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Chefs Warehouse Inc (NASDAQ:CHEF)
Q3 2021 Earnings Call
Oct 27, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to The Chefs’ Warehouse Third Quarter 2021 Earnings Conference Call. [Operator Instructions].

I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary and Chief Government Relations Officer. Please go ahead, sir.

Alexandros AldousGeneral Counsel, Corporate Secretary, Chief Government Relations Officer and Chief Administrative Of

Thank you, operator. Good morning, everyone. With me on today’s call are Chris Pappas, Founder, Chairman and CEO; and Jim Leddy, our CFO.

By now you should have access to our third quarter 2021 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section.

Throughout this conference call we will be presenting non-GAAP financial measures, including among others historical and estimated EBITDA and adjusted EBITDA as well as both historical and estimated adjusted net income and adjusted earnings per share. These measurements are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today’s press release.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today’s release, others are discussed in our Annual Report on Form 10-K and quarterly reports on Form 10-Q which are available on the SEC website. Today, we are going to provide a business update and go over our third quarter results in detail. Then we will open up the call for questions.

With that I will turn the call over to Chris Pappas. Chris?

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Thank you, Alex. And thank you all for joining our third quarter 2021 earnings call. Revenue trends remained strong as the momentum from second quarter customer and consumer demand continued into the third quarter. In September, limited growth in return to offices in hospitality related activity contributed to a moderate increase in sales trends sequentially over August and July, and we exited the quarter at approximately 103% of 2019 sales. Similar to our previous reporting, I will compare sales and gross margin results of the current quarter sequentially to the second quarter of 2021. Jim will provide the comparison to prior year in his comments later in the call.

During the quarter, net sales increased approximately 14.5% versus the second quarter of 2021. Specialty sales increased approximately 18.1% sequentially versus the second quarter of 2021, with average unique customers increasing 7.1% and we saw higher placements of approximately 8%. Specialty cases increased 12.8% versus the second quarter of 2021, while center-of-the-plate pounds sold were approximately 2.8% higher sequentially versus the second quarter of 2021, excluding the impact of acquisitions.

While gross profit margins were relatively unchanged compared to the second quarter of 2021, total gross profit dollars increased 14.7% versus the second quarter. Gross margin in the specialty category increased 70 basis points as compared to the second quarter of 2021, while gross margin in the center-of-the-plate category decreased 97 basis points. Jim will provide more detail on gross margin inflation in a few minutes.

During October, we completed two acquisitions that will contribute to our continued growth as the provider of choice for high end center-of-the-plate product lines to our customers nationally. On the West Coast, we added Silver State Meats, the premier provider of specialty proteins in the greater Las Vegas Metro area. We have decided to partner with the Silver State team as their high-touch, high-quality service model will serve as a great complement to our existing specialty business in Las Vegas. This acquisition will also provide us with the bridge to growing our Southern California specialty protein sales until we implement center-of-the-plate processing in our new LA facility which we currently expect to be opening in 2022.

In Texas, we acquired certain assets of Martin Preferred Foods. This will facilitate accelerated growth of our premium Allen Brothers brand to our growing customer base in the Lone Star state.

Regarding recent business activity. Recent sales trends have continued in excess of 2019 sales consistent with the final weeks of the third quarter. Continued modest growth in travel, office building in college-related markets combined with favorable fall weather led to moderate week-over-week sales progress during October. Despite the ongoing challenges in the labor and supply chain environment, our team at Chefs’ Warehouse continues to focus on sourcing, marketing and delivering high-quality product and high-touch service model to our customers. If anything, the last few months have strengthened our confidence in both the future growth of the culinary industry at large and the investments we at Chefs’ are making in market, in category expansion and adding key talent and partners as we look forward to returning to above-average industry growth. I would like to thank all of our CDW team members for their dedication and resilience as we move forward toward our achieving our medium-term and long-term goals.

With that I will turn it over to Jim to discuss more detailed financial information for the quarter and update on our liquidity. Jim?

James LeddyChief Financial Officer

Thank you, Chris and good morning, everyone. I’ll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity.

Our net sales for the quarter ended September 24, 2021 increased approximately 90.7% to $484.3 million from $254 million in the third quarter of 2020. The increase in net sales was the result of an increase in organic sales of approximately 84.2% as well as the contribution of sales from acquisitions, which added approximately 6.5% to sales growth for the quarter.

Net inflation was 18.7% in the third quarter, consisting of 10.9% inflation in our specialty category and inflation of 28% in our center-of-the-plate category versus the prior year quarter. Please note that center-of-the-plate prices were only 4.2% higher sequentially versus the second quarter of 2021.

Gross profit increased 82.2% to $110 million for the third quarter of 2021 versus $60.4 million for the third quarter of 2020. Gross profit margins decreased approximately 105 basis points to 22.7%. Although gross profit margins declined year-over-year, strong gross profit dollar growth was driven by increased sales while maintaining a strong gross profit margin profile in an extreme inflationary environment.

Specialty inflation was driven by broad based inflation across most specialty product lines. Inflation in the center-of-the-plate category was driven by higher prices across most beef categories, especially in the higher end prime categories.

Total operating expense increased approximately 37.7% to $99.5 million for the third quarter of 2021 from $72.3 million for the third quarter of 2020. The primary drivers of higher operating expense were higher compensation and transportation costs associated with the year-over-year volume growth in route expansion. Adjusted operating expenses increased 33.3% versus the prior year third quarter. And as a percentage of net sales, adjusted operating expense was 17.9% for the third quarter of 2021 compared to 25.7% for the third quarter of 2020.

Operating income for the third quarter of 2021 was $10.4 million compared to operating loss of $11.9 million for the third quarter of 2020. The increase in operating income was driven primarily by higher gross profit, partially offset by higher operating costs. Income tax expense was $2.8 million for the third quarter of 2021 compared to income tax benefit of $5.2 million for the third quarter of 2020.

Our GAAP net income was $3.5 million or $0.09 income per diluted share for the third quarter of 2021 compared to a net loss of $11.4 million or $0.31 loss per diluted share for the third quarter of 2020.

On a non-GAAP basis, we had positive adjusted EBITDA of $23.4 million for the third quarter of 2021 compared to negative adjusted EBITDA of $4.9 million for the prior year third quarter. Adjusted net income was $4.5 million or $0.12 per diluted share for the third quarter of 2021 compared to adjusted net loss of $13.7 million or $0.38 loss per diluted share for the prior year third quarter.

Turning to the balance sheet and an update on our liquidity. At the end of the third quarter, we had total liquidity of $243.7 million, comprised of $134.2 million in cash and $109.5 million of availability under our ABL facility and net debt as of September 24, 2021 was approximately $266.4 million, inclusive of all cash and cash equivalents.

At this time, due to the continued uncertainty regarding the pace of broader economic recovery and the timing of event and travel related business activity, we will not be providing guidance for 2021.

Thank you. And at this point, we will open it up to questions. Operator?

Questions and Answers:

Operator

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Fred Wightman with Wolfe Research. Please proceed with your question.

Fred WightmanWolfe Research — Analyst

Hey guys, good morning. Thanks for taking the question. Really helpful color on the September exit rate and how that continued into October. But I’m wondering if you could just give a little bit more color as far as when you saw the Delta impact how that progressed throughout the quarter and then, the comments that you made about business and travel returning a little bit. How you see those progressing going forward?

James LeddyChief Financial Officer

Yeah, sure. Thanks for the question, Greg. Yeah, the cadence through the quarter — I guess the headline is we didn’t really see much impact from the Delta variant at all. July is seasonally generally a little weaker than June but we had very consistent revenue trends throughout July and then, August is seasonally a little bit better than July and that played out as we had incrementally higher week-over-week revenue trends in August. And then, as we mentioned in the prepared remarks, in September, we started to see the impact of some of the college markets opening up. We saw very limited incremental business in the segments of our markets that are — do better when offices are full at theater districts, things like that. So not a leap, but more of a very gradual incremental build. So from a Delta very perspective, I guess, we didn’t really see much at all.

In terms of looking forward. We have, since this thing began, had internally modeled very gradual build back in the hospitality, travel, business travel and that type of business activity, whether it’s cruise lines or international travel coming back to the big cities. And so, we still model internally a very gradual build back through the end of this year and into ’22. I think, New York, the United States obviously is opening up travel to vaccinated people internationally in mid-November and so, we’ll see how that plays out.

Fred WightmanWolfe Research — Analyst

Great. And then, just broadly a little bit more detail on the staffing outlook. Are you still super constrained to the extent that you’re having to turn away new customers and new business? And did you see any change in some of the federal programs rolled off in the late summer, early fall?

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Yeah. I think-

James LeddyChief Financial Officer

Yes. Go ahead, Chris. Sorry.

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Sure. Yeah, so I mean staffing has been a challenge. The positive side, it’s made us have to operate much more strategically and efficiently. We knew — I mean, staffing was a problem before COVID. So we — it was always a issue trying to find enough CDL drivers and especially night crews. So really for us a new discipline on what customers we would take on, obviously servicing our existing good customers, was the number 1 priority. So it did limit us from, I would say, past behavior of maybe taking on too many customers in different regions that were not profitable. So I think we learned a lot. It was like a forced discipline. And as staffing comes back, I mean, we are seeing more and more people coming back into the workforce, which is really a great positive sign. We’re still looking at the business differently than we did pre-pandemic and I think we’ve learned a few things. So anything positive from the pandemic is we understand our business even better than before and our operating more efficiently.

Fred WightmanWolfe Research — Analyst

Okay, thank you.

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Thanks.

Operator

Our next question comes from Alex Slagle of Jefferies. Please proceed with your question.

Alexander SlagleJefferies — Analyst

Thanks, good morning. I just wanted to follow-up on-

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Morning.

Alexander SlagleJefferies — Analyst

That previous previous question. If you could just provide some more color on the magnitude of overtime and incremental training and incentive payments. Just to get some color there where you are, maybe in terms of the slope of these cost headwinds? If — do you guys see them continuing to increase through the fourth quarter and then, maybe moderate at some point as — given where you are on hiring?

James LeddyChief Financial Officer

Yeah, Alex. Thanks for the question. Just adding on to Chris’ comments. The biggest impact that we saw during during COVID on labor, has been in the larger markets where there was a lot more competition for that labor pool. And in September and early October, we started to see more applicants, more better applicants, a better flow of labor. Now, it’s still challenging. There is no doubt about that. We think, obviously, the world has changed, as it relates to the labor market and so, that’s why we are investing in technology where we can to offset that impact to the extent that we can. So that’s basically what played out. I think, as we move forward, it’s leveled off a little bit, I think there’s always going to be challenges around labor in — given our business model. We hire drivers, we hire night crews, as Chris mentioned. But our teams have done a great job of of adjusting our operations to the current labor market and we’re pretty pleased with what they’re — what they’ve been delivering.

Alexander SlagleJefferies — Analyst

Thanks for that. And one question on the inflationary cost pressures. If you could provide a little bit extra perspective, how effectively you’ve been able to pass along those higher costs relative to your expectations? And maybe thoughts on pricing flexibility in the current environment, obviously, very strong, but I wonder if you’re seeing any changes there more recently?

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Yeah, obviously. Yeah, yeah, I’m sorry. I’ll take a crack at this, Jim, first and then you could opine but yeah, I don’t think anyone’s ever seen a market, not my generation, of inflation due to a lot of logistics, a lot of it is freight, many, many, obviously, the proteins, have seen the greatest inflation, especially in our prime category. And a lot of it is because there is so much demand as well. I don’t think anybody really thought that the demand would come back as fiercely as it has. So we always ran the business with a limited amount of contracts. Our primary customers are independent restaurants or big shops or caterers and the price really floats, so it floats with the market. So we try pretty much never to get locked into a situation where you can’t pass it on. There are some larger customers that we do have some agreements with but even those contracts in today’s environment, I think, everything is negotiable. I think, the most important factor in today’s market is actually being able to execute and to deliver, and I think in our industry everyone’s cooperating, understanding. It’s probably once in a lifetime environment and everybody has to be flexible. So it is allowing us to move price. As you can see from our results, we were able to pass on, if not exactly the total margin increase, we were able to keep our gross profit dollars, which is the most important.

The way we run the business, the spread between our opex and gross profit dollars and more expensive boxes really give us a little leverage on on our opex because they don’t really cost more to move. And I think you’ve heard me say many times over the past 10 years, I’d rather sell expensive boxes than inexpensive boxes because they don’t really cost more to move and that’s really our — more of our business model with higher end restaurants. We don’t sell many, many customers 300, 400 boxes of French fries, at one-time we sell a customer maybe 40 different line items, but it’s one of each. And that allows us to get the margin to be able to deliver to these high-touch, more frequent delivery type customers and provide the value for them and for us, and I think that we saw the model pretty much play out in the last quarter.

Alexander SlagleJefferies — Analyst

That’s helpful. Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Kelly Bania with BMO Capital. Please proceed with your question.

Kelly BaniaBMO Capital — Analyst

Hi, good morning. Thanks for taking our questions. Wanted to just ask, the comment about sales tracking at 100% of pro forma 2019 levels is very helpful, I think, ahead of expectations. But I guess the question I think on a lot of investors’ minds is just on the expense side. And just wondering if you could put the same color around operating expenses on a pro forma basis? Just how do you think this quarter came in relative to what you think pro forma expenses would be?

James LeddyChief Financial Officer

Yeah, thanks for the question, Kelly. Yeah, I think it’s coming in as we expected. I mean, obviously the last 2 quarters, Q2 and Q3, really — when we started to — as the business came back and markets opened, we started to leverage our fixed cost base, our fixed asset base. That was obviously escaping us during the depths of COVID so, that’s gradually improved. I mean, I think I’ll go back to Chris’ comments about growing gross profit dollars above adjusted opex. Our gross profit margins are lower than 2020 and 2019. But our adjusted opex as a percent of revenue is better as well. And so, you’re seeing a shift because of the abnormal inflationary environment.

On the commercial side, our balance is managing price such that we’re partnering with our customers and passing on market related costs. But also, just making sure that we’re growing gross profit dollars and creating operating leverage, as we did for a few consistent years prior to COVID hitting. Obviously, the comps to 2020 are creating a lot of extreme numbers but when you break it down, our adjusted EBITDA margins in Q3, we’re very close to what we delivered in Q3 of 2019. I mean, if you normalize for the addition of Sid Wainer, which we were very upfront that is a lower EBITDA margin business but we have a multi-year plan to grow that EBITDA margin over time, we’re actually very close.

So I think, even with the wage increases, the things that our operating teams have done in terms of investing in technology, process improvement, the things Chris talked about, about prioritizing commercial business based on the environment. All those things have come together and giving us an opex profile that’s in line with we would expect.

Kelly BaniaBMO Capital — Analyst

That’s very helpful. And I guess, just in terms of hiring, maybe can you just give us an update on the extent to which you still do need to hire either drivers or warehouse employees or any labor hiring that you still need to do across the board?

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Sure. Yeah. Again, Kelly, I think, we talk about this daily in our office calls. Hiring people in warehouse jobs and driver CDLs for the larger truck, was a challenge before the pandemic. So it’s not something that’s new to us. We work really hard to try to recruit. We’ve actually broken up a lot of our HR. The way we look at HR and responsibility is we hired a Talent Officer to work with all our leaders to basically — its not only hiring, it’s keeping people in these jobs. I mean, you read about in the paper all the time. It’s the quitting generation and unfortunately, it is much harder to get people to stay. These are — some of them are really hard jobs. You’re lifting heavy boxes, you’re driving big trucks. It’s a tough job and we really appreciate that. That’s why we want to make sure that we have great packages for these jobs. So they are compensated for the hard work.

I don’t think that’s going to change much, like I said. It was tough before the pandemic so, we work at it night and day. I could — I’m almost afraid to say that it is getting better over the last few weeks. Our calls, it seems like we are starting to get more people showing up for our job fairs and we’re constantly — everybody, our full-time recruiters are recruiting. But this industry forces you to be resourceful and you have to find ways to do more with less. And I don’t think that it’s going to change drastically. I think that there are more candidates and — but we’re being really careful as we add trucks back. We are doing the business with less trucks. So we do have more efficiencies.

We know now that travel is going to start to resume hopefully, in a week or so. We’re going to start to get international travel, we’re going to start to get our cities back to semi-normal. More — obviously, the hotels have not had those travelers and haven’t had a lot of business travels. We haven’t had catered events. So we know that, that volume will start to build and we are way ahead of it and in the way we’re out recruiting and planning, putting routes back on, but I think, we’re doing it under a microscope, understanding that we want to do it much more efficiently than in the past.

Kelly BaniaBMO Capital — Analyst

Thank you. And just one more from me. Just on the two transactions announced this month. I’m just curious if you could help us understand what stood out with those two acquisition opportunities? I imagine there’s quite a bit of opportunity across the landscape and just strategically why those two and those locations, especially? And just a general update on how some of those smaller competitors are faring in this environment?

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Sure. Well, again, I think that a lot of the deals you’ll see announced, probably were in the works before the pandemic hit. So we’re constantly talking to people in different markets and you hear me talking about fold ins all the time, I would do one a day if we could find them because they’re so creative. Because basically, what you’re taking really is sales and the customer base. And I think, the one in Vegas was extremely strategic. We have a great business there in our regular specialty Chefs’ Warehouse facility and we were lacking a protein solution to launch our Allen Brothers steak and seafood business. So the State provided that. We like the people that ran the business and we thought it would complement well, and it also gives us the opportunity to start to go in and build our Southern California business. It’s close enough and we have trucks running back and forth that — this allows us to start to build volume because our new facility in LA is opening hopefully, fourth quarter, first quarter of next year. And this gives us the opportunity really to start supplying through our existing routes customers with protein products and allows us to build a run rate. So when that cut shop does open in Southern California. We have enough business really to get it going and to get to a profitable level much quicker than starting from scratch.

And I think, if you, again, if you hear of another acquisition, it’s something that we were planning before pandemic and it probably got delayed for many obvious reasons. And I think, the pipeline is extremely frothy. I think, you’ll start to see a lot of M&A, now that people have somewhat of a foreseeable forecast coming out. Even 6 months ago with the Delta variant, it was really hard to forecast. It still is. But I think now — I think, we know that we’re not heading back to a close down and it’s easier for us to pull the trigger.

Operator

Thank you. Our next question comes from the line of Peter Saleh with BTIG. Please proceed with your question.

Peter SalehBTIG — Analyst

Great, thank you. I think, most of my questions were asked, but I wanted to ask about the overall industry for independence. I know there’s been a lot of talk about a labor shortage and high labor turnover, and I know you guys mentioned that you’ve been — you’re being more selective in terms of the customers and the restaurants that you take on. Are you seeing — I think what everybody was expecting was more of a surge and development coming out of the pandemic, or do you feel like the labor shortage and all the turnover has resulted in maybe independents being a little bit more cautious, in terms of opening new concepts and new restaurants? Thank you.

Christopher PappasFounder, Chairman, President and Chief Executive Officer

You know the — I think, if there is another positive thing that we’ve seen coming out of the pandemic, is that, I mean, the sad thing is that we’ve seen a lot of customers close. Not nearly as many as everybody predicted, thank God, but there has been many small businesses that didn’t make it. And I always thought maybe perhaps there was too many restaurants before the pandemic, and maybe this was an opportunity to get out of leases and walk away from unprofitable locations. But I’m sure that there is many, many clients that just don’t have the wherewithal, but I think the PPP helped our industry tremendously. I think, it was a lifeline for many, many customers. And what we’re seeing is many coming out now, as volumes are returning, they’re looking for new locations and they’re signing many leases. I think, it’s a once in a lifetime opportunity where you can find a fully built out locations ready to go, maybe with some minor cosmetic adjustments, you can open a new restaurant in a key location and I think, what we’re seeing with the customer count starting to go up. And many customers planning new restaurants opening over the next 6 to 12 months is an outcome of that. It’s an outcome of — they found stability with PPP, maybe they had many, many good years before that. So it’s the tale of two cities, unfortunately.

And my crystal ball says that you’re going to see a tremendous amount of new openings in this industry. Restaurant tours like to open new restaurants. And I think, given an opportunity right now to accelerate that desire to open up new concepts. I mean, our clientele is very creative. There is constantly new ideas, new concepts, blending of new cuisines and everybody likes a new restaurant. And I think, you’re going to see an acceleration of that.

Peter SalehBTIG — Analyst

Great, very helpful. And then, just lastly on the recent acquisitions this month. Any sort of impact that we should expect on margins in 2022 from these two acquisitions or are they too small to really move the needle?

James LeddyChief Financial Officer

Yes, nothing significant. They’re more — Peter, they’re more growth investments. Obviously, the one in Las Vegas will contribute to our West Coast P&L and operations, but it’s a relatively smaller companies that we are going to look to grow over the next 2, 3, 4, 5 years. And then, the acquisition in Texas was a processing plant that’s going to allow us to really accelerate our Allen Brothers product line growth in that region. And so, that’s an investment that was going to pay off in the next couple of years. So nothing immediate to model in.

Peter SalehBTIG — Analyst

Great, thank you very much.

Operator

Our next question comes from the line of Todd Brooks with C.L. King. Please proceed with your question.

Todd BrooksC.L. King & Associates — Analyst

Hey, good morning guys. I hope you’re well. A few follow-ups.

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Good morning.

Todd BrooksC.L. King & Associates — Analyst

Good morning. Could we talk looking forward just Chris’ crystal ball around inflation outlook, maybe Q4 going into fiscal ’22 or especially in center-of-the-plate as some of these maybe labor pressures that are driving some of the inflation from producers, maybe those are starting to ease as well. Just thoughts on inflation, looking forward?

James LeddyChief Financial Officer

Sure. Thanks for the question, Todd. I’ll just start and then, Chris can add any thoughts obviously. But prices obviously, remain firm going into the fourth quarter. You can see from the public data that pricing sequentially versus what we are experiencing, what we experienced in Q3 and Q2, has not significantly changed. Some of the center-of-the-plate categories have come off a little bit but certain other categories have remained fairly dear in terms of pricing.

In terms of going forward, I mean, our own internal view of this is that labor wages are not going to be resetting lower. At least, we think that’s going to be resetting higher. I mean, I think sequential and year-over-year changes will most likely moderate. Maybe slightly deflationary versus the extreme pricing we’ve seen in ’21 compared to ’20. But overall, the comparisons should be easier as you’re comping to ’21 than you were to ’20, of course.

Todd BrooksC.L. King & Associates — Analyst

Great, thanks. Go ahead, Chris. Sorry.

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Yeah. No, I think that again, it’s a very unique environment for us in this industry for many, many years. I don’t know if it’s the frog boiling in water at this point that we’re just — we’re all getting used to, the new normal. I mean, the products are more expensive and I think the good part — the good news is that there hasn’t been a tremendous amount of pushback from the consumer. When you really break down the cost of ingredients so, even if a case of pasta goes up $10 a case, 20 pounds. When you really look at the cost per plate, what is it adding $0.50 or $1? We don’t sell to the mass, mass market. We have 50,000 plus customers, but they are catering, I would say, to the top 10% of the world’s earners and hopefully, those earners are starting to travel internationally again and business travel comes back.

So you can’t help but get optimistic when you’re seeing what we’ve been, what we’ve come through. And the business that our restaurants are doing without world travelers and business travelers and events. So we are very, very optimistic, cautiously optimistic, that eventually prices may moderate some. It’s really being driven — a lot is being driven by it’s either too much demand or reports which are on TV every day. You see the ships out there floating, waiting to get unloaded. So the shipping cost about of that have driven the cost tremendously. And I think, my prediction is that, that’s pretty trance. That’s going to eventually find supply demand type of pricing and it won’t be $10,000 or $20,000 to ship a container and come back down to, maybe not $1,500 but $3,000, $4,000 and I think, that will help everybody. Help everybody’s margins. But I think our clientele is finding ways to pass the cost on and be very creative with their menus. And I think, that’s why you’re seeing restaurants are full and more and more are opening. So we live in interesting times for sure.

Todd BrooksC.L. King & Associates — Analyst

That’s really helpful. Thanks, Chris and just a follow-up on that. Could you talk about maybe private label as a percent of sales and how has that changed in this inflationary environment? And maybe what that means for for margins down the road when people — when things do normalize now that people are discovering the quality of some of the the private label offerings that are in that breadth of offering that you’ve always had?

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Yeah, I mean, I don’t think it’s changed much with our strategy. I mean, with all our protein private labels, I think we’re probably over 50% of what we sell is in some ship Warehouse box or Allen Brothers or Michael’s box or exclusive label that we own. So customers are much more understanding today when you have to substitute. So there’s not a lot of pushback. They’ll — they have no choice in a way. I mean, when Heinz ketchup is out there, you have to use something.

But for the products that we sell, yeah, I think the — I think what we’ve built over 35 plus years was a model that was different than your average Foodservice supplier that we had 180 different olive oils. We had 10 different types of tomatoes from Italy and California and Spain. So we already had a very robust product offering. Sometimes we thought maybe it was too wide, we will carry too many of lifetime products because our clientele was very specific. Chefs are very specific on what they want to use and I think that it really came to the rescue during the last year where there was product supply chain disruptions. So what became — what we thought was something that was costing us extra to carry, proved to be extremely beneficial because if we were out of Italian San Marzano tomatoes, we had another tomato that was very close in quality and the customer was happy to receive. They have tomatoes and accepted the quality and it was a win-win situation. So I think that was one of the things that really helped us over the past year.

Todd BrooksC.L. King & Associates — Analyst

That’s great. And the final one for me and you spoke to the October trends, but Chris and Jim, I’m wondering when you’re talking to your customers, what’s the early outlook for holidays, as far as pent-up demand to get out and celebrate bookings? What are you hearing from customers about their early needs on holiday and their potential excitement about the season? Thanks.

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Sure. That’s a great question. Overall, I think, what we’re hearing is optimism. We’re hearing a lot of parties are being booked, they’re smaller. So I think, people are really anxious to get back together, I know I am. We’re hosting our first event in a very long time where we have a lot of our leaders coming together. We haven’t seen each other in almost 2 years. And I think that really goes throughout the whole industry. It’s more events just smaller and I think our operators are very excited to start having and putting them on the books. We’re hearing about Vegas. The bookings are starting to go up. I think, if you’re watching the playoffs or Sunday footfall, you see the stadiums are packed again. So it’s obvious people want to go out, they want to get back together and we will be starting to see that effect.

Todd BrooksC.L. King & Associates — Analyst

Okay, great. Thanks, Chris.

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Ben Klieve with Lake Street Capital Markets. Please proceed with your question.

Ben KlieveLake Street Capital Markets — Analyst

Hi, thanks for taking my question. Just one quick one from me on the direct to consumer business model here. So there’s only a couple of markets that are included in that model on your website at this point. I’m wondering if you can update us on how you’re thinking about this model? Really going forward is it something that serves its purpose or is there something you’re still focused on especially, as the world hopefully, settles down here in coming quarters?

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Jim? I didn’t catch that whole question.

James LeddyChief Financial Officer

Sorry. Sure. Sure. The question was about our direct to consumer business so, Ben you’re asking about Shop Like a Chef?

Ben KlieveLake Street Capital Markets — Analyst

Yeah. And how you’re looking at that evolving over the next year, if it’s run its course or if you’re still — if this is still something you’d like to focus on down the road?

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Yeah, yeah. No, Jim, I’ll take this one. The question wasn’t coming through. So we’ve always had a strong direct to consumer business with our Allen Brothers consumer business, it’s online, it’s catalog. It was a solid, I’d say, small business compared to our overall business and that quadrupled over the pandemic and now it’s leveled out, it’s obviously a much higher level than pre-pandemic. But the dream really is to take that and direct to the consumer on our own trucks, which we did during the during the heart of the pandemic when everything was closed down. We don’t think that’s the model, we think it’s just too expensive, number one and it would have to be something different than operating throughout our existing warehouses as our business comes back to normal. Our — the warehousing system andthe way we pick our trucks is a lot different than trying to service people’s homes. So I think, where we are pushing and where we’re going to grow the Shop Like a Chef is more with the Allen Brothers model using a third-party and start to build our seafood division and our gourmet division. That’s really where the demand comes when we see people searching and the information we’re getting back from our analysis is that people are looking to buy our truffle products, our olive oils, they’re in for the cheeses, our really extensive gourmet offerings and proteins. And we think that’s a real business, and that’s something that we are working on.

Ben KlieveLake Street Capital Markets — Analyst

Great, that’s very helpful. That’s it from me. Thanks for taking my question. I’ll get back in queue.

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Thank you.

Operator

[Operator Closing Remarks]

Christopher PappasFounder, Chairman, President and Chief Executive Officer

Thank you.

Duration: 48 minutes

Call participants:

Alexandros AldousGeneral Counsel, Corporate Secretary, Chief Government Relations Officer and Chief Administrative Of

Christopher PappasFounder, Chairman, President and Chief Executive Officer

James LeddyChief Financial Officer

Fred WightmanWolfe Research — Analyst

Alexander SlagleJefferies — Analyst

Kelly BaniaBMO Capital — Analyst

Peter SalehBTIG — Analyst

Todd BrooksC.L. King & Associates — Analyst

Ben KlieveLake Street Capital Markets — Analyst

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