Welcome, everybody. My name is Bill Kirk. I'm Roth Capital's Food Retail, Food Distribution, and Beverages Analyst. You're here in Plaza Room D. We're about to get started with HF Foods and CEO Felix Lin, Interim CFO Paul McGarry. For those not familiar, maybe, with HF Foods, they are a specialty food service distributor focused on accounts and product types for the growing Asian specialty market. Felix, CEO, has been in the role almost exactly one year at this point, and that follows three years as COO. So thank you, Felix. Let's get started. Let's start broad and kind of set the stage for the room. Give us a quick history of HF Foods, how you've gotten to the size that you are, and maybe what the next stage looks like.
Yeah, sure. So HF Foods, we've been in business for almost three decades. Started in 1997 out of Greensboro, North Carolina. So today, we're a little bit over a $1.2 billion top-line business, again, specifically focused on the Asian specialty space, which is a very attractive part of the broader food service industry. So from a market standpoint, roughly about 94,000 restaurants, that's the market, $50 billion addressable market, roughly 12% of the broader food service space. We are the number one player within this space. So if you look at the competitive landscape, we don't necessarily compete with the bigger companies like Sysco, US Foods, or PFG. It's mainly made up of smaller players in a smaller market, region to region, and we're the only one within the U.S. that's got a coast-to-coast nationwide coverage.
So today, we service roughly about 15,000 accounts, so a little bit over 16% market share with a 95% coverage of the continent of the U.S. So as Bill mentioned, we're a full shop, so everything that a restaurant could typically use, from frozen seafood, meat, poultry, packaging, and all the key commodities. So we like the space that we're in. From a competitive standpoint, there's a distinct connection that we have with our customers. It's all mainly independent restaurants. So 99% of our customers are all independent operating businesses rather than the chain restaurants that maybe some of the larger broadliners service.
A few months ago, you kind of rebranded the strategy to Specialty Food is Our Specialty. Can you talk about maybe what that means and how it separates you or differentiates you from those largest food service distributors?
Yeah. Yes. Specialty business is always attractive, both in terms of the margin and also, as I mentioned, just in Asian specifically. It's a $50 billion addressable market. But our intention is not to be only focused on Asian, so longer term is how do we become a dominant player within specialty in general, so as a prime example, in the last few years, we really expanded into the frozen seafood business, where we have grown that business organically about 30% in the last couple of years. So if you think about this wide spectrum of different ethnic cuisines and foods that you can get into, Hispanic is one that is also very attractive. That's where we drove a significant amount of organic growth for us. So frozen seafood as a category, three years ago, was only about a $300 million business for us.
And in the last couple of years, now it's over a $400 million business for us. And really, again, Hispanic grocery specifically, it's one that has made significant progress here.
OK. You mentioned offering the full product range. Are you able to do that in all regions at this point? Or what do you need to do to be able to do more seafood in a particular region or any other areas where you might be able to add a product that you don't currently offer to a specific region?
We've been talking about this publicly. In 2025, it's the first time in a number of years that we made some pretty significant strategic investment. In the Southeast, for example, we had just launched a brand new facility that's roughly about 200,000 sq ft, specifically with a significant amount of freezer cold storage space. Across all of my business right now, we have 14 different distribution centers. Some of them are more just on the meat, poultry, everything else except for frozen seafood. And some of them, frozen seafood is a pretty healthy mix. I do see cross-selling as a major organic growth playbook here for us. In the Southeast, I think between Southeast and Midwest, just in the next few years, there's probably $ 700 million worth of organic growth opportunity for us as we continue to invest and expand on our capacity.
That's the only thing that's perhaps holding us back in the last few years is strictly just capacity related, not in terms of potential market opportunity.
When does the capacity that you're referencing, when does the capacity become available?
We just launched the new site here in Atlanta beginning of the month. That's going to take probably a year or so to ramp up and normalize. Very quickly, we're going to pivot here to our Midwest market, where today we have two businesses, one in Chicago, one in Dallas, 100% frozen seafood. The intention there is to drive more ambient space so that we can start selling everything else. To give you guys a perspective, most of our other West Coast business, that's pretty healthy in terms of mix. Frozen seafood is about 10%-15% of their business. If you think about in the Midwest region, purely frozen seafood, it just gives us that much more room in terms of driving everything else. That's where the bulk of the organic growth is going to be from a cross-selling perspective.
OK. And so bulk of organic growth from cross-selling, is there an impetus to go also win new accounts in the organic growth profile? Or should we think of predominantly existing accounts who need more product from us?
Yeah. Look, we have a multi-pronged strategy going on. Organically, it's about cross-selling. It's about winning share of the wallet. It's also about new account acquisition. So very much so, starting this year, HF, we're going to go on the offense. And this is going to hopefully reset the entire market for us. As I mentioned, we don't compete with some of the bigger guys. So our competition, it's all these smaller guys that range from $30, $50, $70 million top line. So a lot of the effort in the last few years in terms of integration, system adoption, all of that is making sure that we can effectively leverage our scale. So we're going to market competing with $30, $50 million business as a $1 billion-plus dollar business. So I think that's going to be. It's going to complement each other very well.
And you just mentioned some of the systems changes that you made. You completed a transition for your ERP. You started to make some changes to your salesforce. Where are you in getting your systems in order? And you've been there a year now. If the systems are more in place, how does that equate to a more aggressive HF Foods in 2026?
Yeah. The system is fully launched. So as of May 1, 2025, all of our sites, it's on a common platform. So again, we're less than a year into this transition. Just from a data and from a purchasing standpoint, that's going to give us a little more visibility from that initiative. So that's going to play out here through 2026 and beyond. And you mentioned sales force. So we completely restructured our sales force here on the East Coast, Southeast market as well. So brand new sales force, again, more of going on the offense rather than just kind of playing safe on the defensive side of it.
Historically, M&A has been a big part of the strategy. In November, you called M&A a core pillar again. So I guess, what do you find most attractive when you're looking at deals? And if you had to go back and look at the deals you've done, which would you consider the best maybe that you've done so far and why?
Yeah. Look, it's very common that within the food service space, people scale and grow through M&A. So we're in an extremely M&A-rich environment. So as I mentioned earlier, all these smaller players that we see them as our competition today, they're also very attractive acquisition targets. And the advantage that we have is, one, just we got the connection with our customers. There's also that understanding of our competition's business. So we're fielding a lot of inbound calls. One, the reason why we were very strategic and on a fast pace to integrate and bring on a new system is to make sure that we have an M&A playbook here to get ready. So I think 2026 is a year that, again, organically, investment, continue to invest into capacity and drive cross-selling. And inorganically is really to get some evaluation of these deals. We're in a good position.
So we're kind of being optimistic. Some of it could be in-market play. Some of it could be tuck-ins in new geographic regions that we haven't looked at in the past. So all of this is just complementing each other from a strategy standpoint to continue to scale up. So we're $1.2 billion today. Not saying that we have a specific number in mind, but I think if you look at a $50 billion addressable market, we can get to $2 billion, we can get to $5 billion. But part of it is going to be a significant part of it is going to be through M&A.
When you look back at some of the deals you've done, which have been kind of the most transformational to what your business is today?
Yeah. I mean, I referenced frozen seafood earlier. So the last time we did an acquisition was actually back in 2022. At the time, our frozen seafood was probably just a $100 million business. And we bought a couple of $100 million business. And through that purchasing integration and that scale, again, we grew organically about $100 million just in the last couple of years. And almost 100% of that came from the frozen seafood consolidation that we've seen. So within our space today, even if you peel out the frozen seafood specifically, there's not a second player that gets anywhere close to us. And that's one of those strategies that from a product standpoint, if we want to get into other ethnic groups, we see that as a kind of an entry point for us. So we're going to continue to look at that pretty closely.
Zooming out toward the kind of macro backdrop, 2025 was pretty volatile for restaurant traffic. As a specialty restaurant distributor, do you think you would see or saw more or less volatility than the general industry? And should 2026 possibly be a more stable traffic environment?
Yeah. That's a great question. Everyone's got a question mark in terms of what policy is going to look like, where the economy is going to go. But I think one thing about our business is that our customers are perhaps a little bit more resilient. There's some lessons learned from the pandemic days. Again, when you're dealing with 99% independent businesses, their overhead's a lot lower versus some of your chain restaurants, family-owned businesses. So they're very flexible and agile in terms of how they can change their model. And one of the things that we always talk about, Asian food specifically, you guys are all consumers yourself. So $10 to $20 at a McDonald's versus $10 to $20 at a Chinese takeout, for example. The value itself that presents is very different.
So I do see that our business, even though there's going to be some macro backdrop that's going to affect the overall foot traffic, but our customers specifically are going to deal with any sort of potential economic downturn or recession perhaps a little bit better than some of the other businesses, other accounts.
When you look to 2026, you're going to start lapping some of the disruptions. Maybe they begin for you, I think, probably in March. What do you think March of 2026 looks like as you lap some of the tariff pressures that kind of came into the business?
Yeah. So we talk about going on the offense. So that's one of the main reasons why we restructured our salesforce, because historically, we've been in business for 30 years now. This might surprise somebody, but we spent $0 in marketing in the last 30 years. It's all been word of mouth, reputation. Every time we open up a brand new distribution center, it fills up the warehouse space fairly quickly. But again, none of the customers single source. They dual source or triple source. So by going on the offense here, leveraging our scale, we want to go take shares away from others, both in terms of wallet shares and actual new accounts like that you referenced earlier. So Southeast is the first market that we're going to go on the offense here.
As investments happen, like I said, we're going to move on to the Midwest and other markets.
So extra capacity services the existing accounts to cross-sell into them. You also mentioned kind of specialty grocery stores. What would that take to do that? If you're capacity constrained a little bit as is, what would it take to help those specialty grocery stores? What kind of opportunity does that look like versus kind of the core business?
Yeah. The reason why specialty grocery stores are attracted to us is because it's less of a capacity play and constraint on us. From a product standpoint, it's a little bit less complexity, larger volume typically, and the margin profile is still very, very attractive, so again, we've been working really on the East Coast in the last couple of years, some key partnership with a number of grocery stores that service really on the immigrant community side of it, so I think that is going to continue to have some momentum here in 2026.
And when you look out further, is it a small adjacency? Or how big? Because the channels are roughly the same size in aggregate. But how big could that be for you?
That could be a pretty material part of our business here down the line. Because today, I'll say specialty grocery or wholesale, it's probably less than 5% of our business. As we continue to evolve, I think that could be probably anywhere from 10%-20% of our mix here down the line in the next few years.
There's another adjacency you've talked about before, adding e-commerce elements to accounts you're already in. What does that look like? And what do you need to kind of get that activated and build to scale?
Yeah. So the e-commerce business is very attractive. You think about we have over 15,000 accounts nationwide. It's also 15,000 families or workers that, again, most of our customers are located in pretty rural areas. And they can get access to specialty grocery products or snack products. So that's one thing that we just piloted in a couple of locations, one in North Carolina market and one in our Florida market. And it's a very, very attractive margin. And even some of the bigger e-commerce players out there in the market have kind of reached out to us and see if there's a potential opportunity to work together. So I think that will be driven by, again, investment into the facility side. Because operation-wise, you're going to have to change things a little bit.
But the advantage that we have, starting out with our existing accounts, all these e-commerce products can go out in the same trucks that we currently have servicing our customers. So there's not necessarily that incremental distribution cost that we have. We see that as a complementary business to what we do today.
Is the goal for someday that e-commerce business to almost be its own store inside your restaurants? Meaning the restaurant then sells these things at the counter that you can't get in the neighborhood.
Yeah. I mean, not necessarily all restaurants, but certainly bigger restaurants that's got some additional real estate, perhaps. It could be a central pickup point, for example. So we do see there's some opportunity there working with our customers. And potentially, it's mutually beneficial for both parties.
Switching the topics a little bit to kind of the assets you have and the assets you own, could you talk a little bit about what you own outright, particularly the cold storage aspects, and how hard do you think it would be to replicate those assets today?
Yeah. It's going to be extremely tough. I mean, so we got 14 distribution facilities. We own 10 facilities out of the 14 facilities. And we own the vast majority of our 400 trucks that's in our fleet today. So if you look at our assets, most of it's not that the market value is not reflected on our balance sheet. But I think to replicate over a million square feet of freezer cold storage space, especially post-pandemic, the value has gone up quite significantly. It's probably going to take $several hundred million to replicate that footprint at a very minimum.
OK. The last conversation when we were in this room was talking a little bit about tariffs and the impact they've had on the business. How impactful are war tariffs for you? And if the Supreme Court were to rule against the emergency powers tariffs, what would that mean or how would that benefit HF Foods?
Yeah. So in 2025, probably specifically in Q2 last year, we actually benefited from the tariff. Because again, we had strategically managed our inventory. So we did quite a bit of pre-buy. And the place, the market that we're in, there's not any sort of contractual obligations that we have. So we effectively buy and sell everything at spot. So we were really able to leverage that and price things pretty favorably to us in 2025. As things kind of normalize here, again, tariff has never really been the biggest kind of factor or concern for our business. It's really driven by the economy. If people are spending money, people are going to the restaurants, then especially our business, so much of the product or specialty.
If you look at certain spices, certain ingredients that have to come from Southeast Asia, from China, or from India, for that matter, there's really not a whole lot of substitute for it. And our customers, their entire business is built around that, then effectively, we don't have a whole lot of issue passing on any sort of potential tariff to our customers, which we've done that in the last year.
OK. You talked about your customers and how resilient they can be. Maybe if you could, for the audience, talk about how flexible they can be with their menu. If tariffs and certain product inflation is headed their way, how flexible can they be on their menu to kind of help offset that and remain competitive?
Yeah. So I'm sure every single one of you have had Chinese takeout in the past. So a simple dish, let's just say something like chicken with mixed veggie. Typically, you're going to have water chestnut, baby corn, bok choy, chicken breast meat, and all that in the ingredient. So assuming tariff is when it was 150%, let's say with China, we source a lot of canned goods overseas. So they can easily replace the water chestnut with more baby corn. They can replace baby corn with more chicken, with more broccoli. And most of the time, us as end consumers, you might not even be able to tell the difference. So we've seen that happen during the pandemic. So when things' supply chain was disrupted, things were not available. You still get a full plate of whatever that you're getting, but there's ingredient that's being substituted out.
So that part of it, the customers are very, very resilient in how they're managing their menu. So we saw the same thing happen last year as well.
OK. Kind of zooming back out, I'm kind of hearing two areas of focus. Which is the bigger area of focus for you now? Is it those accounts and growing those cases? Or is it improving margins? When we think about what you're trying to do for 2026, is it top-line driven? Is it margin driven? Where kind of do you fall in the priority spectrum?
Look, it's a matter of timing. I think in 2026, it's all about going on the offense, getting more business and revenue through the door. I think once things kind of normalize here, margin itself will probably come back on. But I do expect pricing is going to matter with our customers. And this is where we really want to come in, not just from a scale standpoint, be competitive. But we also want to make sure that we can change the game here with a lot of our potential new customers. So there's going to be a cost to account acquisition. So I do expect it's going to be a little bit more competitive here in 2026. But once, I'm not sure some of you guys have owned restaurants in the past.
But once you can convince customers to change their entire schedule around your business, the cost of switching will be much higher down the road. And that's where you can really expand your margin.
When that margin expansion comes, how far can it go? Your margin isn't at the level of the largest food service distributors in the country, but could it be?
Yeah. I definitely think there's a significant amount of opportunity. We've seen it with our frozen seafood business over the last couple of years. But I think if you just look at the margin percentage, it doesn't tell the full story. Because our business is fundamentally different than some of the bigger guys. Again, we buy everything and sell everything at spot market. So I think the key thing is looking at how are we expanding our margin dollars rather than our margin percentages. Because again, we literally have products that come in on Monday. We sell it throughout the week. And every single day, the pricing changes. So we're able to react to whatever things are happening in the marketplace fairly quickly. So it's an advantage to us.
OK. We're pushing close on time. I want to try to do two things with the last question. First, you are a specialty restaurant distributor. Your shares trade like a conventional grocery distributor. What gets that to change? What is the catalyst to get that disconnect to go away?
One thing is having people understand our industry, having people understand our business. We are, to your point, we're in a specialty business. It's a segment of the broader space that is extremely hard to get into. There's a reason why we've been here for 30 years. We've been able to grow quite significantly over this period of time. Again, if you look at specifically how the companies make up, we're still very much insider-heavy. That's going to change here over time as we get more and more involved with the capital market. It's a matter of time. The business fundamentals are there. The growth trajectory is there. Like I said, $50 billion restaurant market. We're only a little bit over a billion. Yet, we're the biggest within our space.
So there's no one else, whether it's bigger players or smaller players, that's in a better position than HF to really take the bull by the horns and grow this business here over the next three to five years to make that initial first jump.
Awesome. Well, we are up on time. Thank you, Everybody.