Wholesale Changes

The Maui company with the highest percentage revenue increase now has a Mainland parent

August, 2004

Donald Zwade came to Maui on his honeymoon, but ended up staying for 16 years, selling two businesses and raising four children. By the time he sold the second company this April, he had gone from a college graduate with a new accounting degree to a sandwich shop owner to a wholesale food distributor with $31 million in sales. Not a bad exit strategy for someone who didn’t know anything about wholesaling when he took over the business eight years ago. This year, Donald Zwade Inc., which does business as Mor-Rad, reported the highest percentage revenue increase among Maui companies in the Top 250, and was sold to Oregon-based HFM Foodservice, the largest wholesale food distributor in Hawaii.

According to the U.S. Department of Agriculture, food wholesaling is a $589 billion business nationwide. These businesses assemble, store and transport food to customers, including retailers, food-service operators, other wholesalers, government and other types of businesses. The Hawaii Business Top 250 includes 10 food wholesalers with a total of $403 million in revenues. HFM, which was inadvertently left off this year’s list, had $88 million in revenues, according to chief executive officer Barry O’Connell. The company ranked among the 50 largest broadline wholesale food distributors in the country, according to industry journal ID Report. The merger of the two companies – which will continue to have separate names, personnel, facilities and operations – will boost HFM’s revenues to $120 million.

HFM started in 1962 as a flour-milling operation, which then evolved into food-service distribution. HFM’s food distribution division had been gearing up for its own growth since 2001, when it moved its 120 employees from its 76,000-square-foot Nimitz Highway flour mill to a 182,000-square-foot food-grade distribution center in Kalihi. Says O’Connell, “Mor-Rad is a great company that will give us a larger statewide presence.” He says “not much” will change, as Mor-Rad’s former chief financial officer, Rob Washburn, has taken over day-to-day operations.

Mor-Rad, slightly younger, was founded in 1978 by Carol Morris and Eric Radanovich as a meat supplier, adding more varied product lines over the next decade to become a broadline distributor. Zwade was one of Mor-Rad’s customers when he owned the sandwich shop. In 1995, after Zwade sold that business, he approached 72-year-old Morris about purchasing the company. “Carol told me he was having too much fun and didn’t want to sell,” says Zwade, “so I basically said, fine, I didn’t know anything about distribution anyway.” After a six-month negotiation, Morris agreed, if Zwade worked for him for six months before taking over.

The new president immediately set the tone for growth. By the end of the six-month period, revenues had grown by double digits. By 2001, Zwade was in acquisition mode, starting with Otani Fresh Produce, then Hilo-based Diversified Agriculture products. The two companies added $5 million to Zwade’s revenues. In both companies, Zwade says, “We had the same customer base, and we knew we wanted to increase our market in produce.”

As the company continued to grow, building on its momentum became more costly. “As fast as we were growing, capital was becoming very important to us. We’re at a point now where we’ve outgrown our current building and need a new one,” he says. In July 2003, Zwade decided to approach HFM Foods with a proposal to merge. He says this was the only way the company could reach its full potential: “Did I want to stay and tell our employees we don’t want to grow anymore, or do I give them the opportunity to keep going by bringing in somebody with the capital behind them?” With the boost of HFM’s resources, those employees are now limited only by their willingness to succeed.

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