1-800-Flowers seeks gourmet food buys, exec says

Provided exclusively by Mergermarket, an Acuris Company

1-800-Flowers [NASDAQ: FLWS] continues to seek buys in the gourmet food space to help counteract the seasonal nature of gift-giving, said Karim Motani, director of corporate development and strategy.

The Carle Place, New York-based provider of food and floral items is focused on being a destination for gifts.

But while demand for its flowers spikes around Valentine’s Day and Mother’s Day, and orders for its food items peaks around Thanksgiving Day and Christmas, the company is keen to flatten the seasonality of its business.

“We want to expand our offerings so we are a destination throughout the year,” he told this news service.

Gourmet food companies offering confectionary, nuts, cheeses, popcorn, snacks and wine are on its radar. Those with USD 50m-USD 100m in revenue are in the company’s sweet spot, said Motani. Its largest acquisition came in 2014 when it paid USD 143m for Harry & David, a gourmet fruit basket specialist that had USD 400m in revenue.

The gifting company has a USD 594m market cap and approximately USD 1.2bn in revenue.

About 60% of its revenue is from food and about 40% is from floral, and all of its products are perishable.

A smaller but growing part of its gourmet food business is its wholesale division, which was created to help balance out the inherent seasonality of gift giving. Its wholesale line includes dipped fruits and chocolate-covered almonds, which it supplies to specialty grocers and retailers like Barnes & Noble [NYSE:BKS] and Starbucks [NASDAQ: SBUX].

1-800-Flowers’ food business is vertically integrated: its Cheryl’s cookie business buys all the butter, flour and other ingredients and bakes the cookies in-house, and its Harry & David business grows its own fruit on extensive acreage in Oregon. By contrast, its floral business is asset-light: while 1-800-Flowers markets the products, fulfillment is primarily outsourced.

Gourmet targets

Asked if a company like Austin,Texas-based Personal Wine, an online retailer of customized wine, would make an attractive target, Motani said it was familiar with the business and liked its personalization aspect. The business had USD 4.1m in revenue in 2016, according to a report by this news service.

Things Remembered, currently owned by lenders including KKR and Ares, has attractive personalized products, conceded Motani, but he said its focus on selling in malls — a retail category that is under pressure – is not ideal.

Motani called nuts a “great category” because they are used in several confectionary products, gift baskets, and make sense for its vertically integrated model.

The popcorn category is also experiencing a ton of growth, and snack foods in general are attractive, he said.

Nuts.com, which is primarily an online seller of snacks based in Cranford, New Jersey, had been working with Deloitte Corporate Finance in May 2015 to explore a possible sale, this news service reported at the time. It had approximately USD 30m in revenue in 2014. The company ended up acquiring Kopper’s Chocolate Specialty Co. in October 2016.

Motani said 1-800-Flowers had also looked at Kopper’s.

The executive said he was familiar with Nuts.com, but pointed out its site focused more on self-consumption, where customers buy nuts for their own snacking, as opposed to gift giving. However, Motani said 1-800-Flowers could always take a strong brand and create a gifting line. “Self-consumption is a big opportunity to smooth out seasonality,” Motani said.

Meanwhile, 1-800-Flowers could also expand its “better-for-you” foods, but Motani noted that most gifts tend to be something one enjoys occasionally. “Our stuff is given as a gift,” he noted. “Indulgence is a big selling point.”

Despite its strong acquisition pipeline, seeking buys in the gourmet food space comes at a time of high valuations and much competition from both strategic and private equity buyers, Motani noted.

Opportunistic divestitures

With 15 brands, Motani said it is opportunistic about divestitures, most recently selling its Melrose Park, Illinois-based Fannie May Confections business for USD 115m, upon an approach from Italy- based Ferrero SpA.

“They made an offer we couldn’t refuse,” Motani said.

Ferrero, which is strong internationally, wanted to increase its presence and its manufacturing abilities in the US, Motani said. Fannie May had 90 retail stores, and Ferrero is a multibillion-dollar chocolate business, well positioned to run this type of operation, he pointed out.

In its 2016 annual report, 1-800-Flowers noted its Fannie May brand had been experiencing lower performance after a warehouse fire in the 2015 fiscal year.

1-800-Flowers’ family of brands include BloomNet, a floral wire service; Harry & David; The Popcorn Factory; Cheryl’s cookies; 1-800-Baskets.com; Wolferman’s, known for its English muffins; FruitBouquets.com; and Stock Yards, a provider of gourmet steaks and chops.

Asked if Stock Yards was core to the business, Motani said it was a smaller but growing unit due to its premium positioning, and because the products are mostly purchased as gifts.

“It is a core piece of our growing prepared meal offerings alongside those offered by Harry & David. We view this as a growth area and an excellent alternative to meal kits,” Motani said.

The New York company’s competitors in the floral space include FTD Companies [NASDAQ:FTD], according to Motani. FTD has a USD 385m market cap and had USD 1.12bn in 2016 revenue.

Motani said the impact on 1-800-Flowers of Amazon’s [NASDAQ:AMZN] acquisition of Whole Foods Market [NASDAQ:WFM] would be limited near-term. In fact, it could even be seen as an opportunity as it could become a channel for its Harry & David products. “We still need to pay attention — this is monumental for everyone in the industry,” he added.

1-800-Flowers primarily uses its internal team to identify acquisitions, and did not disclose external advisors on its acquisition of Harry & David.

by Heather West in San Francisco

As seen in the mergermarket, an Acuris company, newsletter on 11/08/2017


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