Laughing Water Capital presentation on The Chefs Warehouse, Inc (CHEF) from the ValueX Vail, June 2015.
- Easy To Understand
- Under-appreciated Moat
- Competitive Advantages
- Strong Normalized FCF Generation
- Fragmented Industry
- Opportunity for Reinvestment
- Long Runway for Growth
- Incentivized Management
- Misunderstood Risks
- Temporary Problems
Chefs Warehouse Description
Carlson Capital's Double Black Diamond fund added 1.47% net of fees in May, taking its year-to-date performance to 5.2%, according to a copy of the fund's letter, which ValueWalk has been able to review. Q1 2021 hedge fund letters, conferences and more Founded in 1993 by Clint Carlson, Carlson Capital has struggled to retain assets Read More
- Founded in 1985 as an importer of European cheeses to NYC by 25 year old Christopher Pappas, who mortgaged his Father’s house to start the business in the garage
- Focused on the highest end of the restaurant market –“chef driven”
- IPO’din 2011 with $400M in revenue
- Expecting $1B+ revenue in 2015 (~28% CAGR)
- Recent growth has been largely tied to acquisitions, but organic growth has been high single digits per year
- Nations largest specialty food distributor, and more recently, shifting focus to center of plate items
Key Takeaway: CHEF has rapidly grown in a small niche of the food distribution industry.
- ~ $212 billion US food distribution market
- ~ 16,500 food distributors, vast majority of them are “mom and pop” operations
- Top 3 competitors control 37% of the market
- Spending at “fine dining” establishments represents ~1% of total food spending away from home
Key Takeaway: Chefs Warehouse is a scale player focused on a small niche of a very large and very fragmented food distribution industry
Distribution: Under-appreciated Moat
Key Takeaway: While barriers to entry are non-existent, scale represents a meaningful moat for distributors. Suppliers want access to many end-users, and end-users want access to many suppliers. The result is a 2 sided network, where both sides want to use a middleman due to fragmentation on the other side.
Key Takeaway: Scale leads to purchasing price advantages and operational leverage, which lead to the ability to offer competitive prices, which starts a virtuous cycle as the benefits of scale attract more constituents to the 2 sided network.
Distribution: Low Normalized Cap-Ex
Key Takeaway: Absent one time items and growth spending, cap-ex is virtually non-existent. How much does it cost to maintain a warehouse? Cash can be re-invested for growth of inventory and geographic expansion.
See full PDF below.