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Natural Grocers by Vitamin Cottage (NGVC) is a specialist US organic food retailer. It only carries products known to be free of artificial colours, sweeteners and partially hydrogenated or hydrogenated oils. Each new product introduction requires approval at the management level. The certified organic produce offering is comparatively broad, as Natural Grocers carries no non-organic produce.
Claudia Quiroz, fund manager of Quilter Cheviot’s sustainable investment flagship product, the Climate Assets Fund, tells us more.
What problem does the company uniquely solve and how does it solve it?
The company focuses on a local approach to delivering organic produce, vitamins and health supplements. About 60% of its sales are from organic food, 30% from dietary supplements (i.e. vitamins) and the remaining 10% from body products and books. NGVC operates a smaller, simpler store format than other natural food retailers or traditional supermarkets. This minimises the store’s environmental footprint. It also offers a more comprehensive but fairly priced solution to nutrition, when compared to the retail peers. The combination of offering value and targeting smaller markets credits Natural Grocers with a very loyal clientele.
Tell us more about how the company fits with Quilter Cheviot’s investment ethos.
As population growth is faster than ever before, to meet a growing demand, food global supply is set to double by 2030. Additionally, ageing, chronic and lifestyle diseases put serious strain on the healthcare systems across the world.
Natural Grocers fits into both our health and food themes, providing solutions to the food supply/demand imbalance and promoting the link between a good diet and improved health.
Why would the company be an attractive investment for sustainable investors?
Natural Grocers is a unique company benefiting from double digit growth within the natural and organic food market, valued in excess of $90 billion (£55 billion) and growing at 8-10% annually. Currently, NGVC successfully drives growth despite rising competition, given its positioning as a low-cost natural and organic retailer with a customer base that is among the most devoted to the organic lifestyle.
How has it performed in investment terms?
While Natural Grocers has been around for nearly 60 years, it is a relatively new company in the equity markets. It only listed on the New York Stock Exchange in June 2012. Since initial public offering (IPO) until the end of December 2013, the share price has more than doubled. Having said that, a word of caution is needed. Valuation is relatively high and therefore the share price performance is highly volatile, which is expected for a fast growing business.
What’s the long-term outlook for the company?
NGVC is a growth company operating within very favourable industry dynamics. Currently, expansion plans are underway for 20% annual new unit growth over the next five years, to deliver 85-100 new stores.
Any other comments?
This business is a beneficiary of economic recovery and growing consumer confidence in the US. Interestingly, we think NGVC is a good example of a company that ‘walks its talk’, with regard to environmental footprint. It is the only major grocery retailer operating ‘bag free’ stores; customers are asked to bring reusable bags for their purchases or take a recycled box rather than plastic bags.
This commentary is not intended to constitute financial advice; investments referred to may not be suitable for all recipients. References to specific securities are not recommendations to buy or sell those securities. Investors should remember that the value of investments, and the income from them, can go down as well as up. You may not recover what you invest.
For more about Quilter Cheviot, its Climate Assets fund and more, visit its website.