US Foods at 20th Annual Farm to Market: Strategic Moves and Growth Plans

On Wednesday, 14 May 2025, US Foods (NYSE:USFD) presented at the 20th Annual Global Farm to Market Conference and Chemicals @ Farm to Market. The company outlined its strategic initiatives, emphasizing decentralization and technological advancements, while acknowledging challenges in a competitive market. CEO Dave Flitman and other executives detailed plans for cost savings and growth, as well as recent successes in earnings.

Key Takeaways

• US Foods achieved $230 million in COGS savings over the past three years and aims for an additional $260 million in the next three.
• The company reported a 26% EPS growth in the first quarter, showcasing strong earnings despite market challenges.
• Strategic focus includes decentralizing operations to empower local sales teams and leveraging technology for improved productivity.
• The Pronto program is driving a 10% to 15% increase in volume in targeted customer segments.
• US Foods is committed to annual sales force growth, regardless of macroeconomic conditions.

Financial Results

• COGS Savings Initiatives:

- Achieved $230 million in savings over three years; targeting $260 million more in the next three.

• Overhead Cost Savings:

- Announced $30 million in new savings, adding to $120 million from the past 18 months.

- Aims for $60 million savings in indirect spend by 2027.

• Sales Growth:

- Pronto program boosts volume by 10% to 15% in targeted markets.

- Hospitality sector grew by 3.6% in Q1.

• EPS Growth:

- Delivered 26% growth in the first quarter.

Operational Updates

• Decentralization:

- Shifted local sales teams to report to local presidents, enhancing regional decision-making.

• Sales Force:

- Plans for low to mid-single-digit growth annually.

- Emphasis on hiring industry-experienced personnel and providing a nine-week training program.

• Technology:

- Moxie platform enhances sales productivity and customer experience.

- AI tools optimize pricing, menu design, and routing.

• Healthcare:

- Leading position in the healthcare segment with a dedicated technology suite, Vitals.

• Supply Chain:

- Semi-automated distribution center near Chicago to improve efficiency.

- Descartes routing system nearly fully implemented, boosting productivity.

Future Outlook

• Sales Force Growth:

- Committed to consistent growth despite economic conditions.

• COGS Savings:

- Additional $260 million savings expected over the next three years.

• Productivity:

- Aiming for 3% to 5% annual improvements.

• Healthcare and Hospitality:

- Anticipated continued growth and market share gains.

• Distribution Centers:

- Learnings from the first semi-automated center to be applied elsewhere.

• Pronto Program:

- Continued expansion in targeted markets.

Q&A Highlights

• Sales Rep Productivity:

- Moxie platform reduces friction, enhancing service.

• Pricing Autonomy:

- Sales reps operate within a framework, with exceptions requiring approval.

• AI Integration:

- AI tools are used for product recommendations and labor planning.

• Healthcare Leadership:

- Maintained by technology, service model, and expertise.

• Private Label:

- Over 50% penetration with independents, exceeding company averages in key sectors.

For a comprehensive understanding, readers are encouraged to refer to the full transcript below.

Full transcript - 20th Annual Global Farm to Market Conference and Chemicals @ Farm to Market:

Kelly Bania, Food Retail Analyst: Good morning, everybody. I’m Kelly Bania, Food Retail Analyst

U. S. Foods is a foodservice distributor with a laser focus on its core customers of independent restaurants, health care and hospitality customers.

Just using round numbers here, but correct me where I’m wrong, we have about 70 distribution centers, about 4,000 sales associate, four hundred thousand SKUs and over 250,000 customer locations. We have the company forecasted just shy of $40,000,000,000 in revenue in 2025. And this is a great time because you’re coming off a very strong quarter to start the year in what was looks like not an easy quarter to operate in. And I believe you were the only of the big three distributors to really reiterate your full year guidance earnings just in the last couple of weeks. So thrilled to have Dave Flitman, CEO, with us.

Dave joined, I think it was about two and a half years ago now, has brought an incredible high level of focus and execution to the organization. And also Dirk Lacazio, Dirk has been with US Foods since, I believe it’s been 2017, so, thrilled to have you both as always. Time flies, so I’m gonna dive into questions here. Dave, one of the things that struck me as I’ve kind of followed you guys over the years is just this journey that you’ve been talking about in terms of decentralizing. And sounds easier it’s easier said than done because we see some companies struggle with what to what to centralize, what to decentralize.

But maybe you can start with some examples of of what where that’s implemented today? What is best centralized? What is best given back to the field leaders? And where do you see more opportunity on that front?

Dave Flitman, CEO, U. S. Foods: Sure. Good morning, Kelly. Good to be with you. Thanks for having us. So we have been on a decentralization journey for the last couple of years and just fundamentally believe that having the right resources closest to the customer is the right way to run a distribution business.

So we’ve been unwinding a lot of that decentralization. Simple things, I can give you I joined the company back in January 2023, our local sales organization reported centrally into corporate. And so we’ve unwound that. They now report to the local presidents in the area.

And again, fundamentally you’re touching customers every day. You need speed of decision making. You need execution capability and that’s best served out in the field. Now having said that, Dirk and I are very aligned that we believe in fundamental standardized business processes and practices. And you take supply chain, the metrics that we have, you take pricing and our approach to pricing is a standard approach.

But our sales force, every market is different, the competitive situation is different locally. They have the autonomy they need to make those local sales decisions and price accordingly to the market.

Kelly Bania, Food Retail Analyst: Okay. And one of the things that we always ask about, I feel like every quarter as we think about your three year plan is the COGS savings initiatives because it is really critical to kind of the total EBITDA growth plan that you have outlined. And you continue to move forward this with no delay in the recent quarter. Maybe just can you help us understand what are the challenges in achieving those goals? I know you started with some of the bigger suppliers and are maybe moving down into some of the smaller suppliers that haven’t really been touched yet.

But how should we think about your visibility in accomplishing this over the next three years and where the opportunity is?

Dave Flitman, CEO, U. S. Foods: Yes. Think Dirk and I can tag team this one. Let me just start. We just tied a bow around our last three year plan where we delivered two thirty million dollars in COGS savings. So my point in saying that is the company has been at this for quite some time and has developed a lot of muscle in terms of the how.

And then going forward, we’ve committed an additional $260,000,000 in the next three years. And fundamentally, it’s we call it strategic vendor management. It’s a process that we run-in parallel with our vendors and we do this in a win win way. What makes us stand out I believe to our vendors is the fact that we consistently take market share. And a lot of these suppliers serve retail, volume has been hard to come by.

And so they’re quite willing to step in with us where we can consistently guarantee them above market growth and participate in that process. And then we’ve gone down a couple of new paths in our most recent plan and I’ll let Dirk maybe talk about some of that.

Dirk Lacazio, US Foods: Yes, a couple of things on that one, as Dave said. So this one we have a high level of confidence. This is multiple times that we’ve done this over the years and some of it is continuation, some of it is that you get smarter and improve the process in order to deliver different outcomes. But Dave’s point around trying to approach it with a win win with vendors is very important for that mutual opportunity for growth going forward. You mentioned about going further down so that the tail vendors or the smaller vendors are something where at your point that’s an enhancement this time around where we have focused as much in the past and now are focused more on that.

Also, just looking more strategically at the category level, where it’s the vendor, but also are we making sure that we’re priced right relative to the share gains that we’re striving for. And so just enhancing some of our capabilities as far as it is well, simply a COGS play.

Kelly Bania, Food Retail Analyst: It’s an interesting point you make about the retail side where maybe some of the growth isn’t quite what it used to be. Have you kind of done an analysis and looked at where you are in terms of your size and growth relative to maybe your supplier partners on the retail side and how much potential? Is it just catching up to where maybe you should be in terms of buying efficiencies with some of these vendors?

Dave Flitman, CEO, U. S. Foods: Well, I think there’s a lot of momentum that we build based on our The vendors continue to improve their operations, get more efficient and effective and we can couple that together in a way where we share in that benefit and really drive that win win focus. But we’ve got partners in all product categories that we’ve had for a number of years. Sometimes you have leverage and you can switch sources if you need to. We’ve done some of that in the past, not as much lately because again the vendors have leaned in pretty well with us and really driving that partnership is winning.

Kelly Bania, Food Retail Analyst: Okay. Let’s switch gears to another area of cost savings, which just kind of more on the overhead. You announced additional $30,000,000 I’ve been getting questions just on exactly where that was? How are you monitoring those kind of cost savings initiatives to make sure there’s absolutely no impact on the customer? And what are you’ve talked also about further levers to pull if the environment is tough.

Maybe just let’s spend a few moments on that front. First, where was the $30,000,000 and what else can you do if the environment gets tougher?

Dave Flitman, CEO, U. S. Foods: Sure. So we’ve been on this journey again for a couple of years. And that $30,000,000 was on top of $120,000,000 that we’ve done in the last eighteen months. And that decentralization journey that we’re on affords us the opportunity to really look at the whole cost structure, not only where the resources are, but do we have an optimized plan of where they’re deployed. And what we found is, as we’ve decentralized, we’ve been able to take some corporate costs out where we just right mindedly had added a lot of complexity to some of our processes including sales, including supply chain.

And we’ve unwound a lot of that and importantly moved some of the right resources back to the field. I think there’s still more of that to do. But as you’ve said, we’ve taken a pretty hard swing at it here in the last couple of years. Then there’s some other areas of inefficiency. Dirk’s leading a process around indirect spend, is $1,000,000,000 category for us.

I’ll let him talk about that.

Dirk Lacazio, US Foods: Yes. That’s another area where haven’t really looked at it holistically over the years. And it’s as you said, it’s over $1,000,000,000 of spend. Our goal is $60,000,000 of savings in 2027. We achieved $30,000,000 last year, so we’re well on our way to get there.

We also this year, as part of the $30,000,000 Kelly that you referenced, there were some additional non people spend in there. So one example there is consulting spend. So for example, looking at third party spend and instead enhancing some of our own capabilities with some high potential, high caliber individuals who can do that work more effectively, more efficiently and then they know the company and they’re around. So it’s some of it’s just rethinking how we invest and where we spend. But we often will get asked on cost and productivity is what’s the silver bullet and there’s not a silver bullet.

It’s really a lot of the fancy word we use is the grind. It’s the grind across each of these and it really is at its simplest form holistically looking at spend and then continuous improvement.

Dave Flitman, CEO, U. S. Foods: Yes, that continuous improvement theme is one I’m pressing really hard with the organization. We’ve got a plan to deliver 3% to 5% annual productivity. And behind that is generally in normal times that will generally offset inflation. So that’s the thinking and just finding ways to get more efficient and effective at what you do. I missed the other part of your question which was around supply chain and how do we make sure we’re not impacting the We talked about this a little bit on our earnings call last week.

We’re right now achieving all time record high service levels for the organization. Everybody was impacted coming out of COVID and got disproportionately hit. Our driver selector turnover is back to historic levels. We’re getting productivity and efficiency as a result of that. But importantly, I think in this industry, no one has been consistently great at service over the long haul.

And I really think we have an opportunity here to create a competitive advantage with that. And so that’s why I’m so pleased that our service levels are as high as they are, all time highs, while we’re gaining these efficiencies. So it’s not an eitheror. We’ve got to be able to do both, we’re doing that well right now.

Kelly Bania, Food Retail Analyst: Do service levels vary across the different customer cohorts like independents, chains, health hospitality, do you measure it differently or does it not matter?

Dave Flitman, CEO, U. S. Foods: We measure it the same. There is some minor variation, but when I say we’re at all time service levels, it’s not for any one customer cohort.

Kelly Bania, Food Retail Analyst: Perfect. Just a reminder, you can submit questions to the iPad here. I’ll try to remember to take a look at those. But I want to spend a couple of minutes on sales reps. It’s probably the topic that we get the most questions on across the space.

I think you’re at about 3,000 local sales reps and about $13,000,000,000 in independent sales. I guess the question is, as we look at it from the outside and kind of do ratios of sales reps to dollars, how do we think about the right number there? And how is your technology and things like Moxie and the different technology tools that you afford your sales reps, how is that changing that ratio, if at all?

Dave Flitman, CEO, U. S. Foods: Yes. We really think Moxie and our digital leadership affords us the opportunity to have a more effective and productive sales force. You can compare those ratios across the big three, and I’m sure you’ve done that. But importantly, what the technology does for us is it enables our sellers to go penetrate an existing customer, go find the next increment of growth with a new customer as opposed to dealing with where’s the delivery, helping the customer with the credit app. We can all handle that in our Moxy application, which is by the way the only one stop shop in the industry for digital capability.

So it really takes the friction out of the relationship with our customer. They can look at our inventory, determine when their truck is going to be there, fill out a credit app, pay their bills, whatever they need to do, it’s easy for them to do that in Moxi. And so our salespeople have adopted that very well and that’s why day one, we ask them and they do get our customers up on Moxi because it helps them be more productive and efficient. But our algorithm is a low to mid single digit growth in headcount every year. We feel that that’s the sweet spot for us in terms of new seller headcount.

Get a lot of questions around are we having challenges finding sellers, we’re really not. And I think people get too hung up on the big three swapping sales reps, where is the source of sellers. Actually competitive reps from direct competition is the minority of who we hire for sellers. We hire a lot of people with industry experience, oftentimes they were operators, they were chefs, they understand they’ve got the culinary background. So we find them from all over and then train them in our sales process.

Kelly Bania, Food Retail Analyst: And how what that training process look like when you take someone that might have been an ex chef and who knows the industry but maybe hasn’t been a direct rep? How important is that training process?

Dave Flitman, CEO, U. S. Foods: Yes, we’ve got a nine week program that we put them through initially, it’s called STEPS. Part of that is training them on the product line. But that’s something that never really ends, that journey continues. So we’ve got general sales meetings out in each one of the areas that happen on a monthly basis. A portion of that’s dedicated to the selling process, new capabilities that we’re bringing to bear, training them on new products.

So that’s an ongoing piece of work that never really stops. I think we do an excellent job of onboarding new sellers, whether they’ve got background in the industry or not. We put them through that. Here’s how you sell at U. S.

Foods.

Kelly Bania, Food Retail Analyst: And what is that typical time that it takes for a new rep that might be new to the industry versus a more experienced rep that came with a book of business or that experience How does that look in terms of the ramp that they?

Dave Flitman, CEO, U. S. Foods: So if we hire a competitive rep, they typically come with a non compete, so they can’t call on their prior customers for typically a twelve month period of time. But they can be very productive very early because they understand the industry. We do teach them our product line. They have a good background, so they pick that up very quickly. And oftentimes we find they’re very productive in a new sales territory.

And when their non compete rolls off, sometimes they want to go back, sometimes they don’t because they built a new customer book of business and new relationships. And then if you take a rep without any direct sales experience in the industry, it could take them two to three years to be fully productive. And so we push them to get on our compensation plan as soon as possible. And we try to get that done in the first twelve to fifteen months or so, but then their productivity ramp just continues beyond that.

Kelly Bania, Food Retail Analyst: And a lot of focus on the restaurant traffic, which is just one measure of the health of the industry, but it has been pretty weak for a couple of years now. What is your commitment to keeping that low to mid single digit sales force growth if that continues? Obviously, you’re gaining market share within that, but how committed do you

Dave Flitman, CEO, U. S. Foods: We’re very committed to it. Regardless of the macro, we think it’s the right thing to do for long term health and growth of the company. And look, we don’t get hung up on the macro. And I say this a lot and I really mean it. We have a relatively minor market share in the three most profitable customer types in the industry, which is where our strength is, where we’ve applied our technology and our resources.

The macro can ebb and flow. There’s still plenty of share for us to go gain. That’s why we’ll stick with our hiring plan for our sellers. We’ll stick with our commitments because we just believe there’s ample runway for growth here regardless of what’s going on with foot traffic.

Dirk Lacazio, US Foods: When we’re adding sellers, we’re not adding them peanut butter across the board. So it’s faster markets that can grow, get more reps. Those that have opportunity for growth, get more reps. So it’s also quite targeted in order to make sure that we’re getting the highest and best use out of the reps we are adding.

Dave Flitman, CEO, U. S. Foods: We’ve talked a lot about how we use the Surcana data to target where the growth is greatest even within the market, what customer types are going to be successful, where we might have share opportunities, bring in the right basket of products, make sure we have the right assortment in our distribution centers and then we’re off to the races.

Kelly Bania, Food Retail Analyst: And is there any trends that you can talk about beyond that? I wish I could look at the data and see which markets are growing and where everyone’s investing, but we kind of look at it on a national basis. So what’s where are there areas of growth?

Dave Flitman, CEO, U. S. Foods: I think if you just follow where population has grown and shifted, the Southeast is strong, Texas is strong, Florida is strong. Typically over time, that’s where we’ll invest the most, but we’re investing pretty much across the board.

Kelly Bania, Food Retail Analyst: Right. Okay. I want to talk about also just you mentioned pricing as one of the things that is more centrally managed, but how much autonomy do you give your sales reps to kind of be reactive? There’s questions about how competitive, I guess, that local competition is, But how are your sales reps empowered to kind of make those decisions day to day versus relying on technology or local market dynamics? How do you strike that balance on pricing?

Dave Flitman, CEO, U. S. Foods: Great question. We a standard tool that we’ve applied across the company. But within that there’s a framework and the sellers have a lot of autonomy to a point. But then even beyond that point, if there’s a local competitive situation, there’s an approval process that they can get around whatever floor may or may not be in place. The beauty of the tool is with AI embedded in it, it gets smarter, it learns more by product category, by customer type and gets more effective at making those pricing recommendations to the sellers.

But they’ve got the autonomy they need to make those local pricing decisions.

Dirk Lacazio, US Foods: And it really helps the seller because as a person, you can only know the right price points on a certain number of products. So let’s say you’ve got 100 or 200 products. And if you think across somebody’s entire route, it also by giving them the target and the guardrails that are out there, it helps whether it’s a new customer or products that your existing customer hasn’t bought. It helps them be more on mark when they’re getting to a price point versus just trying to gauge themselves what they think it is.

Dave Flitman, CEO, U. S. Foods: Another thing they have autonomy around is really the basket of products for the customers. So yes, we price at the product individual product level. But if they need to give a little on a certain product here and that they can look at optimizing the total for the customer as well. So that gives them additional flexibility.

Kelly Bania, Food Retail Analyst: And so Gabe, you mentioned distributor that’s really been prolific about talking about how AI and how you’re using that and embedding that into tools for, I think, your employees and your sales reps are but across the organization, I guess. Do you think that’s becoming a bigger competitive advantage, a bigger moat? Are there any distributors maybe outside our purview that are also investing heavily in that?

Dave Flitman, CEO, U. S. Foods: Not sure what the competitive landscape looks like, but given the platforms that we have, particularly around our digital strength. So think about Moxie, we launched that two point five years ago with certain ability to make product recommendations for customer. With the advent of AI, we’re now able to tailor those much more specific to that individual customer making versus making general product recommendations. We talked a little bit on the earnings call about the way we’re helping our sales reps with menu design. So imagine they can go into an account that they’ve never been at before.

With the advent of AI, they’ve already scoured what their menus look like matched to our products. They go in with full pricing capability and have a very educated conversation the first time they meet the customer versus saying, Hey, I’m here from U. S. Foods, show me your menu, I’m here to help you. You know what I mean?

Kelly Bania, Food Retail Analyst: So

Dave Flitman, CEO, U. S. Foods: it just helps them put their best foot forward. And then there’s things like labor planning where we can use that internally with how we plan our distribution labor. The routing tool that we use, the cart that we talk about a lot has AI embedded in that. So routing is a very dynamic process. You gain customers, you lose customers, you penetrate customers, You have to stay on top of that all the time.

And AI helps us do that and optimize the efficiency there. So we’re excited about it and what it can mean for the future.

Kelly Bania, Food Retail Analyst: Yes. I’m glad you mentioned Descartes because it’s something we’ve been kind of checking on It’s a big undertaking to use a whole new system for your routing, and it seems like it’s gone incredibly smooth. There’s been savings. How should we think about I think you’re at the later stages of this implementation.

I think you’ll be done by the end of this year. Is there more benefits to come? How have you been how have you executed this so seamlessly?

Dave Flitman, CEO, U. S. Foods: Well, there have been a few bumps on the road

Kelly Bania, Food Retail Analyst: Well, didn’t look like it from the outside.

Dave Flitman, CEO, U. S. Foods: No, but I mean, you can’t change the routing tool without having an So we had to have lots and lots of conversations with customers. But importantly, when I talk about our service levels, it gave us the opportunity to understand what the optimal delivery window was for our customers. Historically, we weren’t great at that. And so by having that conversation and matching that up with the cart, we’ve built credibility with our customers because now we’re doing and showing up exactly when we say we’re going to.

And then Dirk, you want to talk about some of the productivity benefits we’re seeing?

Dirk Lacazio, US Foods: Sure. As I say, couple of percent or so that we talk about of productivity improvements, that’s really step one. So we expect that there’s further productivity that will come in the future years. Just any time you put in a new system, you want to be thoughtful on how you turn the dials. What we don’t want is we don’t want customers to feel like their world’s turned upside down.

We don’t want our supply chain to be turned upside down versus let’s get the improvements. And then now that we have the platform that has much more capability than we’ve ever had, it really allows us to continue to drive that productivity and service improvements over several years to come.

Dave Flitman, CEO, U. S. Foods: Really the beauty of the card is it’s dynamic. And so routing used to be an event for us. You had it was episodic. Now as that routing need changes, we can do that more dynamically and continuously. So we’re really excited about getting it launched across the company and then further optimizing.

Dirk Lacazio, US Foods: Descartes is really just a good example when Dave talked about using AI. So whether it’s the machine learning advanced analytics or generative AI, we think of the things that the machine can do better and learn from. Let’s let the machine do it, and let’s let the humans do where the humans add value in these areas. And that’s really the approach, whether it’s something that’s embedded in what we buy or some of the tools that our teams develop in house.

Kelly Bania, Food Retail Analyst: Excuse me. One more I wanted to ask, going back to the pricing conversation, and then I want to switch to kind of health care and hospitality because I feel like we don’t talk about that enough. But with respect to pricing, I guess, with all of these products going online now, you’re at a high percentage of what percent of your, independent customers use Moxie and all these tools. How is that changing price transparency in the industry? And is that a good thing or a bad thing for U.

S. Foods and where you’re positioned with your pricing and your ability to be dynamic with this?

Dave Flitman, CEO, U. S. Foods: Yes. I don’t really think it’s changed fundamentally anything around pricing transparency. I think that’s always been part of the industry. Sales reps are pretty good at sniffing out competitive situations, they always have been, and understanding certain products and how they’re priced. We really don’t think it’s changed that at all and don’t really spend any time thinking about it.

Kelly Bania, Food Retail Analyst: Perfect. Okay. On to health care. So I believe you have over 20% share in health care.

Dave Flitman, CEO, U. S. Foods: We have a good share in health care.

Kelly Bania, Food Retail Analyst: Yes, maybe it’s a little higher.

Dave Flitman, CEO, U. S. Foods: We are the industry leader in

Kelly Bania, Food Retail Analyst: health We’re definitely the industry leader. I guess maybe can you help us think about the competitive set here? I think we know kind of one of your primary ones, but beyond that, what does the competitive set look like? Where are the majority of the market share gains coming from? Where do you expect them to come from?

And when you gain a new customer, you announce a new customer just this last quarter, what are the reasons why they’re coming to you? Are they saying it’s just your Vitals platform? Is it your SKUs, your expertise? Like what are you hearing most often where that you can kind of continue to lean into?

Dirk Lacazio, US Foods: Yes. So it’s it is an area that’s our team there in Healthcare and Hospitality have done an excellent job. And it’s it really is has been a good growth engine for us. And it comes down to, I say the yes, but it’s the combination of those things. It’s our offering of the technology.

So in that case, we have a tool suite called Vitals that really helps operators with not only ease of interaction with us, but it’s also things like some of the dietary information, patient feeding costs, things that really help them, but it’s a tough industry to be an operator in. And it helps them with that. Our service model is easier to interact with, fewer points of contact from an end operator than, say, some competitors. And also some of our sales and service model and our expertise that we have there. So we have dietitians, we have other experts that help those operators with how they run their business in order to, again, find ways to improve it.

So when you think of those things and then you combine it with we have decades long partnerships with some large group purchasing organizations that we really have found that way for the win win for sort of them, us and the customer. So it’s good economics for the customer, and it’s good economics for us overall, with health care and hospitality being really the second most profitable behind independents. And so they’re an area where I expect to we have share gains to be had for a long time to come. And our differentiation and our team is out really pushing with customers to really help those that aren’t that are prospects understand how we can help them knowing that they have a hard job in running their business.

Kelly Bania, Food Retail Analyst: And are there a lot of smaller competitors in the health care segment that maybe we don’t hear from every day? Or is it I would assume that they don’t have the technology that you Is that a how big of a moat is that in that

Dirk Lacazio, US Foods: It’s a pretty big moat because in this case, the technology extends far beyond just the interaction S. Foods. So from an operator perspective between that and the GPO relationships, this altogether is a pretty big moat. And as you pointed out, one large competitor does compete in this space, also the regionals and the large locals.

So it’s not a a one answer in every market. So when we talk about share gains, it really comes from a variety of different operators and sizes. And just our team, I mean each year, it seems like when telling us, well, maybe our new business pipeline will slow a little bit and keep pushing and they push in and that, again, bringing that value proposition to life continues to be a very strong growth engine. And we’ve been extremely pleased the last year or so, and we expect that to continue to grow quickly. The other advantage we have with this being such a big part of our business is it’s really economic agnostic.

So when things are slowing, etcetera, it still is a good growth engine for us.

Kelly Bania, Food Retail Analyst: I think you’ve talked about this, but maybe we can kind of dig in a little bit on this. But the SKUs that you carry for health care and hospitality, how does that complement kind of the efficiency of the organization when you’re attacking independents and health care? Just in terms of the SKUs that you need to carry in a DC, this is maybe something that I don’t think we think about every day. But how does that complement your strategy when you have this customer focus?

Dirk Lacazio, US Foods: Well, it really is as part of the focus on those three customer types. It’s much more capital effective and accretive over time because when you typically have those SKUs in your warehouse. So there’s overlap between independent health care and hospitality. All three are pretty conducive to private label so that they’re buying what you have in. And also, once you’re servicing those customer types in a distribution center, typically, you have new customers come in, they’re buying most of the products you already have in the distribution center.

So it’s increasing product velocity as opposed to when you have chains come in, they come in with a fair number of their own proprietary items. And that’s why even with chains, you don’t hear us talk about that chains are all good and all bad. It’s about optimizing. We have a number of chain partners that are excellent partners and happy to continue to do business with them. But yes, over time, what you won’t hear us talking about is investing in capital to support chain business and building, especially with what construction capital costs have done over the last few years.

So it’s really about thoughtfully growing in that space while really focusing on continued share gains. Because as I think Dev and Tate said earlier today, we have so much opportunity still on share gains in those three and ability to really leverage our differentiation.

Dave Flitman, CEO, U. S. Foods: I think Dirk touched on it. It’s an important point, though. All three of our target customer types lend themselves to our exclusive brands. Those brands are high quality products, they’re cheaper for the customers and they’re twice as profitable for the company. Hence, our intense focus on those.

And the chain is a good baseload for a lot of our distribution centers, but not worth further investment from our perspective because of the inefficiencies that come along with supporting the chain business, particularly their proprietary brands.

Kelly Bania, Food Retail Analyst: And just remind me, so the penetration of private label with independents is over 50

Dave Flitman, CEO, U. S. Foods: Just hit a new record,

Kelly Bania, Food Retail Analyst: Where is it on what’s that penetration on health care and hospitality? Have we given that number?

Dirk Lacazio, US Foods: It’s a little above our overall company, so it’s more conducive. And then you compare it to, say, a chain, which is well below the overall business.

Kelly Bania, Food Retail Analyst: Okay. One more on health care that’s just been on my mind as I try to think about what might happen down the road here. But if there are cuts to Medicaid or work requirements. So we’re just kind of reading the news about the budgets that are being proposed. Is that something that investors should worry about and how that could impact this segment?

Dave Flitman, CEO, U. S. Foods: I don’t think so for what we do because so a lot of that business historically has been acute care for us, I. E, you need the service because there’s a problem. We’re shifting more towards senior living, which is probably the fastest growing portion of the health care space right now. But regardless of what segment it is and any potential cuts that happen, a lot of that service is going to continue to be needed and those people need to be fed. So we’re not concerned.

Kelly Bania, Food Retail Analyst: Can we talk about hospitality a little bit too? Some data points that suggest tourism is maybe down in The U. S, who knows where this will go. Do you think is this something are those data points we should follow, number one, in terms of tourism and how that equates to kind of your the underlying demand for the customers you have? Or do you expect that business to remain kind of steady as we go forward?

Dave Flitman, CEO, U. S. Foods: I think it will ebb and flow. Think that’s a good metric to look at. And we’ve talked a lot about our historic focus on lodging, perhaps a little bit over indexed in the hospitality space. But more recently, we shifted to recreation and other areas, which is opening up new pockets of growth for us. So we talked last week about onboarding $100,000,000 of new business between healthcare and hospitality.

It wasn’t quite equally split, it’s over indexed towards healthcare, but a significant chunk. And you saw our growth 3.5% or so in hospitality. And because of our shift in focus, we believe we’ve got a lot of confidence in continued growth and share gains within the hospitality space as well.

Dirk Lacazio, US Foods: Yes. It’s obviously, it’s not immune to the slowing. And even in the first quarter, that’s a good example where we still grew accelerated to 3.6% growth despite some slowing, and that really is the net new business conversion in the pipeline there. And the question we get off sometimes is, well, what’s that mean recreation? So think it has large scale venues as one example of there, whether it’s concert venues or other things like that and bringing some of the value and differentiation we have to that space.

Kelly Bania, Food Retail Analyst: Okay. Also, we spent a lot of time looking at and seeing what our retail companies are doing with supply chain automation. And I was wondering if we could touch on that for a minute because you do have your first facility, I guess, coming on board soon and near your headquarters. What what do the returns look like? What have you learned so far?

Could this be something that you could roll out and that could be a step function in terms of productivity at your distribution centers?

Dave Flitman, CEO, U. S. Foods: We’ll tell you more about the returns once we start it up. But we’re getting close. So within the next couple of months, we’ll start up our first, what we call semi automated distribution center just outside of Chicago and Aurora. And the beauty about that I think is twofold. One is it’s going to enable us to be a lot more efficient, I.

E, less headcount required. But importantly, I think it will afford us the opportunity to have a more consistent offering for our customers. So if you think about just the night selection process now, a lot of people selecting cases, building pallets, doing their best to get them out on time and get them on the trucks. That process is typically fraught with error. We all have challenges around that.

Importantly, you automate a lot of that and you have the opportunity to have much higher success rate in terms of selecting the right products, building what I’ll describe as a perfect pallet and importantly having the customer have a much better experience on the other end of that. So I think it will help us be more productive, yes, but we’re also excited about what it means for our customers. So we’ll learn a lot more. We’re excited about how to apply that not just to a new facility, but our learnings and how we can take that into some of our existing facilities. Certainly, where we have expansions going forward, we may lean into that more aggressively based on what we learned in Aurora when we started up.

Dirk Lacazio, US Foods: Another added benefit we have is our drivers with that perfect pallet. It makes the drivers’ job a little bit easier. They have a hard job. And so there’s things that we can do to make that a little easier. We’re very happy to do that.

And this is really, as we’ve often said, this is not about testing does the automation work. It’s really it’s well established out there. It’s just in our space, what are we going to learn from getting it into our first location in order to make sure that we adapt and deploy it in the right ways over time.

Kelly Bania, Food Retail Analyst: Okay. I wanted to also talk about Pronto because there’s really kind of two components of Pronto now, where it started with kind of some maybe smaller dense markets or maybe not smaller, but more dense markets, but now it’s kind of been extended to existing customers. So I wanted to ask twofold. One, what have you been learning, from your customers as you’ve broadened this kind of service? And where does this idea generate from?

Is this from a local sales rep that said, hey, we just we have a lot of clients that want more service and we think there’s an opportunity here and you kind of develop the process or just how does that come at the company?

Dave Flitman, CEO, U. S. Foods: We’re very excited about Pronto. That’s why we talk about it so much. Really started several years ago aimed at unlocking a part of the market that we had a challenge competing with being the specialty suppliers. And a little bit of the frustration I think the company had at the time, I wasn’t here when this started, was the fact that we had all the great products that the specialty suppliers did. We just didn’t have the right service model.

And so we embarked on this journey to just target new customers and learn if we could deliver that model, how we could do it efficiently. And there’s really a couple of things you’re worried about. One is how you price that product because it’s a much less efficient delivery for us. Smaller trucks, more frequent deliveries, so are we able to get the margin profile that we need to be able to generate that service. And then the second thing was we wanted to ensure that we weren’t just cannibalizing our existing Broadline business.

And so hence that’s why we did all of the pilot work. About the middle of last year, we launched it to our existing customers. We call it ProntoPenetration. And we were thoughtful around those two points and that’s why we started in a few markets to prove the model, to prove we could deliver the margin that we needed. And in fact, we weren’t going to cannibalize anything from our larger deliveries.

That’s all gone extremely well and that’s why you see us stepping on the gas and rolling that out. I think it will prove to be a key unlock. We said last week where we’ve deployed Pronto penetration with those targeted customers, it’s generated a 10% to 15% uplift in volume in cases. And we expect that will play out as we take this more broadly. So some of that’s getting masked by the current foot traffic environment and all that, but we’re tracking it closely and we’re confident in the data I just shared with you.

So Pronto is a journey for us, but an exciting one and one our sales force is really excited about.

Kelly Bania, Food Retail Analyst: And as you think about where Pronto penetration, where that strategy could be rolled out, what component or what percentage of your markets could that be? I mean, because that’s a pretty significant lift there with this service.

Dave Flitman, CEO, U. S. Foods: Yes, we’ll see. I mean, we launched Pronto to target the new customers in about forty, forty five markets, something like that. So certainly, those markets are applicable. I think where you start to lose a bit of the benefit is in some of the more rural markets where you can’t justify the added expense and the inefficient deliveries just because you don’t have the customer density

Dirk Lacazio, US Foods: in the markets that have been existing, though, there’s still a lot of years of growth. I mean this today’s point, the legacy pronto has been in place for seven, eight years, and we still have those markets that we’re adding trucks to. Because when you put it into a market, you’re typically adding one or two trucks because you want to make sure just through our process that we’re using them, to Dave’s point, effectively and efficiently. And then as that happens, you add another truck, another couple trucks. So there’s still growth opportunity in the legacy Pronto and a lot of still in the Pronto penetration.

Kelly Bania, Food Retail Analyst: Okay. I think we have two minutes. I think I have two questions, so I’m to try to fit these both in. In terms of the cash and carry, so we kind of changed course. You announced last week about maybe keeping that, what did you learn, I think there were maybe some synergies that maybe didn’t quite come through, what did you learn about that business, How long will you consider keeping that or will you reevaluate that at a future time?

And then I have one closing question.

Dave Flitman, CEO, U. S. Foods: Yes. So we did announce that we intended to look at divesting that business a year ago at our Investor Day. And really, if you go back to the business case when it was purchased, we had some experience I wasn’t here at the time, but we had some experience with some stores that we had built right in the heart of our broad line markets that operated really well. We got a lot of synergy with our existing customer base. The acquisition was predominantly in the Western part of the country and those facilities just weren’t as close to our broad line market.

So those synergies just didn’t play out with our existing customers to the extent we believed it would when the acquisition was made. And so we went through the process, tariffs happened, foot traffic slowed, there were some retrading of the deal once we got into it and we just decided, look, the business is not a drag on the company. In fact, it grew at the same rate that we grew EBITDA in the first quarter. So we’re not going to give it away. I still fundamentally don’t believe we’re the right long term owner for that business, but there’s no pressure on us to do anything.

So we’ll operate it, we’ll continue to serve our customers there unless and until there’s another outcome.

Kelly Bania, Food Retail Analyst: Okay. I guess less than a minute of final remarks. Why is now a good time for investors to be considering U. S. Foods?

You’ve made a lot of progress.

Dave Flitman, CEO, U. S. Foods: Good question. I have ten seconds. We’re on an exciting journey. We’ve got an exciting algorithm over the next three years. Importantly, ours is an execution and a self help story.

You see us delivering that algorithm in some of the lowest foot traffic since COVID. That gives me and our team confidence that we’ve got a long runway of improvement ahead of us. We’re an earnings compounder. We just delivered 26% EPS growth in a very difficult quarter. We believe our ability to do that really will transcend even this three year plan.

So it’s not too late.

Kelly Bania, Food Retail Analyst: Perfect, perfect. Time to wrap it up. All right. Thank you so much, David.

Dave Flitman, CEO, U. S. Foods: Thanks, Kelly.

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