As foodservice operators continue to evolve, so too must the supply chain that serves them. From a distance, though, it may not look as if a lot has changed among the individual links in the foodservice equipment supply chain. But a closer look reveals much has changed about the way that individual companies go to market, how they work with each other and more.
What’s changed? Well, operators’ expectations and responsibilities, for a start. “They expect a lot more, but it looks different,” says Gina Brinegar, managing principal for Webb Foodservice Design, a California-based design firm. “In the education market, for example, the end users have so much on their plates that they rely on us to get them what they need. Before they were not as taxed. But now we are really partners and considered on their team.”
And as operators, including chain restaurants, expand their reach geographically, their needs continue to evolve. “They need a scalable solution,” says Mark Rossi, CEO and founder of Avanti Restaurant Solutions, a California-based foodservice equipment and supplies dealer. “The story goes like this: A chain in Colorado is buying from a dealer in California for a restaurant location in New Mexico. Chains need a scalable solution and need to understand they will be taken care of the same way in each individual market. So, it starts with the dealer and then goes to the rep and the factory.”
Together, these changes continue to impact the way designers and dealers approach their project work, including an increase in meetings among members of project teams. “Especially during COVID, we had way more video conferences. That won’t go away,” Brinegar says. “Everyone is so busy and short staffed, for that reason we are going to meet via computer more frequently.”
What will change, though, is the frequency with which project teams gather in the same physical space. “Where we used to have four to six face-to-face meetings, we might have only two now,” Brinegar adds.
In addition to the number of meetings increasing, the prep work continues to become more important all the time. “You have to prep more and be ready,” Brinegar says. “We receive meeting requests all the time, and they are often last minute. Architects work on 1 or 2 projects at one time, but we could have 30 to 40 in play at once.”
As the pace and expectations accelerate, foodservice designers will continue to rely more heavily on factory and rep personnel. “That’s something hard for younger people to learn. They don’t want to reach out to ask for help because it can be seen as a sign of weakness,” Brinegar adds. “But the reps and factory sales personnel are the experts, and we need that relationship. We rely on that partnership and knowledge if something goes astray when a piece of equipment gets installed. We rely on the strength of our reps to help us solve problems. We have such strong reps in Southern California that we don’t have many issues.”
One key factor that will affect the supply chain of the future is consolidation across all industry segments. It’s happening among factories, reps, dealers and even operators. And consolidation within each industry subset affects the industry in its own unique ways.
Take manufacturer consolidation, for example. This year began with CFS Brands’ purchase of AyrKing, followed by Ali Group’s acquisition of Kold-Draft and Spaceman’s acquisition of IoT provider BDE Innovation. While these deals were impactful in their own way, the foodservice equipment industry really stopped to take notice when suitors began lining up to acquire Welbilt, a publicly traded, multiline factory based in Florida. All in all, continued consolidation within the factory segment will impact the way foodservice equipment and supplies flow into the market.
“Factory consolidation is going to force some major decision making. And I think it can put dealer buying groups further at risk,” Rossi says. “The larger scale these companies get and the more factories they have, they can line up a holistic deal that requires you to buy even more from them. They are not going to have a whole lot of gaps in their product lines. In a sense, that could further simplify the world. For a smaller dealer, it could make things easier for them to consolidate their purchases with that company.”
When factories consolidate, it can affect their representation in local markets. “In the past we’ve lost lines and gained lines because we were not the consolidated rep for the buying company,” says Jeff Griffiths, president of E-Source Miller, a Texas-based rep firm. “Right now, I spend a lot of time thinking of all the possible scenarios that will play out and evaluating whether I can control those scenarios.”
The exact impact on a given geographic market will depend on a variety of factors. “There are definitely territories that are more dealer driven. Other territories have a more fragmented dealer market and are more rep driven,” Griffiths says. “So, value has to happen, and our goal is to provide that value.”
From a designer’s perspective, questions around factory consolidation tend to be pragmatic. “Unless there is going to be a change in quality in the equipment we specify, it does not affect us,” Brinegar says. “The bigger issue is, when you get consolidation, does some of the competition go away? Competition really keeps you on your game. What does the warranty look like? What’s the lead time? Can they still provide education? Some companies do a good job when it comes to educating consultants. If they are still communicating with us, it does not affect us too much.”
From a service agent’s perspective, the impact of factory consolidation seems to have leveled off. “Ten years ago, one manufacturer buying another would have sent shock waves through the industry. We used to be so tied to the parts distribution business that if we lost one of our lines it could have crushed our businesses,” says Wayne Stoutner, CEO for Duffy’s AIS, a New York-based service agent. “Now with the way things are run, with the massive parts distributors out there, that’s no longer the case.”
In fact, Stoutner sees a scenario where continued factory consolidation could potentially benefit the service segment and the service that operators receive. “I think it’s going to create some stability. It could lead to paring everything down and having everyone do it the same way. That will make it easier to do business too,” he says. “When companies merge, service agents can have more control because we handle both sets of products.”
Further factory consolidation could impact the industry in other ways, though. As manufacturers become larger could they choose to internalize their sales staffs? If so, how will this affect the rep community and the factories’ dealer partners? “There could be more consolidation of reps and more specialization in that segment,” Rossi says. “Do distributors just drop the veil and become stocking distributors for the bigger factories? That’s the European model, but it’s more territorial and regional.”
Could the foodservice equipment industry eventually follow a sales and distribution approach similar to that of the automobile industry, where one dealer sells a specific family of cars? Many foodservice equipment industry veterans have hinted at this for years, but it has yet to come to fruition. “Who owns the customer?” asks Rossi. “The reps and distributors and manufacturers are all marketing to the same customer I am. As I sit here and say that, I can’t help but wonder how you don’t have a more automotive-style approach. If a company can go from scullery to expo counter or walk-in to expo counter all under one roof, why wouldn’t that make sense? The lines keep blurring. Something must hit to change all of it. There’s only so much money.”
Manufacturers’ reps have played a role in industry consolidation too. For example, E-Source Miller was formed when Texas rep firm Miller & Associates acquired E-Source in January 2021. And in February Ignite Foodservice Solutions acquired Pro-Pacific. It would not surprise Griffiths to see more consolidation from reps in the future.
“As the industry grows but the community gets smaller, value rises to the top,” Griffiths says. “It’s a great reminder that if we are not constantly improving, we are going to have to constantly prove ourselves without much to show. Being on a plan for what this year should look like, three years from now should look like and ten years keeps you unimpressed with where you are and provides a motivating factor to keep you going. If we are not on that vector, we are not going to be on anyone’s radar. So long as we are planning for the future, caring for today and improving, there’s a place for us.”
In the dealer community, companies continue to feed their insatiable appetites for growth in a several different ways. Earlier this year, Pennsylvania-based Singer Equipment Company continued its expansion along the Atlantic seaboard when it acquired North Carolina-based Thompson & Little, the latest example of dealer merger-and-acquisition activity. In other instances, dealers continue to set up shop at a relatively low cost in a given geographic region and start competing with local dealers. So instead of growth coming strictly organically or by acquiring other dealers, now these companies can take a different route to opening new geographic markets. A recent example of this happened in Buffalo, N.Y., when Buffalo Hotel Supply went out of business. Kittredge Equipment Co. established a significant physical presence in the market and hired experienced personnel that knew the area and its operators. Other dealers saw an opportunity in that same market and set up shop there too, albeit on a much smaller scale.
This scenario is not unique to the Buffalo market. Indeed, the pandemic may have made working remotely even more widely accepted in other parts of the supply chain, but some dealers have been doing this for years as they sought to extend their reach. “It continues to shrink the world and make the industry an even smaller place. Decisions I would have made on personnel two years ago are remarkably different from what I would do today,” Rossi says. “That goes both ways: It includes hiring people in other states and having people in my company want to move to other states.”
Technology remains a great enabler of this trend as do demands from contractors and other project team members. “We’ve always leveraged technology to execute projects across the nation. So for us, it’s been normal to work with clients remotely via various forms of technology,” Rossi says. “I am noticing that contractors are getting more territorial, though. They want you to know which subcontractors to call that know the market, the boots on the ground, so to speak, and can handle things on a local level.”
Consolidation is not limited to the dealer or factory links of the supply chain. It happens in the service segment too. In fact, three years ago a trio of service companies — Duffy’s Equipment Services, Express Commercial Services and Appliance Installation and Service — merged to form one firm that now goes to market as Duffy’s AIS. “We thought it was a great idea, and that’s been the case. It has made us a lot stronger collectively. We gained a lot of depth,” Stoutner says. “In our case, a lot of the savings happened, but the personnel has made us so much stronger. Now instead of having one go-to tech in a market, we have two. It’s made a huge difference for our company.”
Design firms and dealers often serve customers on a national basis, yet the service business essentially remains regional or local. But the question is, “For how long?” In fact, one service company has steadily extended its reach via the acquisition trail. In June, for example, Smart Care Equipment Solutions acquired three service companies in two different markets: TBS Southeast, which serves Texas and Jaguar Coffee and Facility Maintenance Specialist, which serve Florida.
“I am sure more or less we will eventually see a national service company,” Stoutner says. “Most viable service companies have been approached by those companies who are doing the acquisitions. The interest is there to grow by acquisition. Each one does it a little differently. Some will leave the companies alone to operate as local businesses. Others try to more fully integrate them into a more national structure.”
Stoutner anticipates consolidation will continue in the service segment for another two to three years. “Right now, my impression is the multiples are higher than they might have ever been. The money’s definitely better than it was five years ago. Some people might feel new owners might really help their businesses take off. All these companies bring something to the table in terms of growth,” he says. “I think a lot of people are a lot hungrier when they are in their 30s or 40s than in their 50s and 60s. We still want to grow our business, but we might have been a little hungrier a few years ago.”
Blurring the Lines
Perhaps the deals that have the greatest potential to shake things up have yet to happen. “It’s cross-channel consolidation. It’s a distributor, dealer and a rep merging. That would shake up everything,” Rossi suggests.
While these deals have not really taken place just yet, the lines that traditionally provided definition as to who does what within the supply chain continue to blur. Some dealers, for example, continue to place an increased emphasis on design services. Some consultants continue to explore purchasing equipment for the projects, once the exclusive domain of dealers. “The relationships have to be a lot tighter, and the expectations are a lot higher. The roles of a consultant, dealer and rep were pretty well defined, but in today’s environment any of the three entities can perform those tasks,” Griffith says. “The trust factor has to be there, and you have to be cautious not to step on anyone’s toes.”
Take Webb Foodservice Design, for example. Operating as a separate entity, the firm’s sibling company, Premier Culinary Solutions, acts as an equipment dealer for some of Webb’s design projects. “The biggest thing for us in starting Premier Culinary Solutions was to focus on the design-build side of the business and bring value to our customers,” Brinegar says. “It’s still a learning process for us, and we are still building relationships for Premier Culinary Solutions. The key is making sure the client gets what they want, and they get the best net value. It requires an education to determine how we can all work together as partners.”
On many of its projects, though, Webb continues to work with other dealers. As a result, the company remains flexible from one job to the next. “When it comes to the dealer and the dealer designer, it can get blurry. But when it comes to the dealer designers in our area, we do not focus on the same markets,” Brinegar says. “So you need to know what you are good at. And we might refer someone to a dealer designer if the project is not right for us. The dealers still have an interest in helping us. Plus, they are our partners. We talk to them a lot and have a relationship with them. They have an interest in working with us.”
As a result of the blurring of the lines, individual members of the supply chain will need to continue to clearly define their value propositions and resist the temptation to secure all business opportunities at any cost. “As design consultants we have to be clear about what our differentiators are and what value we bring to the table,” Brinegar says. “We have turned away projects where we did not feel we would bring value. It is about having a good relationship with other design consultants, dealer designers and reps too. We have to be true to our DNA and what we can bring to that client. It’s really managing in every direction, being open to having relationships and being OK about turning down business.”
With these changes come new opportunities that will propel the industry into the future. “What’s exciting is the new levels of partnership and collaboration that’s happening,” Brinegar notes. “FCSI, for example, has evolved to the point where we are all sharing ideas and collaborating with one another. When I first started everything was a secret. There’s enough business to go around. So just being in partnership with other people is positive progress. We’ve done some projects with other firms that it’s been fun broadening our horizons.”
That said, most members of the supply chain anxiously await what comes next in terms of concept design and development. “I am excited to see what that next supercool experience will be,” Rossi says. “I am talking about Top Golf or the axe-throwing concepts. All those places that will create cool, next-generation experiences. All the on-premises cannabis operations are going great too.”
While much has and will change within the supply chain, one aspect that will remain a constant is that, at its heart, this remains a people-centric business.
“It always comes back to people. Times like now are exciting because we are getting back to one-on-one connectivity,” Stoutner says. “I was in a meeting with a client and the factory, and they said so much more happens face to face and that’s what drives them. In a time like this, trust gets ruined or gets made. And I am excited to earn trust.”