Innovative Food Holdings, Inc. (PNK:IVFH) Q3 2023 Earnings Call Transcript

This will require several chess piece moves. First, we are exploring strategic alternatives for the e-commerce business with a variety of different potential paths forward, but all of which eliminated the profit drag on the total business. You will see us continue to cut marketing spend, which will result in continued revenue declines in e-commerce. Second, we are exploring, making some big moves in our real estate portfolio, looking at unlocking the value in our Florida office building and our Pennsylvania warehouse. Lastly, we are simplifying other nonmaterial parts of the business so we can help the company focus on the core. We have exited several partnerships, and we are selling our small consulting business called Grow Brand Management.

With these strategic moves, we expect to unlock somewhere between $7 million and $13 million in capital based on their appraised values and net of the associated loans. This will eliminate ongoing losses associated with those businesses. So what will we do with this capital we’ve unlocked? Our hope is to reinvest into our Professional Chef business. A decade ago, we bought a specialty food distributor in Chicago called Artisan Specialty Food. It has essentially doubled in size since our purchase and does a nice profitable business for us in specialty food distribution in Chicago land but is limited by the size of its small 17,000-square-foot warehouse. Accordingly, we’re looking at investments to expand, including the opportunity to grow our warehouse space, add additional cold storage or even M&A.

We’re exploring immediately accretive bolt-on acquisitions that could further accelerate the artisan business in adjacent categories like meat, seafood or produce. This could allow us to expand our customer base and cross-sell a broader portfolio with larger sales per order delivered, a key metric in food distribution. Our goal with this capital reallocation is to shift investment from our long-term loss-making businesses into our consistently profitable and growing businesses while reducing or even eliminating our debt and while causing 0 incremental dilution to our shareholders. These moves will make a significant impact to our P&L as we reduce losses in e-commerce, allocate capital to profitable business growth and reduce interest expense for the company.

Okay. That’s capital allocation. Now on to core business growth. With our capital better allocated, we will be well positioned to push growth in our core profitable businesses and drive significant profit impact. We break our growth strategies down into 3 buckets: one, growth of existing customers and sales channels; two, growth in new customers and sales channels; and three, leveraging existing infrastructure to launch new business models. To support these initiatives, we’ve built out significant primary and syndicated data research, talked to dozens of shops and restaurant owners and built a better articulated strategy around serving a carefully considered target market. One of the key conclusions we came to is that, too often, we think of specialty food as something that only appeals to high-end restaurants.

Instead, our research uncovered that all foodservice establishments utilize specialty products to some degree or another. So rather than focus on a specific restaurant segment, we’ve chosen to focus our efforts on a specific breed of chef, which we’re calling the choosy chef. This is someone who has deep culinary experience, a long track record in foodservice and is passionate about delighting their customers with new and unique dishes. And it’s a customer that’s underserved today. As we talked to choosy chefs, we found 4 consistent unmet needs: one, high-quality specialty products are hard to find and the search process is complicated. Two, chef’s time is dominated by product ordering and office tasks; three, pricing is often inconsistent and uncompetitive, requiring chefs to research and price compare frequently; and four, relationships with salespeople need to be tighter relationships — tighter partnerships.

To solve these needs, we are uniquely positioned to, one, tell compelling stories behind the unique products we carry; two, offer ingredients when and how chefs need them; three, offer fair, transparent and consistent pricing; and four, build a chef-driven organization of culinary experts. These insights and strategy dramatically expand our addressable market and will help us hone our message and marketing channels to the chefs who will find the most appeal in our products. Armed with this insight, we’ve begun to structure the growth plan in a new way. We recently transitioned our Professional Chef customer service team into a sales team and are implementing sales targets, commission models and management tools to help us more proactively build our business.