Natural Foods Merchandiser
The changing natural products distribution industry

The changing natural products distribution industry

Natural products distributors, facing challenges from a turbulent economy and rapidly changing technology, are finding new, streamlined ways to get products on store shelves and forge stronger ties with retailers. At the same time, distributors’ customers, facing challenges of their own, are looking for the best price, reliably stocked inventories, on-time deliveries and attentive service.

Natural Foods Merchandiser explores how the products get to their destinations and who gets them there in this four-part look at the natural products distribution sector.

UNFI: Goliath among the Davids

The world of natural and organic products distribution is dominated by United Natural Foods Inc., a multibillion-dollar behemoth that distributes natural and organic products to large chains as well as small independents in the U.S. and Canada.

Providence, R.I. -based UNFI is expected to post earnings of $1.54 per share on revenue of $3.64 billion for fiscal year 2010. The company carries more than 60,000 natural, organic and specialty products, including personal care and dietary supplements, and serves more than 17,000 customers nationwide from 13 distribution centers—its newest a facility that opened last summer in Texas. It has a handful of other natural and organic divisions, including a chain of 13 natural products stores in the East.

As Mike Gilliland, head of Boulder, Colo.-based Sunflower Farmers Market and a customer of UNFI, puts it, “They own the business.”

UNFI completed a deal earlier this year to buy SunOpta’s Canadian food distribution group for $68 million. The deal makes UNFI the largest distributor of natural and organic products in North America. And in June, UNFI and natural food giant Whole Foods Market of Austin, Texas, extended their distribution agreement for an additional seven years.

But despite its apparent lock on the market, UNFI Chairman and Cofounder Michael Funk says the company has no intention of taking it easy. “You work like you’re number two,” he says. The company’s focus for the next few years will be on investing in technological advancements aimed at improving warehouse management, transportation, timely deliveries and inventory levels. That will not only lower costs but also “significantly reduce our mis-picks. The investment in technology will really take us to the next level,” Funk says.

He believes that investment, in turn, will help retailers, who want “the lowest cost, on-time deliveries and the highest product selection. One thing we’re focused on is to insure the independents stay healthy. They’re still 40 percent of our business. The independents need us to be price competitive.”

Funk says UNFI’s relationship with its manufacturers is going through “a major shift. We need to help them improve their out-of-stocks, and work together to stabilize our inventories.” UNFI’s out-of-stocks are about 2 percent, but manufacturers average about 5 percent, “higher than it should be,” he says. “Everyone loses money when a product is not on the shelves.”

Stay tuned for next week as NFM explores the Tree of Life-Kehe consolidation.

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