Who knew that candy around the checkouts could be big business?
That’s been the case for Jim Schweikert and his Chandler based company Liberty Distribution Co. LLC, which sells chocolate bars, sour candies, bubble gum, potato chips and hundreds of other snacks to retailers that don’t specialize in food but want to make an extra buck.
Liberty, which sold more than 8.5 million Snickers bars alone to its retailers last year, distributes to stores where customers go to buy DVD players, plywood, air-conditioning filters and cat litter, not breath mints, beef jerky or Sour Patch candies.
But the placement of these products at the checkout has helped non-food retailers to bolster their sales.
“It’s 100 percent impulse, (and) it’s extra dollars to the retailer,” Schweikert said. “No one is going to these stores to buy these items, but they’re walking out with them.”
Schweikert’s 90-person company has charted average annual compound revenue growth of 26 percent over the past four years, according to numbers the company provided.
Liberty’s growth attracted a major local investor, Scottsdale based private-equity firm Cave Creek Capital Management LLC, which recently bought a majority stake in the company and plans further expansion.
Schweikert attributes the growth to focusing on what he calls his “non-traditional customers.” Where serving these clients is cost-prohibitive for larger distributors that sell to convenience stores, Schweikert has turned a profit by using proprietary software that enables the company to track sales and replenish their customers’ inventory as they run low.
Liberty Distribution’s shipping and storage warehouse at its Chandler headquarters is a fantasyland for anyone with a sweet tooth.
Cardboard boxes full of Reese’s Pieces peanut-butter cups, Skittles, M&amo;M’s, Snickers bars and packages of nearly 600 other candy and snack food items line the warehouse’s 35-foot walls.
A handful of workers pull out cartons of the treats from opened boxes that sit on a row of metal shelves. They place the candy inside plastic shipping crates, which wind through a section of the warehouse on a large conveyor system.
Another team of workers fills the crates with Styrofoam packing peanuts as the crates arrive at their station on the conveyor. The workers will load the crates inside UPS trucks,which deliver the items to retail stores throughout the country.
The action is precise and organized, slightly resembling a scene from the movie Charlie and the Chocolate Factory, minus the rushing river of chocolate, Oompa Loompas and fruit-flavored wallpaper.
The Willy Wonka — so to speak — of Liberty Distribution’s operation is Schweikert, who admits that he likes operating his company under the radar. The Scottsdale resident says he seldom seeks out attention for his company because of fear of tipping off potential competitors.
Growing the business
Schweikert and Cave Creek Capital Management declined to provide specific details of their transaction,which closed in January.
Under the deal, Schweikert still owns 40 percent of the company and will continue to run the business’ daily operations. The investment firm will work with Schweikert and other upper-management members on strategies for continuing the company’s growth, doing acquisitions and possibly expanding internationally.
Scott Lavinia, a partner in Cave Creek Capital Management, said the firm typically invests in companies that do between $20 million and $200 million in annual sales. The firm liked Liberty Distribution because of its consistent growth, opportunities for expansion and a lack of direct competitors, he said.
“(We felt) by bringing in the right capital base, by bringing in more partners, we could continue to grow the business without compromising the principles they have already been successful on,” Lavinia said.
CSK signs on
Schweikert, an Arizona native, started Liberty Distribution in 1998. At the time, he was running Liberty Vending, a business he started in 1985 to sell vending machines to retailers after leaving Phoenix Coca Cola Bottling Co., where he also sold vending machines.
Phoenix-based CSK Auto Corp., which owns and operates the Checker Auto Parts, Schuck’s Auto Supply and other chains of auto-parts store, was one of Liberty Vending’s first customers.
When the auto-parts retailer approached Schweikert about selling candy in the stores, he decided to shift gears. He sold the vending business in 1999, he said, and began selling candy bars, mints, gum, potato chips and other sweet and salty snacks to non-food retailers.
“I had no idea it was going to take off to what it is today,” Schweikert said.
Selling the items in CSK stores has turned into “a big profit center” for the autoparts retailer, said Gray Hendricks, divisional merchandise manager for the company.
Part of the reason behind the products’ success is that the company’s customers are a “captive market,” he said. When they come to the stores to get vehicle work done, they have no place to go.
“We don’t have to compete retailwise for what you would pay at a supermarket or a Circle K,” Hendricks said. “It’s displaced auto parts in an autoparts store. That’s how profitable it is.”
Small quantities
Scott Ramminger, president of the American Wholesale Marketers Association, said he knows of few candy and food distributors who deal exclusively with non-food retailers.
“It’s just not … necessarily profitable for a traditional distributor to make a stop to sell 10 candy bars or a couple bags of chips,” said Ramminger, whose Fairfax, Va.-based organization represents mostly convenience-store distributors.
Because Liberty’s customers don’t typically have room to store food inventory, the company often ships single packages of each item the store wants to sell for each delivery. Schweikert declined to name his other customers because of confidentiality agreements he has with them, but he said the list has grown consistently each year as they look for other ways to make money.
Corporate expansion
The trend has allowed Liberty to expand to 90 employees, move into larger digs and open additional offices.
In 2003, the company built a 35,000-square-foot building in a Chandler business park near Arizona Avenue and Warner Road that now houses its corporate headquarters and Integrum Technologies LLC, a Web development firm that Schweikert also owns.
The company previously leased about 14,000 square feet of warehouse space in southeast Phoenix. Last year, the company ranked 66th on a list that the Chandler Chamber of Commerce compiled of the top 100 economic contributors to the city, based on Arizona employees and revenue. The list stated that Liberty’s Arizona revenue was $8.9 million and it had 50 employees in the state. Liberty also leases warehouses in Memphis, Tenn., and Mechanicsburg, Pa., where it opened up shop in 1999 and 2003, respectively.
Liberty Distribution Company (Chandler, AZ), the leading distributor of confections and snacks to non-food retailers, completed its recapitalization in August, refinancing its senior and mezzanine debt while repurchasing shares from Cave Creek Capital. During the last two years, Liberty’s sales have more than doubled, cementing its leadership in its segment. Wells Fargo, in conjunction with C3 Capital and Bush O’Donnell Investments, led the refinancing. CCCM’s investment was valued at 4.2 times its initial investment, representing a gross annualized IRR of 75.4%. CCCM retains a minority investment in Liberty. The transaction allowed management to own a majority stake and provided incremental capital for further growth.
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