UNFI's SSA Policy... Part Deux

It's now been a little over a month since I did my initial article entitled "Analysis of UNFI's SSA Policy" where I delved into my thoughts on UNFI's newest policy. Since then, much has happened, first off Expo West, where I had the opportunity to talk to hundreds of brands, brokers, industry experts, retailers, and more. Second, UNFI sent an update about the policy. Third many brands have been reaching out to me on a regular cadence letting me know about their conversations with UNFI, looking for advice, and sharing their success and failures of how those conversations have gone thus far. All in all, with the number of requests I've gotten I thought it was worth doing a follow up article.

First off almost every conversation I had at Expo West seemed to revolve around this SSA policy without my prompting it. Everyone seemed to want to talk about how much it was going to cost them as a brand, whether they thought it was legal, and where the extra spend was going to come from. Then others simply praised the move and were looking forward to seeing the data, some brands even stating they weren't allowed to purchase data in the past because they were too small but now they can.

Most brokers I spoke to didn't want to get in the middle of the debate, many came up to me thanking me for posting my article but stating they couldn't publicly comment on it or even "like' it because of the optics with UNFI. Their opinions seemed to mostly align with the thought process that UNFI could have made it cheaper or not forced brands to participate, a couple questioned whether the extra 2.5% was going to squeeze their ability to get paid. A concern I think is justified considering how little profit these brands are being tasked with operating off from.

I also had the opportunity to speak with a couple of retailers. They had opinions as well, they were obviously concerned how the increase was going to affect their pricing. They voiced distaste with the fact that UNFI didn't give them a heads up. Now I don't know what's normal when it comes to communicating brand facing policy changes with a retailers when you're the middle man, but I was able to read between the lines. These customers weren't impressed, and I can't imagine that conversations aren't being had behind closed doors especially when it comes time to renew their distributor contracts.

The over arching theme of all my conversations at Expo when it came to why this policy came about, (and I don't want to presume to understand all UNFI's motivations), but almost everyone I spoke to understood it was not because UNFI was trying to offer up a more transparent data solution to their brand partners, but its main purpose was to increase revenue and to do it quickly. Several brands mentioned UNFI's struggling stock price currently sitting and a 52 week low.

This brings us to UNFI's newest update on their policy -Without diving too deep into the weeds it was essentially letting brands know UNFI would be aligning the Fees for the Conventional and Natural business. Most notable of of which are the DCE fees from conventional being added to the natural business. But lucky for the brands because those DCE fees would be waived as part of the 2.5% SSA Fee. Honestly the update seemed a bit confusing to me personally to have an extra call out to let everyone know the Natural business would now be getting these conventional fees yet they are waived as part of the policy brands are required to participate in. My assumption is maybe it was to try and make brands feel better about the extra value their 2.5% would be paying for since brands didn't previously know this fee alignment between Natural and Conventional would be happening... Confusing I know.

Lastly and probably most importantly what are brands doing now, how are they reacting to this news. As you can imagine the brands that have been reaching out to me, are doing so because they're upset and they don't want to pay the extra this will cost them. The smaller brands that are excited about the added data transparency and the waived activation fees aren't scrambling to hear my opinion or excited to tell me what actions they've taken so this insight is going to be skewed towards those trying to figure out how to avoid taking the 2.5% hit on their business.

One of the most common things I was told by brands is they are increasing their pricing to UNFI at a minimum the 2.5%. I even heard from multiple brands that already submitted increases, however those increases were promptly rejected by UNFI and meetings were requested to discuss the situation. The reality is if brands are quoting UNFI as the reason for their price increase, that is about the worst possible scenario for UNFI to have retailers see. I can't speak for UNFI, however I'm sure the longer it takes for price increases to be submitted the better the optics look to the retailers, who will attribute any immediate increases directly to this policy. That said submitting one may be a potential avenue for larger brands to at least get a meeting and UNFI management to the table for possible negotiations. Now when it comes to negotiations I've heard first hand of many failures but also heard second hand of a couple successes on changing the percentage. It seems that many brands are currently having these discussions and the jury is still out on how willing UNFI will be to negotiate.

That said almost every brand that's reached out has said they'll have to cut back either on promotions, ad contracts, and other marketing programs. The bucket of promotional/marketing dollars they have is finite and just because UNFI wants to take an extra 2.5% doesn't mean their bucket of funds to spend has gotten any bigger. I think its obvious when planning for 2025 comes around there's going to be quite the battle for what little spending these brands have left and I hope that UNFI is realistic in its asks given the increased revenue they'll be seeing from this policy.

Now one of the other things I've been hearing quite a lot about as a response to the policy are brands and their new found desire to sell direct. It seems to have become an initiative for many of them since this policy has come out. From that end, with the number of price increases retailers are going to see, they're likely to start initiating more of those sort of conversations. When it becomes more expensive to the retailer to work with a specific distributor it is only natural those retailers will start exploring whether a direct relationship makes more sense financially. One tidbit I also think is worth mentioning is typically the sales data packages UNFI sells have a specific contract with verbiage around the brand not being allowed to try to go direct, especially by using the data you're purchasing to your advantage to try and push that along. However, this SSA data is being delivered to brands now as part of their policy, and I don't think they'll have that same level of security, leaving themselves slightly exposed on brands pursuing direct business. At the end of the day UNFI needs to make sure this move doesn't have long term consequences to their business, I'm assuming they've already taken this into consideration

This all said I think every brand is going to enjoy having the added data transparency, it undoubtedly will help them manage their businesses better, reduce out of stocks, reduce spoils, help gauge price elasticity on promotions, etc, etc, etc. No doubt there is real value in this data, heck we are obsessed with data at Floret the question though is at what cost does that data come? When selling data we like to make sure it's priced in a way that its a "no brainer" for the brands interested. Now if you're going to require brands to participate in a policy that costs them real money then it needs to be priced reasonable to avoid outrage. That said this is priced reasonably for 75-85% of the brands this will affect, that's right there are many more small brands than big brands. The problem is those bigger brands account for much more of the volume UNFI does and partnering/maintaining a good relationship is typically important to everyone involved. While I know its unlikely, and UNFI will probably just negotiate on a case by case basis, I do think they might want to reconsider some sort of tiered system based on revenue so their larger brands aren't being hit so hard.

UNFI if you're listening, there is still time...

Thanks for reading - Please feel free to comment below or contact me directly with your thoughts.