You say to-may-to, I say kumquat.
Last month, I used Lifeway Foods' (NASDAQ:LWAY) CEO Julie Smolyansky's comment that "Lifeway is specifically trying to make inroads in selling through food service and restaurant companies" to predict that Lifeway would soon ink a deal to distribute kefir through companies like Income Investor pick Sysco (NYSE:SYY) or Performance Food Group (NASDAQ:PFGC).
Close, but no tomato. On Friday, Lifeway Foods advised that it has indeed inked a deal, but not with either of the companies named above. Rather, Lifeway landed its first big food service client, U.S. Foodservice (USF), a provider of foodstuffs to everyone from Hilton Hotels (NYSE:HLT) to Federated Department Stores (NYSE:FD) to Kona Grill (NASDAQ:KONA).
Duh
I admit it. I'm an idiot. In retrospect, it should have been obvious that this would be Lifeway's go-to customer. After all, the kefir maker already does business with USF's corporate cousin, Giant Food. Both firms are subsidiaries of the same globe-striding megaretailer, Dutch Royal Ahold. (Although, as we learned earlier this month, Royal Ahold is unloading USF on private-equity firms Clayton, Dubilier and KKR; and the move comes just six years after buying USF.)
Prospects and peril
My pre-20/20 hindsight blindness aside, though, what does Lifeway's announcement mean to investors? Well, that depends.
Certainly, landing the USF contract will expand Lifeway's distribution, its sales, and its "mindshare" by giving its signature kefir drink greater exposure to the eating-out public. But the press release gives no details on how profitable the deal will be for Lifeway, or whether it expects to earn greater or lesser margins on these sales than it does via more traditional grocery store-based retailing. We'll need to keep a close eye on Lifeway's margin trends -- and watch for additional details on this front in the earnings releases -- to see just how lucrative a contract Lifeway has landed.
What is clear, though, is that Friday's announcement validates Smolyansky's statements made in last quarter's conference call, during which she mentioned several routes to growth for the company, ranging from the traditional (signing up SUPERVALU's (NYSE:SVU) Jewel supermarkets) to the corollary (the aforementioned USF deal) to the near-moonshot (a "cryptic mention that an unidentified airline has begun selling kefir from its onboard carts," as I wrote back in April).
Dare I guess at what airline has begun selling Lifeway's goods? Not anymore, I daren't! Fortunately, there's no need to prognosticate. Instead, I'll ask you, the readers, to tell me what you see. If you've flown recently, have you seen kefir hawked from the aisle carts on your favorite airline? If so, drop me a line at [email protected], and clue me in. I'll be sure to spread the news.
For more on this little kefir maker that could(?), read:
Fool contributor Rich Smith does not own shares of any company named above.
