Natural Foods Merchandiser

Tree of Life says service is improving

Having closed warehouses around the country, laid off staff and eliminated SKUs, Tree of Life North America is now trying to explain itself to retailers, manufacturers and investors.

The St. Augustine, Fla., distributor consolidated two California warehouses into a third in Los Angeles, which it shares with its specialty foods division, Gourmet Award Foods. It closed a warehouse in Texas and one in Florida.

Service levels ?still [vary] by distribution center, generally ranging between 90 percent and 95 percent monthly,? said Greg Leonard, Tree?s corporate vice president for communications and trade relations. ?We?ve made major improvements in the last year.?

Last fall, Off the Record Research, which follows Tree?s competitor, United Natural Foods Inc., quoted a manufacturer saying that ?Tree?s service level—the measure of how well shelves are stocked—is only averaging 84 percent in the Northeast and even below that in the Southeast.?

Independent retailers say new policies at Tree—including a full-case minimum on deliveries—are designed to drive them away.

But Leonard said the company makes weekly deliveries to more than 5,000 naturals stores around the country. ?It?s true that a somewhat higher percentage of our natural food sales are shifting into the supermarket channel, but that?s a reflection of consumer demand,? he said. ?It would be wrong to view that as a decreased commitment to the natural food store channel.?

In the final stage of Tree?s ?Build From the Roots? reorganization, the company created a new East region based in St. Augustine. Its other regional headquarters are in Bloomington, Ind., and Dallas.

Executives from Tree and Wessanen, its parent company, blamed poor sales and service in late 2004 on two extraordinary events: the collapse of the low-carb business and four hurricanes in six weeks in Tree?s home state of Florida.

?We were in emergency management mode for almost half of the third quarter,? Chief Executive Officer Alec Covington told analysts in November.

Sales of low-carb products at Tree dropped from $125 million in 2003 to $60 million in 2004, Covington said. According to Leonard, low-carb inventories have been sold and ?that challenge is now behind us.?

Tree has already cut 10 percent of its SKUs and 1,500 employees and is working to coordinate buying nationally, rather than having each of its 13 warehouses making independent procurement decisions.

Purchasing has been reorganized into category management, vendor management and inventory management functions.

Another new initiative, a marketing service called ?Smart Assortment,? uses demographics, store information and sales data generated through category management to calculate what items retailers should stock.

Covington said that the company needs to shift from a channel-driven strategy, where specialty and natural/organic products had their own warehouses, to a realization that consumers buy a little bit of everything.

?Historically, Tree of Life North America has been very channel-driven,? he said. ?I don?t believe in that. I believe in supporting customers, not channels.?

Natural Foods Merchandiser volume XXVI/number 3/p. 24

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