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UNFI Sees Growth at Big Chains

United Natural Foods Inc. last week said demand for natural and organic products has held up well during the recession, but the bulk of the growth is coming from conventional supermarkets and large natural-food chains rather than from independents. We have seen that the demand for the organic product has remained, said Steven Spinner, president and chief executive officer, UNFI. What

DAYVILLE, Conn. — United Natural Foods Inc. last week said demand for natural and organic products has held up well during the recession, but the bulk of the growth is coming from conventional supermarkets and large natural-food chains rather than from independents.

“We have seen that the demand for the organic product has remained,” said Steven Spinner, president and chief executive officer, UNFI. “What we have seen is a shift in where a lot of the consumers are buying it, as evidenced by the changes in our increases by channel. The independents are relatively flat; supernatural and conventional supermarkets are up quite bit more.”

The company, based here, said sales to independent customers were down about 2.1% for the fourth quarter before adjusting for an extra week in the year-ago period, while sales to the supernatural segment rose 4.2%. Sales to conventional supermarkets also declined for the quarter — by 2.8% — but UNFI attributed that to lost business after the acquisition of the Millbrook specialty-products division. Without that lost business, sales in the supermarket channel would have been up by at least 7%, the company said.

Scott Van Winkle, a Boston-based analyst for Canaccord Adams, Vancouver, British Columbia, said he believes some small independent natural-food stores may be faring better than others in the recession, based on his conversations with retailers in the segment.

“There are a couple of classes of independents — there is the small, natural cooperative, where I don't think there has been a deterioration of their sales,” he told SN. “Those are retailers that, being cooperative, have a value perception. Then there are retailers that are convenience-based, or have a higher percentage of their sales in pills and supplements. They have less of a value proposition to the consumer, and therefore you are not seeing that same sales growth.”

Overall, Van Winkle said sales of natural and organic products are increasing slowly — in the low single-digits, he estimates — as the segment retains its core customer base but has failed to convert many new customers into natural and organics since the economy nosedived last fall.

At UNFI, the company said operational improvements and lower fuel prices helped drive gains in profitability for the fourth quarter and fiscal year, despite flattish sales overall.

Net income for the quarter, which ended Aug. 1, was up 21%, to $15.5 million, on a sales increase of 0.8%, to $853.5 million, adjusted for an extra week in the year-ago quarter.

For the year, net income rose 22.1%, to $59.2 million, on a sales increase of 4.7%, to $3.45 billion, also adjusted for the extra week.

Unadjusted sales fell 6.4% for the quarter and rose 2.6% for the year.

For the year, gross margins were 19.1% of sales, up from 18.8% for 2008, which the company attributed primarily to higher gross margins in specialty distribution and higher fuel surcharge revenues in the first half of 2009.

Operating expenses were reduced sharply, to 15.6% of sales vs. 16.9% for 2008.

Analysts said the results were basically in line with expectations, and they expect UNFI to build incremental sales volumes in the specialty segment now that the integration of Millbrook is completed.

The company also said it was on track to open its new distribution center in Texas in late fiscal 2010 or early fiscal 2011.

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