United Natural Foods plans to seek further acquisitions in protein space over time to supplement the business it will add from acquiring Tony's Fine Foods, CEO says

, June 23, 2014 () – United Natural Foods, Inc., Providence, R.I., plans to seek further acquisitions in the protein space over time to supplement the business it will add from acquiring Tony’s Fine Foods, Steven L. Spinner, UNFI’s president and CEO, told investors Tuesday.

UNFI is in the process of completing its acquisition of West Sacramento, Calif.-based Tony’s, which distributes meat, seafood, deli, cheese and bakery items to West Coast retailers.

Spinner said UNFI plans to seek add-on acquisitions similar to Tony’s; to open additional facilities to distribute the Tony’s product lines in other parts of the U.S.; to utilize the perishables space in its existing warehouses to stock the lines; and to integrate those lines into UNFI’s current customer base.

Asked about the level of interest among UNFI customers to carry items from Tony’s, Spinner said he hasn’t discussed specifics with any companies “because the transaction hasn’t closed and is still subject to review by the Federal Trade Commission, and there are specific rules along those lines.

“Having said that, there was high interest from our customers as soon as the deal was announced. In fact, we got a request within two hours asking when we’re going to bring the Tony’s products East.”

UNFI said it expects to operate Tony’s as a separate division.

Kelly Bania, an analyst with BMO Capital Markets, New York, said the Tony’s acquisition “provides UNFI with a unique competitive advantage as it allows the firm to offer a fuller suite of high-growth products compared to competitors.”

Net income at UNFI rose 15.1% to $36.4 million for the third quarter ended May 3 and 21.6% to $92.1 million for the nine-month period, while sales increased 13.8% to $1.8 billion for the quarter and 13.7% to $5 billion for the year to date.

Excluding $18 million in sales from the first-quarter acquisition of Trudeau Foods, Burnsville, Minn., a distributor of natural, organic and specialty foods, UNFI sales climbed 12.6% in the quarter and 12.7% for the year-to-date, the company said.

During the quarter sales in the supernatural channel (Whole Foods Market, Austin, Texas) rose 11.9%, accounting for 36% of total sales; sales in the supermarket channel were up 17.8%, representing 25% of the total; sales to independents increased 10.2%, accounting for 33% of volume; and food service sales grew 20.5%, representing 3.5% of total sales. The remaining 2.5% of volume comes from overseas sales and manufacturing.

Spinner said demand for natural products is accelerating. “The whole industry is growing so rapidly. Consumers clearly have said through their actions they are going to buy more and more of our product and that their interest is here to stay.”

However, most conventional supermarkets tend to go after price rather than variety, he noted. “They don’t have a differentiated product line. It’s a pretty narrow group of products they’re coming to market with, and their distribution programs typically tend to be less than ours because they’re coming to the store with a full truck with conventional product. As a result, the distribution model itself is much more efficient for them to carry a lower markup.

“So it hasn’t affected us in a significant way, but I think it’s an important commentary to make that we’re not the only ones out there. There are other people coming into the space to compete on the faster-moving items.”

Spinner said UNFI has been incorporating price investments as well “over time, as the channel mix has changed.”

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