Natural Foods Merchandiser
Distribution update: smaller companies finding niche

Distribution update: smaller companies finding niche

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.

Along with the “big three”—United Natural Foods, Tree of Life and Kehe Distributors—the natural products distribution landscape is dotted with many smaller natural and organic and specialty distributors. Yet despite their more minute size and reach, they face many of the same challenges as their bigger, beefier brothers.

Brea, Calif.-based Nature’s Best serves about 2,000 independent retail customers in the western U.S., Alaska and Hawaii. After “challenging times” the last couple of years, the privately held company is posting double-digit growth again, says Russell Parker, vice president of operations.

“Before Tree of Life left the West, we had to compete with UNFI and Tree of Life every minute. It kept us sharp. Now there’s only one evil empire we have to keep our eye on,” Parker says with laugh before adding, “we are very sober about UNFI. But because we are so small, we can change instantly.”

That nimbleness has been a big factor for Phoenix-based Sprouts Farmers Market, which has been opening stores at a fast clip. By the end of 2010, Sprouts will have opened 54 stores in four states in just over eight years, says President Doug Sanders.

“We’ve had delivery schedules that needed to be changed, resources to help set up new stores, and Nature’s Best has been so accommodating,” he says. “When we made the leap to Texas, they weren’t in Texas at the time. They worked with us to resolve the problem.”

Parker says Nature’s Best focuses on staying on the cutting edge of new products—the company is seeing a lot of growth in dietary supplements—by making use of sophisticated software to track trends in inventories, which keeps out-of-stocks low and service levels high.

“What we hear from our customers is not necessarily better pricing, but more accurate delivery windows,” Parker says. “If a truck is scheduled to arrive at 7 o’clock, you have employees there waiting to unload. But if the truck doesn’t arrive until 8, the employees are just standing around—and you still have to pay them.”

Parker says retailers also “expect us to have a very strong in-stock position. They have fewer cups of yogurt or cans of tomatoes on the shelves because they know we will deliver when they need it. They can have lower minimum quantities. We’re supposed to be the one that ties up cash in inventory.”

Nature’s Best is “open to the possibility” of acquiring another distributor, though “there aren’t that many opportunities out there,” Parker says. On the other side of the coin, would it be open to an offer from a potential buyer? “Absolutely not,” he says.
One way to stave off the competition is to not compete. Neshaminy Valley Natural Foods Distributor of Ivyland, Pa., has been ensconced in its niche as a secondary organic food and natural products distributor from Massachusetts to Virginia since 1977. The company, which has about 1,200 customers, does not handle products that contain sugar or fructose. It also carries about 325 bulk items, 85 percent of which are organic.

“Fifty percent of our products are not readily available from other venues,” says Founder and CEO Phil Margolis. “It’s a reason to order from us.”

Margolis says Neshaminy Valley routinely posts 5 percent to 10 percent annual growth. But the recession has caused a change in orders from retailers, though. “The frequency of purchasing is down, but average order size has remained the same as it has for the last several years,” he says. “You’d expect to see a decrease in both, but only frequency is down. I don’t know why.”

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