ORLANDO, Fla. -- Increasing concerns about personal health and the safety of the food supply will continue to fuel the growth in conventional supermarkets of natural and organic products, which could account for as much as 15% of all grocery sales in five years, according to Steven Townsend, president and chief executive of Dayville, Conn.-based natural supplier United Natural Foods.
Speaking at the RBC Capital Markets Consumer Conference here, Townsend estimated that natural and organic products today account for around 6.4% of all grocery sales -- up from 1.2% in 1996.
"I don't ever think it will become 40% or 50% of conventional, but I think we can see it become 12% to 15% over the next five years," Townsend said. "There's demand for healthy lifestyles, and [concern] about mad cow disease and the other things people are concerned about. I think people today want to see higher-quality products, and I think they're willing to pay a bit more for them."
Regional grocers have identified natural and organic products as a way to differentiate themselves from conventional competitors and Wal-Mart Stores, Townsend added. As a result, United's sales into conventional chains are growing between 20% and 38% annually. "[Conventional stores] are giving us more square footage, and another door or two of frozen and chilled products. They see this as a way of differentiating themselves," he said. "We feel there's a tremendous upside within our existing channels to grow, and a lot of upside is within conventional channels."
United is the largest natural foods distributor, with 18,000 customers, 15 distribution centers and 35,000 products. Townsend reiterated earlier predictions for fiscal 2005 sales guidance, saying United expects sales of $1.9 billion to $2 billion, which would represent growth of 19% to 22% and comparable-sales growth of 12% to 13%. Capital expenditures are expected to be around $35 million, or roughly 1.5% of sales. Its 2005 fiscal year began Aug. 1.
"If I compare our cap ex with some in our peer group like Sysco, Supervalu or Performance Food Group, they spend around 1.8% of sales while we've been closer to 1.5%. So we think we can actually increase our expenditures with the growth in front of us," Townsend said.
Much of United's spending will go toward investments in its facilities and people, Townsend said, because "this is where we think we can take basis points off our costs." The company invested more than $70 million in facilities over the last two years, most recently completing upgrades of distribution centers in Dayville, Conn., and Iowa City, Iowa.
Townsend said the typical United facility stocks 18,000 to 20,000 products, and the company reviews around 150 new items a month. United expects to introduce between 100 and 125 private-label products to its offerings during the current fiscal year. These will help fill in categories that lack certain offerings or price points, he said.
