Sandy Douglas: Yes. I think our customers need the most competitive costs that we can provide them. And there’s several levers to try to accomplish that. One is to work better with our suppliers. Suppliers have a vested interest in a healthy independent channel and regional chains as well, and they see that opportunity. So they don’t want to only win in one part of the market. So to the extent that we work effectively with them, they will invest in our customer base, and that’s a major focus for us. Secondly, we talked before about our Pro services offer. Any chance we can get to save customers money through our Pro services helps them. And it helps us, too, because when we add value, we make money as well. And then the final answer, Scott, is our brands program.
A lot of attention is being focused inside UNFI, both from a talent and a strategy and execution standpoint on our brands plus. As you know from our release, we’re divesting some of the fringe brands and focusing on the top ones. And the more value that we can bring there, it will be very important, regardless of the customer’s positioning, whether they’re natural or conventional or somewhere in between.
Operator: Your next question comes from the line of Kelly Bania of BMO Capital Markets. Your line is open.
Kelly Bania: Good morning. Thanks for taking my questions. Curious at all if you can quantify the $150 million of value creation initiative, just how that impacted Q1 in particular, and how much of that particularly impacts operating expenses? Just trying to understand really kind of what’s the underlying growth rate of operating expenses and wages that you’re seeing this year so far?
John Howard: Yes. Kelly, this is John. I appreciate the question. We haven’t disclosed that. It hits the P&L in multiple places margin, OpEx, and what we call SG&A, which is part of our OpEx on our external reporting. So it is spread throughout the P&L, and it is ramping up as we move through FY’24 as part of the guidance that we affirmed this morning. But we haven’t provided that detailed breakup beyond that.
Kelly Bania: Okay. A couple of more questions. Just in terms of the outperformance of Supernatural here, I think you called out more new business wins there, can you just talk about how you’re gaining new business? Is there any contractual visibility that you have into continued new business wins there or just what’s happening there and the potential for that to continue? And then underneath that, can you talk about just category performance more in an organic basis, meaning conventional natural and organics, private label? Can you help us just understand the categories that are working, where you’re seeing trade down? Just what the consumer is gravitating towards today?
Sandy Douglas: Hi, Kelly, this is Sandy. We wouldn’t comment on an individual customer. And obviously, given the way we report channels, it highlights a specific customer. The only thing I would say in general is that we have a very strong relationship with that customer, and they’re executing well, and we’re working hard to help them in every way we possibly can. From a channel perspective, the simplest way that I can describe what we see is that well positioned retailers are doing well, relatively well. There’s no specific pattern conventional versus natural. It really has to do with execution. And if the value proposition is clear and the execution is good, the sales tend to be better. From a product category perspective, private brands are obviously strong in this environment.
And obviously, value propositions, the consumer, particularly the mid to low-end consumers stretching their food budget and looking for ways to meet their family’s needs in the most efficient way possible. But as always, in a situation like this, the upper end of the market is buying for different reasons, and ultimately, that’s where a lot of the growth is as well in our portfolio at least.
Kelly Bania: Okay. And then just another one on the gross margin. So sequentially, the gross margin improved from the 13.5 to 13.7. Clearly, the biggest factor on a year-over-year basis is the lower procurement gains. But can you help quantify the sequential improvement, whether that is shrink, promotions, how mix is impacting that? Just any — trying to think about how sustainable that 13.7 is or if we should see any more volatility as we move through the year.
John Howard: Okay. Kelly, I’ll start and Sandy can fill in. The sequential piece that you’re looking at is that improvement is largely driven by shrink, so that’s the largest contributor that we’re seeing. There’s other moving pieces within there, as you might imagine, given the complexity of our margin. But that shrink is the biggest one.
Operator: [Operator Instructions] Your next question comes from the line of Bill Kirk of ROTH Capital Partners. Your line is open.
William Kirk: Hey, thank you for taking the questions. So one of your largest competitors is pursuing a more heavy retail ownership strategy. And I guess it gives them some new stores in markets where they don’t really have scale or they don’t really operate in. So if they’re successful buying those retail stores, how do you see the competitive landscape changing? Or will you be competing against them more if they own those retail stores?
