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Costco Wholesale Corp
Magal Security Systems Ltd
Four days after Hurricane Sandy slammed into New York, billionaire Nathan “Natie” Kirsh ambles through the aisles of a 75,000-square-foot Restaurant Depot warehouse he owns in College Point, Queens. Dressed in a Gore-Tex jacket and loafers, the 80-year-old South African squeezes past dozens of independent restaurant owners picking through heaps of carrots, lobsters, and hot dogs. A frenzied bottleneck forms as street vendors and restaurant chefs, some guiding several shopping carts, vie for a spot in checkout lines. “Chaos,” says Kirsh, who has a net worth of at least $5.1 billion, according to the Bloomberg Billionaires Index. “It’s fantastic. And profitable.”
With a 63 percent stake in Brooklyn-based Jetro Holdings, Kirsh controls 86 Restaurant Depots and 10 Jetro Cash & Carry stores, a chain that sells wholesale groceries to urban store owners around the U.S. The closely held company generated at least $6.5 billion in revenue and $500 million in earnings before interest, tax, depreciation, and amortization in the last 12 months, according to a person familiar with the company’s financial performance. The retailer is worth at least $5 billion, according to data compiled by Bloomberg. Jetro’s Ebitda margin is almost double that of Costco Wholesale (COST) because it doesn’t deliver or extend credit to customers. It also owns most of the land under its stores and sells more perishables. “We are private, we are profitable, and we have fun,” says Kirsh, who has never before appeared on an international wealth ranking. “We just don’t scream about what we do.”
Kirsh made his first fortune in Africa, starting with a Swaziland corn-milling business in 1958. By the mid-1980s he’d turned a South African food wholesaler into a dominant retailer in his home country. The company became overextended by committing to build almost two dozen malls just as international sanctions against apartheid tightened lending in South Africa. Kirsh lost most of his fortune.
Determined to rebuild, he moved to New York in 1985 to run Jetro, then a five-warehouse chain on the East Coast that he acquired in the restructuring of his company. Soon he saw opportunities to exploit a weakness in U.S. food distribution, which favored national grocery chains over smaller, independent stores, known in New York and other cities as bodegas. His pitch: Store owners no longer needed to buy more than they could sell. “No one wants to run a huge truck out through Manhattan just to drop off four boxes. It just doesn’t make sense to them,” says Jetro President Richard Kirschner. “We were there to pick up the morsels.” Without the burden of delivery costs and credit risks, Jetro was able to sell goods 20 percent more cheaply than rival suppliers. “The competition just blew us off as those guys selling second-tier product,” says CEO Stanley Fleishman, who’s been running the company since 1986.
By the early 1990s, Jetro had 10 outlets across the U.S. and generated more than $400 million in revenue, says the person familiar with its performance. To fund expansion during this time, Kirsh sold 80 percent of the business to Swiss supermarket conglomerate Metro Holding (MEO), now called Grospart, which later sold its share back to him. After Jetro’s sales leveled off, Kirsh noticed that restaurateurs shopping at his warehouses didn’t like jostling with bodega owners, who entered checkout lines with much more food, so in 1994 he acquired Restaurant Depot, which became the company’s growth engine. A decade ago, looking for more capital, Kirsh solicited investment from Warren Buffett, who he says turned him down. In 2004, Kirsh sold a 27 percent stake to private equity firms CCMP Capital Advisers and Leonard Green & Partners. Buffett didn’t respond to an e-mail, and the private equity firms declined to comment on the investment details.
Kirsh wants to expand his food wholesaling business to new markets and add to his real estate portfolio, which includes properties on four continents. Real estate, he says, is the only sector where “stupid people” can make money. In 2009 he helped recapitalize the Australian real estate investment trust Abacus, and has seen a 50 percent increase in the value of his stake. Last December he agreed to pay £282.5 million ($455 million) for the Tower 42 skyscraper complex in London, where in October he acquired a Georgian building, next to the Madame Tussauds wax museum, to become the headquarters of the Kirsh Group. For the first time his disparate investments will be under one roof. Kirsh owns stakes in U.K. tanner Crest JMT Leather, Amsterdam-based fitness chain Holmes Place, Mumbai-based pipe maker Kitec Industries, and Yehud (Israel)-based Magal Security Systems (MAGS).
Thinking about succession, the octogenarian says he plans to divide his assets into four trusts, leaving 75 percent to his family, including his three children. The remainder will fund charities. The Kirsh Group, he says, will one day be managed by Ron Sandler, the former CEO of the Lloyd’s of London insurance market who was appointed to chair Northern Rock when the U.K. nationalized the bank in 2008, serving until the end of last year.
Kirsh says he’s weighing a plan to build Jetro stores in Latin America and Asia, and to stock wine and spirits at Restaurant Depots. He raised $1 billion in a private debt placement in April as yields on U.S. corporate bonds fell, and used the proceeds to repay short-term debt and pay a one-time dividend to Jetro investors. He’s also using some of that cash to buy more property, which he calls a hedge against global inflation. “Our business in the U.S. is a big business that throws off cash, and we strip that cash,” says Kirsh. “I just don’t want that money lying around.”
The bottom line: A closely held grocery wholesaler with at least $6.5 billion in annual revenue is expanding its real estate empire.