United Loses Shaw's Business

MARK HAMSTRA

DAYVILLE, Conn. — Natural and organics wholesaler United Natural Foods here said last week it had lost its supply business with Shaw's, the New England chain that was acquired last year by Minneapolis-based Supervalu.

“After Supervalu acquired the account, they consolidated all their purchases in specialty foods and natural with one supplier,” said Michael Funk, president and chief executive officer, United, in a conference call with analysts discussing results for the first fiscal quarter, which ended Oct. 27.

Supervalu could not be reached for comment on the change in suppliers for its natural and organic business at Shaw's.

The loss of the business nearly cut in half United's sales growth in the supermarket channel for the quarter, the company said. Growth in supermarket distribution was up 6.6%, vs. 12.4% growth projected if it had retained the Shaw's business.

United's business in the “super-natural” channel, which included Whole Foods and Wild Oats — the two chains merged during the quarter — rose 22.5% in the period. Supply to independents was up 9.7%.

Funk said he hopes to replace some of the lost business with new supermarket customers obtained by way of United's acquisition of Millbrook Distribution, the specialty-products supplier United purchased earlier this month. In the call, Funk said United was focused in the near term on boosting Millbrook's fulfillment performance.

Net income in the first quarter was up about 9.7%, to $13.6 million, on sales growth of 13.9%, to $736.4 million.

“Gross margin eroded more than expected [72 basis points vs. an estimate of 42 basis points],” said Simeon Gutman, an analyst with Goldman Sachs. “But it was offset by better expense leverage.”

He said he expected below-average earnings growth in the quarters ahead.