January 11, 2002
Natural Foods Industry Savors 2001 Performance
by William Baue
The natural foods industry defied dire predictions for 2001, demonstrating the commitment of
consumers to social and health values over cost
At the beginning of 2001, the natural foods industry braced itself for the impending economic
downturn, as did most market sectors. Some analysts predicted the slump would hit the natural
foods sector particularly hard, as they believed consumers would retreat to the lower-cost foods
found in mainstream supermarkets. However, results showed that natural foods consumers consider
more than just cost in their purchasing decisions.
"2001 was a very strong year
for the natural foods industry," said analyst Scott Van Winkle, a vice president of the
Boston-based investment banking firm Adams, Harkness & Hill. "The industry clearly
demonstrated that natural foods are not economically sensitive as many believed, a fact that I
attribute to the social and health motivations for purchase rather than purely economic factors."
Mr. Van Winkle cited several developments for the sector's strong performance. "2002 saw
several industry participants dramatically improve their business, such as Horizon's improving
sales and profitability and Wild Oats' beginning of a turnaround," Mr. Van Winkle stated.
On October 31, Horizon Organic
Holding Corp. (ticker: HCOW) and
Wild Oats Markets Inc. (OATS), both Boulder, Colorado-based companies, announced their
financial results over the first nine months of 2001. Net sales for Horizon, the largest organic
food company in the U.S., rose to $115.2 million, up 29 percent from $89.4 million in the first
nine months of 2000. Horizon President and CEO Chuck Marcy attributed the strong results to
expanded distribution, the successful introduction of new products, and increased productivity and
Sales increased to $671.1 million at Wild Oats, the second-largest
natural foods supermarket chain in North America, up 6.3 percent from $631.2 million in the first
nine months of 2000. In March, Wild Oats appointed Perry Odak as CEO and president. Mr. Odak had
recently served as CEO and president of Ben & Jerry's Homemade, Inc., renowned
for its corporate social responsibility as much as for its ice cream.
"The hiring of
Perry Odak was a good move for Wild Oats," commented Mr. Van Winkle. "He is equipped to turn the
company around and return an industry leader to prosperity."
Austin, Texas-based Whole Foods Market Inc. (ticker:
WFMI), the largest natural foods retailer in North America, had more than one reason to celebrate
in 2001. In May, the company announced a two-for-one stock split, its second since 1992. In
October, Moody's Investor Service upgraded Whole Foods, raising the company's ratings in all
categories one notch, due to the company's strong performance over the past three years. Higher
ratings by Moody's will allow Whole Foods to secure loans more readily.
two-for-one split is one of many more to come over the years. It is a reflection of the strong
growth of the business and excellent management execution," said Mr. Van Winkle, who added that the
Moody's upgrade speaks for itself.
Rumors that the Dutch firm Wessanen might acquire
United Natural Foods Inc. (UNFI), the largest distributor of natural foods in the U.S., seem to be
unfounded. Wessanen owns UNFI's chief rival, Tree of Life. On October 31, UNFI announced record
sales for the first quarter of its fiscal year 2002, up 14.8 percent from the first quarter of
"I don't believe that a Wessanen acquisition of UNFI is likely in the
near-term and discount the rumors," said Mr. Van Winkle.
Mr. Van Winkle mentioned several
other developments indicating the strength of the natural foods industry, most notably the further
acquisitions of natural foods interests by large food companies. Two such transactions transpired
Company (KO) acquired Santa Cruz, California-based Odwalla Inc. (ODWA), the leading
producer of organic juices in the U.S. And New Hampshire-based Stonyfield Farm, the largest
organic yogurt producer in the U.S., entered into a strategic partnership with Paris-based Groupe Danone (DA), which will
control a 40 percent interest. Mr. Van Winkle expects continued strong performance by the natural
"I anticipate further growth into the mass market, more natural/organic
product launches by major food companies, and further evidence of the superiority of natural and
organic foods," concluded Mr. Van Winkle.