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ValueX Vail 2015: The Chefs Warehouse, Inc (CHEF) – Laughing Water

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Laughing Water Capital presentation on The Chefs Warehouse, Inc (CHEF) from the ValueX Vail, June 2015.

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Investment Basics

  • 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

Chefs Warehouse

  • 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.

Industry Basics

Chefs Warehouse

  • ~ $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

ValueX Vail 2015: The Chefs Warehouse, Inc (CHEF) - Laughing Water

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

Chefs Warehouse

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.

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