ORTUNE
Natural Specialty Bakery
Newsletter January/ February 2016 Volume 4 - Issue 1
Distributor News ORTUNE Natural
Specialty
Bakery
Vol. 4 - Issue 1
UNFI to Acquire Haddon House Wholesaler United Natural Foods on Monday [February 29, 2016] said it has agreed to acquire Haddon House Food Products, a distributor of specialty gourmet and ethnic foods throughout the Eastern U.S., for $217.5 million.
Inside This Issue Distributor News 2-5 Industry News 5-6 Consumer Trends 6-8 Retailer News 8-10 Shows & Events 11
Offices Headquarter Central Region 141 Covington Drive Bloomingdale, IL 60108 630.539.3100 East Region 2 Van Riper Rd Montvale, NJ 07645 201.307.9100 South Region 801 Stadium Dr. Ste. 107 Arlington, TX 76011 817.522.3200
Follow Us
2
Officials said the deal will help UNFI build out its specialty and ethnic product line as it continues to diversify from its natural/organic base to meet changes in the way its supermarket and independent retail customers go to market. In a related development on Monday, UNFI revised its earnings forecast for the current second quarter and fiscal year, citing challenges as it evolves its business model including pricing, promotional activity, channel and category mix. “For the last year, our industry has been in a dynamic state of change as organic and natural center store products become more mainstream and distribution of these products expands into many more sale channels,” Steven Spinner, UNFI’s CEO, said in a conference call discussing the acquisition and earnings revision Monday. “As a result, the competitive nature of our industry at retail, wholesale and supply is evolving and at UNFI we continue to build upon our new distribution opportunities outside of our core natural channel. Over the last five years, we have changed our growth and expense model into one with new customer channels and a highly efficient distribution platform across North America. “Today, we find ourselves in a position where we are temporarily caught between how we build capacity to efficiently service our customers, but yet to source the volume growth to leverage that capacity.” While estimated sales are expected to come in slightly below forecast for the fiscal year, the Providence, R.I.-based distributor said earnings would likely fall some 16% below previous estimates. UNFI now expects earnings-per-share on $2.34 to $2.44 for the fiscal year, vs. earlier expectations of $2.79 to $2.89, and annual sales to total $8.3 to $8.4 billion, vs. earlier guidance of $8.4 billion to $8.6 billion. Second quarter EPS is now expected to come in at 47 cents to 49 cents vs. consensus estimates of 62 cents. “Our financial performance remains challenged,” Michael Zechmeister, UNFI’s CFO, said Monday. “We continue to face headwinds from competitive pricing pressure, reduced supplier promotional spending and the evolving mix of our business from both the channel and category standpoint.” continues on next page...
Distributor News UNFI to Acquire Haddon House (cont.) Officials said the acquisition of Haddon House, expected to close in the fourth quarter, was not included in the fiscal year guidance. That deal is expected to be “moderately accretive” to 2017 earnings, Spinner said. Haddon House, based in Medford, N.J., is a leading distributor, importer and exporter of specialty, natural, organic, ethnic and kosher foods with a portfolio of 20,000 SKUs and warehouses in Howell, N.J. and Richberg, S.C. It did sales of $533 million last year — although $36 million of that went to A&P which is no longer operating. Spinner said Haddon House would operate as a wholly owned subsidiary, and would be continue to be led by its family owners, David Anderson Sr. and David Anderson Jr. UNFI expects to convert its warehouses to its technology systems within a year. The acquisition continues a trend among natural distributors to diversify their offerings as they and their independent natural food retailer customers face increased competition for natural and organic food sales from conventional supermarkets and other channels of trade. UNFI in 2014 acquired leading deli provider Tony’s Fine Foods in 2014, while competitor Kehe earlier this month aid it would buy Monterrey Provisions. Source
UNFI Supplier Portal UNFI’s new Supplier Portal is in place and many suppliers and brokers are taking advantage of it to send UNFI their new product information. If you do not yet have a Supplier Portal account click here for a quick reference guide and short tutorial videos.
The portal allows you to: l Provide your SRM with your new and updated warehouse information. l Add additional users to the Supplier Portal from your organization. l Appoint a broker to use the portal on your behalf. l Submit and track new items. Over time, [UNFI] will transition all new item submissions to the portal, but you can start with your next new item and experience the convenience of the portal workflow, communication, and item status tracking. Source
3
Distributor News KeHE Acquires Monterrey Provision Co. KeHE Distributors has acquired Monterrey Provision Co., a San Diego-based distributor of products for the perimeter departments at retail grocery stores. Monterrey is a 40-year-old family-owned company and a partner to leading retailers across the country. “We view the perimeter as an essential element of our growth strategy. The acquisition of Monterrey expands our perimeter capabilities and further enables our growth plans. This is similar to the advantages we gained in the organic business with the acquisition of Nature’s Best in August 2014,” said Brandon Barnholt, KeHE’s president and CEO. Mike Leone, chief commercial officer at KeHE, added, “With the addition of Monterrey, we are better positioned to capitalize on opportunities in the perimeter and partner with customers across their total store.” The combination of KeHE and Monterrey joins two organizations with complementary assets and skills. KeHE says the acquisition helps advance its strategic plan and aligns with KeHE’s vision to be the trusted distributor for natural, organic and specialty products. “Joining the KeHE family leapfrogs Monterrey by years in our ability to extend our excellence in fresh perimeter distribution to the entire country. Further, KeHE and Monterrey couldn’t be better cultural fits for each other,” said Luke Abbott, Monterrey’s president. The acquisition will add two distribution centers in San Diego, California, and Oklahoma City, Oklahoma, to KeHE’s existing network of 16 distribution centers in the U.S. and Canada. Currently, Naperville, Illinois-based KeHE does not have facilities in those cities. Source
KeHE Opens Portland, Oregon Facility KeHE Distributors LLC opened its newest distribution center, in Portland, Ore., on Dec. 23. The LEEDcertified facility “is an important addition to the [our] expansion strategy and key to [our] growth plan in the Northwest region,” noted the Naperville, Ill.-based company. The DC offers more than 100,000 square feet of refrigerated and 57,000 square feet of freezer space. “Sustainability is a top priority of ours as we build, stock and operate our facilities,” said KeHE COO Gene Carter. “We are designing our new facilities from the ground up, which allows us to focus on the environment and our people as well.” An estimated 100 tons of cardboard will be recycled annually at the Portland center and 30-plus tons of petroleum are expected to be saved by recycling plastic. Additionally, the entire facility will employ motionoperated LED lighting.
continues on next page...
4
Distributor News KeHE Opens Portland, Oregon Facility (cont.) The new facility “strategically aligns with our long-term growth strategy and demonstrates our commitment to our increased customer base on the West Coast,” said KeHE Chief Commercial Officer Mike Leone. “Our customers continue to receive the benefits of our growing, national organization.” Those benefits include improved service levels and fill rates, with more efficient shipping and points of distribution, according to KeHE. The company’s newer, greener DCs are larger and carry a broader assortment of products. The company currently operates four DCs west of the Rockies, a KeHE spokesman told PG. Source
Industry News Senate Bill Would Block Mandatory Labeling of GMOs A Senate committee is moving forward on legislation that would prevent states from requiring labels on genetically modified foods. Vermont is set to require such labels this summer. Senate Agriculture Chairman Pat Roberts of Kansas released draft legislation late Friday that would block that law and create new voluntary labels for companies that want to use them on food packages that contain genetically modified ingredients. The Senate panel is scheduled to vote on the bill Thursday. The bill is similar to legislation the House passed last year. The food industry has argued that GMOs, or genetically modified organisms, are safe and a patchwork of state laws isn’t practical. Labeling advocates have been fighting state-by-state to enact the labeling, with the eventual goal of a national standard. Senators have said they want to find a compromise on the labeling issue before Vermont’s law kicks in. But negotiations broke down between the food industry and labeling advocates. Roberts said in a statement after releasing the draft that “negotiations will continue in an effort to reach committee agreement.” But he said the committee needs to act quickly. The Vermont law kicks in July 1. “We are out of time,” Roberts said. “The time to act is now.” The committee’s top Democrat, Michigan Sen. Debbie Stabenow, said she would continue to work with Roberts on the bill. continues on next page...
5
Industry News Senate Bill Would Block Mandatory Labeling of GMOs (cont.) Food industry groups swiftly praised the draft. “Congress must pass a national food labeling solution that offers farmers, families and food producers the certainty and access to the affordable and sustainable food supply they deserve,” said Pamela Bailey, head of the Grocery Manufacturers Association. Scott Faber, head of the national Just Label It Campaign, called it “outrageous” and said Roberts is proposing to deny American consumers the right to know what is in their food. Genetically modified seeds are engineered in laboratories to have certain traits, like resistance to herbicides. The majority of the country’s corn and soybean crop is now genetically modified, with much of that going to animal feed. Corn and soybeans are also made into popular processed food ingredients like high-fructose corn syrup, corn starch and soybean oil. The food industry says about 75 percent to 80 percent of foods contain genetically modified ingredients. While the FDA says they are safe and there is little scientific concern about the safety of those GMOs on the market, advocates for labeling say not enough is known about their risks. So far, Vermont is the only state set to require labeling. Maine and Connecticut have passed similar laws, but those measures don’t take effect unless neighboring states follow suit. Several other states could consider labeling bills this year. Source
Consumer Trends More Americans Aware of Fair Trade Fair Trade USA, a third-party certifier of Fair Trade products in North America, and the National Marketing Institute (NMI), a consulting and research firm specializing in health and sustainability, have released data showing that 59 percent of U.S. consumers now recognize the Fair Trade Certified label. The two entities teamed up for NMI’s “The State of Sustainability in America” study, which comes out at the end of March. As well as the rise in overall awareness – up from 55 percent in 2013 – the joint research found that almost 40 percent of the general population look for proof of social claims when buying products. Millennials are especially prone to such motivation: 70 percent are more likely to buy items from companies that support their preferred causes, versus 61 percent of the general population. Additionally, 65 percent of Millennials recognize the Fair Trade Certified label. “Consumers want accountability, responsibility and sustainability from the companies with which they do business,” noted MaryEllen Molyneaux, president of Harleysville, Pa.-based NMI. “The Fair Trade Certified label allows shoppers to readily identify products that meet these criteria.” continues on next page...
6
Consumer Trends More Americans Aware of Fair Trade (cont.) Higher numbers of Fair Trade Certified products on store shelves have contributed to increased consumer awareness, with 133 new items launched since January 2016 alone, driven largely by growth in the mainstream sector. Last year, nearly 550 Fair Trade Certified CPG items were introduced. Among the new items are snacks made with Fair Trade Certified chocolate, beverages and skin care products. “This growth in Fair Trade offerings indicates that consumers increasingly care about what happens at the other of the supply-chain — that the farmers who grow the foods they love can take care of their land, their families and themselves,” said Sri Artham, VP of CPG at Oakland, Calif.-based Fair Trade USA, a nonprofit organization. “It’s clear that the brands supporting Fair Trade are rewarded by consumers voting with their dollars.” Source
Three Supermarket Categories That Will Grow in 2016 The only way to stay successful in the food and beverage industry is to stay on top of what consumers want and adapt quickly. This year, be ready to see major growth across the country in these three categories:
Snacking will go all-natural. Sparked by decades of concern over how our food is grown, processed and packaged, the all-natural snacking trend will explode in 2016. All-natural has come to mean products that are free from artificial ingredients and kept as close to their most natural form as possible. Over the last few years, retailers and many food distributors have noticed a shift to this all-natural preference, as sweet snacks have seen a steady decline in favor of yogurts, nuts, and protein bars that are conveniently packaged, all-natural and nutritious, too. Major brands, including General Mills and Nestle, have jumped on the all-natural bandwagon and announced plans to remove artificial flavors and colors and replace them with natural spices, fruit and vegetable concentrates. The fact that these two big players in the packaged goods industry are giving into the all-natural trend shows that this way of eating spans across multiple generations. General Mills and Nestle typically produce products for kids, so if these brands are going all-natural, expect this trend to cross over every generation and consumer type.
Sodas will become clear. As many retailers and beverage distributors are aware, the soda industry has been plagued with problems ever since the previously mentioned all-natural, healthy trend picked up steam. In fact, The New York Times called the decline of sodas the “single largest change in the American diet in the last decade.” continues on next page...
7
Consumer Trends Three Supermarket Categories That Will Grow in 2016 (cont.) In order to appeal to health-conscious consumers, the soda industry will make major changes in 2016, most importantly by eliminating artificial dyes and going clear. One of the first sodas to go clear was Zevia, a move that the CEO said was due to the increased consumer demand for sodas without artificial coloring. In 2016, the soda category will look to completely transform and reposition itself as a lighter, healthier alternative to classic colas. Look for many other brands, both large and small, to follow in Zevia’s lead.
International products will come to U.S. stores. Consumer tastes are most definitely changing and expanding. Today’s consumers want to experience a multitude of international and exotic flavors, leading to an influx of international products within U.S. stores. Consider the sriracha trend sparked by the growing Millennial generation, where a previously unheard of flavor with roots in Thailand quickly became America’s favorite condiment. This example is just the beginning for the rise of international and exotic foods that will make their way into U.S. stores during 2016. This year, expect unconventional foods to make a splash in retailers, introducing this eager generation of consumers to new cuisines and flavors from all over the world. Once the market has been penetrated with international foods, expect traditional foods to add internationally inspired flavoring to existing products, much like potato chip brands did in the midst of the sriracha craze. Source
Retailer News Kroger Named the World’s Third-Largest Retailer Kroger is the world’s third-largest retailer behind Wal-Mart and Costco, according to a new ranking by the National Retail Federation. The downtown Cincinnati-based supermarket chain’s 2014 acquisitions of North Carolina supermarket chain Harris Teeter and digital health goods provider Vitacost.com helped propel Kroger’s growth and lifted its ranking from No. 6 in the world a year ago. Not reflected in the figures: Kroger’s takeover of Milwaukeebased Roundy’s Inc., which added $4 billion to the company’s $108 billion in total revenues. Wholesale warehouse retailer Costco was No. 2 in the world with 2014 revenues of $112 billion. Wal-Mart remained the prohibitive No. 1 on the listing with more than $485 billion in sales – making it larger than the next four retailers combined. continues on next page...
8
Retailer News Kroger Named the World’s Third-Largest Retailer (cont.) The ranking was issued in the January issue of the trade group’s Stores magazine and was based on 2014 fiscal year sales. The top 10 of the list is dominated by supercenter, discount and drug retailers based in the U.S. and Europe. Many of those retail formats, however, have grown using food sales to drive customer traffic and flooding traditional supermarkets with additional competition. The list illustrates Kroger’s dominance versus traditional supermarket rivals: The next-largest supermarket retailer in the world is Germany’s Edeka Group, with $62 billion in sales. California’s Safeway was the next largest U.S. supermarket chain, but did only one-third of Kroger’s sales. Kroger was also the largest retailer doing business in one country, followed by No. 11 Target, which did $72 billion in annual sales. Cincinnati-based Macy’s also made the list at No. 35 with $28 billion in sales revenue. Source
Sprouts Farmers Market to Open 11 New Locations in Q2 As it continues its robust expansion efforts, Sprouts Farmers Market has unveiled plans to open 11 new locations in the second quarter of 2016. Each store is slated to bring 100 jobs to the area in which it’s located, the company said, with grandopening dates to be announced at a later date. “Sprouts’ commitment to health and value continues to resonate with customers seeking fresh, natural, and organic products at great prices, driving 34 consecutive quarters of positive comparable store sales growth,” said Amin Maredia, CEO of the Phoenix-based retailer. The locations of the new stores are as follows: l Allen, TX - 1265 W. Exchange Pkwy. l Denton, TX - 4930 Teasley Ln. l Duluth, GA - 2220 Peachtree Industrial Blvd., Suite 200 l Los Angeles, CA - 2245 Yosemite Dr. l Loveland, CO - 1440 E. Lincoln Ave. l Oklahoma City, OK - 12200 N. McArthur Blvd, Suite C l Overland Park, KS - 9620 Nall Ave. l Queen Creek, AZ - 21181 S. Ellsworth Loop Rd. l Roseville, CA -2030 Douglas Blvd., Suite 9 l San Clemente, CA - 550 Camino de Estrella, Unit C l Vestavia Hills, AL - 1031 Montgomery Highway, Suite 101 The new stores continue the company’s consistent growth, which includes 10 stores opened each in Q1 and Q2 2015, as well as an additional 12 locations in Q1 of this year. New stores have bolstered Sprouts’ financial performance in the prior quarters, with the latest report finding an 18 percent increase in net sales and a 5.8 percent boost in comps for Q3 2015. Source
9
Retailer News H-E-B Makes Plans For First Upscale C-Store H-E-B is looking to get into the upscale convenience store business, according to the San Antonio Business Journal. According to a Virtual Builders Exchange report, the San Antonio, Texas-based grocery chain will move forward with plans to construct a 7,416-s.f. c-store and fuel station near Bandera Road and North Loop 1604 West. That’s about half the size of H-E-B’s downtown location, which is in the 12,000-s.f. range. Including the store and fuel-pump area, the site’s total floor plan will cover 10,296 s.f., with 2,880 s.f. dedicated to a Wendy’s fast-food location. With an address at 11652 Bandera Road, the site will essentially be an extension of the H-E-B Plus! location just a block away, the Journal reports. According to a construction permit, construction for the store is estimated to cost $2.7 million. Work for the fast-food location will be an additional $360,000. Source
Rouses Opening In Former Winn-Dixie Location Rouses Markets is debuting its newest store Feb. 26, in Kenner, Louisiana, six months after the grocery chain’s managing partner, Donny Rouse, signed the lease. The 55,000-s.f. site at 4041 Williams Boulevard previously housed a Winn-Dixie. “There was a lot of work to do,” said Rouse. “We are very different from Winn-Dixie. Our design and construction teams took the time to make sure every detail is just right.” Rouses Markets are known regionally for local produce, seafood and specialty meats. Each location has a unique mix of services and offerings. “We designed this store just for this neighborhood,” added Rouse. The market is stocked with the largest assortment of Rouses branded products and frozen food. It also has a variety of authentic South American, Central American and Mexican groceries. At least three Rouses Markets are scheduled to open this year, including the company’s first location in Ponchatoula in the Berryland Shopping Center. The site, which also is a former Winn-Dixie, currently is undergoing renovations. It will open in April. “I know everyone is eager to see what we’ve done with the space,” said Rouse. A new Rouses Market in the Long Farm development at Airline and Jefferson Highway in Baton Rouge will be completed in June. A second Baton Rouge location already is under contract. Rouses also is preparing to break ground on a new store in its hometown of Thibodaux. Rouses operates nearly four-dozen stores across Louisiana, Mississippi and Alabama. Source
10
Shows & Events Show
Location
Date
11