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Item 1. Business

2024-03-26 compared with 2023-03-31 · 53 added, 56 removed, 197 unchanged (36% of the section changed)

HF Foods Group Inc., operating through our subsidiaries (“HF Group,” the “Company,” “we,” “us,” or “our”), is a leading foodservice distributor to Asian restaurants, primarily Chinese restaurants located throughout the United States.

HF Group was formed through a merger between two complementary market leaders, HF Group and B&R Global Holdings, Inc.

HF Foods Group Inc., operating through our subsidiaries, is a leading foodservice distributor to Asian restaurants, primarily Chinese restaurants located throughout the United States.

HF Foods was formed through a merger between two complementary market leaders, HF Foods and B&R Global Holdings, Inc.

("B&R Global"), on November 4, 2019.

With 18 distribution centers and a fleet of over 400 refrigerated vehicles, our distribution network now spans 46 states covering approximately 95% of the contiguous United States.

Capitalizing on our deep understanding of the Chinese culture, with over 1,000 employees and subcontractors, and supported by two outsourced call centers in China, we have become a trusted partner serving over 15,000 Asian restaurants providing sales and service support to customers who mainly converse in Mandarin or Chinese dialects.

With 18 distribution centers and cross-docks and a fleet of over 400 refrigerated vehicles, our distribution network now spans 46 states covering approximately 95% of the contiguous United States.

Capitalizing on our deep understanding of the Chinese culture, with over 1,000 employees and subcontractors, and supported by two outsourced call centers in China, we have become a trusted partner serving approximately 15,000 Asian restaurants providing sales and service support to customers who mainly converse in Mandarin or Chinese dialects.

We are committed to providing excellent customer service by delivering a distinctive product portfolio built from an indelible partnership with both foreign and domestic suppliers.

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Corporate History

HF Group was originally incorporated in the State of Delaware on May 19, 2016 as a special purpose acquisition company under the name Atlantic Acquisition Corp.

HF Foods was originally incorporated in the State of Delaware on May 19, 2016 as a special purpose acquisition company under the name Atlantic Acquisition Corp.

(“Atlantic”), in order to acquire, through a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar business combination with, one or more businesses or entities.

On August 22, 2018, Atlantic consummated a reverse acquisition transaction resulting in the shareholders of HF Group Holding Corporation (“HF Holding”) becoming the majority shareholders of Atlantic, and changed its name to HF Foods Group Inc.

On November 4, 2019, we consummated a merger transaction, resulting in B&R Global becoming a wholly-owned subsidiary of HF Group.

On November 4, 2019, we consummated a merger transaction, resulting in B&R Global becoming a wholly-owned subsidiary of HF Foods.

On January 17, 2020, we acquired 100% equity membership interest in nine subsidiaries under B&R Group Realty Holding, LLC ("BRGR"), which owned warehouse facilities that were being leased to B&R Global for its operations in California, Arizona, Utah, Colorado, Washington, and Montana.

On December 30, 2021, HF Group acquired substantially all of the assets of leading seafood suppliers Great Wall Seafood Supply, Inc., a Texas corporation, Great Wall Restaurant Supplier, Inc., an Ohio corporation, and First Mart Inc., an Illinois corporation (collectively the "Great Wall Group").

On April 29, 2022, HF Group acquired substantially all of the assets of Sealand Food, Inc., one of the largest frozen seafood suppliers servicing the Asian/Chinese restaurant market along the eastern seaboard, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.

On December 30, 2021, HF Foods acquired substantially all of the assets of leading seafood suppliers Great Wall Seafood Supply, Inc., a Texas corporation, Great Wall Restaurant Supplier, Inc., an Ohio corporation, and First Mart Inc., an Illinois corporation (collectively the "Great Wall Group").

On April 29, 2022, HF Foods acquired substantially all of the assets of Sealand Food, Inc., one of the largest frozen seafood suppliers servicing the Asian/Chinese restaurant market along the eastern seaboard, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.

Our Business and Products

Our business features 18 strategically positioned distribution centers with over one million square feet of warehouse space and a fleet of over 400 vehicles to provide a wide variety of products with a strong focus on Asian specialty food ingredients essential for Asian cooking.

Our business features eighteen strategically positioned distribution centers and cross-docks with over one million square feet of warehouse space and a fleet of over 400 vehicles to provide a wide variety of products with a strong focus on Asian specialty food ingredients essential for Asian cooking.

Supported by an extensive supplier network, we aim to provide a one-stop service with on-time delivery and high fulfillment rates, at competitive pricing.

We offer over 2,000 different products to our clients, which include virtually all items needed to operate their restaurant business.

We offer over 2,000 different products to our customers, which include virtually all items needed to operate their restaurant business.

Product offerings range from meat and poultry, perishable fresh produce, frozen seafood, general commodities and takeout food packaging materials to meet our customers’ demands.

The majority of our procurement currently consists of goods purchased domestically and imported goods purchased through domestic brokers, such as frozen meat, seafood and fresh vegetables, which are procured through large suppliers or directly from producers.

The majority of our procurement currently consists of goods purchased domestically, such as meat, poultry, produce and certain key commodities.

We also purchase a significant amount of goods through the import channel, such as frozen seafood, Asian Specialty, packaging and other commodities.

The following table sets forth our broad range of products and sales percentage by category for the year ended December 31, 2023:

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Instead of going to fragmented direct store distributors to source their products, customers are consolidating their vendors into our full service, one-stop-shop for most of their purchasing needs.

This initiative is made possible from order placement to delivery due to our warehouse operations, optimized fleet management, material handling equipment and techniques, and efficient administrative and operating staffs.

This is further complemented by our two outsourced sales call centers located in China which take customers' inbound calls during non-office hours in the U.S.

(inbound calls in the U.S.

are redirected to China) for order taking, customer relationship management and after-sales service, offering customers a warm and friendly human interaction channel who speaks and understands their language and needs.

for order taking, customer relationship management and after-sales service, offering customers a warm and friendly human interaction channel who speak and understand their language and needs.

We have an extensive reach to our customers through localized, high frequency deliveries which allows them to reduce their inventory through higher inventory turnover and just-in-time inventory, and to reduce waste, especially in fresh products.

Our temperature-controlled trucks deliver both short and medium distance routes daily to ensure on-time delivery and to achieve high fill rates to our customers.

We are differentiated from mainstream food distribution companies, such as Sysco Corporation ("Sysco"), US Foods Holding Corp.

("US Foods") and Performance Food Group Company ("PFGC"), through our strong understanding of Asian culture and cooking essentials, distinctive product portfolio and resourceful supply chains.

We believe our wide range of Asian-centric product offerings is unmatched, as many of the items we offer are unique and specific to the Chinese restaurant industry.

We are differentiated from mainstream food distribution companies, such as Sysco Corporation, US Foods Holding Corp.

and Performance Food Group Company, through our strong understanding of Asian culture and cooking essentials, distinctive product portfolio, and resourceful supply chains.

We believe our wide range of Asian-centric product offerings is unmatched, as many of the items we offer are unique and specific to the Chinese and Asian restaurant industry.

We believe that our scale and deep knowledge of our customers’ needs provide a competitive advantage over our direct competitors and have contributed greatly to our success, including the following:

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These are not commonly provided by large distributors serving the mainstream market.

• Deep understanding of Chinese culture:

• Deep understanding of Asian culture:

As our customers are primarily Chinese and Asian restaurants, most of our employees can speak Mandarin as well as the native dialects of our customers.

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• Lower sales and administrative expenses:

We outsource our telephone-based sales and customer service to two call centers located in China with Mandarin and Chinese dialect (Fuzhounese) speaking agents to better serve our customers.

We outsource our telephone-based sales and customer service to two call centers located in China with Mandarin and Chinese dialect speaking agents to better serve our customers.

• Purchasing power:

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• Warehouse location:

We have strategically located distribution centers and cross-docks, supported by our fleet of delivery vehicles with most routes limited to 3 to 5 hours driving time, ensuring on-time delivery and order fill-rate.

We have strategically located distribution centers and cross-docks, supported by our fleet of delivery vehicles with most routes limited to three to five hours driving time, ensuring on-time delivery and order fill-rate.

• Technology:

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We continue to invest in technological advancements to develop state-of-the-art management information and operating systems, to further improve our operational efficiency, accuracy and customer satisfaction, and to cement our foothold as a leading foodservice distributor to Asian restaurants in the U.S.

Features of Chinese Restaurants

Features of Chinese and Asian Restaurants

Set forth below are the principal characteristics of the Asian/Chinese restaurants we serve.

Primarily Serving Non-Chinese Americans .

There are tens of thousands of Chinese restaurants spread throughout the U.S., primarily serving non-Chinese American customers.

There are tens of thousands of Chinese and Asian restaurants spread throughout the U.S., primarily serving non-Chinese American customers.

Although the dishes they serve cater to the preferences of American mainstream customers and are more simply and quickly prepared as compared to traditional full-service Chinese restaurant cuisine, they still require specialized and distinctive Chinese ingredients used in traditional Chinese cooking styles.

Operated by Chinese Individual Families .

Most Chinese restaurants serviced by HF Group are generally family-owned with very few workers, who are usually immigrants from China or second generation Chinese Americans.

Most Chinese restaurants serviced by HF Foods are generally family-owned with very few workers, who are usually immigrants from China or first generation Chinese Americans.

These restaurant owners, especially the founders, are generally less sophisticated, with limited education and resources and appreciate value-added services from suppliers to help them improve their operational efficiency.

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Close-Knit Chinese American Community .

Second or third generation Chinese Americans living in the U.S.

First or second generation Chinese Americans living in the U.S.

inherit their traditional cultural values, and ethnic languages, and our experience has been that people in these communities prefer to do business with Chinese Americans that speak their language and share their values.

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It also requires Chinese and Asian seasonings and spices, including peanut oil, Chinese cooking wine, vinegar, dark soy source, black bean sauce, pepper oil and chili oil.

Most of the unique ingredients for Chinese cuisine are staple supplies of HF Group that are not widely available from mainstream U.S.

Most of the unique ingredients for Chinese cuisine are staple supplies of HF Foods that are not widely available from mainstream U.S.

Current Industry Landscape and Opportunities

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We believe that these powerful trends will continue and result in expanded opportunities for Asian/Chinese restaurants.

As a leading foodservice distributor to Asian/Chinese restaurants in the U.S., these trends represent a significant growth opportunity for HF Group.

As a leading foodservice distributor to Asian/Chinese restaurants in the U.S., these trends represent a significant growth opportunity for HF Foods.

Cultural Barriers to Entry .

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The Asian foodservice market is currently highly fragmented with many small and unsophisticated direct store distributors, such as small-scale wholesaler redistributors, specialty import brokers, farmers markets, and local produce retailers, operating without significant financial support or a sophisticated logistics infrastructure.

We believe we are the leading Chinese food distributor in the U.S.

We are a leading Asian food distributor in the U.S.

with a well-developed logistics infrastructure, strong financial means, and experienced management team that provides the marketplace with an avenue for consolidated purchasing, high fill rate, and efficient delivery frequency at a competitive price.

The fragmented nature of the Asian foodservice market creates acquisition opportunities for our company to continue to expand its geographic footprint and customer base.

The fragmented nature of the Asian foodservice market creates acquisition opportunities for us to continue to expand our geographic footprint and customer base.

Competitive Advantages over New Entrants .

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Our employees speak their language, understand their culture and build a bond with our customers.

Our 24-hour after sale service call domestically and in China allows us to serve as a supportive and dependable business partner.

Our 24-hour after sale service call center, located domestically and in China, allows us to serve as a supportive and dependable business partner.

Through vendor partnerships, we help our large customers source distinct products from their choice of vendors, either domestically or internationally.

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The foodservice industry declined sharply when COVID-19 restrictions adversely impacted restaurants’ operations and foot traffic.

As COVID-19 restrictions eased in 2021 and into 2022, both full service and fast food/take out restaurants have rebounded.

We believe the long-term trend of increasing food away from home market consumption will resume and continue to be a key driver of demand for Asian/Chinese restaurants.

As COVID-19 restrictions eased in 2021 and into 2022, both full service and fast food/take out restaurants have rebounded, and we believe the long-term trend of increasing food away from home market consumption has resumed and continues to be a key driver of demand for Asian/Chinese restaurants.

Customer Service

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The domestic sales team works closely with the sales staff in China to ensure our strategies are implemented effectively and our action plans are carried out swiftly.

Distribution centers are decentralized and empowered to cater to local and regional customers’ needs by customizing their specific product portfolio.

Distribution centers are empowered to cater to local and regional customers’ needs by customizing their specific product portfolio.

With respect to customer care and satisfaction, we offer a refund policy without penalty, which many of our small competitors in the market segment and the direct store distributors are unable to provide.

Our 100% satisfaction guarantee permits our customers to reject part of the order or the entire order within 24 hours of receipt without any penalty.

Our 100% satisfaction guarantee permits our customers to reject part of the order or the entire order within twenty-four hours of receipt without any penalty.

We believe that this refund policy further cements the trust and loyalty of our customers toward our brand and company.

We consolidate procurement on bulk and frequently sold items.

Our distribution centers send their inventory procurement requests to regional buyers who are responsible for consolidation and fulfillment in the most cost-effective way.

The consolidated procurement process allows HF Group to establish a meaningful vendor relationship under one brand.

Our distribution centers send their inventory procurement requests to buyers who are responsible for consolidation and fulfillment in the most cost-effective way.

The consolidated procurement process allows HF Foods to establish a meaningful vendor relationship under one brand.

We maintain a large supplier network through a vendor pool with a carefully selected group of suppliers to ensure product quality, availability and competitive pricing.

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The lead-time for products is dependent on the product category and need.

For perishable goods, products are usually delivered by suppliers within 72 hours of placing the order.

For perishable goods, products are usually delivered by suppliers within seventy-two hours of placing the order.

Products that are ordered through import brokers have lead times of up to seven days.

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Their deep understanding of the business and the strong relationships they maintain with front line employees enable us to be a union free workforce.

As of December 31, 2022, we have 1,070 total employees, which includes 890 permanent employees and 180 temporary employees through agencies.

As of December 31, 2023, we have 1,049 total employees, which includes 925 permanent employees and 124 temporary employees.

Compensation and Benefits

We are committed to positively impacting the lives of our employees by offering competitive pay and affordable benefits.

In 2022, we made the decision to completely revamp our compensation and benefits programs.

We rolled out a comprehensive management incentive bonus and long-term incentive equity plan to include a broader group of non-executive employees.

We also adopted plans to enhance our benefit plan designs with lower employee premiums and offer more free benefits to our employees with an effective date in 2023.

In 2023, we rolled out new benefit plan offerings along with education on those benefits in several language options to the employees.

The overall impact was an increase in medical plan enrollment by 50%, dental plan enrollment by 135%, and vision plan enrollment by 103%, from the previous year.

Recruiting, Training and Development

Our ability to continue to retain, attract, and recruit top talent at all levels is key to our future success.

In 2022, we launched an Operations Leadership Development Program aimed to develop the next generation of general manager leaders.

As we continue to transform our operations through new system and process improvements, training and development of our existing employees is vital.

In 2023, we implemented learning modules which allow for the assignment of specific learning to employees based on role, compliance, and leadership development.

We continue to transform our operations through new system and process improvements, training and development.

Diversity and Inclusion

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We are also subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, which imposes certain registration and record keeping requirements on facilities that manufacture, process, pack or hold food for human or animal consumption.

The recently published and pending rules under the Food Safety Modernization Act ("FSMA") will significantly expand food safety requirements, including those of HF Group.

The recently published and pending rules under the Food Safety Modernization Act ("FSMA") will significantly expand food safety requirements, including those of HF Foods.

Among other things, FDA regulations implementing the FSMA require us to establish and maintain comprehensive, prevention-based controls across the food supply chain that are both verified and validated.

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and provides the FDA with mandatory recall authority.

HF Group and our products are also subject to state and local regulation through such measures as the licensing of our facilities;

HF Foods and our products are also subject to state and local regulation through such measures as the licensing of our facilities;

enforcement by state and local health agencies of state and local standards for our products;

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Our facilities are generally inspected at least annually by federal and/or state authorities.

Further, we are required to establish communication programs to transmit information about the hazards of certain chemicals present in some of the products we distribute.

Our business and employment practices are also subject to regulation by numerous federal, state and local regulatory agencies, including, but not limited to, the U.S.

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Xiao Mou Zhang 51 Chief Executive Officer

Xi Lin 34 Chief Operating Officer

Xi Lin 35 President and Chief Operating Officer

Carlos Rodriguez 50 Chief Financial Officer

Christine Chang 41 General Counsel and Chief Compliance Officer

Xiao Mou Zhang (aka Peter Zhang) has served as Co-Chief Executive Officer and director since November 4, 2019 following the merger between HF Group and B&R Global Holdings Inc.

Xiao Mou Zhang (aka Peter Zhang) has served as Co-Chief Executive Officer and director since November 4, 2019 following the merger between HF Foods and B&R Global Holdings Inc.

("B&R Global"), and was promoted to sole Chief Executive Officer on February 23, 2021.

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A large purchase volume and a centralized procurement process also allowed B&R Global favorable negotiating power with vendors that source high quality products at lower prices than many competitors.

Xi Lin (aka Felix Lin) has served as Chief Operating Officer since May 1, 2022.

Lin also previously served as an independent director of HF Group from November 2019 to April 2022.

Lin has worked in a number of positions at Blue Bird Corporation since 2011 until his resignation on April 1, 2022.

Prior to his resignation, he was Vice President of Human Resource and External Affairs, with responsibility for human resources, government relations, training and strategic relationships.

He also held various other positions within Blue Bird Corporation in the Operations Management Department from 2015 to 2016, the Finance and Accounting Department in 2011 and from 2013 to 2015, and the Business Development Department in 2012.

Xi Lin (aka Felix Lin) was appointed to serve as President effective February 12, 2024 and has served as Chief Operating Officer since May 1, 2022.

Lin also previously served as an independent director of HF Foods from November 2019 to April 2022.

Lin worked in a number of positions at Blue Bird Corporation from 2010 until his resignation on April 1, 2022.

Prior to his resignation, he was Vice President, with responsibility for compliance, human resources, government relations, corporate training, strategic relationships, and supply chain M&A.

He also held various other leadership positions within Blue Bird Corporation in the Manufacturing Operations and Supply Chain Departments from 2015 to 2016, the Finance and Accounting Department in 2011 and from 2013 to 2015, and the International Business Development and M&A Departments in 2012.

Lin received his B.A.

in Accounting and Finance from the Eugene Stetson School of Business and Economics in Georgia, a Master’s degree in Accountancy from the J.

Whitney Bunting College of Business in Georgia, and a Master’s degree in Business Administration from the University of North Carolina at Chapel Hill.

in Accounting and Finance from the Eugene Stetson School of Business and Economics at Mercer University in Georgia, a Master’s degree in Accountancy from the J.

Whitney Bunting College of Business at Georgia College and State University in Georgia, and a Master’s degree in Business Administration from the University of North Carolina at Chapel Hill.

Carlos Rodriguez has served as Chief Financial Officer since August 1, 2022.

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Rodriguez served as Chief Accounting Officer and Vice President Corporate Finance for Generate Life Sciences, Inc., a $300 million high growth company.

In that role, he led the Accounting, Finance, Financial Reporting, Treasury/Cash Management, Strategic and Financial Planning, M&A Due Diligence, and other financial responsibilities.

In that role, he led Accounting, Finance, Financial Reporting, Treasury/Cash Management, Strategic and Financial Planning, M&A Due Diligence, and other financial responsibilities.

Prior to Generate Life Sciences, Mr.

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Our filings with the SEC are available to the public on the SEC’s website at www.sec.gov.

Those filings are also available to the public on, or accessible through, our corporate website for free via the “Investor Relations” section at hffoodsgroup.com/investor-relations/.

Those filings are also available to the public on, or accessible through, our corporate website for free via the “Investor Relations” section at investors.hffoodsgroup.com.

The information contained on or accessible through our corporate website or any other website that we may maintain is not incorporated by reference into and is not part of this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business