Diversified Foodservice Supply Inc. (DFSI)

Acquisitions are typically a cause of worry and fear among the employees of a newly purchased company. Questions of procedural changes, possible relocations and, above all, retention of existing employees all lay heavily on the minds of executives and entry-level employees alike when takeovers are finalized.

The employees of the companies acquired by Diversified Foodservice Supply Inc. (DFSI), however, don’t share these concerns. “I’m proud of our ability to retain fantastic talent through our acquisition strategy,” says Mike Cate, CEO of the Mount Prospect, Ill.-based company. “Some organizations churn and burn; that’s not our model. We look for well-run companies with a great customer base and great teams, and invest in those brands.”

Many of the former owners of the companies acquired by DSFI retain executive positions under the new leadership, and line level employees have long-term opportunities as well. “We think we provide a fantastic landing spot,” Cate adds. “We believe we are an acquirer of choice in the industry. We’ve been very successful in retaining great talent as well as hiring great talent, and at the end of the day, believe our people and our focus on customers drive our success.”

Pooling Strengths
DFSI consolidated as a platform company in 2012 after the acquisition of three foodservice parts, supplies, equipment and accessories distribution companies by private equity firm KRG Capital. Cate, the company’s CEO since its inception, says he wanted its name to be general and non-branded in order to emphasize its leading brands. “All the brands have a long history, so I wanted to pool them together under an unbranded corporate identity to preserve their legacy and customer goodwill while still driving synergistic value throughout the entire organization,” he adds.

One of DFSI’s first brands, Mt. Prospect, Ill.-based AllPoints Foodservice Parts & Supplies, has a history dating back to 1978. The brand serves businesses and service agencies nationally with replacement foodservice machine parts. The second initial brand, Tundra Restaurant Supply, is a 20-year-old dealer and e-commerce provider to independent restaurants and national chain accounts that are headquartered within 250 miles of its home base in Boulder, Colo. DFSI added to its capabilities in late 2012 with the acquisition of Franklin Machine Products (FMP), a Lumberton, N.J.-based foodservice replacement parts and supplies company with origins dating back to 1918. FMP has a significant presence with large regional and national chains.

Before the acquisition, FMP and AllPoints were direct competitors. Combined, the two help make up the nation’s largest network of foodservice replacement parts, Cate says.

DFSI further supplemented its capabilities in early 2014, when it acquired two additional brands – Mill Hardware & Food Services, a Willoughby, Ohio-based distributor of refrigeration and replacement parts; and Restaurant Parts & More, a Springboro, Ohio-based parts and accessories distributor.

Together, DFSI’s brands offer more than 100,000 SKUs. Replacement parts make up roughly 60 percent of its total sales, with supplies, smallwares and accessories constituting 30 percent and new equipment 10 percent of its revenue. “We are the largest replacement parts provider in the country,” Cate says.

DFSI’s brands source directly from component manufacturers, as opposed to serving solely as a master distributor for original equipment manufacturers. “Because of our volume, leverage and scale, we focus our procurement activity as far upstream in the supply chain as possible,” he adds. “This eliminates a step in the distribution process, since our competitors are distributing for OEMs who are in many cases buying from the same component manufacturers we are. We do have OEM relationships and key strategic suppliers, allowing us to offer our customers both direct sourced and OEM parts, but our loyalty and focus is clearly to the customer.”

In addition to its direct sourcing model, the DFSI distribution footprint is a differentiator and allows the company to increase its speed to market. The company operates out of seven distribution facilities strategically located across the country. Orders received by DFSI’s brands ship on a same-day basis, and the company can reach 95 percent of the United States within two days at ground rates, Cate says. By leveraging its strategic sourcing model and shared distribution footprint, DFSI delivers consistent customer service across the country.

Effective Acquisitions
The addition of Mill Hardware & Food Services as well as Restaurant Parts & More added four large national accounts plus additional geographic areas to DFSI’s portfolio. The company continues to seek new brands to add to the portfolio and will continue to leverage the strength of its internal operations to support effective integrations.

“I am a firm believer that you earn the right to acquire through dynamic organic growth,” Cate says. “If you can’t drive value to the customer and improve the customer experience, then you haven’t built a platform on which acquisitions can be effective.”

DFSI invests heavily in its sales force and customer service capabilities. “We have a track record of providing a great customer experience,” he adds.

The DFSI platform wishes to acquire brands with a similar emphasis on customer service. “We’re looking for organizations that are well-built, have great leadership teams and a solid foundation, as well as synergistic value on the supply chain side,” Cate notes. “Our model is to find great businesses, provide them stability, and reinvest in the organization to maximize the customer experience.”