Several powerful tailwinds are supporting long-term growth in the expanding $293 billion fresh food distribution market.1 Here, senior bankers from the Harris Williams Consumer Group discuss rising investor interest in fresh food distribution, how our recent client, FreshEdge, became a leader in the space, and what to look for in other winning companies.
Consumer Trends Driving an Expanding Market
Fresh food distribution companies are well positioned for growth in the near term from the continued recovery in foodservice, as well as the long term due to consumers demanding fresher, healthier options from restaurants and grocery retailers.
“Consumers want better-tasting, fresher, and healthier foods and we’re seeing the industry respond, from chefs and grocery retailers to schools and convenience stores,” says Alexander. In fact, two out of three U.S. consumers report an increase in fresh food purchases, with 80% of their purchases motivated by seeking healthier options.2 “With these factors in place, the need for best-in-class fresh food distributors continues to expand,” he adds.
Labor challenges are also increasing the need for labor-saving solutions provided by fresh food distributors. “It's becoming more important for suppliers to help retailers and foodservice operators simplify their operations and drive growth,” says Cash. He adds: “Whether that means distributors helping merchandise the produce aisle or fresh-cut operators cutting fruits and vegetables, the demand for partners that deliver solutions will only expand going forward.”
Due to these trends, the sector is experiencing an expanding addressable market across key channels, including foodservice distribution, retail and wholesale distribution, and food processing.
"Fresh food distribution is complex and demanding. Restaurants typically require multiple drops per week due to a lack of refrigeration space and uneven daily demand,” says Alexander. “This dynamic, along with short product shelf lives, requires distributors to be close to their customers and has contributed to the industry’s fragmentation.”
He continues: “Platforms that can bring the benefits of scale, such as expanded product breadth and depth, consistency of supply, and more efficient operations without sacrificing customer service, are primed to win going forward.”
With these channels growing at an accelerated pace, the food distribution industry provides a wide range of consolidation and investment opportunities.
FreshEdge: Scalability and Robust M&A
By aligning closely with key industry trends, FreshEdge evolved into a leading independent fresh food distribution platform with significant white space for growth. It has a differentiated value proposition as the go-to fresh food experts, while combining a "customer-obsessed" approach, localized service, and scale.
Key to FreshEdge’s success is its ability to execute upon a clear value-creation strategy, particularly through M&A. “FreshEdge has a rinse-and-repeat playbook for growth. With each acquisition, it's able to extend its existing customer relationships in new markets to add density, use procurement expertise to bolster offerings within existing and new categories, and implement technology to drive more efficient operations,” explains Alexander. “FreshEdge is also well diversified from a customer and channel standpoint, creating greater stability in any economic environment and multiple levers for growth,” he adds.
Throughout its journey, FreshEdge has invested in key strategic initiatives to design a scalable platform. “FreshEdge is thoughtful about investing in infrastructure to aid in its growth ambitions,” says Furseth. “Great platforms start with great people. FreshEdge understands this and invested early in its team and systems to support a much larger business.”
Robust systems are essential to FreshEdge’s ability to enter new geographies and expand its services. “FreshEdge leverages technology as a catalyst for growth, within both sales and operations,” says Warczak. “The company’s technology improves operational visibility and consistency, gives the sales team cross-selling tools, and ensures each order is efficiently and accurately picked.”
Lastly, to continue creating profitable growth and long-term value, FreshEdge has developed a best-in-class M&A playbook to efficiently source, execute, and integrate acquisitions. “This has helped it to rapidly increase scale and synergies across the FreshEdge family of companies,” says Alexander.
Prepared to Deliver Value
As consumers and end markets continue demanding more fresh food products, the fresh food distribution sector will maintain its positive trajectory. The companies best positioned to capitalize on this growth will combine scale, technology, and M&A to develop a diverse offering across product categories, channels, and geographies.
“By building professionalized platforms of scale, investors can use better operational know-how and technology to create operating, procurement, and network efficiencies,” explains Cash. “Platforms can use this scale to create win-win dynamics with suppliers and customers.”
Technology plays a meaningful role within best-in-class assets. “Investing in technology is critical to creating a scalable platform, generating synergies through acquisitions, and unlocking growth. Material investments in systems should be made earlier in a hold, if possible, as it can take time to implement them and see results,” says Warczak.
“Winning companies also often feature channel, end market, and product category diversity,” points out Furseth. “Scaled exposure in multiple channels can provide multiple levers for growth while increasing stability of earnings.”
Alexander adds a final note: “When growing an M&A platform in the food distribution space, it's important to identify targets that are highly customer oriented. Technology and value-added capabilities are key differentiators, but it all starts with a strong and loyal customer base to build upon.”
To learn more, please contact our senior bankers.
Led by experienced professionals, our Consumer Group has deep industry knowledge across multiple sectors, such as consumer products, consumer services, food and beverage, and consumer multi-site.
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