Diversified Foodservice Supply Inc

When a piece of restaurant equipment needs a replacement part for proper operation, the restaurant operator needs it as quickly as possible. Meeting that need with next-day delivery – or even same-day in an emergency – are the brands of Diversified Foodservice Supply Inc. (DFSI).

“Over 95 percent of our orders ship the same day,” CEO Mike Cate declares. “We cover 95 percent of the country in two days or less with ground rates, and we have some of the most accommodating customer order timeframes in the industry. We execute from multiple distribution facilities and call centers, which allows us to take customer orders from 8 a.m. to 9 p.m. Eastern Standard Time.”

DFSI is the largest foodservice maintenance, repair and operation (MRO) parts distributor in the United States. The company has seven distribution centers positioned throughout the United States to serve the entire country. Most of its business is transacted domestically as less than 5 percent of its revenue is generated through international shipments.

DFSI has a differentiated business model that focuses on three specific core competencies. The first is that DFSI works as far upstream in the supply chain as possible to buy replacement parts from the original component manufacturers that actually make the parts and components. “OEMs don’t make parts,” Cate says. “They acquire components and bend steel to make a piece of equipment. Our model eliminates a step in the supply chain by going directly to the companies that make the part. This allows us to offer exact match parts that meet OEM specifications at price points that are advantageous to customers.

For those customers who prefer parts through the OEM supply chain, “We also have master distributor relationships with select OEMs and buy through larger distributors so we can take care of all the needs of our customers,” Cate says. “Our model puts the power in the hands of our valued customers by providing them with choice.”

The second competitive advantage is the company’s seven distribution centers. “Speed to market is critically important when you’re talking about replacement parts,” Cate says. “You just can’t have cooking equipment down in the restaurant. Our distribution model and geographic footprint clearly allows us to get parts into the market much faster and more cost-effectively than our competitors who operate out of single-facility locations.”

The third advantage is the breadth and depth of its product offerings. DFSI offers more than 100,000 SKUs, of which 61 percent are replacement parts, 30 percent are supplies and 9 percent is equipment and accessories. “Having a diverse product offering gives our customers the ability to one-stop-shop,” Cate says. “They can get everything they need to run their operations – except food – from one of our Diversified brands.”

Brand Synergy
These brands include AllPoints Foodservice Parts & Supplies, Tundra Restaurant Supply, Franklin Machine Products, Mill Hardware, Restaurant Parts and More, DSI Parts and Restaurant Discount Warehouse. In July, DFSI acquired DSI Parts Inc. to expand its geographic coverage, add to its product selection and create purchasing synergies. DSI distributes foodservice parts and smallwares to national chain restaurants and franchisees. Most recently, the company completed another acquisition to enhance its position in the restaurant supplies space, acquiring Restaurant Discount Warehouse in November 2015.

“These smaller, bolt-on acquisitions are highly accretive and add to our collective capability to delight customers through product extension, geographic expansion or customer addition,” Cate maintains. “We focus our efforts on acquiring well-built companies that employ great teams. They’ve done a fantastic job of creating a great customer experience. We like doing some of the smaller acquisitions that clearly enhance our competitive position in the marketplace.”

This past February, DFSI partnered with New Mountain Capital, an investment firm. “New Mountain is going to give us the financial wherewithal to continue with our organic and acquisition growth strategies,” Cate says.

Growth Strategy
DFSI has a two-pronged growth strategy of dynamic, organic growth coupled with a robust acquisition plan. “I believe you earn the right to acquire through organic, dynamic growth,” Cate asserts. “So we’re focused on taking market share by building our business the old-fashioned way: earning it on the street every day. But we do supplement the dynamic, organic growth initiative with a very robust acquisition strategy. We really are the acquirer of choice in the parts industry. For the last three years, we’ve done over six acquisitions. So we’re very acquisitive. The industry is consolidating, and we’re extremely well-positioned to take advantage of that industry dynamic.”

The company’s acquisition strategy is to seek out companies that expand its geographic reach, add new products to its offerings or introduce it to new markets. Cate becomes enthused about what he calls transformational acquisitions. “When DFSI acquired Franklin Machine Products in November 2012, that was clearly transformational to the industry,” Cate maintains. “The two largest direct-source, original-parts models came together under one corporate umbrella. That is a strategic deal that creates real value for the company and customers alike.”

DFSI and its brands invest heavily in sales resources. “We have one of the largest customer service organizations in the industry,” Cate declares. “We supplement our customer service capability with a heavily deployed inside sales organization. These inside sales representatives execute our outbound telemarketing campaigns and focus on customer reach and engagement. We have 45 people in the brands solely focused on outbound telesales, and over 100 customer service representatives taking care of the needs of our customers every day.

“We have teams focused on business development, account management, web marketing and e-commerce,” Cates says. “Over half of the people in the company are in sales, marketing or customer service. That translates back into the critical importance we place on the customer experience and making sure we’re very focused on taking care of their needs.”