Wholesale distributors work behind the scenes, occupying a vital space in the supply chain between manufacturers and retailers. They purchase a wide variety of products from manufacturers and then distribute them to retailers or other bulk buyers, such as offices, businesses, and schools. Wholesale distributors eliminate the hassle of ordering from dozens of accounts and make delivery easy.
Your merchandise likely comes from a wholesaler when you do business with a restaurant, supermarket, or retailer such as a hardware store. Many wholesalers are small businesses, but some are publicly traded.
Wholesale distribution refers to a business model rather than an industry, and the performance of these stocks depends on the kinds of products they sell. For example, building materials suppliers have struggled with the housing slowdown, while supermarket wholesalers have been solid since spending is reliable even in an inflationary environment.
5 top stocks
Top wholesale distributor stocks in 2024
| Company | Description |
|---|---|
| Fastenal (NASDAQ:FAST) | Distributor of industrial and construction supplies |
| Sysco (NYSE:SYY) | Largest food distributor in the U.S. |
| United Natural Foods (NYSE:UNFI) | Distributor and retailer of organic and natural foods |
| J&J Snack Foods (NASDAQ:JJSF) | Manufacturer and distributor of snack foods and frozen beverages |
| US Foods (NYSE:USFD) | Food distributor to U.S. food service businesses |
1. Fastenal
1. Fastenal
You might be surprised to learn that an under-the-radar industrial supplier has been one of the best-performing stocks on the market over its history, but that describes Fastenal perfectly. The company has increased its share price by more than 112,000% since its 1987 initial public offering (IPO) and has consistently generated high earnings per share in a low-growth industry.
In addition to operating as a leading wholesaler, Fastenal has its own retail stores, giving it a unique distribution network. Fastenal's 3,300 stores include locations open to the general public and Onsite locations at its customers' properties.
Fastenal's economies of scale and scope have helped the company to steadily add stores, but it is shifting its focus from public stores to Onsite locations, with plans to add as many as 400 annually. Onsite locations take advantage of Fastenal's customer relationships by providing sales and service within the customer's facility.
Most of Fastenal's customers are manufacturers and construction companies, so fast, convenient service is key. The company is also adding product vending machines and increasing its digital presence. In 2023, Fastenal's operating profit margin was an attractive 20.8%, showing the strength of its business. Its leadership in fasteners and related products also gives it a sustainable competitive advantage.
2. Sysco
2. Sysco
Sysco is the world's largest food distributor, with more than 600,000 customers worldwide and a U.S. food service market share of about 17%. The company's sales are mainly to restaurants, but it also supplies hospitals, schools, government offices, and hotels, among other businesses.
Sysco's vast network of relationships with customers and suppliers provides economies of scale and serves as a competitive advantage; so does its ability to provide value-added services, such as menu analyses, for its restaurant customers. The company has also created significant barriers to entry with its investment of billions of dollars in warehouses and delivery infrastructure.
Sysco has a history of growing organically and through acquisitions, which helps increase its market share and expand its geographical reach. In 2015, it tried to acquire rival U.S. Foods, but the Federal Trade Commission sued to block the deal, and Sysco called it off. Sysco has also increased its dividend every year for 48 years.
3. United Natural Foods
3. United Natural Foods
United Natural Foods is the country's largest dedicated wholesaler of organic and natural foods, one of the fastest-growing segments in the $800 billion supermarket industry. The company counts Whole Foods as its biggest customer and, in turn, is Whole Foods' biggest supplier.
In fiscal year 2023 (ended July 29, 2023), Whole Foods made up 21% of its sales, roughly $6 billion. The relationship is, at times, perceived as a risk for the company.
However, it's also been a source of strength, as Whole Foods has outgrown the broader supermarket industry through most of its 20-plus-year relationship with United Natural Foods. In May, the wholesaler extended its contract with Whole Foods through 2032.
Historically, United Natural Foods has grown organically and through acquisitions, including SuperValu, a supermarket wholesaler and retailer it bought in 2018. As the premier natural foods wholesaler, the company will likely target more acquisitions in that area. Like other retailers, the business has struggled with inflation and employee theft, announcing a transformation plan that has yet to take hold.
4. J&J Snack Foods
4. J&J Snack Foods
J&J Snack Foods isn't a household name among investors, but the distributor of soft pretzels and frozen beverages has been a consistent winner on the stock market. Since its 1985 IPO, J&J has increased its share price by around 9,000%. It's also consistently hiked its dividend payout over the past decade and currently offers a dividend yield of around 1.8%.
The company isn't exclusively a wholesale distributor. It manufactures some of the products it sells, such as soft pretzels, and also sells products under well-known brands, such as Minute Maid, Auntie Anne's, and Sour Patch Kids.
As the only national distributor of soft pretzels, J&J has a reach that makes it attractive to national chains. Its product selection is well suited to venues such as sports arenas, theme parks, and movie theaters.
The company also has a history of acquisitions, taking over snack brands like Dippin' Dots and the Thinsters cookie brand. The company plans to grow by introducing new products, penetrating existing markets, and expanding into new markets.
5. US Foods
5. US Foods
US Foods is one of the largest food distributors in the country, with 250,000 customers in the U.S. and more than 400,000 stock-keeping units (SKUs). The company leverages technology to gain a competitive advantage. Its mobile platform provides a personalized e-commerce experience and helpful business analytics tools to solve problems related to food waste and customer traffic.
US Foods has grown both organically and through acquisitions. With its 2020 acquisition of Smart Foodservice, it entered the cash-and-carry business, enabling customers to order and pick up supplies. US Foods Direct is a new sales feature that allows customers to order products that ship directly from the supplier. It also introduced US Foods Pronto, which delivers smaller orders more frequently.
US Foods' history as a publicly traded company is more limited than its peers since the company had its IPO in 2016. The stock has almost matched the performance of the S&P 500 (SNPINDEX:^GSPC) since then.
Related investing topics
Should I invest?
Should you buy wholesale distributor stocks?
Wholesale distributor stocks are ideal for investors looking for consistent, reliable stock performance. Because these companies distribute essential products, such as food and industrial supplies, they tend to be recession-proof.
Wholesale distributors rarely deliver the impressive growth investors can find in some sectors. Competitive advantages can be difficult to establish and maintain because these are essentially commodity businesses with thin profit margins. Since wholesale distributors generally aren't consumer-focused, brand also plays a less important role, meaning companies mostly compete on price.
If you choose to invest in the wholesale distribution sector, it's best to focus on the industry leaders. The top wholesale distribution companies have demonstrated proven and effective growth strategies.
FAQ
Investing in wholesale distributors FAQ
What is a wholesale stock?
A wholesale stock is a publicly traded company that makes the majority of its revenue from selling wholesale products, the stage in the supply chain between manufacturing and retail.
What are distribution stocks?
Distributors tend to be wholesalers but aren't necessarily. Typically, these companies aggregate goods in large industries with a wide range of products. However, distributors can also sell their own products, though they are often wholesalers selling goods they purchase from manufacturers.
Are wholesale distribution stocks a good investment?
Wholesale distribution stocks have had mixed results on the stock market. They tend to be slower-growing than the broad market. However, they are also more recession-proof since many of them serve recession-proof industries like supermarkets, which are less affected by changes in the economy.
What is a wholesale distribution company?
A wholesale distribution company operates by aggregating a wide range of goods from producers, storing them in warehouses, and distributing them to customers. These companies are commonly found in industries such as food and building supplies.
