Natural Foods Merchandiser
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New UNFI Leader Puts Parts Together

Buying Northeast Cooperatives should help United Natural Foods Inc. be even more competitive in a rapidly consolidating market, but the nation's largest wholesale natural foods distributor has tapped Steven H. Townsend to make sure.

Townsend, responsible for the turnaround of UNFI's troubled Eastern region, was to become president and CEO on Jan. 1. With the distributor for 20 years, Townsend succeeds Michael Funk, who was elected chairman of the board. Former Chairman Thomas B. Simone was elected vice chairman.

RBC Capital Markets analyst Carole Buyers called the management changes a positive development that indicates depth on UNFI's executive bench. "Townsend is the logical successor," said Buyers, who has known the new chief executive for about seven years. "Michael Funk commands a lot of respect in our industry and still will be important in the strategic development of the company."

UNFI announced the deal with Northeast a week after it completed the $31 million purchase of Midwestern naturals powerhouse, Blooming Prairie Cooperative. Blooming Prairie logged $130 million in sales in 2002.

The deal was to have closed by Dec. 31.

Northeast's distribution network is strong in the Northeast and Midwest, and UNFI expects to consolidate the co-op's Brattleboro, Vt., warehouse into a facility in Chesterfield, N.H. However, Northeast's customer base is much different than UNFI's, with less than 3 percent of its $120 million in annual sales coming from Whole Foods Market Inc.

"From my perspective, you have to look at the price paid and the amount of debt assumed," Buyers said. "The prices they have paid have been fair, and the companies have offered an upside in the opportunity to improve margins."

Buyers has an outperform rating on UNFI stock, RBC's highest rating, which suggests the company will do better in the market than its peers—though the competition isn't especially deep.

Twenty years ago, there were 50 natural foods distributors in the United States; today there are only five that have more than $10 million in annual sales, Northeast's board told members when it announced the merger. Many of those independents are already under the UNFI umbrella. Since 1985, UNFI has completed 24 acquisitions.

Natural Foods Merchandiser volume XXIV/number 1/p. 14

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