Business Strategy in Food Service Distribution-United Natural Foods
The Food Distribution Industry
Simply put, foodservice is the industry that serves food that is not prepared at home. If you ate out this week, last weekend, or today for lunch, you contributed to the $226 billion in annual sales of the foodservice industry. If your child had a school lunch, your grandmother or grandfather had breakfast in a nursing home, your spouse had coffee at the company cafeteria, or your nephew ate in a military chow hall – they were all being served by some segment of the foodservice industry. All of this being achievable through a complex food service supply chain – a distribution network of independent companies that supply a broad range of products and services that help the food prepared away from home industry be possible. In fact, next time you catch yourself in a restaurant, it wouldn’t be a stretch to state that almost everything within that facility was brought there by a foodservice distributor. The menu items, the plates, the high chairs and yes even the paper towels and toilet paper in the bathroom – all brought in and provided by a food distributor. Every day, foodservice distributors make sure that products needed by foodservice operators are delivered safely – from seafood, proteins, produce, dry goods, dairy, and frozen products to the beyond (Perkins, 2014).
United Natural Foods
Company Profile
United Natural Foods is a distributor of natural and organic foods and related products. The company is one of the largest North American distributers of natural, organic and specialty products. Like other broadline distributors, this includes groceries and general merchandise; produce; perishable and frozen food; nutritional supplements; bulk and food service products; and personal care items. Products distributed by United Natural Foods include national, regional and private label brands. In July 2013, the company served more than 31,000 customer locations (S&P, 2014).
Like most broadliners in the foodservice industry, in addition to its distribution services, United Natural Foods provides a range value added services for their customers and suppliers. United Natural Foods’s services include marketing and promotional tools, merchandising, category management and store support services. At its core of United Natural Foods’s distribution operation are five main units: United Natural Foods Eastern Region, United Natural Foods Western Region, United Natural Foods Canada, Albert’s Organics and Select Nutrition. In addition, their non-distribution divisions include Blue Marble Brands, Earth Origins Market and Woodstock Farms Manufacturing (United, 2014).
Financials
(UNFI, 2014)
(UNFI, 2014)
(UNFI, 2014)
Competitive Strategy
United Natural Foods’s competitive strategy is that of Differentiation. One of the biggest trends that has grown exponentially, specifically in the last few years, has been the popularity and move towards organic, local, and sustainable food. Hargrave states that organic foods are an over $60 billion industry globally. As the biggest distributor of organics, United Natural Foods has benefited greatly financially from these changing trends. According to The Motley Fool, the organic industry grew 170% from 2002 to 2011, or about 19% a year. And fortunately for United Natural Foods, the United States is the largest organic food market in the world. Even more good news for United Natural Foods is that demand for organic foods is expected to continue growing for the unknown future (Hargrave, 2013).
Recommendations
In relation to its Differentiation strategy, my recommendation to United Natural Foods is to diversify itself from placing so many of its eggs in one basket i.e. Whole Foods. As of 2009 Whole Foods represented a third of United Natural Food’s business. This is very dangerous grounds. Should the contract, which is set to expire in 2020, not be renewed, United Natural Foods could find itself in a very vulnerable position (United, 2009). With the United States being the largest consumer of organic food it would be beneficial, for the time being, for United Natural Foods to invest here in the U.S versus expand overseas. My recommendation for United Natural Foods, is to seek diversification here in the U.S by opening its own retail outlets, through either acquisition or expansion. Doing so would give United Natural Foods a direct link to its ultimate customer base, the consumer. Like Kroger, United Natural Foods can gain many efficiencies and synergies and ultimately reduce many costs through its offerings of retail stores. It can benefit from better inventory turns and push excesses to its store fronts. It can also increase margins and drive more of its private label to market. While there can be many challenges and unquestionable issues to enter the world of retail, the return on investment and reduction of risk through leverage, can pay dividends for United Natural Foods in the long run.
References
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Hargrave, M. (2013, August 14). Your Best Bet in Organics. The Motley Fool. Retrieved March 13, 2014, from http://beta.fool.com/mhargra/2013/08/14/best-bet-on-organics/43230/
Is Supervalu On The Right Path?. Seeking Alpha. (2014, January 16). Retrieved March 16, 2014, from http://seekingalpha.com/article/1949651-is-supervalu-on-the-right-path
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Perkins C. (2013). Foodservice Distributors: If You Eat Out, You Know Us. IFDA. Retrieved March 12, 2014, from http://www.ifdaonline.org/About-IFDA/Who-Are-Foodservice-Distributors
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United Natural Foods, About Us. (2014). United Natural Foods. Retrieved March 13, 2014, from https://www.unfi.com/Company/Pages/AboutUs.aspx
United Natural Foods, Inc. Extends Its Partnership With Whole Foods Market. PR Newswire. (2009, June 02). Retrieved March 17, 2014, from http://www.prnewswire.com/news-releases/united-natural-foods-inc-extends-its-partnership-with-whole-foods-market-95400729.html
