SpartanNash Co - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2022.

OR

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission File Number: 000-31127

SPARTANNASH COMPANY

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s telephone number, including area code: (616) 878-2000

Securities registered pursuant to Section 12(b) of the Securities Exchange Act:

Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates based on the last sales price of such stock on the Nasdaq Global Select Market on July 15, 2022 (which was the last trading day of the registrant’s second quarter in the fiscal year ended December 31, 2022) was $1,119,947,910.

The number of shares outstanding of the registrant’s Common Stock, no par value, as of February 27, 2023 was 35,061,566, all of one class.

DOCUMENTS INCORPORATED BY REFERENCE

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Forward-Looking Statements

The matters discussed in this Annual Report on Form 10-K, in the Company’s press releases, and in the Company’s website-accessible conference calls with analysts and investor presentations include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), about the plans, strategies, objectives, goals or expectations of SpartanNash and its subsidiaries (“SpartanNash” or the “Company”). These forward-looking statements may be identifiable by words or phrases indicating that the Company or management “expects,” “anticipates,” “plans,” “believes,” “intends,” or “estimates,” or that a particular occurrence or event “may,” “could,” “should,” “will” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook”, “trend”, "guidance" or "target" is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that the Company is “positioned” for a particular result, or similarly stated expectations. Accounting estimates, such as those described under the heading “Critical Accounting Policies and Estimates” in Item 7 of this Annual Report on Form 10-K, are inherently forward-looking. The Company’s asset impairment and restructuring cost provisions are estimates and actual costs may be more or less than these estimates and differences may be material. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date of the Annual Report, other report, release, presentation, or statement. Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies may affect actual results and could cause actual results to differ materially.

This section and the discussions contained in Item 1A “Risk Factors” of this Annual Report on Form 10-K, are intended to provide meaningful cautionary statements for purposes of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all the economic, competitive, governmental, technological and other factors that could adversely affect the Company’s expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to SpartanNash or that SpartanNash currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur, or information obtained after the date of this Annual Report. In addition, historical information should not be considered as an indicator of future performance.

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TABLE OF CONTENTS

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PART I

Item 1. Business

Overview

SpartanNash Company (together with its subsidiaries, “SpartanNash” or the “Company”) is a food solutions company that delivers the ingredients for a better life. Its core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate-owned retail stores, and U.S. military commissaries and exchanges; as well as operating a premier fresh produce distribution network and the Our Family® private label brand. SpartanNash serves customer locations in all 50 states and the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar, Djibouti, Korea and Japan. The Company owns and operates 147 supermarkets and shares its operational insights to drive solutions for its food retail independent customers. While the Company supports overseas commissaries and exchanges, all of the Company’s sales and assets are in the United States of America.

At the beginning of the third quarter of 2022, the Company combined the previous Food Distribution and Military operating segments into one operating segment: Wholesale. The change in the operating segments was driven by both a change in the Company’s organizational structure, and in the reporting utilized by the Chief Operating Decision Maker to allocate the Company’s resources and assess operating performance. The combination of the two segments reflects the way the Company manages the distribution business as one comprehensive network and furthers the Company’s efforts to streamline operations in connection with its supply chain transformation and better serve customers. As a result, the Company now operates two reportable segments: Wholesale and Retail. These reportable segments are two distinct businesses, each with a different customer base, management structure, and basis for determining budgets, forecasts, and compensation. Segment financial information for the comparative prior year periods within this annual report has been recast to reflect this change.

The Company’s fiscal year end is the Saturday closest to December 31. In this report we discuss information as of and for the fiscal years ending or ended December 30, 2023 ("2023"), December 31, 2022 (“2022” or “current year”), January 1, 2022 (“2021” or “prior year”) and January 2, 2021 (“2020”), all of which include 52 weeks, with the exception of 2020, which includes 53 weeks. All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and usually includes the Easter holiday. As a result of fiscal 2020 containing 53 weeks, the fourth quarter of fiscal 2020 contained 13 weeks. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.

The Company’s differentiated business model of Wholesale and Retail operations leverages the complementary nature of both segments and supports the ability of the Company’s independent retail customers to compete in the grocery industry in the long-term. The model produces operational efficiencies, greater visibility and broader business growth options throughout each of the segments.

SpartanNash has a strategic identity called Our Winning RecipeTM that activates its mission to deliver the ingredients for a better life through a focus on core capabilities, behaviors and strategic priorities. SpartanNash has a keen focus on its core capabilities which include: people, operational excellence and insights that drive solutions. The Company’s vision is seeing a day when its customers say, “I can’t live without them.”

Wholesale Segment

The Company’s Wholesale segment uses a multi-channel sales approach to distribute national brand and private brand products to independent retailers, national accounts, food service distributors, e-commerce providers, and the Company's corporate owned retail stores. The Company’s Wholesale segment also contracts with manufacturers and brokers to distribute a wide variety of grocery products to 160 U.S. military commissaries and over 400 exchanges worldwide. Together with its third-party partner, Coastal Pacific Food Distributors ("CPFD"), SpartanNash represents the only global delivery solution to service the Defense Commissary Agency ("DeCA" or "the Agency"). Total net sales from the Company’s Wholesale segment, including sales to corporate owned retail stores that are eliminated in the consolidated financial statements, totaled $8.0 billion for 2022. As of the end of 2022, the Company is among the five largest wholesale distributors in the nation in terms of annual revenue. The Company is focused on growth in its Wholesale segment, through expanded relationships with existing customers as well as new business opportunities.

As of December 31, 2022, the Company operated in all 50 states by leveraging a network of 19 distribution centers, in addition to a facility on the West Coast operated by third-party partner CPFD, as well as internal transportation fleets and third-party shipping partners, servicing the Wholesale segment. The Company’s extensive geographic reach drives economies of scale, provides opportunities for independent retailers to purchase products at competitive prices in order to effectively compete in the grocery industry in the long-term and includes distribution centers strategically located among the largest concentration of military bases the Company serves and near Atlantic ports used to ship grocery products to overseas commissaries and exchanges.

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The Company’s Wholesale segment provides a selection of approximately 85,500 stock-keeping units (SKUs) of nationally branded and private brand grocery products and perishable food products, including dry groceries, produce, dairy products, meat, delicatessen items, bakery goods, frozen food, and seafood, as well as floral products, general merchandise, beverages, tobacco products, health and beauty care products and pharmaceutical products. These product offerings, along with best-in-class services, allow independent retailers the opportunity to support the majority of their operations with a single supplier. The Company also provides a comprehensive menu of support services designed to assist independent retailers in becoming more profitable, efficient, competitive, and informed, ranging from real estate and site surveys to a full suite of merchandising, marketing, accounting, and information technology solutions.

The Company also services national accounts through a variety of platforms and has diversified its customer base through growth with these customers. These national accounts partner with the Company to centralize their supply of grocery products or product categories, and to leverage the Company’s broad geographic reach. Sales to one of the Company’s customers in the Wholesale segment accounted for 16%, 17% and 17% of the Company's net sales for 2022, 2021 and 2020, respectively. No other individual customer exceeded 10% of the Company's net sales in any of the years presented.

The Company is also the exclusive supplier of private brand products to U.S. military commissaries, a partnership with DeCA which began in fiscal 2017. The current contract to provide DeCA with private branded products extends through December 2025. In accordance with its contract with DeCA, the Company procures the grocery and related products from various manufacturers and upon receiving customer orders from DeCA, either delivers the products to the U.S. military commissaries itself or engages its worldwide strategic business partner, CPFD, to deliver the products on its behalf. The Company is among one of the four largest distributors to the DeCA commissary system, in terms of annual sales, that distributes products via the frequent delivery system. The remaining distributors that supply DeCA tend to be smaller regional and local providers.

DeCA operates a chain of 236 commissaries on U.S. military installations across the world that sells approximately $4.2 billion of grocery products annually. The Company obtains distribution contracts with manufacturers through competitive bidding processes and direct negotiations. As of December 31, 2022, the Company has approximately 250 distribution contracts representing approximately 600 manufacturers that supply products to the DeCA commissary system and various exchange systems.

The Company’s ten largest Wholesale customers (excluding corporate owned retail stores) accounted for approximately 43% of total Wholesale net sales for 2022. Approximately 90% of Wholesale net sales to independent retailers for 2022 are covered under supply agreements with customers.

The Wholesale segment competes directly with a number of traditional and specialty grocery wholesalers and retailers that maintain or develop self-distribution systems. In addition, the Company’s independent customers face intense competition from supercenters, deep discounters, mass merchandisers, limited assortment stores, and e-commerce providers. The Company partners with these customers to help them compete efficiently and effectively. The primary competitive factors in the Wholesale business include price, service level, product quality, variety, reputation with DeCA, location of distribution centers and other value-added services.

Retail Segment

As of December 31, 2022, the Company operated 147 corporate owned retail stores and 36 fuel centers in nine states in the Midwest, primarily under the banners of Family Fare, Martin’s Super Markets, D&W Fresh Market, and VG’s Grocery. Retail banners and store counts are fully detailed in Item 2, “Properties.” The Company’s corporate owned retail stores range in size from approximately 14,000 to 90,000 square feet, or on average, approximately 44,000 square feet per store.

The Company’s convenience and community-focused strategy distinguishes its corporate owned retail stores from supercenters and limited assortment stores. This strategy is complemented by e-commerce platforms, including Fast Lane and Groceries to GO, and relationships with DoorDash, Shipt, and Uber Eats, which provide online grocery shopping and curbside pickup or delivery at 142 corporate owned retail locations as of December 31, 2022. These channels are highly valued by customers and continuing to enhance and grow this platform is a key component of the Company’s strategy. The Company makes investments to support its online ordering systems, the speed and convenience of curbside pickup, and the efficiency and completeness of order fulfillment.

The Company’s corporate owned retail stores offer nationally branded and private brand grocery products, as well as perishable food products including dry groceries, produce, dairy products, meat, delicatessen items, including store prepared “grab and go” meal options, bakery goods, frozen food, and seafood, as well as floral products, general merchandise, beverages, health and beauty care products and fuel. Sixty-five of the Company’s stores contain franchised Starbucks or Caribou Coffee shops, which enhance the customer experience and help to drive traffic. Private brand grocery products typically generate higher margins while also improving customer loyalty by offering quality products at affordable prices.

As of December 31, 2022, the Company offered pharmacy services in 91 of its corporate owned retail stores (81 of the pharmacies are owned by the Company) and operated three pharmacy locations not associated with corporate-owned retail locations. The Company believes the pharmacy service offering in its corporate owned retail stores is an important part of the consumer experience. Most of the Company’s pharmacies offer low-cost generic drugs and counseling for preventative health and education for its customers. Influenza and COVID-19 vaccinations are available in the pharmacies.

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The following chart details the changes in the number of corporate owned retail stores over the last five fiscal years:

The principal competitive factors in the Retail business include the location and image of the store; the price, quality, variety and value-add of the fresh offering; and the quality, convenience and consistency of service. In addition to competing with traditional grocery stores, the Company competes with supercenters, deep discounters, mass merchandisers, limited assortment stores, and e-commerce providers. The Company monitors planned competitive store openings and uses established proactive strategies to respond to new competition both before and after competitive store openings. Strategies to react to competition vary based on many factors, such as the competitor’s format, strengths, weaknesses, pricing and sales focus.

Supply Chain Network

The Company’s distribution network is comprised of 19 distribution centers, in addition to a facility on the West Coast operated by CPFD, which are utilized to service the Wholesale segment. The Company warehouses product through approximately 8.9 million square feet of distribution center space. The Company operates a diverse fleet of owned and leased transportation equipment, which includes 570 over-the-road tractors, 253 dry vans and 1,130 refrigerated trailers. In addition, the Company also operates 14 over-the-road tractors, 258 dry vans and 123 refrigerated trailers through short-term rental contracts. The Company carefully manages the approximate 64 million miles driven by its fleet and third-party carriers annually servicing military commissaries, exchanges, independent retailers, national accounts and corporate owned retail stores.

The Company continues to execute its comprehensive supply chain transformation initiative. The initiative is focused on executing improvements to supply chain operations across the Company’s network, which continues to result in sustained efficiencies and cost reductions. The supply chain initiative is focused on making investments in people, process, and technology to support long-term growth and maximize operational efficiencies. The Company is investing in its workforce through an expansion of its onboarding, training and career development programs, and is working on several initiatives aimed at improving associate engagement, customer experience and overall supply chain performance.

The Company is currently refining its sales and operations planning process and optimizing its network to enable more effective and efficient operations across the supply chain. The Company plans to continue to enhance its inventory management and control policies and procedures, including item assortment decisions, while also developing dynamic slotting capabilities, to improve order selection efficiency and maximize space utilization. Process improvements are also underway in other areas of warehouse operations, including enhanced labor planning tools and analytical capabilities to improve productivity.

System enhancements in the areas of forecasting and replenishment are intended to support the strategic optimization of inventory, allowing for improved service levels and warehouse capacities, while also reducing excess inventory and shrink. The Company believes that its consolidation of transportation management information systems will also streamline operations and reduce miles traveled.

Marketing and Merchandising

During 2022, the Company leveraged data and insights to develop and implement strategies to respond to changes in consumer behavior impacted by the post-pandemic rise of food at home consumption as well as inflation. In 2022, the Company completed extensive market research to gain a better understanding of the meaning, importance, and equity of each retail banner brand. Shoppers revealed deep emotional connections with the Company's retail banner brands, including the feeling of a "hometown" store with hundreds of local products that provide a consistent, positive, and personalized experience.

The Company’s retail growth strategy is focused on building in-store and digital engagement with shoppers to better personalize offers and highlight local assortment, while increasing customer satisfaction through quality, service and convenience. Key focus areas include improvement in customers’ perception of Company pricing, product assortment and increased penetration of the Company’s private brands. Although value-seeking behavior is increasing, convenient food indulgence in grocery stores is a way in which consumers are shifting away from dining out. Building on the strength of the Company's flagship brand, Our Family®, Fresh & Finest, by Our Family®, a premium fresh brand, was successfully launched in 2022. Additionally, the Company launched the first phase of a merchandising transformation initially focused on enhancing category management, including a new cost policy and better promotions planning. In 2022, the transformation leveraged advanced analytics to enable more customer-led category planning and promotions to benefit corporate retail and independent grocery customers.

The Company has developed processes to measure the activation of these strategies as well as their impacts. These measures are reviewed continuously to refine and evolve the strategies. The Company will continue to share its best practices across its independent customer base within the Wholesale segment as it gains further insights.

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Seasonality

The majority of the Company’s revenues are not seasonal in nature. However, in some geographies, corporate retail stores and independent retail customers are dependent on tourism, and therefore can be affected by seasons. The Company’s revenues may also be impacted by weather patterns.

Suppliers

The Company purchases products from a large number of national, regional and local suppliers of name brand and OwnBrands merchandise. No single supplier accounts for more than 5% of the Company’s purchases. The Company continues to develop strategic relationships with key suppliers and believes this will prove valuable in the development of enhanced promotional programs and consumer value perceptions.

Intellectual Property

The Company owns valuable intellectual property, including trademarks, trade names, and other proprietary information, some of which are of material importance to its business.

Technology

In 2022, the Company focused on foundational IT hardware and digitization efforts across all business segments, including the continued transition to Software as a Service (“SaaS”) technology, where production environments are hosted in the cloud.

Supply Chain. The Company continued its transformational effort to replace existing transportation systems, including standardization of processes and rationalization of disparate systems into a single integrated application stack. Additionally, the Company developed process automation improvements as well as data analytic solutions around workforce productivity. These automation and data analytic initiatives, combined with the workforce investments noted previously, are expected to contribute to improved hiring, retention and productivity.

Retail. The Company continued taking additional steps to modernize its retail applications footprint, which began in 2021 with a comprehensive effort to upgrade and digitize its point-of-sale (“POS”) environment. The upgraded POS application includes an integrated feature set which enhances the retail experience both for SpartanNash and its independent customers.

Marketing and Merchandising. In 2022, the Company completed its implementation of a cloud-based pricing and promotion automation solution. The new technology provides a vendor portal and aids workflow management for promotional activities, as well as the management of associated vendor billings for all of the Company's customers. In addition, the Company further expanded eCommerce capabilities including integration with leading marketplaces including DoorDash, Shipt, and Uber Eats.

Administrative Systems, Infrastructure and Security. The Company has implemented tools to improve both the efficiency and effectiveness of internal reporting and administrative functions. A centralized cloud-based data analytics solution was implemented to consolidate the Company’s analysis and reporting platforms, which supplies the Company with advanced data analytics capabilities to provide better business insights in real-time. During 2022, the Company also took significant steps to improve its information security. Lastly, the Company made several enhancements to its foundational hardware infrastructure including upgrades to the production storage environment and network servers.

Human Capital

The success of the Company's strategic direction and its execution begins with its associates, which is why the Company's People First culture is vitally important. For the Company, this means investment in its people is the first investment it makes. As the Company cultivates an environment in which associates can do their best work, it is building the foundation for a thriving business that will last. During 2022, the Company hired a new Chief Human Resources Officer, Nicole Zube, who has a proven background in human capital management.

As of December 31, 2022, the Company employed approximately 17,500 associates, 10,500 on a full-time basis and 7,000 on a part-time basis.

Retention. Attracting and retaining talent is imperative to achieving the Company's mission of delivering the ingredients for a better life. The Company’s primary initiatives in this area include improving diversity and inclusion in our workforce, ensuring a safe and desirable work environment, maintaining a competitive and compelling total rewards offer and investing in leadership and associate development.

While the rate of turnover remains high, specifically in the retail and distribution environments, the Company has specific engagement plans to further reduce attrition in 2023.

Diversity, Equity, and Inclusion. The Company celebrates diversity and believes employing a diverse workforce where associates can be authentic is key to success. SpartanNash expects all of its associates to reinforce the People First culture to build a diverse and inclusive workplace. As a commitment to this, all associates are required to complete training on Dignity and Respect, Anti-Harassment and Anti-Discrimination. Additionally, during 2022 the Company named a Senior Director of Diversity and Inclusion to oversee the Company’s diversity and inclusion strategic objectives and programs.

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The Company leads with inclusion and strives to create an environment where associates are valued and empowered to support its business objectives, customers and the communities it serves, and to provide associates connection within the organization. SpartanNash has associate resource groups available for young professionals, multicultural associates, veterans and women.

The Company also believes that it is best served by leaders that have diverse perspectives, education, experience, skills, gender, race, and ethnicity as demonstrated by the current executive leadership team and Board of Directors. The Company will continue to seek out such candidates through our talent acquisition practices.

Safe, Healthy and Secure Workplace. At SpartanNash, environment, health and safety (EHS) are integral to the People First culture. To keep the Company's associates safe, and achieve the mission of delivering ingredients for a better life, the Company is focusing on improving EHS. SpartanNash is fully committed to conducting its operations safely and in an environmentally friendly manner. It does this by identifying, assessing, and effectively addressing environmental concerns and workplace hazards, and focusing on injury prevention, natural resource conservation, energy saving initiatives and pollution prevention. The Company's executive leadership team is fully committed to maintaining a healthy and safe workplace and integrating health and safety into all workplace activities, which is evidenced by the Company's goal to be a leader in every safety category it measures.

Associate Engagement and Training. The Company believes that engagement and education are key to ensuring the Company's associates provide extraordinary service and expertise. The Company conducted an associate engagement survey of its entire workforce in 2022 to comprehensively solicit feedback. The resulting survey action plans will be used as the basis to further associate engagement efforts in 2023. The Company provides company-wide training on Our Winning RecipeTM when new associates join the Company and role-specific training to ensure operational excellence. Front-line supervisor training was an emphasis in 2022 as all front-line leaders attended the Company's Elevate manager training programs. The Company has been recognized by Business Insider as a top employer for workplace flexibility, and external feedback scores show consistent positive growth in associate experience.

Compensation and Benefits. The Company’s total rewards programs are designed to provide compensation and benefits packages that will attract, retain, reward, and inspire its associates to achieve a high level of performance. Overall compensation and benefits are periodically reviewed to ensure that they remain competitive with respect to industry benchmarks. Significant wage investments were made in 2022 across the retail and supply chain operations to attract and retain associates. Areas of focus for wages included wage improvements for certain entry level roles across all front-line operations and for distribution hourly associates, and to incentivize productivity and to address competitive truck driver pay. Since 2020, the Company has increased retail entry level wages by 30% on average. The Company's incentive programs are designed to align the associates' financial interests with those of shareholders and other stakeholders.

Environmental Matters

The Company may be responsible for remediation of environmental conditions and may be subject to associated liabilities relating to its stores, warehouses, and other buildings and the land on which they are situated (including responsibility and liability related to its operation of its fuel centers and truck garages and the storage of petroleum products in underground storage tanks). The Company believes that it currently conducts its operations, and in the past has conducted its operations, in substantial compliance with applicable environmental laws. Also, the Company typically conducts an environmental review prior to acquiring or leasing buildings or raw land. However, the Company cannot always control or predict what environmental conditions may be found to exist at its facilities, and future changes in regulations may result in liabilities to the Company or increases in the cost of doing business.

Regulation

The Company is subject to federal, state and local laws and regulations concerning the conduct of its business, including those pertaining to its workforce and the purchase, handling, sale and transportation of its products. Many of the Company’s products are subject to federal Food and Drug Administration (“FDA”) and United States Department of Agriculture (“USDA”) regulation. The Company believes that it is in compliance, in all material respects, with the FDA, USDA and other federal, state and local laws and regulations governing its businesses.

Available Information

SpartanNash’s web address is www.spartannash.com. The inclusion of the Company’s web address in this Form 10-K does not include or incorporate by reference the information on or accessible through the Company’s website, and the information contained on or accessible through those websites should not be considered as part of this Form 10-K. The Company makes its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments to those reports) filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 available on the Company’s website as soon as reasonably practicable after the Company electronically files or furnishes such materials with the SEC. Interested persons can view such materials without charge by clicking on “Investor Relations” and then “SEC Filings” on the Company’s website.

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Item 1A. Risk Factors

The Company faces many risks. If any of the events or circumstances described in the following risk factors occur, the Company’s financial condition or profitability may suffer, and the trading price of the Company’s common stock could decline. We provide these risk factors for investors as permitted by and to obtain the rights and protections under the Private Securities Litigation Reform Act of 1995. It is not possible to predict or identify all such factors. Consequently, investors should not consider the following to be a complete discussion of all potential risks or uncertainties applicable to our business. This discussion of risk factors should be read in conjunction with the other information in this Annual Report on Form 10-K. All of these forward-looking statements are affected by the risk factors discussed in this item and this discussion of risk factors should be read in conjunction with the discussion of forward-looking statements, which appears at the beginning of this report.

Business and Operational Risks

The Company operates in an extremely competitive industry where many of the Company’s competitors are much larger and may be able to compete more effectively.

The grocery industry is highly competitive. The Company’s Wholesale and Retail segments have many competitors, including regional and national grocery distributors, large chain stores that have integrated wholesale and retail operations, mass merchandisers, e-commerce providers, deep discount retailers, limited assortment stores and wholesale membership clubs. Many of the Company’s competitors have greater resources than the Company and may be able to compete more effectively.

Industry consolidation, alternative store formats, nontraditional competitors and e-commerce have contributed to market share losses for traditional grocery stores. The Company’s Wholesale and Retail segments are primarily focused on traditional retail grocery trade, which faces competition from faster growing alternative retail channels, such as dollar stores, discount supermarket chains, Internet-based retailers and meal-delivery services. The Company expects these trends to continue. If the Company is not successful in effectively competing with these alternative channels, or growing sales into such channels, its business or financial results may be adversely impacted.

The Company faces competitive pressures from e-commerce activity, as consumers continue to adopt this format and do more of their shopping online. While the Company offers e-commerce services at many of its stores, some of its stores and many of its independent retailer customers do not. Other e-commerce providers may offer lower prices, superior online ordering or delivery service, or greater convenience than the Company. If the Company fails to compete successfully, it could face lower sales and may decide or be compelled to offer greater discounts to its customers, which could result in decreased profitability.

A significant portion of the Company’s sales are with major customers and the Company’s success is heavily dependent on retaining this business and on our customers’ ability to maintain and grow their business.

The Company depends heavily on our customer base which includes certain large and growing customers, and our success is dependent on our customers’ ability to maintain and grow their business. To the extent that major customers decide to utilize alternative sources of products, whether through other distributors or self-distribution, or decide to discontinue offering certain products, the Company’s financial condition or profitability may be materially and adversely affected. Similarly, if major customers are not able to maintain or grow their business and honor the terms of our distribution agreements, the Company may be materially and adversely affected through a reduction in revenue and profitability.

Sales to one of the Company’s customers accounted for 16%, 17% and 17% of the Company’s net sales in 2022, 2021 and 2020, respectively. The Company’s ability to maintain a close, mutually beneficial relationship with major customers is an important determinant of the Company’s continued growth and profitability.

The Company may not be able to achieve its growth strategy through successful implementation of its transformation initiatives.

The Company’s long-term strategy includes a focus on revenue growth from new customers, market share gains, and continued expansion into value-add offerings, as well as driving incremental profitability through initiatives including supply chain transformation, merchandising transformation, and other margin-enhancing innovations, including OwnBrands execution, automation, and retail execution.

The successful design and implementation of these initiatives may present significant challenges, many of which are beyond the Company's control. In addition, the initiatives may not advance the Company's business strategy as expected. Events and circumstances, such as financial or strategic difficulties, delays, and unexpected costs may occur that could result in the Company not realizing all or any of the anticipated benefits or not realizing the anticipated benefits within the expected timetable. If the Company is unable to realize the anticipated financial performance of the initiatives, its ability to fund other initiatives may be adversely affected. Any failure to implement the initiatives in accordance with expectations could adversely affect the Company's ability to achieve its long-term revenue and profitability targets.

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In addition, the complexity of the initiatives requires a substantial amount of management and operational resources. The Company's management team must successfully implement operational changes necessary to achieve the anticipated benefits of the initiatives. These and related demands on its resources may divert the Company's attention from existing core businesses and could also have adverse effects on existing business relationships with suppliers and customers. As a result, the Company's financial condition, profitability, or cash flows may be adversely affected.

Changes in relationships with the Company’s vendor base and supply chain disruptions may adversely affect its business operations.

The Company sources the products it sells from a wide variety of vendors. The Company generally does not have long-term written contracts with its major suppliers that would require them to continue supplying merchandise. The Company depends on its vendors for appropriate allocation of merchandise, assortments of products, operation of vendor-focused shopping experiences within its stores, and funding for various forms of promotional allowances. Recent supply chain disruptions within the industry, including labor availability, raw material shortages, and rising costs have placed constraints on the Company’s vendors resulting in reduced inbound fill rates and decreased product availability, which could negatively impact sales and profitability.

There has been significant consolidation in the food industry, and this consolidation may continue to the Company’s commercial disadvantage. Such consolidations could have a material adverse impact on the Company’s revenues and profitability.

The Company is vulnerable to decreases in the supply and increases in the price of raw materials and labor, manufacturing, distribution and other costs, and it may not be able to offset increasing costs by increasing prices to its customers.

The Company's suppliers purchase agricultural products, including vegetables, oils and spices and seasonings, meat, poultry, packaging materials and other raw materials from growers, commodity processors, other food companies and packaging manufacturers. These products are subject to increases in price attributable to a number of factors, including changes in crop size, federal and state agricultural programs, export demand, currency exchange rates, energy and fuel costs, water supply, weather conditions during the growing and harvesting seasons, insects, plant diseases and fungi, and glass, metal and plastic prices. These increased prices, as well as other related expenses that they pass through to their customers, could result in higher costs for the products these vendors supply to the Company. Fluctuations in commodity prices can lead to retail price volatility and intensive price competition, and can influence consumer buying patterns. The cost of labor, manufacturing, energy, fuel, packaging materials and other costs related to the production and distribution of the products the Company purchases from its vendors can from time to time increase significantly and unexpectedly. The Company attempts to manage these risks by entering into supply contracts, implementing cost saving measures and by raising sales prices. The Company expects to face continued industry-wide cost inflation. To the extent it is unable to offset present and future cost increases, the Company's operating results could be materially and adversely affected.

Changes in macroeconomic conditions may adversely affect the Company's performance.

Macroeconomic uncertainty, including rising inflation, potential economic recession, and increasing interest rates, among other negative macroeconomic conditions, could lead to decreased consumer spending from the Company's customer base, which could adversely affect the Company’s profitability and growth.

It may be difficult for the Company to attract and retain well-qualified associates and effectively manage increased labor costs.

The Company has experienced, and may continue to experience, a shortage of qualified labor, particularly for retail store associates, warehouse workers, and truck drivers. Such a shortage has caused upward pressure on wages. If the Company is unable to attract and retain quality associates to meet its needs without significant changes to its compensation offering, the Company could be required to reduce staffing below optimal levels or rely more on higher-cost third-party providers, which could significantly reduce the Company’s profitability and growth.

Customers to whom the Company extends credit or for whom the Company guarantees loans or lease obligations may fail to repay the Company.

From time to time, the Company may advance funds, extend credit and lend money to certain independent retailers and guarantee loan or lease obligations of certain customers. The Company seeks to obtain security interest and other credit support in connection with these arrangements, but the collateral may not be sufficient to cover the Company’s exposure. Greater than expected losses from existing or future credit extensions, loans, guarantee commitments or sublease arrangements could negatively and materially impact the Company’s operating results and financial condition.

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The Company may not be able to achieve its strategy of growth through acquisitions, may encounter difficulties successfully integrating acquired businesses, and may not realize the anticipated benefits of business acquisitions.

The Company’s strategy includes growth through the acquisition of additional wholesale distribution and retail operations. Given the recent consolidation activity which has resulted in a limited number of potential acquisition targets within the food industry, the Company may not be able to identify suitable targets for acquisition or may be required to make acquisitions which do not achieve the desired level of profitability or sales. Additionally, future acquisitions of retail grocery stores could result in the Company competing with its independent retailer customers which could adversely affect existing business relationships with those customers. As a result, the Company may not be able to actively identify or pursue suitable acquisition candidates in the future, complete acquisitions or obtain the necessary financing all of which may adversely affect the Company’s ability to grow profitably. Furthermore, if the Company fails to successfully integrate business acquisitions and realize planned synergies, the business may not perform to expectations. The integration of acquired businesses may also cause us to incur unforeseen costs which may prevent the Company from realizing the anticipated economic, operational, and other benefits and synergies timely and efficiently, all of which may negatively impact sales and long-term growth plans.

The private brand program for U.S. military commissaries may be terminated or not achieve the desired results.

In December 2016, the Defense Commissary Agency (“DeCA”), which operates U.S. military commissaries worldwide, competitively awarded to the Company the contract to support and supply products for the Agency’s private brand product program. The current contract to provide DeCA with private branded products expires in December 2025. Private brand products had not previously been offered in the Agency’s commissaries. The Company has invested and plans to continue to invest significant resources as it partners with DeCA to expand this program. However, the program may not be successful, may be discontinued or DeCA may suspend, terminate, shorten the scope or change certain terms and conditions in its agreement with SpartanNash which could have a significant adverse impact on the Company’s profitability.

The Company expects that DeCA will face significant competition in each product category from national brands that are familiar to consumers. If the Agency is unable to drive traffic and business at the commissaries by offering one-stop shopping for military customers through a combination of both national and private brand offerings, then both DeCA and the Company may be unable to achieve expected returns from this program, which could have a material adverse effect on the Company’s business and may negatively impact DeCA's willingness to continue the program. The success of the program will depend, in part, on factors beyond the Company’s control, including the unilateral actions of DeCA.

Disruptions to the Company’s information technology systems, including security breaches and cyber-attacks, could negatively affect the Company’s business.

The Company has complex information technology (“IT”) systems that are vital to its business operations. It also employs mobile devices, social networking and other online activities to connect with and service customers, associates, suppliers, and business partners. The Company receives, transmits, and stores many types of sensitive information, including consumers’ personal information, personal health information, information belonging to customers, vendors, business partners, and other third parties, and the Company’s proprietary, confidential, or sensitive information. As a result, the Company faces risks of security breaches, system disruption, theft, espionage, inadvertent release of information, and other technology-related disruptions. The Company could incur significant losses due to any such event.

Cyber threats evolve rapidly and are becoming more sophisticated, which may defeat the security programs and disaster recovery facilities and procedures implemented by the Company. Cyber attackers may defeat the Company's security measures and compromise the personal information of consumers, vendors, business partners, associates and other sensitive information. Associate error, faulty password management or other problems may compromise the security measures and result in a breach of the Company’s information systems, systems disruptions, data theft or other criminal activity. This could result in a loss of sales or profits or cause the Company to incur significant costs to restore its systems or to reimburse third parties for damages.

Changes in geopolitical conditions, including the ongoing conflict between Russia and Ukraine, may adversely affect the Company's operations.

In late February of 2022, Russia initiated a military operation in Ukraine. The Black Sea region is a key international grain and fertilizer export market and the conflict between Russia and Ukraine could continue to disrupt supply and logistics operations and impact global margins due to increased commodity, energy, and input costs, which could negatively impact the Company's profitability. To the extent the conflict between Russia and Ukraine adversely affects the Company's business, it may also have the effect of heightening other risks disclosed in this document and could further materially and adversely affect the Company's financial condition and profitability.

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Threats to security or the occurrence of severe weather conditions, natural disasters or other unforeseen events could harm the Company’s business.

The Company’s business could be severely impacted by severe weather conditions, natural disasters, or other events that could affect the warehouse and transportation infrastructure used by the Company and its vendors to supply the Company’s corporate owned retail stores, and Wholesale customers. Insurance programs may not fully cover losses, contingency plans adopted by the Company may fail, and the damage or destruction of Company facilities could compromise its ability to distribute products and generate sales and could increase energy costs needed to operate impacted facilities. Unseasonable weather conditions that impact growing conditions and the availability of food could also adversely and materially affect profitability, financial position or cash flows.

Climate change, as well as an increasing focus by stakeholders on environmental sustainability and corporate responsibility matters, could adversely affect the business, brand or reputation.

The Company is susceptible to risks associated with climate change, which may cause more frequent and extreme weather events. Risks associated with climate change include disruptions to the operations and supply chain; increased operating costs including those associated with use of natural gas, diesel fuel, gasoline and electricity; as well as increased costs and use of operational resources associated with complying with any new climate-related legal or regulatory requirements, including mandated use of alternative energy sources such as renewable energy or reduction of greenhouse emissions, all of which could disrupt and adversely affect the business and profitability, financial position or cash flows.

Additionally, there is increased focus by stakeholders, including governmental and nongovernmental organizations, investors and customers, on environmental sustainability and corporate responsibility matters, including climate change response, packaging and waste reduction, energy consumption, and diversity, equity and inclusion. The Company’s disclosure on these matters and the failure, or perceived failure, to meet their commitments or otherwise effectively address these environmental sustainability and corporate responsibility matters, could adversely affect the business, brand or reputation. In particular, business incidents or practices, whether actual or perceived, that erode customer trust or confidence, particularly if they receive considerable publicity or result in litigation, could have a negative impact on the business.

The Company's business and reputation may be adversely impacted by the increasing focus on environmental, social and governance matters.

In recent years, there has been an increasing focus by stakeholders – including investors, governmental and non-governmental organizations, employees, and some customers, and suppliers – on environmental, social and governance (“ESG”) matters. Implementation of ESG initiatives may have an adverse financial impact on the Company resulting from increased costs required to achieve desired results. Moreover, a partial or complete failure, whether real or perceived, to adequately address ESG priorities or to achieve progress on the Company's reported ESG initiatives, could adversely affect the Company’s reputation and negatively impact the Company’s financial and business operations. Conversely, taking a position, whether real or perceived, on ESG, public policy, geopolitical or similar matters could also adversely impact the reputation of the Company and its financial condition stemming from increased operational and product costs, reputational damage, and shareholder activism.

The Company may not successfully achieve its ESG-related goals, and any future investments that it makes in furtherance of achieving such goals may not produce the expected results or meet increasing stakeholder ESG expectations. Moreover, future events could lead the Company to prioritize other nearer-term interests over progressing toward current ESG-related goals based on business strategy, economic, regulatory, social or other factors. If the Company is unable to meet or properly report on the progress toward achieving the ESG-related goals, it could face adverse publicity and reactions from current or potential investors, activist groups or other stakeholders, which could result in reputational harm or other adverse effects to the Company.

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Disease outbreaks, such as the COVID-19 pandemic and associated responses, may disrupt our business by increasing costs, negatively impacting our supply chain, driving change in consumer behavior, and having an adverse impact on the Company's operations.

The COVID-19 pandemic and responses thereto continue to affect our industry and our business as many risks and uncertainties remain and some of the measures put in place in response to the pandemic continue to have material adverse impacts on business operations, including:

Any of the foregoing factors, or other effects of the pandemic may materially increase costs, negatively impact sales and damage the Company’s financial condition, profitability, cash flows and its liquidity position. The significance and duration of any such impacts are not possible to predict due to the overall uncertainty associated with COVID-19 and any future pandemic.

Impairment charges for goodwill or other long-lived assets could adversely affect the Company’s financial condition and profitability.

The Company is required to perform an annual impairment test for goodwill and other long-lived tangible and intangible assets in the fourth quarter of each year, or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. Testing goodwill and other assets for impairment requires management to make significant estimates about the Company’s future performance, cash flows, and other assumptions that can be affected by potential changes in economic, industry or market conditions, business operations, competition, or – for goodwill – the Company’s stock price and market capitalization. Changes in these factors, or changes in actual performance compared with estimates of the Company’s future performance, may affect the fair value of goodwill or other assets. This could result in the Company recording a non-cash impairment charge for goodwill or other long-lived assets in the period the determination of impairment is made. The Company cannot accurately predict the amount or timing of potential impairments of assets. Should the value of goodwill or other assets become impaired, the Company’s financial position and profitability may be adversely affected.

The Company may not successfully manage transitions associated with the executive leadership team.

The Company’s success depends upon the continued services of executive officers and other key personnel, as well as its ability to effectively transition to their successors. Within the past two years, the Company has appointed several new executive leaders. These transitions may be disruptive to the Company, and if the Company is unable to execute an orderly transition and successfully integrate the new executives to successfully develop and implement strategic initiatives, the Company’s revenue, operating results and financial performance may be adversely affected. Any future changes to the executive leadership team, including hires or departures, could cause further disruption to the business and have a negative impact on operating performance, while these operational areas are in transition. The Company may not be able to timely find suitable successors to key roles as transitions occur or may not successfully integrate successors into its leadership team or the Company’s business operations. The Company’s inability to retain other key leaders or effectively transition to their successors, or any delay in filling any such critical positions, could harm its business and profitability.

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Risks Related to the Company’s Indebtedness

The Company is exposed to interest rate risk due to the variable rates on its indebtedness, which may increase debt service obligations if interest rates rise.

The Company’s borrowings under the Revolving Credit Facility bear interest at variable rates and expose it to interest rate risk. The Company may not be able to accurately predict changes in interest rates or mitigate their impact. If interest rates increase, debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remains the same and the Company’s profitability would decrease. A hypothetical 0.50% increase in rates applicable to borrowings under the Revolving Credit Facility as of December 31, 2022 would increase interest expense related to such debt by approximately $2.2 million per year.

Covenants in its debt agreements restrict the Company’s operational flexibility.

The agreements governing the Revolving Credit Facility contain usual and customary restrictive covenants relating to the management and operation of the Company, including restrictions on its ability to borrow, pay dividends, or consummate certain transactions. These covenants may prevent the Company from taking actions that it believes would be in the best interest of the business and may make it difficult for the Company to successfully execute its business strategy and transformation initiatives or effectively compete with companies that are not similarly restricted. The Company may also incur future debt obligations that might subject it to additional restrictive and financial covenants that could affect financial and operational flexibility. The Company may not be granted waivers of or amendments to these agreements if for any reason it is unable to comply with them, or the Company may not be able to refinance its debt on acceptable terms or at all. In addition, failure to comply with the covenants in the Company’s debt agreements could result in all of its indebtedness becoming immediately due and payable.

The Company’s level of indebtedness could adversely affect its financial condition and its ability to raise additional capital or obtain financing in the future, respond to business opportunities, react to changes in its business, and make required payments on its debt.

As of December 31, 2022, the Company had outstanding indebtedness of $503.6 million (net of unamortized debt issuance costs), primarily related to its asset-based lending facility (the "Revolving Credit Facility"). Refer to Note 6 in the accompanying notes to the consolidated financial statements for further information. If the Company is not able to generate cash flow from operations sufficient to service its debt, it may need to refinance its debt, dispose of assets or issue equity to obtain necessary funds. The Company may not be able to take any of such actions on a timely basis, on satisfactory terms or at all.

Indebtedness could have significant consequences, including the following:

The Company’s level of indebtedness may further increase from time to time. Although the Company’s agreements governing indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness, including secured debt, that could be incurred in compliance with these restrictions could be substantial. Incurring substantial additional indebtedness could further exacerbate the risks associated with the Company’s level of indebtedness.

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Legal, Regulatory and Legislative Risks

Changes in government regulations may have a material adverse effect on financial results.

The Company operates in a highly regulated environment. The products we distribute and sell through our retail stores are subject to inspection and regulatory action by the United States Food and Drug Administration. Our warehouses and distribution centers are subject to inspection by the United States Department of Agriculture, the United States Department of Labor Occupational and Health Administration, and various state health and workplace safety authorities, and our logistics operations are subject to regulation by the United States Department of Transportation and the United States Federal Highway Administration. Moreover, as a federal contractor, the Company must develop and maintain Affirmative Action Programs under the Rehabilitation Act, as enforced by the Office of Federal Contract and Compliance Programs, which may cause the Company to incur significant reputational and monetary damages for alleged discrimination in employment practices. In addition, the various federal, state and local laws, regulations and administrative practices to which the Company is subject require us to comply with numerous provisions regulating areas such as environmental, health and sanitation standards, food safety, marketing of natural or organically produced food, facilities, pharmacies, equal employment opportunity, public accessibility, employee benefits, wages and hours worked and licensing for the sale of food, drugs, tobacco and alcoholic beverages, among others. Changes in federal, state or local minimum wages and overtime laws, federal tax laws, or employee paid leave laws could result in the Company incurring significant labor costs which could have material adverse effects on the Company’s financial position and profitability. The Company employs hourly associates who are compensated at an hourly rate lower than $15.00. If minimum wage rates increase, the Company would have to increase the wages of employees who fall below the new minimum and may need to increase the wages of employees in close proximity above the new minimum to address wage compression. In addition, changes in federal tax regulations may result in significant increases in the Company’s current and deferred tax liabilities, and may include changes in federal tax rates and the deductibility of certain costs. Failure to comply with existing or new laws or regulations could result in significant damages, penalties and/or litigation costs for the Company.

The Company’s Wholesale segment is dependent upon domestic and international military operations. A change in the military commissary system, including its supply chain, or a change in the level of governmental funding, could negatively impact the Company’s business.

Because the Company’s Wholesale segment sells and distributes grocery products to military commissaries and exchanges in the United States and overseas, any material changes in the commissary system, the level of governmental funding to DeCA, military staffing levels, or locations of bases, or DeCA’s supply chain may have a corresponding impact on the sales and operating performance of this segment. These changes could include privatization of some or all of the military commissary system, relocation or consolidation of commissaries and exchanges, base closings, troop redeployments or consolidations in the geographic areas containing commissaries and exchanges served by the Company, a change by DeCA to a self-distribution model, or a reduction in the number of persons having access to the commissaries and exchanges. Mandated reductions in the government expenditures, including those imposed as a result of a sequestration, may impact the level of funding to DeCA and could have a material impact on the Company’s operations. If DeCA were to make material changes to its supply chain model, for example by limiting distribution authorization, then the Company’s Wholesale segment could be affected.

Product recalls or other safety concerns regarding the Company’s products could harm the Company’s reputation as well as increase its costs.

The Company faces risks related to the safety of the food products that it distributes or sells. It may need to recall such products for actual or alleged contamination, adulteration, mislabeling, or other safety concerns. The Company distributes fresh fruits and vegetables, as well as other fresh prepared foods. These products, and other food products that the Company sells, are at risk of contamination by disease-causing organisms such as Salmonella, E. coli, and others. These pathogens are generally found in nature, and as a result, there is a risk that they could be present in the products distributed or sold by the Company. The Company typically has little control over proper food handling before the Company’s receipt of the product or once the product has been delivered to the Company's retail customers. Recall costs can be material. A widespread product recall could result in significant losses due to the administrative costs of a recall, the destruction of inventory, and lost sales. Recalls and other food safety concerns can also result in adverse publicity, damage to the Company’s reputation, and a loss of confidence in the safety and quality of its products. Customers may avoid purchasing certain products from the Company, or may seek alternative sources of supply for some or all of their food needs, even if the basis for concern is outside of the Company’s control. Any loss of confidence on the part of the Company’s customers would be difficult and costly to overcome. Any real or perceived issue regarding the safety of any food or drug items sold by the Company, regardless of the cause, could have a substantial and adverse effect on the Company’s business.

A number of the Company’s associates are covered by collective bargaining agreements, and unions may attempt to organize additional associates.

Approximately 7% of the Company’s associates are covered by collective bargaining agreements (“CBAs”) which expire between February 2024 and April 2026. The Company expects that rising healthcare, pension and other employee benefit costs, among other issues, will continue to be important topics of negotiation with the labor unions. Upon the expiration of the Company’s CBAs, work stoppages by the affected workers could occur if the Company is unable to negotiate an acceptable contract with the labor unions. This could significantly disrupt the Company’s operations.

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Further, if the Company is unable to control healthcare and pension costs provided for in the CBAs, the Company may experience increased operating costs and an adverse impact on future profitability.

The Company may continue to see additional union organizing campaigns. The potential for unionization could increase as any new related legislation or regulations are passed. The Company respects its associates’ right to unionize or not to unionize. However, the unionization of a significant portion of the Company’s workforce could increase the Company’s overall costs at the affected locations and adversely affect its flexibility to run its business in the most efficient manner to remain competitive or acquire new businesses and could adversely affect its profitability by increasing its labor costs or otherwise restricting its ability to maximize the efficiency of its operations.

Costs related to multi-employer pension plans and other postretirement plans could increase.

The Company contributes to the Central States Southeast and Southwest Pension Fund (the “Central States Plan” or the “Plan”), a multi-employer pension plan, based on obligations arising from its CBAs with Teamsters locals 406 and 908. SpartanNash does not administer or control this Plan, and the Company does not have control over the level of contributions the Company is required to make. Benefit levels and related issues may continue to create collective bargaining challenges. The amount of any increase or decrease in its required contributions to this Plan will depend upon the outcome of collective bargaining, the actions taken by the trustees who manage the Plan, governmental regulations, actual return on investment of Plan assets, the continued viability and contributions of other contributing employers, and the potential payment of withdrawal liability should the Company choose to exit a geographic area, among other factors. Costs related to multi-employer pension plans and other postretirement plans could increase and adversely affect the Company’s financial conditions and results of operation.

Refer to Note 8 in the accompanying notes to the consolidated financial statements for further information.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following table lists the locations and approximate square footage of the Company’s distribution centers used by its Wholesale segment as of December 31, 2022. The lease expiration dates for the distribution centers primarily servicing the Wholesale segment range from October 2023 to December 2031. The majority of these leases contain renewal options beyond these dates, if exercised.

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The following table lists the Company’s retail stores, including the adjacent fuel centers of the related stores, by retail banner, number of stores, location and approximate square footage under each banner as of December 31, 2022.

The Company also owns one fuel center that is not reflected in the retail square footage above, a Family Fare Quick Stop in Michigan that is not included with a corporate owned retail store but is adjacent to the Company’s corporate headquarters. Also not reflected in the retail square footage above are three pharmacies not associated with corporate-owned retail locations, located in Iowa, Michigan, and Wisconsin as well as certain properties used to facilitate the stock and transfer of goods between retail stores.

The Company’s headquarters is located in Grand Rapids, Michigan. The Company maintains offices in multiple states consisting of approximately 328,000 square feet in Company-owned buildings and 23,000 square feet in leased facilities. The Company also leases two additional off-site storage facilities consisting of approximately 50,000 square feet. The Company owns and leases to independent retailers eight stores totaling approximately 372,000 square feet and owns and leases to third parties one warehouse of approximately 422,000 square feet and office space totaling 109,000 square feet.

The Company believes that its properties are generally well maintained and in good operating condition, have sufficient capacity, and are suitable and adequate to carry on its business as currently conducted.

Item 3. Legal Proceedings

From time-to-time, the Company is engaged in routine legal proceedings incidental to its business. The Company does not believe that these routine legal proceedings, taken as a whole, will have a material impact on its business or financial condition. Additionally, various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against the Company. While the ultimate effect of such actions, lawsuits and claims cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the Company’s consolidated financial position, operating results or liquidity. Legal proceedings, various lawsuits, claims, and other matters are more fully described in Note 8, in the notes to consolidated financial statements, which is herein incorporated by reference.

Item 4. Mine Safety Disclosures

Not Applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

SpartanNash common stock is traded on the Nasdaq Global Select Market under the trading symbol “SPTN.”

As of February 27, 2023, there were approximately 1,300 shareholders of record of SpartanNash common stock.

During the fourth quarter of 2017, the Board authorized a $50.0 million share repurchase program, which expired during the fourth quarter of 2022. On February 24, 2022, the Board of Directors authorized the repurchase of common shares in connection with a new $50 million program, which expires on February 22, 2027. As of December 31, 2022, $44.0 million remains available under the new program. The Company plans to return value to shareholders through share repurchases under this program as well as continuing regular dividends

In 2022, 2021, and 2020 the Company repurchased 1,046,538, 265,000, and 860,752 shares of common stock for approximately $32.5 million, $5.3 million and $10.0 million, respectively.

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Repurchases of common stock may include: (1) shares of SpartanNash common stock delivered in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares. The value of the shares delivered or withheld is determined by the applicable stock compensation plan. The following table provides information regarding SpartanNash's purchases of its own common stock during the 12-week period ended December 31, 2022.

Performance Graph

Set forth below is a graph comparing the cumulative total shareholder return on SpartanNash common stock to that of the S&P SmallCap 600 Food Distributors Index and the S&P SmallCap 600 Index, over a period beginning December 30, 2017 and ending on December 31, 2022.

Cumulative total return is measured by the sum of (1) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and (2) the difference between the share price at the end and the beginning of the measurement period, divided by the share price at the beginning of the measurement period.

The dollar values for total shareholder return plotted above are shown in the table below:

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The information set forth under the Heading “Performance Graph” shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act, except to the extent that the registrant specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act.

Item 6. Reserved

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

About SpartanNash

SpartanNash, headquartered in Grand Rapids, Michigan, is a food solutions company that delivers the ingredients for a better life. As a distributor, wholesaler and retailer with a global supply chain network, SpartanNash customers span a diverse group of national accounts, independent and chain grocers, e-commerce retailers, U.S. military commissaries and exchanges, and the Company’s own brick-and-mortar grocery stores, pharmacies and fuel centers. SpartanNash distributes grocery and household goods, including fresh produce and its Our Family® portfolio of products, to locations in all 50 states.

At the beginning of the third quarter of 2022, the Company combined the previous Food Distribution and Military operating segments into one operating segment: Wholesale. The change in the operating segments was driven by both a change in the Company’s organizational structure, and in the reporting utilized by the Chief Operating Decision Maker to allocate the Company’s resources and assess operating performance. The combination of the two segments reflects the way the Company manages the distribution business as one comprehensive distribution network and furthers the Company’s efforts to streamline operations in connection with its supply chain transformation and to better serve customers. As a result, the Company now operates two reportable segments: Wholesale and Retail. These reportable segments are two distinct businesses, each with a different customer base, management structure, and basis for determining budgets, forecasts, and compensation. Segment financial information for the comparative prior year periods within this report has been recast to reflect this update.

Overview of 2022

In a dynamic operating environment, the Company has continued to execute on Our Winning RecipeTM, which drove solid fiscal 2022 results. The plan continues to generate sustainable growth, as the Company further optimizes its supply chain network and captures additional cost savings, while providing exceptional customer service and additional offerings. Through the supply chain transformation initiative, the Company secured $25 million in run-rate cost savings and anticipates that the merchandising transformation initiative will begin generating significant benefits for customers, vendors, and the Company in 2023 and beyond. The Company’s 2022 highlights include:

Wholesale

Retail

Other Highlights

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Results of Operations

The current year results of operations are presented in comparison to the prior year within the section below. For a discussion of the results of fiscal 2021 operations in comparison to fiscal 2020, refer to the Management’s Discussion and Analysis of Financial Condition and Results of Operations within the prior year Annual Report on Form 10-K.

The Company believes that certain known or anticipated trends may cause future results to vary from historical results. The Company believes certain initiatives including the supply chain transformation and merchandising transformation, as well as plans to gain market share in both the Retail and Wholesale segments will favorably impact future results. The Company anticipates that additional investments in capital expenditures will be necessary to support these and other programs. Offsetting the Company’s expectations of favorable future results are macroeconomic headwinds including increasing labor costs, elevated interest rates, lower inflation-related price gains, and the reduction in government food assistance programs. The Company is also exposed to other general commodity price changes such as utilities, insurance and fuel costs.

The following table sets forth items from the Company’s consolidated statements of earnings as a percentage of net sales and the percentage change from the preceding year:

Note: Certain totals do not sum due to rounding.

** Not meaningful

Net Sales – The following table presents net sales by segment and variances in net sales between fiscal 2022 and fiscal 2021:

Net sales increased $712.1 million, or 8.0%, to $9.64 billion in 2022 compared to $8.93 billion in 2021. The increase was attributable to increases in net sales in both the Wholesale and Retail segments, which were favorably impacted by inflation.

Wholesale net sales increased $495.5 million, or 7.8%, to $6.85 billion in 2022 compared to $6.35 billion in the prior year. The increase in net sales was due primarily to the inflationary impact on pricing, which increased net sales by 10.4% compared to the prior year, while lower case volumes decreased net sales by 2.6% compared to the prior year.

Retail net sales increased $216.6 million, or 8.4% to $2.80 billion in 2022 compared to $2.58 billion in the prior year. The increase in net sales was primarily due to inflationary pricing. Comparable store sales increased 7.7% in the current year. Retail comparable store sales increased by 9.6% due to inflation, and decreased by 1.9% due to reduced item counts. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions, or relocated stores. Acquired stores are included in the comparable sales calculation 13 periods after the acquisition date. Sales are compared to the same store’s operations from the prior year period for purposes of calculation of comparable store sales. Fuel is excluded from the comparable sales calculation due to volatility in price. Comparable store sales is a widely used metric among retailers, which is useful to management and investors to assess performance. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.

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Gross Profit – Gross profit represents net sales less cost of sales, which is described in further detail within Note 1, in the notes to the consolidated financial statements. Gross profit increased $93.6 million, or 6.7%, to $1.50 billion in the current year compared to $1.40 billion in the prior year primarily due to the increase in net sales. As a percent of net sales, gross profit decreased from 15.7% to 15.5% primarily due to an increase in LIFO expense of $38.2 million, or 38 basis points, and a decrease in the Retail segment's margin rate. These lower margin rates were partially offset by improvements in margin rates within the Wholesale segment.

Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of operating costs related to retail and supply chain operations, including salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation, and out-bound freight, in addition to corporate administrative expenses. SG&A expenses increased $118.3 million, or 9.0%, to $1.43 billion in the current year from $1.31 billion in the prior year. As a percent of net sales, SG&A expenses increased from 14.7% to 14.8% primarily due to higher corporate administrative costs, including increased incentive compensation of $21.6 million, costs related to shareholder activism of $7.3 million, and up-front investments in the merchandising transformation initiative of $10.6 million. The increase in operating expenses was partially offset by a reduction in supply chain expense rates as a result of efficiencies realized and lower fees associated with the supply chain transformation initiative, as well as lower health insurance costs.

Paid Time Off Transition Adjustment – Paid time off transition adjustment represents the transition impact of a new paid time off (“PTO”) plan of $21.4 million in the prior year. During the fourth quarter of 2021, the Company elected to transition from a grant-based policy to an accrual-based policy, which resulted in a lower required accrual balance at the end of the fiscal year. The former PTO plan granted employees their full PTO once annually based on an employee’s service in the previous year. As the employee’s compensation for future absences related to the employee’s service in the previous year, the Company was required to accrue for the full PTO grant. Under the new PTO plan, employees earn rights ratably throughout the year based on hours worked. Upon transition at the end of 2021, the Company allowed employees to begin the new plan with the unused portion of the previous annual PTO grant. The transition impact represents the difference between the former plan’s full PTO grant and the starting balance under the new plan.

Acquisition and Integration, net – Acquisition and integration, net was $0.3 million in the current year compared to $0.7 million in the prior year. The expense in the current year primarily related to acquisitions in both the Retail and Wholesale segments, partially offset by the reversal of a litigation accrual, which was initially established at the time of the Martin's Super Markets acquisition. Prior year expense was associated with the integration of Martin's Super Markets.

Restructuring and Asset Impairment, net – In the current year, $0.8 million of net restructuring and asset impairment charges were incurred. The charges were largely composed of $5.1 million of asset impairment charges in the Retail segment, which primarily relate to restructuring of the segment's e-commerce delivery model, and $1.8 million of provisions for closing charges associated with lease ancillary costs. These charges in the current year were mostly offset by $6.3 million gain on sales of real property of previously closed locations within the Wholesale and Retail segments. Prior year results included $2.9 million of net restructuring and asset impairment, which were largely composed of $3.8 million of asset impairment charges primarily in the Retail segment which relate to prior year store closures and previously closed locations, as well as site closures in connection with the Company’s supply chain transformation initiative within the Wholesale segment and $1.5 million of provision for closing charges associated with lease ancillary costs. These charges in the prior year were partially offset by $2.6 million gain on sales of pharmacy customer lists, equipment and real estate associated with the store closings in the Retail segment, in addition to the gains on the sale of vacant land in the Wholesale segment.

Operating Earnings – The following table presents operating earnings by segment and variances in operating earnings:

The Company reported operating earnings of $68.5 million in the current year compared to $112.2 million in the prior year. The decrease of $43.7 million, or 38.9%, was attributable to changes in net sales, gross profit and operating expenses discussed above as well as cycling the transition impact of the new PTO plan in the prior year of $21.4 million.

Wholesale operating earnings increased $9.9 million, or 21.9%, to $55.1 million in the current year from $45.2 million in the prior year. The increase was primarily attributable to increased sales, a higher gross margin rate and a lower rate of supply chain labor and transportation expenses. These favorable variances were partially offset by higher LIFO expense, an increase in corporate administrative costs as well as cycling the transition impact of the new PTO plan in the prior year of $10.0 million.

Retail operating earnings decreased $53.6 million, or 80.0%, to $13.4 million in the current year compared to $67.0 million in the prior year. The decrease was primarily attributable to a lower gross profit rate, increased corporate administrative costs, investments in store wage rates, and the transition impact of the new PTO plan of $11.3 million in the prior year.

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Interest Expense – Interest expense increased $8.9 million, or 64.5%, to $22.8 million in the current year from $13.9 million in the prior year primarily due to rising interest rates. The weighted average interest rate for all borrowings, including loan fee amortization increased 1.83% to 4.65% in 2022, compared to 2.82% in 2021. The total debt balance increased $97.9 million to $503.6 million in 2022, compared to $405.7 million in 2021.

Income Taxes – The Company’s effective income tax rates were 26.4% and 25.2% for 2022 and 2021, respectively. The differences from the federal statutory rate in the current year were primarily due to state taxes, limitations on the deductibility of executive compensation and non-deductible expenses, partially offset by tax benefits associated with federal tax credits and discrete tax benefits related to stock compensation. In the prior year, the difference from the federal statutory rate was primarily due to state taxes and the limitations on the deductibility of executive compensation, partially offset by federal tax credits.

On March 27, 2020, the U.S. government enacted tax legislation to provide economic stimulus and support businesses and individuals during the COVID-19 pandemic, referred to as the CARES Act. In connection with the Coronavirus Aid, Relief and Economic Security ("CARES") Act, the Company recorded net discrete income tax benefits of $9.3 million in 2020, associated with the additional deductibility of certain expenses combined with provisions which enable companies to carry back tax losses to years prior to the enactment of the Tax Cuts and Jobs Act, when the federal statutory income tax rate was 35%. In the first quarter of 2021, the Company received tax refunds totaling $25.7 million related to the amended prior year returns.

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), net long-term debt, and adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. The measures, when considered in connection with GAAP results, can be used to assess the overall performance of the Company as well as assess the Company’s performance against its peers. These measures are also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.

At the beginning of 2022, the Company made a change to the adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EPS measures to exclude the impact of LIFO expense or benefit. The Company believes the change reduces volatility associated with temporary fluctuations in inflation, enabling investors to best establish a basis for expected performance and the ability to evaluate actual results against that expectation and the industry in which the Company operates. Prior year adjusted operating earnings and adjusted earnings from continuing operations figures have been restated to align with this change in presentation.

Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, among other items, LIFO expense, costs related to shareholder activism, operating and non-operating costs associated with the postretirement plan amendment and settlement, non-operating costs associated with the write off of certain unamortized deferred financing costs related to the debt modification, organizational realignment, and severance associated with cost reduction initiatives. Costs related to shareholder activism include consulting, legal, and other expenses incurred in relation to shareholder activism activities. Costs related to the postretirement plan amendment and settlement include non-operating expenses associated with recognition of plan settlement losses and amortization of the prior service credit related to the amendment of the retiree medical plan, which are adjusted out of adjusted earnings from continuing operations. Postretirement plan amendment and settlement costs also include operating expenses related to payroll taxes which are adjusted out of all non-GAAP financial measures. Organizational realignment includes benefits for associates terminated as part of leadership transition plans, which do not meet the definition of a reduction-in-force.

Prior year adjusted earnings from continuing operations, and adjusted EBITDA exclude organizational realignment, severance associated with cost reduction initiatives and the transition impact of a new paid time off plan. The transition impact of a new paid time off plan is not expected to recur in the foreseeable future and is considered “non-operational” or “non-core” in nature. In 2020, adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude “Fresh Cut operating losses” subsequent to the decision to exit these operations during the first quarter, severance associated with cost reduction initiatives, organizational realignment costs and fees paid to a third-party advisory firm associated with Project One Team, the Company’s initiative to drive growth while increasing efficiency and reducing costs. Pension termination income related to refunds from the annuity provider associated with the final reconciliation of participant data, as well as net tax benefits associated with the CARES Act, are excluded from adjusted earnings from continuing operations. These measures were adjusted for the impact of the 53rd week in 2020 to provide better comparability to other years. Each of the adjusted items are considered “non-operational” or “non-core” in nature.

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The Company is unable to provide a full reconciliation of the GAAP to non-GAAP measures used in the fiscal 2023 outlook without unreasonable effort because it is not possible to predict certain adjustment items with a reasonable degree of certainty since they are not yet known or quantifiable, and do not relate to the Company's routine activities. These adjustments may include, among other items, restructuring and asset impairment activity, acquisition and integration costs, severance, costs related to the postretirement plan amendment and settlement, and organizational realignment costs, and the impact of adjustments to the LIFO inventory reserve. This information is dependent upon future events, which may be outside of the Company's control and could have a significant impact on its GAAP financial results for fiscal 2023.

Adjusted Operating Earnings

Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the Company as a whole and for its operating segments. The Company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis. Adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted operating earnings and adjusted operating earnings by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in an adjusted operating earnings format.

Adjusted operating earnings is not a measure of performance under GAAP and should not be considered as a substitute for operating earnings, and other income statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.

Following is a reconciliation of operating earnings to adjusted operating earnings for 2022, 2021 and 2020.

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