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Natural Foods Merchandiser

Fresh is new growth frontier for UNFI

Fresh is new growth frontier for UNFI
United Natural Foods Inc. missed third-quarter analyst expectations and cut its guidance for 2015, but leaders say a focus on fresh could help offset declining categories.

The leader of the top natural, organic and specialty food distributor in the country told investors and analysts Monday that fresh food and ethnic gourmet is where the growth is at.

“UNFI strategically made decisions over the last several years to build out our capacity and begin a migration toward the perimeter of the store, which we believe is one of the new frontiers for growth in our space,” UNFI CEO Steve Spinner said Monday while reporting third-quarter financial results. Those decisions have included moving its Albert’s Organics business toward fresh foods (in addition to organic produce), acquiring Tony’s Fine Foods in the fourth quarter of last year and adding more than 2 million square feet of capacity with a concentration on refrigerated storage and technology.

Fresh foods make up only about 15 percent of UNFI's total revenue, but Spinner anticipates they will be the company’s “primary enabler toward increasing market share.”

UNFI reported third-quarter net sales of $2.11 billion—an 18.7 percent jump from third-quarter sales last year. However, comparable sales growth slowed, and gross margin decreased 132 basis points to 15.4 percent from the same period last year. The company also lowered its guidance for expected net sales in the fiscal year ending Aug. 1 to the range of $8.15 billion to $8.19 billion, and earnings per diluted share to $2.84 to $2.88.

Spinner attributed the softness in revenue and threats to near-term growth to five factors:

  1. The speed at which products have been adopted across retail channels not served by UNFI, like convenience stores, hospitals, online retailers and drug stores.
  2. The speed at which customers have been impacted by this increased availability of products at different retail locations.
  3. The speed at which organic private label has escalated.
  4. Produce deflation and supplier shortages.
  5. Short-term drag at Albert’s and foreign exchange of the Canadian dollar.

Eventually, Spinner thinks many of the sales of SKUs that have been lost to non-conventional retailers will find their way back to stores within UNFI’s distribution network. “Will there be enough demand to keep the products in those types of retail points? I think that the answer is probably not,” he said.

Looking ahead at growth, Spinner noted two significant new customers coming on this summer and a burgeoning private label program for independent retailers that’s been growing 20-plus percent each year. He also said the company is looking at acquisitions in the fresh and ethnic gourmet spaces. “We have a tremendous capacity to do it, and we’ve got a very strong pipeline,” he said. “It’s just a question of waiting for the right time and making sure we can buy it at the right price.”

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