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Why Is the Cash & Carry Banner Important to SFS?

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Jun. 6 2016, Updated 1:07 a.m. ET

Cash & Carry is important despite its size

While Smart & Final’s (SFS) Smart & Final (or S&F) stores target both the foodservice and household markets, its Cash & Carry Foodservice (or C&C) stores focus exclusively on serving foodservice professionals.

The company operated 55 C&C warehouse-style stores in Washington, Oregon, Northern California, Idaho, and Nevada as of March 27, 2016. C&C stores offer a wide variety of perishable products and do not have a minimum order size restriction.

The C&C segment accounted for ~23.5% of the company’s total sales and ~39.4% of its operating profit in 2015.

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What makes C&C important to Smart & Final Stores?

By serving its business customers under a separate banner, SFS is better able to focus on their business-specific needs. The convenience offered through this separate banner approach helps SFS to increase its loyal customer base, which in turn helps to boost traffic.

Another major benefit of the C&C segment is that it provides additional strength to SFS’s overall business. Business customers typically have a better paying capacity than households, and they don’t change suppliers as frequently as households do.

No wonder the C&C segment has higher margins than the S&F segment. While S&F’s average operating margin in the last two years was 3.7%, C&C’s average margin was almost double that at around 7%.

Who are SFS’s competitors?

SFS offers a variety of undifferentiated perishable products and grocery items, so it competes with conventional grocers such as Kroger (KR), warehouse clubs such as Costco (COST), mass merchandisers such as Walmart (WMT), and foodservice delivery companies such as Sysco (SYY).

In the next article, we’ll discuss the retail food industry and SFS’s competitors. SFS constitutes 0.26% of the SPDR S&P Retail ETF (XRT) and 0.1% of the iShares Morningstar Small-Cap ETF (JKJ).

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