Foodservice Distribution Insights – July 2020

Posted on July 6, 2020

Experiencing the last three + months in foodservice distribution has been like riding a roller coaster in the dark.  Initially, the car plummeted at breathtaking speed – and no one could see the bottom.  But after a few unanticipated twists and turns, things began to move upward again, and at a rate no one anticipated.   However, with the events of the past several weeks, we’re still riding a bit blind and the ride’s trajectory is still unclear.  Are we beginning to level off, or do the recent flare-ups predict even more unpredictable dips and curves ahead?

In our latest edition of Foodservice Distribution Insights, Keiter Advisors offers its observations on what we’ve seen and why the future remains unclear.

The Big Drop Off

• Unemployment spiked dramatically and consumers cut spending
• Public foodservice companies were hammered in the stock market – valuations of these companies contracted by levels we have not seen previously
• Securing liquidity becomes key
• The Federal government provides both individual and business stimulus – with both favorable and unfavorable consequences

The Slow Climb Back Up

• Companies streamline operations, furlough staff
• Inventory management and customer accounts receivable take center stage
• Some lenders and lessors provide assistance through deferrals and/or agreement modifications
• PPP loans provide assistance, particularly as new guidelines emerged
• Both public and independent distributors see small but steady sales gains
• Many companies reach 80% + of prior year’s most recent weekly sales
• By the end of June, each of the public distributors had recovered a portion of their value, although the rate of recovery was not consistent

An Uncertain Future

• Virus flare-ups will continue to cause peaks and valleys in sales and margins – prepare for a wild ride
• A market for foodservice distributor businesses will return – but it is unknown when this will occur in earnest
• Determining a company’s value in these times could be challenging and valuation methods and pricing will be situation specific

We hope this piece is helpful for you.  As we all work through this environment, remember that things will get better – it may just take longer than any of us would like.  As Warren Buffet said, “Never bet against America”.

If we can be helpful to you in any way during this time, please do not hesitate to reach out.