Exclusive: Libbey VP Explains Lucrative Food Service Business

“We believe we have 58 percent market share in U.S. foodservice, which means that in six out of every ten restaurants you eat in you are drinking out of one of our products,” said Ken Boerger, vice president and treasurer of Libbey Inc. LBY.

In an exclusive interview with Benzinga, Boerger explained the company’s food service business -- which he expects to be the company’s primary growth driver.

“We go to market in the food service channel through a network of over 500 distributors," he noted, "and they in turn serve us over 300,000 sit-down restaurants. The great thing about that foodservice business is that 90 percent of our sales every year are replacement sales -- because as that restaurant breaks a red wine glass, or a water goblet, or an ice tea glass, they are going to replace the exact same thing because it matches everything else they have in that restaurant.”

This is similar to the razor and razor blade. Once a customer purchases the razor, they are likely to continue buying replacement blades to avoid switching costs.

Related: 3 Reasons Investors Should Toast Small Cap Beverage Companies

“If they invest 12 or 15 thousand dollars in glassware when they initially open that restaurant, as glasses either break, chip, or go missing, they are going to replace them with the exact same thing," Boerger continued, "because their chef or their food and beverage manager has picked out those glasses as part of the decor of that restaurant. So, as long as we service it, we are going to get the reorder time after time.”

Boerger also emphasized the importance of glassware. “If there is one thing in that restaurant that that restaurant owner can never afford to be out of stock on, its the glassware." he added. "If you think about it, that glass holds the highest profit margin item of anything in that restaurant. Whether its alcoholic or nonalcoholic beverages, they make their highest margins off of those beverages than anything they sell in that restaurant.”

On top of the foodservice business, Libbey has the leading share in the U.S. retail glassware market. The company cites reliability, innovation, packaging and pricing as reasons it has been able to dominate the market.

Despite market weakness (the S&P 500 down down 1.72 percent and the Russell 2000 down 2.23 percent), shares of Libbey have have remained flat.

This the first of a two-part series. Up Next: Ken Boerger's thoughts on financials.