Natural retail’s growth rate may be slowing, but UNFI’s president says the company remains an important partner in a market with long-term growth opportunity.
Steven L. Spinner, UNFI’s president and chief executive officer, shared insights about the state of natural retail and UNFI more specifically during a Wednesday afternoon earnings call in which he and other leaders reported UNFI’s first-quarter financial results.
“I don’t believe we think that the dynamics within our existing customer base are going to get considerably better throughout the remainder of this year,” he said, referring to the state of retail.
But he sees UNFI playing an important role in strategic initiatives occurring at stores across the nation. Spinner predicts natural retail growth will be about 7 percent in the coming year. Historically, natural retail sales growth has been in the low double digits and high single digits. Sales grew 8.7 percent in 2015, according to the Natural Foods Merchandiser Market Overview.
Factors slowing growth include the larger number of retailers serving the market as natural becomes mainstream; the diversifying channels of competition including ecommerce and home delivery; and changing consumer buying habits, Spinner said. Same-store sales struggle as retailers operate in a competitive, consolidating and deflationary environment, he added.
Yet retailers are investing in store execution, design, resets and the fresh category to meet changing consumer demands, Spinner pointed out. UNFI sees itself as a partner in helping to grow fresh, identify differentiated products, assist with category management and execution of such design goals. These services create some incremental revenue when the company charges a retailer for this assistance.
“We have a significant infrastructure and retailers rely on us,” Spinner said. “We feel we’re better positioned than anyone to maneuver through this environment.”
For its first quarter of fiscal 2017, UNFI’s results included:
- Net sales growth of 9.7 percent to $2.28 billion compared to $2.08 billion for the same period last fiscal year. Net sales were positively impacted by the acquisitions of Haddon House Food Products, Global Organic/Specialty Source, Nor-Cal Produce and Gourmet Guru.
- Gross margin increased 20 basis points to 15.32 percent compared to the same period last fiscal year.
- Total operating expenses increased $35.6 million to $295.7 million for the first quarter of fiscal 2017 compared to $260.0 million in the first quarter of fiscal 2016. Total operating expenses were 12.98 percent of net sales, an increase of 46 basis points compared to the same period last fiscal year. The increase was attributed to the acquired businesses, which have higher costs to serve.
Sales growth by channel was:
- Supernaturals up 4.6 percent.
- Supermarkets up 13.5 percent.
- Independents up 10 percent.
- Foodservice up 8.1 percent.
- Ecommerce up 22.4 percent.