But here’s the problem – food sales nationally are flat. Gains in the organic segment are coming straight out of the pocket of conventional players like Sysco.
In 2000, organics accounted for 1.2% of total food sales nationally. Today, organic food accounts for 5% of sales.
In fact, analysts project SYSCO Corporation (NYSE:SYY)’s sales to actually decline this year due in part to organic and natural foods taking a bite out of their business.
Foolish bottom line
While United Natural Foods, Inc. (NASDAQ:UNFI) has an impressive growth story, investors need to keep an eye on two key risks:
First, will Sysco expand its presence in organic foods? So far, Sysco has been content with its current positioning but any changes would represent a huge threat to United Natural.
Second, can United Natural translate growing sales into thicker profit margins? While margin expansion has been a big part of the bull thesis, so far that hasn’t played out due to rising fright costs.
Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Sysco and Whole Foods Market, Inc. (NASDAQ:WFM). The Motley Fool owns shares of Whole Foods Market. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article An Alternative Way to Play the Organic Boom originally appeared on Fool.com and is written by Robert Baillieul.
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