that, he spent over 30 years at The Coca-Cola Company, where he held several senior leadership roles, including President of Coca-Cola North America. In that role, he managed a business generating more than ten billion dollars in annual revenue and oversaw product strategy, marketing, and supply chain operations across the United States and Canada. Earlier in his career, Sandy Douglas began in sales and management positions at Procter & Gamble, where he developed a strong foundation in brand management and customer relationships. At United Natural Foods, Sandy Douglas has focused on improving efficiency across the organization and strengthening collaboration between sales, merchandising, and digital teams. He has emphasized technology investments, data-driven decision making, and value-added services that help both retailers and suppliers grow. His leadership style is practical and collaborative, with a focus on long-term partnerships, sustainable growth, and building a stronger, more efficient company for the future.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. United Natural Foods has historically generated a low ROIC because of the nature of its business and the way it has grown. The company operates in food distribution, a high-volume and low-margin industry where even small cost increases or inefficiencies can quickly erode profitability. To serve its 30.000 retail customers across North America, United Natural Foods needs to maintain a vast and expensive network of distribution centers, refrigerated warehouses, trucks, and inventory. This makes the business capital-intensive, which increases the amount of invested capital while profits remain thin. Margins are also limited by strong competition and pressure from both customers and suppliers. Large retailers demand low prices, while suppliers negotiate for better terms, leaving the distributor with little room to expand margins. The company’s acquisition of SuperValu in 2018 added size and reach but also introduced lower-margin conventional grocery operations and legacy assets that have weighed on returns. Together, these factors explain why United Natural Foods’ ROIC has remained low for years. Over the past three fiscal years, ROIC reached new lows mainly because of weaker profitability and higher costs. Inflation in labor, fuel, and logistics added pressure, while operational disruptions, including a cybersecurity incident in 2025, temporarily reduced efficiency and shipment volumes. The company also continued to invest in technology, automation, and warehouse upgrades, which raised capital spending in the short term. ROIC improved slightly in fiscal 2025 compared with fiscal 2024, largely due to stronger sales growth, cost control efforts, and better free cash flow. The company reduced its debt and managed its day-to-day operations more efficiently by lowering inventory levels and collecting payments faster, which helped free up cash. Profitability also benefited from higher sales of private-label products and some recovery in service levels after earlier disruptions. These improvements were modest but indicate progress in stabilizing performance after a difficult period. Looking ahead, ROIC could improve gradually if United Natural Foods continues to execute on its current strategy. Management is focused on simplifying operations, expanding higher-margin areas such as private brands and value-added services, and improving the efficiency of its distribution network.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. United Natural Foods’ equity has declined over the past three years mainly because its profits have been too small, and sometimes negative, to strengthen its balance sheet. Even though free cash flow has been positive in most years, accounting losses have reduced retained earnings, which make up a key part of shareholders’ equity. These losses were driven by thin profit margins, rising labor, fuel, and transportation costs, and spending on restructuring and technology improvements. The company was also affected by one-time expenses from the 2025 cyberattack, which further hurt earnings. Together, these factors have kept United Natural Foods from rebuilding its equity despite generating some cash flow. The company has also not managed to surpass its highest equity level from 2018, which came right after it bought SuperValu, a deal that temporarily boosted its assets and overall balance sheet. Since then, profits have weakened as United Natural Foods faced higher operating costs and the challenge of merging and simplifying two large businesses. Equity almost returned to that 2018 level in 2022, when profits briefly improved, but rising inflation, increasing costs, and new operational challenges in the following years caused it to decline again.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. United Natural Foods’ free cash flow has been very up and down over the past decade, sometimes strong and sometimes weak, and even negative in fiscal 2024. This volatility mainly comes from the nature of its business. Food distribution runs on very thin profit margins and requires large ongoing investments in warehouses, trucks, technology, and inventory. When costs rise or the company spends more on upgrades, free cash flow can quickly drop. When spending slows or operations run more smoothly, cash flow improves again. In some years, United Natural Foods generated healthy cash flow thanks to tight cost control and lower investments, while in other years, cash flow weakened because of higher expenses, larger inventories, or one-time events. After the SuperValu acquisition, for example, the company spent heavily on integration and supply chain improvements. During the pandemic, inventory levels increased sharply, and later inflation pushed up transportation, fuel, and labor costs. In fiscal 2024, higher capital spending and weaker margins led to negative free cash flow. Margins are low because the company operates in a competitive, low-margin industry. Distributors like United Natural Foods earn only a small markup on each sale, and most of the money goes toward operating costs such as logistics, labor, and maintenance of its large distribution network. Rising input costs and price pressure from both suppliers and retailers have made it difficult to expand margins in recent years. In fiscal 2025, the company managed to turn things around. Free cash flow improved to $239 million, compared to a $92 million outflow the year before. This was achieved by spending less on capital projects, reducing inventory levels to pre-COVID norms, and running operations more efficiently. Management also made free cash flow a key performance metric for bonuses, which helped keep attention on cash generation throughout the company. Looking ahead, United Natural Foods expects its free cash flow to become steadier and stay strong over the next few years. Management plans to keep spending under control, manage inventory more carefully, and make operations run more smoothly. If these efforts work, the company should be able to keep generating positive cash flow that gradually increases over time. This would give United Natural Foods more room to reinvest in its business, especially in new technology, automation, and supply chain improvements that can make the company more efficient and competitive in the long run. The free cash flow yield indicates that the company’s shares may be trading at an attractive valuation. However, we will take a closer look at valuation later in the analysis.

Debt

Another important area to look at is debt, and a useful way to assess this is by dividing total long-term debt by earnings to see whether it could be paid off within three years. United Natural Foods reported an EPS of –1,96 in fiscal 2025. This was mainly due to two large one-time costs: about 25 million dollars in expenses from the cyberattack and a 53 million dollar termination fee related to ending the Key Food supply contract. These expenses hurt reported results but are not expected to repeat in fiscal 2026. If we exclude those one-time items, the company’s adjusted EPS was roughly 1,30 dollars, which we’ll use in our calculation. When we divide total long-term debt by earnings, it shows that it would take around 23,6 years of earnings to pay off the company’s long-term debt. That is much higher than I would like to see and highlights that debt remains a concern. Even though United Natural Foods has made progress in reducing its debt, the overall level is still high compared to its earnings power. Management has pointed out that strong free cash flow helped bring net debt down to about 1,8 billion dollars, the lowest level since 2018, and they plan to reduce it further to roughly 1,6 billion dollars by fiscal 2026 and below 1,6 billion dollars by fiscal 2027. They also expect leverage to drop from 3,3 times to around 2,5 times EBITDA by 2026, and below 2 times by 2027. These targets are encouraging, but the key challenge is that progress depends on maintaining strong free cash flow and stable profitability in a low-margin business. While the company is clearly moving in the right direction, the current debt level still limits flexibility and adds risk if earnings were to weaken again.

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Risks

Its low margin business is a risk for United Natural Foods because they leave the company with almost no room for error. The food distribution business operates on very small markups, so even minor cost increases or small disruptions can quickly turn profits into losses. This was evident in recent years, when modest increases in fuel, labor, and transportation costs led to a sharp decline in earnings. With such thin margins, maintaining tight cost control and operational efficiency is essential just to stay profitable. The company also faces constant pricing pressure in an extremely competitive industry. United Natural Foods competes not only with other wholesalers but also with large grocery chains that run their own distribution networks, mass merchandisers, and online grocery platforms. Many of these competitors have greater financial resources and can afford to offer lower prices or invest more in logistics and technology, making it harder for United Natural Foods to defend its pricing and market share. Low barriers to entry also make the industry more challenging. New business models, such as online fulfillment, direct-to-consumer food delivery, and niche specialty distributors, have added to competition. This constant inflow of new players pushes margins down even further and forces United Natural Foods to continually invest in service quality, technology, and innovation to stay relevant. In addition, margins are sensitive to inflation and deflation. Because United Natural Foods often prices its products as a small markup over cost, sharp changes in product prices directly affect profitability. During periods of high inflation, it may not be able to pass all cost increases on to customers. When inflation slows, margins can also shrink because expenses like wages and logistics remain high. Lastly, United Natural Foods’ scale and capital intensity add another layer of risk. Running dozens of distribution centers and a large transportation fleet means the company faces high fixed costs that don’t easily adjust when sales fluctuate. If volumes fall or costs rise unexpectedly, these fixed expenses can quickly erode profits.

Customer concentration is a major risk for United Natural Foods because a large portion of its revenue comes from just a few key customers. In fiscal 2025, its largest customer, Whole Foods, owned by Amazon, accounted for about 25% of total sales. This means that the company’s performance is closely tied to the success and decisions of one major partner. If Whole Foods were to reduce its purchases, switch to another distributor, or expand its own self-distribution, it would have a serious impact on United Natural Foods’ revenue and profitability. The distribution agreement with Whole Foods has been extended through 2032, which provides stability in the medium term. However, it also limits flexibility because the contract terms are likely highly competitive, leaving little room for margin improvement. As a result, even though the partnership offers scale and volume, it may constrain profitability. This concentration risk also affects United Natural Foods operationally. The company has built parts of its distribution network around servicing Whole Foods, so a loss or even a reduction in volume from that customer would make those facilities less efficient and raise costs for smaller accounts. It would be difficult to replace that volume quickly, especially in such a competitive and low-margin industry. Dependence on a few large customers also reduces United Natural Foods’ bargaining power. Large retailers have the scale and leverage to negotiate lower prices, better terms, and extended payment schedules, all of which can put pressure on margins and working capital. Smaller independent retailers typically offer higher-margin business, but they represent a declining share of the grocery landscape, making the company even more reliant on large chains for growth. Finally, the grocery industry itself is shifting toward self-distribution and e-commerce fulfillment models. If major customers like Whole Foods or other large chains continue to expand their in-house logistics capabilities or buy directly from suppliers, United Natural Foods could lose both volume and relevance in key product categories.

Supplier dependence is a risk for United Natural Foods because its business model relies on the consistent and timely supply of thousands of products from a wide range of manufacturers. As a wholesaler, the company sits in the middle of the supply chain, it doesn’t produce what it sells, but instead depends on its suppliers’ ability to deliver goods on time, in full, and at predictable prices. Any disruption to that flow can quickly affect sales, profitability, and customer relationships. One major challenge is that United Natural Foods does not have long-term contracts with most of its suppliers. While this gives the company flexibility, it also means suppliers are not obligated to provide specific quantities or fixed prices. If demand spikes or supply tightens, for example, due to weather conditions, crop failures, or production issues, suppliers may prioritize larger customers, raise prices, or limit shipments. This leaves United Natural Foods vulnerable to shortages, delays, and sudden cost increases that it may not be able to pass on to customers. The company’s global sourcing adds another layer of risk. Although most suppliers are based in the United States and Canada, a portion of products come from overseas, where issues such as tariffs, trade restrictions, or geopolitical tensions can disrupt supply or raise costs. Events like the COVID-19 pandemic demonstrated how fragile these supply chains can be: United Natural Foods faced unusually high levels of product shortages and out-of-stocks, which forced it to move goods between warehouses at higher cost just to maintain service levels. Climate change is also emerging as a growing supply risk. Extreme weather events like droughts, floods, and wildfires can disrupt agricultural production, leading to volatility in prices and availability for key food categories. For example, water shortages in major farming regions can limit the supply of produce, while crop diseases or livestock health issues can impact meat and dairy prices. Because United Natural Foods operates on thin margins, these fluctuations can have an outsized effect on earnings.

Reasons to invest

The shift toward healthier eating habits is a reason to invest in United Natural Foods because it aligns directly with one of the strongest and most durable consumer trends in the food industry. More people are focusing on health, wellness, and sustainability when making food choices, and this shift spans income levels and age groups. Consumers are reading labels, avoiding artificial ingredients, and seeking out organic, natural, and specialty products that reflect a more mindful approach to eating. This ongoing change in behavior has created a lasting demand for the types of products that United Natural Foods distributes. United Natural Foods sits at the center of this transformation. The company is the largest distributor of natural, organic, and specialty foods in North America and has deep relationships with both independent retailers and major grocery chains. As traditional supermarkets expand their natural and organic product offerings to meet consumer demand, United Natural Foods becomes an essential partner in helping them source and stock these items efficiently. This means that the company benefits not only from growth among dedicated natural food retailers but also from the broader adoption of healthier products across mainstream grocery stores. Recent results show this trend clearly. United Natural Foods’ Natural segment grew 9% on a comparable basis in fiscal 2025, outpacing the overall food distribution market. Management has emphasized that this growth is driven by both new customers entering the natural food category and existing customers expanding their assortment of health-oriented products. These gains are not just cyclical, they reflect a structural change in consumer preferences that management describes as “enduring” and “long-lasting.” The broader market data reinforces this view. The global organic food and beverage market is projected to grow at an annual rate of nearly 14 percent through 2030. As the largest distributor serving this space, United Natural Foods is positioned to capture its share of that growth without needing to change its core business model.

Increasing value for customers and suppliers is a reason to invest in United Natural Foods because it strengthens the company’s competitive position and deepens its relationships across the entire food distribution ecosystem. United Natural Foods is not just a distributor, it has been transforming into a strategic partner that helps both retailers and suppliers grow, compete, and operate more efficiently. This ability to create mutual value enhances customer loyalty, attracts new partners, and positions the company for steady, long-term growth. For customers, United Natural Foods does much more than simply deliver food to stores. It helps retailers run their businesses more efficiently and stay competitive. The company offers practical services like helping stores manage their shelves, design store layouts, and remodel their spaces to attract more shoppers. It also provides tools such as digital price tags and systems for credit card payments, which make day-to-day operations smoother and more modern. In addition, United Natural Foods runs something called the UNFI Media Network, a digital advertising platform that connects brands directly with shoppers. This helps both retailers and suppliers promote the right products to the right audiences, boosting sales. By offering these kinds of helpful, time-saving, and revenue-driving services, United Natural Foods builds stronger relationships with its customers and makes it less likely they will switch to another distributor. The company is also focusing on improving the experience for independent retailers, a vital part of the grocery landscape. Many smaller retailers lack the scale or technical capabilities of large chains, and United Natural Foods is addressing this gap by making its portfolio of services more accessible to them. By helping independents modernize, compete, and grow, the company strengthens an important customer base that tends to generate higher margins and loyalty. For suppliers, United Natural Foods plays an equally important role. The company helps food producers, especially smaller or newer ones, get their products onto store shelves more easily. Its updated supplier program makes it simpler to work with UNFI by reducing fees and offering useful data about how products are performing in stores. This information helps suppliers make smarter decisions about pricing, marketing, and distribution. United Natural Foods also has a dedicated team that works closely with suppliers to speed up the process of launching new products, particularly in the fast-growing natural and organic categories. In this way, the company acts as a bridge between small, innovative brands that want exposure and retailers that want to offer customers healthier, more unique options.

Improving efficiency and effectiveness is a reason to invest in United Natural Foods because it directly supports the company’s ability to grow profits in a low-margin business. The company is taking clear and measurable steps to reduce costs, improve productivity, and strengthen its operations, all of which can have a lasting positive impact on earnings and cash flow. One of the main areas of focus is optimizing its distribution network. United Natural Foods has been consolidating smaller, older warehouses into larger and more modern facilities. This not only helps the company serve customers faster and more reliably but also reduces transportation costs and improves profitability. For example, new investments in large distribution centers in Pennsylvania and Florida are designed to make product restocking faster and more accurate, which lowers operating costs over time. Automation is another key part of this plan. By 2026, United Natural Foods expects to have six automated distribution centers, which will help the company move goods more efficiently and reduce labor and error-related costs. Although these projects require significant investment, they are expected to pay off through higher capacity, faster order fulfillment, and better overall performance. The company is also implementing “lean management” across its facilities, a system that focuses on reducing waste, improving workflow, and tracking performance daily. This approach has already been rolled out in more than half of its distribution centers and has led to improvements in safety, delivery accuracy, and cost control. Management plans to expand these practices to the rest of the network, aiming for continuous improvement in productivity. United Natural Foods is also becoming more disciplined in how it spends money and manages its resources. It is cutting unnecessary expenses, tightening indirect spending (such as equipment and services that are not directly tied to retail operations), and keeping less money locked up in unsold inventory and day-to-day operations. In other words, the company is becoming better at turning its products and resources into cash more quickly. These improvements have already helped increase the amount of cash the business generates and are expected to keep doing so in the coming years.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 1,30, which is the adjusted EPS from the fiscal year 2025. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 17,5% over the next five years, but 15% is the highest I use. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on United Natural Foods's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $39,00. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy United Natural Foods at a price of $19,50 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 470, and capital expenditures were 231. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 162 in our calculations. The tax provision was -39. We have 60,6 outstanding shares. Hence, the calculation will be as follows: (470 – 162 - 39) / 60,6 x 10 = $44,39 in Ten Cap price. 

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Fabrinet's free cash flow per share at $3,95 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $62,35.

Conclusion

I believe United Natural Foods is an intriguing company led by capable management. It has built a moat through its scale, reach, and integration across both natural and conventional grocery distribution. Because of the nature of its business, it has historically generated a low ROIC, and while this may improve, it will likely remain low. Free cash flow has been volatile, but the company delivered solid results in fiscal year 2025, though margins remain limited due to the industry’s structure. Debt levels are high, but management is clearly focused on reducing them. Its low-margin business is a risk because even small cost increases or operational disruptions can quickly turn profits into losses. In a highly competitive and cost-sensitive industry, tight cost control and efficiency are essential to maintaining profitability. Customer concentration is another concern, as a large portion of sales comes from a few key accounts, particularly Whole Foods, which accounts for about a quarter of revenue. Any reduction in orders or move toward self-distribution could significantly impact results. The company’s dependence on suppliers also adds risk since it relies on thousands of manufacturers to deliver products consistently without long-term contracts, leaving it exposed to shortages, cost increases, or supply disruptions. On the positive side, United Natural Foods benefits from the long-term shift toward healthier eating, as growing demand for natural, organic, and specialty foods aligns perfectly with its strengths. It is also creating more value for both customers and suppliers through digital tools, supply chain services, and marketing solutions that make it a more strategic and trusted partner. Additionally, its focus on improving efficiency, through automation, lean management, and better spending discipline, should help it boost productivity and cash flow over time. Still, despite these positives, I am cautious due to the company’s thin margins and high debt, and for that reason, I would not invest in United Natural Foods.

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