June 2, 2025 • 19 mins
M&A is a great opportunity for HF Foods Group because Asian specialty foodservice distribution is primarily made up of smaller competitors and HF is the only national player in the US, CEO and President Felix Lin tells Bloomberg Intelligence. In this episode of the Choppin’ It Up podcast, Lin sits down with BI’s senior restaurant and foodservice analyst Michael Halen to discuss the company’s plans to grow organically and via acquisitions. He also comments on the new e-commerce platform, competition from Sysco and the impact of tariffs.
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Speaker 1 (00:13):
Welcome to Chopping it Up. I'm your host, Mike Hamlon,
the senior restaurant and food service analysts at Bloomberg Intelligence.
Our Research and that a bi's five hundred analysts around
the globe can be found exclusively on the Bloomberg terminal.
If you enjoy the pod, I'd love it if you
could leave us a review on Apple or Spotify. Today
we're joined by Felix Linn, CEO and President of HF
Foods Group. HF Foods is a food service distributor to
(00:37):
Asian restaurants, trading on the Nasdaq with the ticker symbol HFFG.
Thanks for joining me.
Speaker 2 (00:43):
Felix, Thanks for having me all right.
Speaker 1 (00:45):
So I saw on LinkedIn that you're based in Vegas.
So my favorite Asian fusion restaurant, Pasta Ramen in Montclair,
New Jersey. It's doing a pop up this month at
bar Zazuu in Resorts World. So it's highly recommend I
think you need to check it out if you get
some time.
Speaker 3 (01:02):
Yeah, that'd be great. I'd go check it out. Maybe
it can be a potential customer of ours.
Speaker 2 (01:07):
Yeah.
Speaker 1 (01:07):
Yeah, it's the only Italian Asian fusion restaurant I've ever
been to and they have a fantastic menu. So listen, man,
it seems like specializing in Asian cuisine is a good
place to be considering the rapid growth of that market.
Speaker 2 (01:23):
Yeah.
Speaker 3 (01:24):
Absolutely, Look, we've been in the business for almost three
decades now and we're now the leader within the Asian
specialty space right specifically from a food service standpoint. It's
actually to be projected to be the fastest growing segment
of the broader space. So if you look at it today,
it's twelve percent of the entire market, so roughly about
(01:46):
ninety four thousand restaurants. It's a fifty billion dollar Judgle
market and hf you know, we're at one point two
billion dollar today, so just a tip of the iceberg.
So we're very excited about where we can go within
the space.
Speaker 1 (02:00):
Very cool. And your last earnings call, you mentioned that
sales were very strong in March and that continued into April.
I found this interesting because US low income consumers seem
to pull back in March. Does your customer's clientele skew
more middle and upper income?
Speaker 2 (02:15):
I think it varies, you know.
Speaker 3 (02:17):
So we have over fifteen thousand independent restaurant accounts throughout
the country, right, So a little bit over sixteen percent
market share within our space. So it's got a pretty
wide variety. So we have some higher end dining in restaurants,
you know, very authentic Asian cuisines. We also have the
lower end takeouts, you know, that's similar to the Panet
(02:38):
Express of the world.
Speaker 2 (02:39):
Right.
Speaker 3 (02:40):
So a very region by region, market by market, so
we have a very wide variety of customer mix and
the size of businesses as well. But one thing I
will say is that you know, our customers are extremely
agile and flexible, so they changed their business models quite
frequently depending on what happens kind of the in the
(03:01):
macrol environment, and we saw that through the pandemic too.
Speaker 2 (03:05):
That's great.
Speaker 1 (03:05):
The business operates in forty six states. Which geographies are
you strongest?
Speaker 3 (03:09):
Then, I think the West Coast in terms of the
California market in the melind region is part of our
most mature market at the moment. So combined, if you
look at the entire West Coast from Seattle, Washington all
the way down to SoCal and then you know eastwards
into the Salt Lake, Denver and Phoenix and even our
(03:30):
Las Vegas market combined it's over five hundred million dollar
business today, so you know, I guess close to forty
percent of our entire market. And then followed by Southeast
you know, that's where the legacy h of US actually
started in North Carolina, So that's a very strong business,
roughly about three hundred million dollars. So, and then our
seafood companies that we have in the Midwest kind of
(03:52):
make up you know the rest of it.
Speaker 1 (03:54):
Okay, great, what's the sales split between chains and independent restaurants?
Speaker 3 (03:58):
So that's an interesting you know, differentiation of ours is
that virtually one hundred percent of our business, our customers
are all independently run mom and pop businesses, so we
really don't do much of any chain business, which is
one of the advantages that we have because you don't
have commitments with these guys. So whenever there's things that happen,
(04:18):
you know, at the macro level that might have impacted
supply chain or different issues, we're able to react, you know,
in real time, so we make adjustments on a daily basis.
Speaker 1 (04:30):
So you should have stronger ebadim margins too. What was
the ebadam margin that fair?
Speaker 3 (04:34):
So last year it's around that three and a half
percent you know range. So again, we're in the middle
of this business transformation right now. So longer term, over
the next three to five years, through some of the
investments that we're making, you know, into the business, which
both in terms of growing capacity and capability, our objective
is to get to probably north of five percent ebit
(04:55):
the margin here over time.
Speaker 1 (04:57):
Okay, great, what's the split between Chin, Japanese and other
Asian cuisines.
Speaker 3 (05:03):
So, you know, restaurant that's kind of owned by first
generation immigrants that's ethnically Chinese probably make up a vast
majority of our customers today. Another interesting you know, statistic
within our space is that if you look at the
ninety four thousand restaurant dimension that's the addressable market fifty
(05:24):
billion dollars, roughly two thirds of those restaurants it's dominated
by again first generation or second generation Chinese immigrants, and
then the rest that probably make up you look at
the popular Vimanese fa noodle house, right, the Rama house,
Korean barbecue, sushi, steakhouse, so forth, and so forth. But
even within those categories, a good bit of them it's
(05:47):
actually only and operate again by you know, ethnically Chinese
immigrants because there's so much similarity that crosses over from
a product standpoint. That's why we see a very strong
opportunity even from a adjacency standpoint, to expand beyond what
a core business model is today.
Speaker 1 (06:05):
Okay, cool, So do you have that sounds like a
good plan for organic growth. Do you have any other
plans you'd like to share?
Speaker 3 (06:12):
Yeah, So organically the biggest opportunity for me, you know,
at least in the short term, it's just to growth
my shirt walle with my existing accounts. Right, there's a
couple of territories that I mentioned, whether it's in the
Southeast or in the Midwest. You know, today we're somewhat
constrained by our capacity, so we're actively making investment into
growing those facilities. So in the next three five years,
(06:34):
there's probably two or three hundred million dollars worth of
organic growth opportunity just my existing accounts. Then beyond that,
as I mentioned adjacency, you know, there's so much product similarities.
You look at sauce of sauce, right, you know, whether
it's soy sauce or other commodities that rise and noodles
and specialty fresh produce it doesn't matter if it's a
(06:57):
Chinese restaurant, Korean restaurant, or Japanese and they use very
similar not exactly the same product. So that's how we
plan to get into it. But I think M and
A it's another great opportunity for us because this space
it's largely makeup of a lot of smaller players. You know,
there's literally dozens and dozens of these smaller businesses that
(07:19):
range from thirty million dollars to fifty sixty million top
line business. So there's not a close second, you know
that can compete with HF on a national level, where
by far the largest player within our space. So it
really creates an opportunity where HF could be and is
the strategic acquired within our space. So I think that's
(07:40):
you know, from a strategy standpoint, it's really a dual approach.
Organically it's cross selling in the short term expand into adjacency,
and organically it's to consolidate via acquisition of a lot
of these smaller players.
Speaker 1 (07:55):
Okay, it sounds like there's a lot of available attractive
targets as yet that environment, that M and A environment
become more competitive.
Speaker 3 (08:04):
No, it's you know, that's the advantage that we have. Right,
It's a lot of these businesses they're either too small,
too complicated for a much larger broadliner. So you mentioned,
you know, whether Cisco US Food, they don't understand the business.
They don't have the culture connection, the customer stickiness that
we enjoy. And then if you look at the other
(08:27):
outlets in the in the capital market, private equity or
anything like that, again similar issue that they deal with.
So we're in a very unique position that we're really
the only ones that understand the business. You know, I
can go into any one of these shop and look
at how many trucks they have, and look at their
warehouse and space and probably come within one of two
percent margin error and say this is probably how much
(08:49):
book business that you're doing and what your margin profile is.
So that's a great advantage that we have, and we
accumulate this obviously over three years of reation that we
would build.
Speaker 1 (09:01):
Interesting. Yes, you mentioned Cisco. They're focusing on growth in
Asian cuisines. They were in five Midwest states as of
a year ago looking to expand. Are you feeling any
pressure on your business?
Speaker 2 (09:14):
Not at all, not at all.
Speaker 3 (09:17):
And look, I mean they just don't have the same
level of product skills that we offer.
Speaker 2 (09:22):
Right.
Speaker 3 (09:22):
If you look at our business, we have over twenty
thousand schemes and fifty percent of them a little bit
over ten thousands, specifically in the Asian specialty. So you
think about you know, it isn't the model. Isn't just
hiring a bunch of salespeople that perhaps speak the language, right,
you know, one of the things that some of the
(09:43):
other food service companies might kind of talk about, it's
understanding what the customers want. It's understanding the cuisine. So
the cultural aspect of it, you just cannot replace. So again,
I came from one of these HIF customers myself, you know,
twenty five years ago. My parents were HF customer and
they sold the business about twelve years ago, and the
(10:05):
successor is still an HEF customer.
Speaker 2 (10:07):
Right.
Speaker 3 (10:08):
So having been through the type of restaurants and growing
up in one, that connection is just again evenreplaceable good stuff.
Speaker 1 (10:18):
Can you speak to the new e commerce platform that
was launched in Utah, North Carolina and Florida.
Speaker 3 (10:23):
Yeah, e commerce for me, it's a huge opportunity, you know,
one from a digital transformation standpoint over time. Right, it's
going to add a lot of value for us, but
it's a proven platform in terms of you know, retail
or distribution business in general. Right, things are so events
(10:44):
now in terms of you know, algorithm that's being built
into the platform. It will remind people potentially what they
haven't ordered that they should be ordering, bundling things together.
So eventually it's going to be a volume kind of
an organic volume increase plate for us. But in the
short term, I also find a great alternative, call it
(11:06):
a sell channel for us. As I mentioned in fifteen
thousand individual accounts today, that's fifteen thousand families and their employees. Right,
a lot of these guys are located in areas that
they don't have access to specialty grocery or specialty snacks.
So I see a business opportunity where I have an
(11:26):
established supply chain network where I can source these products
and service them for their own consumption rather than for
their inventory purposes. It goes out on the same delivery
trucks that I have to the restaurants, so I'm not
giving margin away to last a mile delivery trucks. So
that it's one thing that I'm very, very excited about
(11:48):
and it will give the customers an opportunity to learn
a new platform, so over time kind of a transition
to that more more holistically. But again, it's just an
option for these guys.
Speaker 1 (12:01):
Okay, good stuff. I'd imagine too, you know, it would
it would kind of help maybe the language barrier at
some point, right if people can just order online and
you know, maybe some of your sales reps don't have
to speak uh, their their native tongue stuff like that.
Speaker 3 (12:19):
Yeah, that's a very good point, right, It's all about
you know. You know, for me, I'm always going to
be in the position of taking a much longer term view, right,
and all these different strategies kind of tie into each other.
So we talk about getting into adjagencies, right, if I
want to do other ethnic cuisines, you know, again, getting
more into the Japanese, I think the Japanese space, Korean space,
(12:42):
tie Vivanese. You know again, I think language and culture
is still important. You know, there's enough similarities. But having
e commerce, you know, it's an option on the table
where language is not the only option, you know itself,
and it certainly if I want to ban into you know,
Hispanic business, which we have been doing that a little.
Speaker 2 (13:03):
Bit on the pro seafood side of it.
Speaker 3 (13:05):
So one of the advantages and the opportunity I've seen
across the board is, you know, ethnic cuisines and ethnic restaurants. Historically,
it's just been very much underserved by people.
Speaker 2 (13:20):
So there's a.
Speaker 3 (13:21):
Huge opportunity there in terms of understanding why is it
that they've been underserved and making sure you have products
and services that align with how they do business. That's
what's going to keep us ahead of some of these
bigger guys. From a commercial opportunity standpoint.
Speaker 1 (13:39):
It's a perfect time to be attacking that business because
the younger generations are much more exploratory, exploratory with the
cuisines that you know, they're trying.
Speaker 3 (13:49):
To absolutely you know, you think about ten to fifteen
years ago, right, the only thing that you know the
general public might be familiar with is your classic you know,
Asian takeout. In terms of the childmain is the sesame
chicken swings, our chicken of the world. But now with
you know, social media, how popular things are. You know,
(14:10):
people are traveling, people are experiencing new things. There's a
there's more of an appetite for new things, right, so
you see so much of these new or fusion cuisines
that start popping out. You know what, this looks really interesting,
whether it's hot, hot restaurants or these very authentic, you
know restaurants you mentioned in Vegas for example, you know,
(14:32):
one of the most popular spots that that I go
to all the time, it's an authentic Asian restaurant here
called Tastes. You know, when I go to the restaurant,
seventy eighty percent of the customers is actually non Asians,
you know, but the food that is serviced is very
very traditional, you know, it's not the takeouts that that
were historically used to. But just seeing people come to
(14:54):
you know, age with with new cuisines, it's amazing for
us and also just offers a lot of positive positivity
for me in terms of where the industry is going itself.
Speaker 1 (15:07):
Yeah, it's exciting. My quick shout out to lotus as
I am whenever I'm in Vegas, Man, I love hitting
that place up. We touched on it a little bit earlier,
but maybe if you could expand a little bit on
your margin expansion strategies, including your plans to streamline operations.
Speaker 3 (15:24):
Look, I mean scale is what matters within our business,
right you know, So even though we're one point two billion,
you know, we're still there's still plenty of room for
us ago. You know, like I said, it's a fifty
billion dollar market that we're in. You know, historically, you know,
one thing I would admit is that we have not
done a good job in terms of fully integrated businesses.
Speaker 2 (15:44):
Right, It's okay.
Speaker 3 (15:45):
You know, we're on a very aggressive path here now
to modernize and to get up to speed. So bringing
this brand new ERP system fully online here as a
May one, twenty twenty five, it's a huge milestone for
us as a business. So over time, these tools, it's
going to enable us to have better data, better analytical power,
you know, because again you know, common business SE's right,
(16:07):
it's always better to buy as a bill and dog
business than buying as you know, ten or fourteen fifty
seventy million dollar businesses. You know, so intuitively, I know
there's a lot of opportunity in that in terms of
just you know, acting as a bill and dog business,
you know, ourselves. So as we continue to grow organically
and inorganically the size gets bigger, it's just.
Speaker 2 (16:30):
Going to add more and more value.
Speaker 3 (16:32):
But in the last twelve months, we've done a lot
of very good pilots internally, specifically with our frozen seafood programs.
We're seeing a tremendous amount of improvement in our frozen
seafood margin in the last twelve months or so. And
that's despite the fact that we didn't have a you know,
an update system in place. So again, you know, credit
to the team in terms of what they've done so far.
Speaker 1 (16:56):
And you mentioned that you're expanding your network. You know,
how much you spending a year in cappex expand your capacity.
Speaker 2 (17:03):
You know, we're being very methodical right now.
Speaker 3 (17:07):
So in terms of capex, whether there's twenty four to
twenty five in the next couple of years, right you know,
we're trying to make sure we can handle it internally
with our own cash flow, So probably ranges from that
fifteen to twenty million dollar range on the annual basis. And
again a lot of the focus will be on the
facility and the fleet side of it, you know, as
(17:28):
the system now is kind of a wrap. But you know,
we're always welcome to to have some conversations in terms
of you know, additional capital because It's one of those
things you can do it much on the much larger
and faster pace if you have unlimited capital. So that's
always a conversation that we're willing to kind of entertain
and explore a little bit.
Speaker 1 (17:49):
Great and meat poultry produce their source domestically, but frozen seafood,
Asian specialty items, packaging are imported. What percentage of your
basket from overseas and more specifically from China.
Speaker 3 (18:03):
Yeah, so roughly seventy percent of my by it's all
domestic to your point, right, exactly the categories that you
kind of mentioned, So thirty percent of it comes from overseas,
and a significant portion of it it's in the seafood category.
Speaker 2 (18:18):
So seafood we mainly get.
Speaker 3 (18:20):
From, whether it's India, Southeast Asia, or South America, you know,
specifically like Egador for example, from China. Historically it's been
in that fifteen eighteen percent range, you know, but again,
you know, we've learned a lot of lessons here from
the pandemic, you know, even during the pandemic when we
(18:40):
saw a significant amount of supply chain disruption. Right, So
we've been working with our partners here for the last
four vive years, really diversifying where things are getting manufactured.
So a lot of our Chinese suppliers in the last
few years have been actively setting up manufacturing shops elsewhere,
you know, for various reasons. That's why I think, you
(19:00):
know our ability one of the things that you might
touch on here a little bit is actually terrorst right,
you know, our ability to deal with the terror is actually.
Speaker 2 (19:09):
We're in a lot.
Speaker 3 (19:10):
Better position than some of the folks because we've been
having so much of these conversations for a very long time.
Speaker 1 (19:15):
For folks ahead of the game, I love hearing it. Well, listen,
Thanks again, Phelix. This is an interesting business and you
don't have to comment on this, but I could see
this as potentially even a target for some of the
very large national players in this country. So, you know,
thanks for your time. I look forward to continuing to
follow this interesting story.
Speaker 2 (19:35):
Yeah, I appreciate it. Mike, thanks for having me again today.
Speaker 1 (19:37):
Sure thing, and thanks to the audience for tuning in.
If you liked our discussion, please share with your friends
and colleagues. Check back soon for another episode of Chopping
It Up.
Welcome to Chopping it Up. I'm your host, Mike Hamlon,
the senior restaurant and food service analysts at Bloomberg Intelligence.
Our Research and that a bi's five hundred analysts around
the globe can be found exclusively on the Bloomberg terminal.
If you enjoy the pod, I'd love it if you
could leave us a review on Apple or Spotify. Today
we're joined by Felix Linn, CEO and President of HF
Foods Group. HF Foods is a food service distributor to
(00:37):
Asian restaurants, trading on the Nasdaq with the ticker symbol HFFG.
Thanks for joining me.
Speaker 2 (00:43):
Felix, Thanks for having me all right.
Speaker 1 (00:45):
So I saw on LinkedIn that you're based in Vegas.
So my favorite Asian fusion restaurant, Pasta Ramen in Montclair,
New Jersey. It's doing a pop up this month at
bar Zazuu in Resorts World. So it's highly recommend I
think you need to check it out if you get
some time.
Speaker 3 (01:02):
Yeah, that'd be great. I'd go check it out. Maybe
it can be a potential customer of ours.
Speaker 2 (01:07):
Yeah.
Speaker 1 (01:07):
Yeah, it's the only Italian Asian fusion restaurant I've ever
been to and they have a fantastic menu. So listen, man,
it seems like specializing in Asian cuisine is a good
place to be considering the rapid growth of that market.
Speaker 2 (01:23):
Yeah.
Speaker 3 (01:24):
Absolutely, Look, we've been in the business for almost three
decades now and we're now the leader within the Asian
specialty space right specifically from a food service standpoint. It's
actually to be projected to be the fastest growing segment
of the broader space. So if you look at it today,
it's twelve percent of the entire market, so roughly about
(01:46):
ninety four thousand restaurants. It's a fifty billion dollar Judgle
market and hf you know, we're at one point two
billion dollar today, so just a tip of the iceberg.
So we're very excited about where we can go within
the space.
Speaker 1 (02:00):
Very cool. And your last earnings call, you mentioned that
sales were very strong in March and that continued into April.
I found this interesting because US low income consumers seem
to pull back in March. Does your customer's clientele skew
more middle and upper income?
Speaker 2 (02:15):
I think it varies, you know.
Speaker 3 (02:17):
So we have over fifteen thousand independent restaurant accounts throughout
the country, right, So a little bit over sixteen percent
market share within our space. So it's got a pretty
wide variety. So we have some higher end dining in restaurants,
you know, very authentic Asian cuisines. We also have the
lower end takeouts, you know, that's similar to the Panet
(02:38):
Express of the world.
Speaker 2 (02:39):
Right.
Speaker 3 (02:40):
So a very region by region, market by market, so
we have a very wide variety of customer mix and
the size of businesses as well. But one thing I
will say is that you know, our customers are extremely
agile and flexible, so they changed their business models quite
frequently depending on what happens kind of the in the
(03:01):
macrol environment, and we saw that through the pandemic too.
Speaker 2 (03:05):
That's great.
Speaker 1 (03:05):
The business operates in forty six states. Which geographies are
you strongest?
Speaker 3 (03:09):
Then, I think the West Coast in terms of the
California market in the melind region is part of our
most mature market at the moment. So combined, if you
look at the entire West Coast from Seattle, Washington all
the way down to SoCal and then you know eastwards
into the Salt Lake, Denver and Phoenix and even our
(03:30):
Las Vegas market combined it's over five hundred million dollar
business today, so you know, I guess close to forty
percent of our entire market. And then followed by Southeast
you know, that's where the legacy h of US actually
started in North Carolina, So that's a very strong business,
roughly about three hundred million dollars. So, and then our
seafood companies that we have in the Midwest kind of
(03:52):
make up you know the rest of it.
Speaker 1 (03:54):
Okay, great, what's the sales split between chains and independent restaurants?
Speaker 3 (03:58):
So that's an interesting you know, differentiation of ours is
that virtually one hundred percent of our business, our customers
are all independently run mom and pop businesses, so we
really don't do much of any chain business, which is
one of the advantages that we have because you don't
have commitments with these guys. So whenever there's things that happen,
(04:18):
you know, at the macro level that might have impacted
supply chain or different issues, we're able to react, you know,
in real time, so we make adjustments on a daily basis.
Speaker 1 (04:30):
So you should have stronger ebadim margins too. What was
the ebadam margin that fair?
Speaker 3 (04:34):
So last year it's around that three and a half
percent you know range. So again, we're in the middle
of this business transformation right now. So longer term, over
the next three to five years, through some of the
investments that we're making, you know, into the business, which
both in terms of growing capacity and capability, our objective
is to get to probably north of five percent ebit
(04:55):
the margin here over time.
Speaker 1 (04:57):
Okay, great, what's the split between Chin, Japanese and other
Asian cuisines.
Speaker 3 (05:03):
So, you know, restaurant that's kind of owned by first
generation immigrants that's ethnically Chinese probably make up a vast
majority of our customers today. Another interesting you know, statistic
within our space is that if you look at the
ninety four thousand restaurant dimension that's the addressable market fifty
(05:24):
billion dollars, roughly two thirds of those restaurants it's dominated
by again first generation or second generation Chinese immigrants, and
then the rest that probably make up you look at
the popular Vimanese fa noodle house, right, the Rama house,
Korean barbecue, sushi, steakhouse, so forth, and so forth. But
even within those categories, a good bit of them it's
(05:47):
actually only and operate again by you know, ethnically Chinese
immigrants because there's so much similarity that crosses over from
a product standpoint. That's why we see a very strong
opportunity even from a adjacency standpoint, to expand beyond what
a core business model is today.
Speaker 1 (06:05):
Okay, cool, So do you have that sounds like a
good plan for organic growth. Do you have any other
plans you'd like to share?
Speaker 3 (06:12):
Yeah, So organically the biggest opportunity for me, you know,
at least in the short term, it's just to growth
my shirt walle with my existing accounts. Right, there's a
couple of territories that I mentioned, whether it's in the
Southeast or in the Midwest. You know, today we're somewhat
constrained by our capacity, so we're actively making investment into
growing those facilities. So in the next three five years,
(06:34):
there's probably two or three hundred million dollars worth of
organic growth opportunity just my existing accounts. Then beyond that,
as I mentioned adjacency, you know, there's so much product similarities.
You look at sauce of sauce, right, you know, whether
it's soy sauce or other commodities that rise and noodles
and specialty fresh produce it doesn't matter if it's a
(06:57):
Chinese restaurant, Korean restaurant, or Japanese and they use very
similar not exactly the same product. So that's how we
plan to get into it. But I think M and
A it's another great opportunity for us because this space
it's largely makeup of a lot of smaller players. You know,
there's literally dozens and dozens of these smaller businesses that
(07:19):
range from thirty million dollars to fifty sixty million top
line business. So there's not a close second, you know
that can compete with HF on a national level, where
by far the largest player within our space. So it
really creates an opportunity where HF could be and is
the strategic acquired within our space. So I think that's
(07:40):
you know, from a strategy standpoint, it's really a dual approach.
Organically it's cross selling in the short term expand into adjacency,
and organically it's to consolidate via acquisition of a lot
of these smaller players.
Speaker 1 (07:55):
Okay, it sounds like there's a lot of available attractive
targets as yet that environment, that M and A environment
become more competitive.
Speaker 3 (08:04):
No, it's you know, that's the advantage that we have. Right,
It's a lot of these businesses they're either too small,
too complicated for a much larger broadliner. So you mentioned,
you know, whether Cisco US Food, they don't understand the business.
They don't have the culture connection, the customer stickiness that
we enjoy. And then if you look at the other
(08:27):
outlets in the in the capital market, private equity or
anything like that, again similar issue that they deal with.
So we're in a very unique position that we're really
the only ones that understand the business. You know, I
can go into any one of these shop and look
at how many trucks they have, and look at their
warehouse and space and probably come within one of two
percent margin error and say this is probably how much
(08:49):
book business that you're doing and what your margin profile is.
So that's a great advantage that we have, and we
accumulate this obviously over three years of reation that we
would build.
Speaker 1 (09:01):
Interesting. Yes, you mentioned Cisco. They're focusing on growth in
Asian cuisines. They were in five Midwest states as of
a year ago looking to expand. Are you feeling any
pressure on your business?
Speaker 2 (09:14):
Not at all, not at all.
Speaker 3 (09:17):
And look, I mean they just don't have the same
level of product skills that we offer.
Speaker 2 (09:22):
Right.
Speaker 3 (09:22):
If you look at our business, we have over twenty
thousand schemes and fifty percent of them a little bit
over ten thousands, specifically in the Asian specialty. So you
think about you know, it isn't the model. Isn't just
hiring a bunch of salespeople that perhaps speak the language, right,
you know, one of the things that some of the
(09:43):
other food service companies might kind of talk about, it's
understanding what the customers want. It's understanding the cuisine. So
the cultural aspect of it, you just cannot replace. So again,
I came from one of these HIF customers myself, you know,
twenty five years ago. My parents were HF customer and
they sold the business about twelve years ago, and the
(10:05):
successor is still an HEF customer.
Speaker 2 (10:07):
Right.
Speaker 3 (10:08):
So having been through the type of restaurants and growing
up in one, that connection is just again evenreplaceable good stuff.
Speaker 1 (10:18):
Can you speak to the new e commerce platform that
was launched in Utah, North Carolina and Florida.
Speaker 3 (10:23):
Yeah, e commerce for me, it's a huge opportunity, you know,
one from a digital transformation standpoint over time. Right, it's
going to add a lot of value for us, but
it's a proven platform in terms of you know, retail
or distribution business in general. Right, things are so events
(10:44):
now in terms of you know, algorithm that's being built
into the platform. It will remind people potentially what they
haven't ordered that they should be ordering, bundling things together.
So eventually it's going to be a volume kind of
an organic volume increase plate for us. But in the
short term, I also find a great alternative, call it
(11:06):
a sell channel for us. As I mentioned in fifteen
thousand individual accounts today, that's fifteen thousand families and their employees. Right,
a lot of these guys are located in areas that
they don't have access to specialty grocery or specialty snacks.
So I see a business opportunity where I have an
(11:26):
established supply chain network where I can source these products
and service them for their own consumption rather than for
their inventory purposes. It goes out on the same delivery
trucks that I have to the restaurants, so I'm not
giving margin away to last a mile delivery trucks. So
that it's one thing that I'm very, very excited about
(11:48):
and it will give the customers an opportunity to learn
a new platform, so over time kind of a transition
to that more more holistically. But again, it's just an
option for these guys.
Speaker 1 (12:01):
Okay, good stuff. I'd imagine too, you know, it would
it would kind of help maybe the language barrier at
some point, right if people can just order online and
you know, maybe some of your sales reps don't have
to speak uh, their their native tongue stuff like that.
Speaker 3 (12:19):
Yeah, that's a very good point, right, It's all about
you know. You know, for me, I'm always going to
be in the position of taking a much longer term view, right,
and all these different strategies kind of tie into each other.
So we talk about getting into adjagencies, right, if I
want to do other ethnic cuisines, you know, again, getting
more into the Japanese, I think the Japanese space, Korean space,
(12:42):
tie Vivanese. You know again, I think language and culture
is still important. You know, there's enough similarities. But having
e commerce, you know, it's an option on the table
where language is not the only option, you know itself,
and it certainly if I want to ban into you know,
Hispanic business, which we have been doing that a little.
Speaker 2 (13:03):
Bit on the pro seafood side of it.
Speaker 3 (13:05):
So one of the advantages and the opportunity I've seen
across the board is, you know, ethnic cuisines and ethnic restaurants. Historically,
it's just been very much underserved by people.
Speaker 2 (13:20):
So there's a.
Speaker 3 (13:21):
Huge opportunity there in terms of understanding why is it
that they've been underserved and making sure you have products
and services that align with how they do business. That's
what's going to keep us ahead of some of these
bigger guys. From a commercial opportunity standpoint.
Speaker 1 (13:39):
It's a perfect time to be attacking that business because
the younger generations are much more exploratory, exploratory with the
cuisines that you know, they're trying.
Speaker 3 (13:49):
To absolutely you know, you think about ten to fifteen
years ago, right, the only thing that you know the
general public might be familiar with is your classic you know,
Asian takeout. In terms of the childmain is the sesame
chicken swings, our chicken of the world. But now with
you know, social media, how popular things are. You know,
(14:10):
people are traveling, people are experiencing new things. There's a
there's more of an appetite for new things, right, so
you see so much of these new or fusion cuisines
that start popping out. You know what, this looks really interesting,
whether it's hot, hot restaurants or these very authentic, you
know restaurants you mentioned in Vegas for example, you know,
(14:32):
one of the most popular spots that that I go
to all the time, it's an authentic Asian restaurant here
called Tastes. You know, when I go to the restaurant,
seventy eighty percent of the customers is actually non Asians,
you know, but the food that is serviced is very
very traditional, you know, it's not the takeouts that that
were historically used to. But just seeing people come to
(14:54):
you know, age with with new cuisines, it's amazing for
us and also just offers a lot of positive positivity
for me in terms of where the industry is going itself.
Speaker 1 (15:07):
Yeah, it's exciting. My quick shout out to lotus as
I am whenever I'm in Vegas, Man, I love hitting
that place up. We touched on it a little bit earlier,
but maybe if you could expand a little bit on
your margin expansion strategies, including your plans to streamline operations.
Speaker 3 (15:24):
Look, I mean scale is what matters within our business,
right you know, So even though we're one point two billion,
you know, we're still there's still plenty of room for
us ago. You know, like I said, it's a fifty
billion dollar market that we're in. You know, historically, you know,
one thing I would admit is that we have not
done a good job in terms of fully integrated businesses.
Speaker 2 (15:44):
Right, It's okay.
Speaker 3 (15:45):
You know, we're on a very aggressive path here now
to modernize and to get up to speed. So bringing
this brand new ERP system fully online here as a
May one, twenty twenty five, it's a huge milestone for
us as a business. So over time, these tools, it's
going to enable us to have better data, better analytical power,
you know, because again you know, common business SE's right,
(16:07):
it's always better to buy as a bill and dog
business than buying as you know, ten or fourteen fifty
seventy million dollar businesses. You know, so intuitively, I know
there's a lot of opportunity in that in terms of
just you know, acting as a bill and dog business,
you know, ourselves. So as we continue to grow organically
and inorganically the size gets bigger, it's just.
Speaker 2 (16:30):
Going to add more and more value.
Speaker 3 (16:32):
But in the last twelve months, we've done a lot
of very good pilots internally, specifically with our frozen seafood programs.
We're seeing a tremendous amount of improvement in our frozen
seafood margin in the last twelve months or so. And
that's despite the fact that we didn't have a you know,
an update system in place. So again, you know, credit
to the team in terms of what they've done so far.
Speaker 1 (16:56):
And you mentioned that you're expanding your network. You know,
how much you spending a year in cappex expand your capacity.
Speaker 2 (17:03):
You know, we're being very methodical right now.
Speaker 3 (17:07):
So in terms of capex, whether there's twenty four to
twenty five in the next couple of years, right you know,
we're trying to make sure we can handle it internally
with our own cash flow, So probably ranges from that
fifteen to twenty million dollar range on the annual basis. And
again a lot of the focus will be on the
facility and the fleet side of it, you know, as
(17:28):
the system now is kind of a wrap. But you know,
we're always welcome to to have some conversations in terms
of you know, additional capital because It's one of those
things you can do it much on the much larger
and faster pace if you have unlimited capital. So that's
always a conversation that we're willing to kind of entertain
and explore a little bit.
Speaker 1 (17:49):
Great and meat poultry produce their source domestically, but frozen seafood,
Asian specialty items, packaging are imported. What percentage of your
basket from overseas and more specifically from China.
Speaker 3 (18:03):
Yeah, so roughly seventy percent of my by it's all
domestic to your point, right, exactly the categories that you
kind of mentioned, So thirty percent of it comes from overseas,
and a significant portion of it it's in the seafood category.
Speaker 2 (18:18):
So seafood we mainly get.
Speaker 3 (18:20):
From, whether it's India, Southeast Asia, or South America, you know,
specifically like Egador for example, from China. Historically it's been
in that fifteen eighteen percent range, you know, but again,
you know, we've learned a lot of lessons here from
the pandemic, you know, even during the pandemic when we
(18:40):
saw a significant amount of supply chain disruption. Right, So
we've been working with our partners here for the last
four vive years, really diversifying where things are getting manufactured.
So a lot of our Chinese suppliers in the last
few years have been actively setting up manufacturing shops elsewhere,
you know, for various reasons. That's why I think, you
(19:00):
know our ability one of the things that you might
touch on here a little bit is actually terrorst right,
you know, our ability to deal with the terror is actually.
Speaker 2 (19:09):
We're in a lot.
Speaker 3 (19:10):
Better position than some of the folks because we've been
having so much of these conversations for a very long time.
Speaker 1 (19:15):
For folks ahead of the game, I love hearing it. Well, listen,
Thanks again, Phelix. This is an interesting business and you
don't have to comment on this, but I could see
this as potentially even a target for some of the
very large national players in this country. So, you know,
thanks for your time. I look forward to continuing to
follow this interesting story.
Speaker 2 (19:35):
Yeah, I appreciate it. Mike, thanks for having me again today.
Speaker 1 (19:37):
Sure thing, and thanks to the audience for tuning in.
If you liked our discussion, please share with your friends
and colleagues. Check back soon for another episode of Chopping
It Up.
Host
Michael Halen
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