ORGANIC FOOD: THE PARADOX - Foodopoly: The Battle Over the Future of Food and Farming in America - page 66

specialty food distributor KeHE Distributors. According to Nutrition Business Journal , “The acquisition
upsets the balance of power in retail. In a smaller universe, manufacturers have fewer options for taking
their products to market.” 12
Since its founding in 1977, UNFI has grown from a single natural food store to a giant supplier of organ-
ic and natural products, supplying more than 6,500 stores in forty-six states. Norman A. Cloutier quickly
refocused his business on distribution for the quickly growing organic industry, pursuing acquisitions and
mergers of regional distributors, including Stow Mills, Albert's Organics, Blooming Prairie, Northeast Co-
operatives, Select Nutrition, Roots 'N Fruits, Millbrook Distribution Services, and others. The most sig-
nificant merger was in 1996, with the large western distribution company Mountain People's Warehouse.
UNFI, which went public in 1998, has been able to underprice the remaining local or regional distribut-
ors. 13
While UNFI is primarily a distributor of wholesale products, it owns twelve retail stores through a sub-
sidiary, Earth Origins Market. Located in Florida, Maryland, and Massachusetts, UNFI uses these outlets
to try out new products and marketing and promotional programs before selling these services to its cus-
tomer base.
Nature's Best, the largest privately owned natural and organic food distribution company, competes
head-on with UNFI in a dozen states west of the Rockies. It serves approximately two thousand stores as a
wholesaler/distributor of health and natural food products, including grocery, refrigerated, frozen, and bulk
foods; supplements; and personal care, herbal, medicinal, and pet products.
Russell Parker, a senior vice president of procurement and marketing at Nature's Best, says, “Before
Tree of Life left the West, we had to compete with UNFI and Tree of Life every minute. It kept us sharp.
Now there's only one evil empire we have to keep our eye on.” Parker adds: “We are very sober about
UNFI. But because we are so small, we can change instantly.” 14
To be competitive, the company recently consolidated its operations into one large building, cutting
labor costs by 40 percent. According to Brian McCarthy, senior vice president of operations: “In order to
maintain our service, we were deploying more and more people. . . . We were making price concessions
in order to survive.” 15 Parker has said that Nature's Best is “open to the possibility” of acquiring another
distributor, although “there aren't that many opportunities out there.” But he says the privately owned com-
pany would not consider a buyout offer. 16
One of Nature's Best's biggest clients is Phoenix-based Sprouts Farmers Markets, a chain that operates
in more than a dozen states in the Southwest, going up against Whole Foods in some locations with smaller
stores. Over the past two years, since it was acquired by an equity firm, Apollo Global Management, the
chain has grown significantly. Sprouts was merged in 2011 with Henry's Farmers Market, a California nat-
ural food store owned by Apollo, creating one of the largest natural food grocers in the western United
States, with ninety-eight stores and annual revenues in excess of $1 billion. In March 2012, Apollo merged
Sprouts with Sunflower Farmers Market—boosting its operation to 139 natural food stores. 17
The company is majority-owned by funds affiliated with Apollo and operates under the banner of
Sprouts in Nevada, Utah, New Mexico, Oklahoma, California, Arizona, Colorado, and Texas. The merged
company employs ten thousand people and plans to open thirteen new stores during 2012. A senior partner
at Apollo, Andrew S. Jhawar, commented on the merger: “We feel incredibly fortunate to be able to bring
together the management and operations of these two growth-oriented grocery. . . . This is a combination
that makes great sense given the rapid growth in demand for natural and organic products and the comple-
mentary nature of the geography of the two companies.” 18
Apollo is a publicly owned equity firm that owns entertainment companies, real estate operations, retail
stores, and fast-food restaurants, and it has historically specialized in leveraged buyouts and purchases of
corporations that are being restructured after a default or bankruptcy. No one can doubt that selling organic