SpartanNash Company
Q4 2020 Earnings Call Transcript

Published: 27 Feb 2021

[Operator:]

Good day and welcome to the SpartanNash Fourth Quarter 2020 Earnings Conference Call. All participants' lines will be in the listen-only mode. After today's presentation, there will be an opportunity for you to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Chris. Please go ahead.

[Chris Mandeville:]

Good morning and welcome to the SpartanNash Company fourth quarter and fiscal year 2020 earnings conference call. On the call today from the company are Tony Sarsam, President and Chief Executive Officer, and Mark Shamber, Executive Vice President and Chief Financial Officer.

[Tony Sarsam:]

Thank you, Chris and good morning. Before covering a few highlights on the quarter and offering some comments on our strategies for 2021, let me begin by giving a salute to our dedicated and hard-working team of associates in our distribution centers and retail stores. Nothing about navigating the COVID-19 pandemic has been easy, but I am tremendously proud of our team's performance and our ability to serve our local communities. Our essential workers are truly heroes, and I remain committed to supporting them with a safe working environment. I had such a pleasure getting to know many of these frontline associates over the course of the last several months and I'm excited to see how they will continue to contribute to our company's objectives and growth in the coming year. Turning to a couple of highlights in our financial performance. We are pleased with our top line results of 12.5% growth in the quarter, which of course, includes the impact of the 53rd week. Although the pandemic has contributed to our overall increase in sales volumes, our team continues to deliver new business wins, which will contribute to our company's growth for years to come. With record demands across most of our businesses, merely keeping the shelves stocked was no small achievement, and I am proud of our team's tenacity and their ability to keep our communities fed.

[Mark Shamber:]

Thanks, Tony, and welcome to everyone joining us on today's call. Net sales for the fourth quarter of fiscal 2020 increased by 12.5% or $249 million to $2.25 billion versus 2019's fourth quarter sales of $2 billion, which includes the impact of the 53rd week. Adjusting for the 53rd week sales of $158.9 million, our fourth quarter sales growth accelerated to 4.5% compared to third quarter sales growth of 3.1%. Our adjusted EPS for the fourth quarter came in at $0.43 per diluted share, an increase of 87% compared to adjusted EPS of $0.23 per diluted share in 2019's fourth quarter. GAAP EPS came in at $0.34 per diluted share in the quarter compared to $0.15 per share in the fourth quarter of fiscal 2019. The increase in our profitability from the prior year quarter was driven by the higher sales volume, particularly from the higher-margin retail segment, gross margin rate expansion across all our business segments and increased leverage of our operating expenses, particularly in retail store labor and various fixed costs.

[Tony Sarsam:]

Thank you, Mark. In closing, we are pleased with our fiscal 2020 performance and our team's contribution while continuing to deliver results during the COVID-19 pandemic. However, as we emerge from the impact of the pandemic in 2021, we recognize that there are many opportunities we will need to capitalize on in order to live up to our potential. As I look to an uncertain 2021 environment and think about the focus areas I outlined earlier, I realize that the benefits will not come overnight. However, I'm confident that we will make the right investments and better position our platform for more prosperous growth in the years to come. With that, I'd like to turn the call back over to the operator and open it up for your questions.

[Operator:]

Thank you very much. The first question comes from the line of Karen Scott from Barclays. Please go ahead.

[Caitlin Howard:]

This is Cait on for Karen. Good morning. First, I was just hoping to talk about the competitive landscape and what you saw during 4Q? And if anything has changed post-holiday and thoughts on as we're moving into 2021?

[Tony Sarsam:]

And Cait, just to make sure we're answering the question, you're -- I presume you're referencing at retail and not on the wholesale front?

[Caitlin Howard:]

At retail, but if you could give color to both, that would be great.

[Tony Sarsam:]

Sure. So I mean, I think on the retail front, we've seen that as 2020 has progressed, that folks have started to work their way back toward, say, pre-COVID promotional levels. I don't think that everyone is all the way back, but the holiday period is usually relatively heavily promoted in general by retailers. And so I would say that it was maybe a little bit lighter than what might have been historical, but it was much closer than it might have been, say, in the second or third quarter. And I don't know that we've seen anything year-to-date in the first six to seven weeks of the year that would say anyone's deviating significantly. May be certain categories or may be certain items in a given week, but nothing broad-based. And then on the wholesale front, I think that we're starting to see -- we're starting to see customers who maybe were contemplating making a change before. Having those conversations again and we're optimistic that there is some market share out there to be gained on our end.

[Caitlin Howard:]

Great, thank you. And then I kind of missed the comments on the drivers of inflation turning negative at retail. Could you maybe repeat those? And also maybe talk about what you're thinking in terms of cost inflation versus retail inflation for 2021?

[Tony Sarsam:]

Yes. So as it relates to retail, what we're saying is that in the third quarter, we had about 135 basis points of inflation. In the fourth quarter, we went to 14 basis points deflationary. But specifically, as related to certain categories, grocery, produce, dairy and frozen, all went from being at varying levels of inflationary to deflationary in the quarter. And then some of the categories that were already deflationary, an example like seafood, got more deflationary in some of the categories that had higher inflation, such as meat, their inflation cut in half from the third quarter to the fourth quarter. And so as we look at things right now, when we look at both food distribution on the wholesale side and retail, we've seen the inflation in the case of Food Distribution decline further in the first period of fiscal '21. And we've seen the deflation that we experience in retail worsen, not much, maybe another 10, 15 basis points, but it did worsen slightly from Q4 to Q1. And so our numbers are probably closer to 1% as we're looking at FY '21. I know there's been reports that the CPG's back half of the year are looking at some more significant price increases coming out of CAGNY and some of the other conferences. But that's what we're expecting today. And to the extent that it needs to be updated, we'll do that as the year goes along.

[Caitlin Howard:]

Great, that's really helpful. Thank you. And then just last one for me. Can you talk about how you're positioned from a wage standpoint? And if you foresee the need to invest, given the backdrop and certain retail announcements of recent?

[Mark Shamber:]

Yes, a great question. And there's also, of course, the minimum wage legislation they're paying very close attention to. We have -- in this budget, we have not contemplated minimum wage change. As you can imagine from what you've seen, that we have a number of associates that -- whose earnings are between $12 and $16 an hour. And even the early phases of a minimum wage change would have compression effects that we would have to take into consideration. We have sort of a standard wage inflation plan in our current budget. We are obviously very watchful of the -- both the legislation and other actions in the marketplace that we can stay competitive. But I think that's -- that is certainly part of the uncertainty I mentioned a few minutes ago. So we will stay vigilant on that front.

[Caitlin Howard:]

Thank you very much.

[Operator:]

Thank you. The next question comes from Greg Badishkanian from Wolfe Research. Please go ahead.

[Spencer Hanus:]

This is Spencer Hanus on for Greg. My first question was on retail. I was just hoping you guys could provide a little more color on what led to the sequential change in retail EBITDA margins during the 4Q? And how should we think about the cadence of margins in retail during 2021?

[Mark Shamber:]

Yes. So, I mean, there's a couple of items there. And I think as we look at the change from the third quarter to fourth quarter, yes, I mean, there certainly was a step back, whether you look at it from an EBIT or an EBITDA perspective. Some of that is associated with the allocation of corporate expenses and adjusting for incentive compensation as we get to the end of the year, but then there also were some -- we're not calling them out as onetime, but there are some expenses that were incurred in the retail business in the fourth quarter as we aligned some of the benefits to the Martin's portion of retail that we'd acquired two years ago to the rest of our business. And so there were some onetime expenses in the forms of accruals to record for vacation and sick pay and align those policies. And then the last item was that during the course of the year, we've been accruing for -- we've a lot of folks by virtue of what was going on with COVID, to carry over some of their vacation from one year to the next because it was difficult for people to take vacations or go anywhere, I guess, and taking vacations. And so we had some incremental expense there. So I would say, look, it's -- you're not going to see the levels that you saw over the course of fiscal '20, as we're not going to get some of the benefits the levels of shrink benefits that we got in fiscal '20 will start to moderate in '21. Health insurance costs will be higher in '20 and our expectation will be higher in '21 than they were in '20 as folks go back and have more of the elective procedures. But I would say that for the fourth quarter, specifically, it was some of the items that I just mentioned that really drove the sequential decline in EBIT and EBITDA in retail. As for the cadence, I mean, since it's a tough question simply because we're forecasting in our end that the sales lift that we're getting from COVID will moderate during the course of the year, although we'll still retain a portion of that as of the end of the year and how accurate we are about that cadence will dictate how much the retail margins will be above what they might have been say, in '19. So I don't know that I can answer that and give you something to model easily. Other than we've tried to set a cadence on the top line that we think will correspond to the operating margins.

[Spencer Hanus:]

Got it. That's helpful. And then you guys outlined some productivity initiatives that you guys are going to be rolling out this year. How should we think about the amount of reinvestment back in the business to implement some of those? And what is some of the -- what are some of the limiting factors for determining when that will start to show up in the P&L in terms of improved margin and better flow through in the business of some of these initiatives?

[Tony Sarsam:]

Great. So the investment, we're still putting that together, but it's a multifaceted approach to improving our overall operations. There are a lot of investments that will come in the form of increasing or improving the talent in the organization and breaking spans and adding some technical expertise. And we are very confident there's a terrific payback on that. We will see relatively little of it in 2021, though these are mostly '22 and '23 paybacks. So, yes, we're still in the midst of putting that together, but we've got a handful of those components in place. It will be operating expense versus capital largely. It will be largely around people that will include the processes of our distribution centers and our transportation operations.

[Spencer Hanus:]

Great, thank you.

[Chris Mandeville:]

Operator, we're ready for the next question

[Operator:]

The next question is from the line of Damon Polistina from Deutsche Bank. Please go ahead.

[Damon Polistina:]

Good morning. I was wondering if you could the quarter-to-date trends you're seeing in retail and in food distribution. And within that, just speak to as vaccines roll out in the various regions you operate, if you're seeing a difference in performance in the regions?

[Mark Shamber:]

Yes. Damon, we typically don't comment on intra-quarter trends as to what we've seen to date. However, I guess, I would say, in providing our FY '21 guidance, the -- what we've experienced to date is in line with what we're guiding. So if we're referencing down 7% to 9% in the first quarter from retail, once we cycle COVID starting in our week 10, I mean, I think that, that would imply that we're still on track. I mean there is the big unknown that comes when we start to cycle things. But as we sit here today, that's our current expectations. So I think that's probably the best that I can provide in that regard is that the guidance that we gave, we're tracking toward that through the first 7 weeks of the year.

[Damon Polistina:]

Thanks. And then can you just help understand kind of the gross margin dynamics in 2021, the puts and takes there we should be thinking about?

[Mark Shamber:]

Yes. I mean I think, look, so as we focus specifically on gross margin, and we go to the retail business and the distribution, on the distribution side, really, a lot of the benefit we saw at margin is improvements in shrink in some regards, where during that surge in the March-April-May time frame, where we're north of 20% during those weeks, your shrink really declined significantly because you were selling everything you had in certain categories in the warehouse. There was product that wasn't coding out. And perishable product, you were going through that similarly at a rapid rate. So shrink levels were much lower, which then, in turn, helps the gross margin. And that's a similar case at retail, right? We take perishable and fresh inventories every month. You're getting a lot less shrink during those inventories, simply because there's greater consumption. And so that carried on for all of fiscal '20, but as the levels went from being we did -- it was only for a few weeks, right? But we did that 15% in the first quarter, then we saw an acceleration in Q2 up to 17%, and then we went to the 10%. I mean you're seeing that an improved shrink of retail. I think the other portion of it, which I think we were maybe a bit less than some of our competitors is that we kept running an ad and maybe we weren't as promotional as we might have been, but we still -- I think we're more promotional than many of our peers. And so I think you got some benefit there because you weren't discounting to the same extent simply because you didn't have some of the products. So I think you'll see some of that come back in '21 because when your comps at 17% versus your comps at -- on a two-year stack basis is maybe mid-single digits, you're going to have modestly more shrink.

[Damon Polistina:]

Understood, thank you.

[Operator:]

Thank you. The next question comes from Chuck Cerankosky from Northcoast Research. Please go ahead.

[Chuck Cerankosky:]

Tony, could you talk a little bit about the broader retail strategy at SpartanNash? You focused a lot of the things you want to do on the Food Distribution segment, but Retail has a number of banners, different geographies, indeed different ways to go to market. And I was wondering if some of that might be simplified going forward?

[Tony Sarsam:]

Sure. On retail, so I'll take it a couple of ways at your question. On one, the operating strategy overall also strengthens our retail. I think that's important to note that we are our biggest customer. So as we get better at fill rates and better at providing great service and great cost overall, it actually strengthens our overall retail offering. We have, within the strategy of the stores, we are looking at a continuing our performance and focus on our own brands and believe that there is a great upside there. We saw significant growth in 2020. We believe we can continue that pace, and we are looking to make offers of new products and new categories and frankly, looking at getting a more simplified representation of our brands to our consumers, and we see great growth there. We have -- we also the -- again, a number of ways to strengthen our overall e-commerce from our stores. We think that's going to also be a great growth for us in the future. There was terrific growth in that for us in 2020 as well. And then as far as the banners goes, and there's no definitive plan right now to change any banners to consolidate those, we are always looking for ways to strengthen our business, and as I mentioned earlier, we will be opportunistic, both in terms of the way we look at potential acquisitions. And as you know, there are periodic store closures. There may be some of those as we move along here, but there's still -- there isn't a holistic view of consolidating banners at this point.

[Chuck Cerankosky:]

Thank you.

[Operator:]

Thank you. The next question is from the line of Kelly Bania from BMO Capital Markets. Please go ahead.

[Kelly Bania:]

Hi, Good morning. I wanted to ask just about -- a little bit about the distribution channel and if you are expecting most of your independent customers to experience more of a similar decline on a year-over-year basis as your own Retail business? And I guess, the difference there, would that be made up from growth of larger customers? Or is there any assumption of new business wins there?

[Tony Sarsam:]

Yes. I mean, I would say -- I'd say there's a bit of all of the above. So I mean, I think that we do expect that our independents will probably move in the same direction that we have. There may be some nuances as we look at folks that, hey, maybe they've done a little bit better, maybe there are some that have done a little bit worse and sort of taking that trend and playing it out during the course of the year. I would say that to the last part of the question about new business, yes, there are certainly some new business wins there. And I mean, we always have a portion of our growth that we think will come from new business. But at this point in the year, as we've got some more firm customers coming on, on the horizon, I think that it's maybe a little bit bigger than it might be in some years and/or we're lapping some business that we took on in the back half of 2020 that will be helpful. But one other things that I'd call out, Kelly, is that we've started to see in the fourth quarter and continuing into the first few weeks of FY '21, that we're starting to see some nice gains within the fill rate in some of the categories, some of the products that have been out for extended periods of time. We're starting to get more fill in those areas, either allocations are being reduced or products that you couldn't get are now being on allocation. And so as a result, I mean, there is some fill to occur on the customer shelves, where they might have been covering or filling in or maybe not stocking as deep, where we think there'll be some lift and some continued gains on that front as well. And then I think to your last -- to the other part of your question, yeah, I mean, in some of the larger customers, we expect that there will be some outsized growth there. And so when you put all of that together, I mean, that's what's giving us the confidence around the guide that we've made. And I would say on fill rate while it's been nice progress, and we're still not back to where we were, say, pre-pandemic, but we think that we've got a trajectory that will get us there later in the fiscal year.

[Kelly Bania:]

Okay. That's helpful. A couple more questions. Just curious on COVID kind of related costs and where that ended for the year and what you are planning for in 2021.

[Mark Shamber:]

Yes. We stopped kind of guiding after the second quarter trying to call it out because now it's just the cost of doing business and operating. So I mean, I would say, based on what we talked about in the first quarter and said in the second quarter, we're probably somewhere between $15 million and $20 million during the course of FY '20, just because we were saying $6 million to $8 million for the first -- each of the first two quarters. So I think that's probably in the range of where we finished the year because we took some of the items in-house that we're paying for a lot of third-party services. And then some of the PPE that you were buying during the spring phase when the prices were astronomical, those prices have come back in, and a lot of folks are opting for sort of permanent versus disposable personal protective equipment. So I think with all that said, that's probably in the range of where we finished for the year. But we've stopped tracking and calling it out at our end because it's just the cost of doing business now.

[Kelly Bania:]

Okay. That's helpful. And then in terms of the new DC that you referenced, can you just talk about the capacity that, that will provide you and if there's any start-up costs we should be thinking about, I guess, in Q1?

[Mark Shamber:]

Yeah. I mean, the start-up costs, we've incorporated into the guidance. So I'm not sure that I'm calling anything out or we're calling anything else specific in that respect. So it's in the numbers. The capacity, I think I want to be a little careful there just by virtue of how that's coming on board because we've started shipping already in Ambient , but there's another tenant that's leaving later in the calendar year. That will give us the full control of the building, and our capacity will go up significantly at that point. But suffice to say, it's a few hundred million dollars.

[Kelly Bania:]

Okay and then one more, if I can. Just curious, the guidance, so you gave the full year kind of sales declines by channel, but then you also gave the outlook for Retail comps in Q1, but not the other segments. And I was just curious what the thought process was there, if there's anything relative to consensus that made you kind of call that out for Retail in Q1 or just anything you're seeing? Just thought process there?

[Mark Shamber:]

Yes. I mean, I think we generally tried with Retail to give folks a little bit of an idea on the cadence for the quarters as to what we're -- as to what we expect to see, what we're seeing. And obviously, this year, with it being particularly challenging, we thought it would be helpful to have a starting point. And then I think one of the folks asked before about the cadence of things. I mean, I think I'm comfortable with where Q1 is, but quite honestly, in two weeks, we're going to find out how well we, as a company, forecasted from that standpoint. But we wanted to try to at least set some of the direction there. And I don't know that it's as easy to do on the other segments. With the Retail side with how we've tracked it it's a little more straightforward, even if it's difficult with the Distribution businesses, particularly with the Military, where they've got different levels of lockdown. I mean going from threat level Charlie to threat level Bravo, can make a pretty big impact on the sales for the remainder of the quarter. And so Retail, we felt we could get a relatively good range. The other parts of the business maybe a bit more difficult. And it's kind of like an EPS, right? I mean, you can look at the full year guidance and take it on a 52-week or 53-week basis and say, "Hey, the ranges have us down somewhere 29% to 35%." Trying to put a cadence there, is the first quarter going to -- is the first quarter less or more than that? it's a bit challenging in that regard.

[Kelly Bania:]

Gotcha, thank you.

[Mark Shamber:]

You're welcome.

[Operator:]

Thank you. The next question is from Scott Mushkin from R5 Capital. Please go ahead.

[Scott Mushkin:]

Yeah. Hey, guys. Thanks for taking my questions. So I actually wanted to go back to something that was talked about earlier, and it's more short-term in nature and then I want to get into some strategy stuff. So just want to make sure I understood the inflation comments. I think you -- Mark, you said about a 1% increase for '21? Or maybe I was off there, maybe it's a decrease. I didn't catch that. But I think also, I wanted to understand the government and some of the CPG companies are reporting decent inflation, if I'm correct, and you guys are talking about deflation. So I wanted to understand what you think the difference is between that, especially even the Nielsen data would imply or the IRI data would imply some inflations going on.

[Mark Shamber:]

Yes. I mean -- well, I think, look, there's probably a couple of things on that. So yes, I mean, for us, we did sort of reference sort of a 1% number. And I think that's our average for the year, right? And so I mean, to the point, it can be a variety of different things that come into it. I think at our end, when we're seeing the deflation, right, there are some categories that move significantly from quarter-to-quarter, right? So you can see, as an example, produce can shift by virtue of a growing season from being inflationary to deflationary. You can see, if we go back to last year's -- I think last year's second quarter, when all the meat packaging plants were shut down, we saw huge inflation on the protein side, where I think we blended north of 6% for the second quarter of 2020. And so for us, there's a bit of some of the commodities that can move around from quarter-to-quarter and relative to what they are as a percentage of our sales, that can move us versus what you might see in center store and some of the other packaging-type products. So I mean, I think there's that component, plus with our Retail, there's always a chance that as we're making different marketing strategies that can impact to some degree. But again, that's going to be on the grocery and some of the other price points that we're setting. It's not going to impact some of the perishable categories. But I mean, look, I can only give you the data, and I can say that when we look at where produce was both on a wholesale and on a retail perspective, I saw from the third quarter to the fourth quarter of more than 200 basis point move in both. It was -- it's about 220 basis points in Food Distribution. In Retail, it was almost 400 basis points.

[Scott Mushkin:]

Okay. That's perfect. And when you're referencing these numbers, you're referencing year-over-year or quarter-to-quarter?

[Mark Shamber:]

Quarter-to-quarter, so it is year-over-year, but from quarter-to-quarter, right? So produce in the third quarter of 2020 was a tick under 2%. It was 1.98% inflationary. But in the fourth quarter, it was minus 2%.

[Scott Mushkin:]

Deflation year-over-year?

[Mark Shamber:]

Year-over-year.

[Scott Mushkin:]

Okay. Perfect. Okay. I just wanted to make sure I understood that. So then my next questions are really much more strategic in nature. And just want to understand your guys' visibility vis-a-vis Amazon and what they're doing. I mean, do you guys have a line of sight to where they may be in 2022, 2023, as far as store count or do you not get that from them?

[Tony Sarsam:]

Yeah. I appreciate the desire to have a greater understanding of one of our customers and certainly one of the bigger retailers out there, but it's not something we're really -- to the extent that I would even know, I wouldn't be sharing. But I think, look, with all of our customers, we work closely with them to understand what they're doing and what their plans are, and we're always grateful for any additional information that they're willing to share that will help us plan in the near-term and the longer term. So I'm not going to provide any specific customer details, but I would say that if customers are willing to share information to help us as to where they've got plans to open new stores or other operating centers, we'll always try to take that into consideration to help us better serve them.

[Scott Mushkin:]

So as a follow-up to that question, if Amazon were to open an additional 100 stores this year, would you guys have the capacity to deal with that type of thing or is that something that you really -- if that were to happen, you wouldn't have the capacity or would cause issues?

[Mark Shamber:]

Again, I mean, I think I've shared before, when we talk about our distribution centers, and supporting customers, whether it's new stores opening or new business that we win, it's really a function of where that's based, right? I mean we have a Distribution in West Virginia that's only 40,000 square feet. Adding $100 million of volume to that DC would be difficult. Whereas here in Grand Rapids, where we've got over 1 million square feet worth over -- almost 1 million square feet worth of distribution, we could absorb $100 million a lot easier. So new business is always a function of where it's located and the type of business. I mean, doing it for a relatively low number of SKUs versus the full assortment of SKUs also impacts how much volume can churn on it. So I would say -- I mean, it's a non-answer answer, but it's really a function of where does the volume come and how much SKU expansion is there, and that dictates how easily we can assume it.

[Scott Mushkin:]

Is Chicago served out of Grand Rapids or no, Mark?

[Mark Shamber:]

To the extent we have business in that area, yes.

[Scott Mushkin:]

Okay, all right. So then my final question here is around the Military business. I mean, obviously, been a little bit of thorn on your guys' side. We've seen the margins come down and some challenges in the revenues as well. So what are we doing with that business? Like how -- I mean, we talked about, I know, about a year or two ago about private label being kind of a potential bullet in getting profitability up. But strategically, what are we going to do with that business as it kind of drags the organization?

[Tony Sarsam:]

Well, the -- and you're correct, it has been, I guess, a thorn prior to beginning here and even my recent time here, just to try to really understand that and understand how we can make that business stronger. First and foremost, we're very committed to actually making it stronger. We're committed to figuring out how to get that business in a situation where it's profitable and therefore us, and we do a great job of serving our military folks here and abroad. There are -- there's a couple of things that we did to focus on. One is, like other parts of our business, but probably more acutely, though, in military, we have operational gaps. We have our performance in terms of the way that our efficiencies do also have to provide some hampering to that to the overall profitability. So we're going to be laser-focused on that. That's something we can control, and can work on and fix, and we will get after that. There's -- if you compare to the very recent experience, and I'd say there's probably good news and bad news in 2020, while 2020 also is not a particularly strong year for our Military business, it finished off a little better than it was performing in 2019. And that was amid a -- not only a large number of base closures, but also they're highly unpredictable when those closures occurred, how long they last. And the fact that our team dealt with that and was stable, although low profit, gives us some confidence to improve the operation that will take effect. And finally, we're also -- we're working with our suppliers and with DeCA to find ways to improve the way we go-to-market and the types of things we offer in the market. That could also help the business. Everything, from thinking about the number of items, dray rates, the route-to-market, all those things are being discussed now, again, as we intend to make sure that business can be strong and part of our -- and a long-term part of our future.

[Scott Mushkin:]

So Tony, is there a path back to 1% margins? Or is that impossible? And what got us down to 0%-ish?

[Tony Sarsam:]

Well, I think the -- there's people here better for it. I think the short answer is there's a flurry of new competitors in the marketplace that went to pretty aggressive pricing over the course of, call it, the last seven or eight years. And that those -- that price competitive offers from some folks who've since exited has changed the overall profit profile of that business, at least for the short term. And your question is there a path to 1%, I believe there's a path back to 1%.

[Scott Mushkin:]

Thanks, guys.

[Tony Sarsam:]

Thanks, Scott.

[Operator:]

Thank you. The next question is from Matt Fishbein from Jefferies. Please go ahead.

[Matt Fishbein:]

Hey, good morning. Thanks for the question. Just two quick ones from me. First, on the Martin's accruals within the sequential retail margin step down, I was hoping you can help us parse out how many basis points that represented. And second, if maybe you can elaborate a little bit more on the operational investments planned for '21. The priorities that you've outlined all makes sense. But wondering if you have any incremental color you can give on specific initiatives, maybe particularly around the increasing operational efficiency, what additional employee safety projects need to be worked on next year? Just trying to get a sense of is it software? Is it more trucks? Is it optimizing warehouse space? Any help you can give there would be great. Thank you.

[Mark Shamber:]

Okay. I'll answer the first one, and I'll let Tony share as much as he would like or not like on the question on the investments. As it relates to some of the benefit alignment, I would tell you that the impact for Retail, specifically in that area was probably in the range of 45 to 50 basis points. I'm not going to have it exact, but it was in that range, just associated with some of that benefit alignment.

[Matt Fishbein:]

Okay. And then just the operational investments, any additional color there, Tony?

[Tony Sarsam:]

Yes. I can't remember I mentioned this earlier, but in the opening, I think I mentioned the fact that it'll be across our operating units in warehouse transportation, there's -- we're looking at hire -- not only hiring some additional expertise, we're looking at hiring more people to -- we believe we have a span of control opportunity with the size of our hourly workforce and the size of our first-line supervisor workforce. So we'll be adding people to that mix. And that could be in the neighborhood of 35 to 45 frontline supervisors, for example. And we're looking to actually look for a profile that has new tools and new capability to actually run those warehouses in a way that considers some of the new tools that are available for better efficiency. We are doing a transportation management system process. There's a lot of investment in that this year. There's not payback this year, that will come later. That will also be a pretty big part of the investment piece. And we're working with a third-party consultant that's actually also helping with our training of our team and helping us uncover some opportunities that will also put -- again, put people resources against. Additionally, for some of the long-term items, we're making investments in safety, in employee safety, with both personnel and process. That, as you know, is a little bit longer lag in terms of really getting to those savings. We think there's big opportunity there. And we want -- we -- it is our intention to be the safest organization in our industry, and we're working hard toward that. We think there's money that comes kind of more one to two years out in that realm.

[Matt Fishbein:]

Awesome, super helpful. Thank you.

[Operator:]

Thank you. The next question is from Chuck Cerankosky from Northcoast Research. Please go ahead.

[Chuck Cerankosky:]

Thanks. Tony, when we look at the Food Distribution segment this year, assume that we have some alleviation of the COVID cost pressures that had put some margin pressure on the business. Will that be about equal to the additional costs you're bringing on to improve this segment? Or is there some hope for a little bit of margin expansion in 2021?

[Tony Sarsam:]

Yes. I haven't actually done the side by side. As Mark mentioned earlier, we've got both of those are contemplated in the guidance. So we haven't both incorporated there. There are some elements of some one-time costs we had associated with COVID that was early on that we already disclosed. And we have some -- the ongoing costs that we took in later, I believe, are going to be ongoing costs for the balance of the year. So I don't see us stepping back on some of those practices. So there will be some upsides. I actually don't know precisely one-for-one in that, but there's certainly some costs that will come out, and there's cost going, as I mentioned. I'm reasonably confident to say that there's more cost going in, in these investments than the costs coming out for COVID.

[Mark Shamber:]

Yes. I would agree with that statement.

[Chuck Cerankosky:]

So that would mean there'd be some pressure on margins this year in the segment?

[Mark Shamber:]

Well, I mean, I think there's some opportunities, Tony, as well. I mean there are some things, as we talked about some of the investments that we had to -- we weren't able to fully realize in 2020, there may be some benefits there. So I don't want to say that that's the case, Chuck, but I mean, because we don't give guidance by BU, but there's a mix of investments, as well as some returns both for what we're doing this year versus what we were cycling last year. And without knowing -- without having any good sense of how COVID sales will be retained or eased during the course of the year, it's hard to say how that's going to play out. I mean, we've given ranges that we think can fall within the high ends or low ends of what we would expect based on current trends, but I mean, as we get through this and you see how quickly people get vaccinated, how quickly life returns to normal, people go back to their offices, working from home, a lot of that comes into play in the numbers. So I don't think it's as easy. It's never easy in any given year in guiding for any particular business segment. This year, you just add on a whole additional layer of complexity that we don't have a guidebook for.

[Chuck Cerankosky:]

Understood, thank you.

[Operator:]

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Tony for any closing remarks.

[Tony Sarsam:]

Yes. I just want to thank everybody for a great discussion here today. Thank you all for participating in today's call. We look forward to speaking with you all again when we report our first quarter earnings for 2021. Have a great day.

[Operator:]

Thank you, very much. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.