2 Natural Food Stocks Holding Steady Despite Market Challenges

The Zacks Natural Foods Products industry is navigating a challenging macroeconomic environment marked by persistent inflation and reduced consumer spending. Additionally, rising input costs and higher operational expenses continue to put pressure on profit margins across the sector.

However, the industry is finding support from increasing consumer focus on health and wellness, driving strong demand for nutritious, natural and wholesome food products. To tap into this trend, many companies are expanding their portfolios through product innovation and strategic acquisitions. These growth drivers are particularly favorable for key players like Sprouts Farmers Market, Inc. SFM and Performance Food Group Company PFGC. 

About the Industry

The Zacks Natural Foods Products industry comprises companies that manufacture and sell a wide range of organic and natural fruits, vegetables, dairy products, flour, bakery items, meat and seafood, as well as spices and condiments. These also offer packaged, ready-to-eat meals, snacks, cereals and frozen food. Some companies offer comfort food items like ice cream and soups. A few players provide personal care products as well as health supplements. The firms operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores and e-commerce service providers. Some also cater to food service channels, including restaurants, cafes and hotels. Others offer services to schools, hospitals and industry caterers. Some players operate through independent retail stores.

Major Trends Shaping the Future of the Natural Food Industry

Challenging Market Landscape: The food industry is facing a tough macroeconomic landscape, with persistent inflation and shrinking consumer spending power reshaping buying habits. Shoppers are increasingly opting for lower-cost alternatives. At the same time, reduced foot traffic in quick-service restaurants is contributing to weaker foodservice performance, putting pressure on sales in key markets. As a result, many companies in the natural food industry are reporting softer sales volumes. To combat these challenges, companies are shifting strategies — emphasizing value-focused marketing, launching targeted promotional campaigns and expanding their portfolios with affordable, budget-friendly product lines to better meet evolving consumer demand.

Cost Pressure: Companies in the natural food industry are under growing pressure as rising costs weigh heavily on margins. Elevated key input prices — such as raw ingredients, labor, packaging and transportation — are tightening profitability. On top of that, businesses are absorbing additional operational expenses tied to essential long-term investments in efficiency, performance upgrades and capacity expansion. While necessary for future growth, these initiatives are creating short-term financial strain. Compounding the issue, global trade tensions and tariffs have further escalated input costs, especially for imported materials. In response, companies across the sector are aggressively pursuing cost-control strategies — streamlining supply chains, optimizing sourcing, and implementing operational efficiencies — to protect margins and navigate this inflationary environment.

Shift Toward Healthier Eating Habits: The shift toward healthier eating habits is accelerating, with consumers increasingly seeking nutritious, natural and organic food options. This growing preference is driving strong demand for fresh and organic products, benefiting companies within the natural food industry. As health-conscious dining becomes more mainstream, restaurants and cafes are adapting by integrating wholesome ingredients and cleaner menu offerings. The resurgence in foodservice channels further amplifies this trend, as diners prioritize wellness even when eating out. Industry analysts expect this focus on healthy eating to continue, reinforcing long-term growth opportunities for fresh and organic food providers.

Zacks Industry Rank Indicates Dull Prospects

The Zacks Natural Foods Products industry is housed within the broader Zacks Retail - Wholesale sector. The industry currently carries a Zacks Industry Rank #174, which places it in the bottom 29% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates disappointing near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since the beginning of May 2025, the industry’s consensus estimate for current financial year earnings has decreased 2.5%.

Here, we present a few stocks that you may want to consider for your portfolio. However, before that, it’s worth taking a look at the industry’s performance and current valuation.

Industry vs. Broader Market

The Zacks Natural Foods Products industry has outperformed the broader Zacks Retail - Wholesale sector as well as the S&P 500 over the past year.

The industry has risen 64.7% over this period compared with the broader sector’s growth of 17.3% and the S&P 500’s increase of 12.3%.

One-Year Price Performance

Industry's Current Valuation

On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing Retail-Wholesale stocks, the industry is currently trading at 20.02X compared with the S&P 500’s 22.63X and the sector’s 24.98X.

Over the past five years, the industry has traded as high as 22.77X and as low as 10.88X, with the median being 14.94X, as the chart below shows:

Price-to-Earnings Ratio (Past Five Years)

2 Natural Food Stocks to Keep a Close Eye On

Sprouts Farmers: This Zacks Rank #2 (Buy) grocery retailer has been capitalizing on its emphasis on product innovation, a strong focus on e-commerce, the expansion of private-label offerings, targeted marketing efforts and competitive pricing. Sprouts Farmers continues to strengthen its position in the growing natural and organic food market by offering competitive pricing and personalized marketing strategies. The company also ensures a seamless shopping experience through its Sprouts.com website and mobile app, while upgrading store formats and building a supply chain focused on delivering the freshest produce. Ongoing investments in operational efficiency further support Sprouts Farmers’ long-term growth.

The Zacks Consensus Estimate for Sprouts Farmers’ current fiscal year earnings per share (EPS) has remained unchanged in the past 30 days at $5.08. SFM stock has gained 96.6% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: SFM

Performance Food Group: This Zacks Rank #3 (Hold) company continues to capitalize on its strong foothold in the growing food-away-from-home industry. The company’s Foodservice segment demonstrates resilience, supported by an effective sales force and strategic market positioning. Performance Food Group is driving growth through targeted investments in sales force expansion and increased private-label penetration. In addition, robust cost control measures and procurement efficiencies are enhancing margins and boosting cash flow. 

The Zacks Consensus Estimate for Performance Food Group’s current fiscal year EPS has remained unchanged in the past 30 days at $4.36. PFGC stock has gained 40.1% in the past year.

Price and Consensus: PFGC

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Sprouts Farmers Market, Inc. (SFM): Free Stock Analysis Report
 
Performance Food Group Company (PFGC): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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