Safeway Boosts UNFI Q2 Sales

PROVIDENCE, R.I. — Sales to conventional supermarkets — including the first full quarter of business with Safeway — led to a 15.5% sales gain during the fiscal second quarter for United Natural Foods Inc., the distributor here said last week.

The Safeway addition helped UNFI increase overall sales to conventional supermarkets by 32% in the quarter. The Pleasanton, Calif.-based chain began sourcing from UNFI late last year. Conventional supermarkets now comprise 25% of UNFI’s overall sales.

“The rate of increase for crossover customers that buy both organic and conventional is increasing at a very nice pace,” Steven Spinner, chief executive officer of UNFI, told analysts in a conference call discussing the results last week. Spinner said these shoppers were buying items such as organic produce in value packages offering a lower price for higher quantities, as well as organic dairy and grains.

“The [Safeway] business is fully on board,” Spinner said. “There’s been some bumps in the road we’re working our way through, but we’re confident in them and their position with us, and what we’ve accomplished so far.” He said UNFI was probably six months away from peak efficiency with Safeway.

Andrew Wolf, an analyst for BB&T Capital Markets, Richmond, Va., noted in a report that Safeway — along with another new conventional customer, Giant Eagle — together contributed $65 million toward total UNFI sales of $1.29 billion in the quarter, which ended Jan. 28. Net income for the quarter increased 17.5% to $22 million, despite gross margins declining by 50 basis points from a year ago due to a greater mix of sales to conventional stores.

The top-line trend prompted the company to increase its projected sales for the fiscal year to a range of $5.1 billion to $5.2 billion, from earlier expectations of $5 billion to $5.1 billion.

“We view this top-line momentum as a strong indication of the resiliency of demand for the natural-product industry,” Wolf said.

Spinner said UNFI experienced inflation in excess of 4% during the quarter, which helped revenues, but combined with rising gasoline prices also raised some caution. “When inflation continues over 4% combined with sustained fuel price at over $4 per gallon, based on history we know this can contribute to a consumer slowdown,” he said.