Supply chain issues have been a hot topic in the foodservice industry for the past few years. While most of the conversation and consternation have focused on longer lead times and higher prices, a handful of other broad issues continue to impact the individual links on the supply chain that provides foodservice operators with equipment and supplies.
For example, consolidation among factories and dealers remains steady while acquisition activity among service agents is now white hot, often leading to multiple deals per month. In addition, the supply chain has long been a relatively low-tech part of the industry; yet to be more efficient and solve their own labor challenges, many members of the supply chain continue to turn to technology in new and innovative ways that can help diversify their revenue streams and identify unique ways to add value.
These represent but a few issues that continue to transform the supply chain right before our very eyes. While it may be tempting to try to separate these issues, the fact remains they are all intertwined with one another. That’s because how companies address issues such as consolidation and how they work with other links in the supply chain will have a profound impact on the value they provide their customers.
Impact of Consolidation
Consolidation remains an ongoing factor that impacts almost all segments of the supply chain. Factories continue to acquire one another, and the same applies to dealers. The acquisition among service agents, though, continues to move forward at a brisk pace.
For example, in August 2022, Ali Group completed its high-profile acquisition of multiline foodservice equipment manufacturer Welbilt. Prior to that, in December 2021, Ali Group acquired Montague, a manufacturer of ranges and other cooking equipment. And in October 2021, Electrolux acquired Unified Brands. Middleby has been active in the acquisition arena in recent years, too. Further, all the action is not confined to the conglomerates. Manufacturers continue to make strategic acquisitions when the opportunity presents itself. For example, in May 2022, Nemco acquired Meister Cook and its cook-and-hold technology, thus diversifying its product offerings. Then in August 2022, The Legacy Companies acquired Admiral Craft, which manufactures multiple types of equipment. And in October and November of 2022, Hatco got in on the action with its acquisitions of American Range and Food Warming Equipment.
That begs the question: How do these deals among manufacturers impact other members of the supply chain?
Factory consolidation appears to have had little impact on the way commercial kitchen designers approach their projects. “It does not really impact us because we are still going to learn about individual lines and pieces of equipment. And we are still going to specify what’s right for our projects,” says Lenny Condenzio, FCSI, CEO of Denver-based Ricca Design. “So long as they can provide and deliver product, that’s what matters most to designers. If you have all the right people in place, their companies will remain approachable, no matter how big they get.”
Consolidation does, however, force supply chain partners to rely more heavily on one of the industry’s more tried-and-true fundamentals: relationships. “It requires that relationship building that’s so foundational to this industry to be more important than ever before,” says Eric Ellingson, executive vice president for Bargreen Ellingson, a Tacoma, Wash.-based foodservice equipment and supplies dealer. “The relationships I had at those companies before they were bought — I still have them today.”
The true measure of the impact of any given acquisition will play out in the years that follow the completion of the deal. “Some companies have grown through acquisition, but it’s what they did after the sale that is telling,” Ellingson says. In many instances, “they are not buying brands and disbanding them. Rather, they are buying brands and empowering them.”
Dealer consolidation continues to shape the supply chain, too. In March 2022, for example, Singer Equipment Company acquired Kittredge Equipment Co. And then in June, Culinary Depot acquired Restaurant Warehouse, a Florida-based dealer with three locations.
Ellingson expects to see more dealer merger and acquisition activity in the future, too. “If you look at what this industry is going through, generally speaking, Boomers are stepping out of leadership roles and you are seeing Gen X and Millennials step in. But that takes a willing next generation to do this,” he says, noting that not every company has the next generation of leaders waiting in the wings.
That puts additional pressure on a dealer’s current management team to make smart decisions. “You don’t want those people who worked for you for many years to not have a home,” Ellingson says. “It’s getting more important for that next generation to forge relationships at the higher levels of this industry.”
Ellingson speaks from experience. “We acquired a dealer [Bintz Restaurant Supply Co.] in 2021, and I told the management team and employees, ‘If we do this right, everyone in the room is still sitting here in a year and even longer.’ It’s about the people. It’s not about the intellectual property or the manufacturing capabilities.”
In the midst of all this consolidation, Nick Cribb, president of SAM Service, an Albany, Ga.-based service agent, maintains a very pragmatic outlook. “There are things you can control and things you can’t. Factory consolidation is one of those things we can’t control. We need to remain plugged into industry thought leaders to see how they see things impacting the industry,” he says. “For us, the issue around consolidation is more about the service agents purchasing other ones.”
Indeed, acquisitions among service agents has seen a ton of activity over the course of 2022. Most of this activity has been led by three main players: PT Holdings, a subsidiary of OEM parts distributor Parts Town; SmartCare Equipment Company; and Tech24. Each of these companies has acquired numerous other service agents across the U.S. In addition to active checkbooks, they also share one other key trait: private equity backing. And private equity backing also brings with it an insatiable appetite for growth.
With a growing number of service agents opting to sell, companies like SAM Service need to stay on their game, Cribb notes. “We try to have a keen grasp of the obvious in terms of knowing where our value is at,” he says. “We just have to leverage that and put our heads down and focus on growing a great company.” And that’s a very pragmatic approach that all companies should embrace.
Supply Chain Evolution
As the working relationship between members of the supply chain continues to evolve, leaders at each company will need to have a greater understanding of not only how macroeconomic issues impact their businesses but those around them, too. “We will all need to be more aware of the external forces that impact our industry,” Ellingson says. “That expanded consciousness means that we are going to need to have contingency plans in place for inflation/deflation, cancelled orders, price increases/surcharges, etc. A lot of the strain that we’ve dealt with has been the result of a reactionary response by all parties in the channel.”
Awareness will mean nothing, though, unless trading partners allow one another greater insight into each other’s businesses. “We all lived blissfully ignorant lives not too long ago. When I ordered something in the past, I did not need to ask questions about how it was made, how it was getting here or even the price point. All of it made sense,” Ellingson says. “Now I need to ask about all of these things. Customers want to know why the price is up so much. And they don’t want to hear supply chain issues. So we need more visibility into what’s happening with the factories so we can provide better information to our customers — information that makes me seen as a partner and not someone that is just passing the buck.”
That all starts with communication. “There’s nothing we will be able to evolve to unless we are all communicating with each other. All I know to do is to be constantly engaged so when there’s that innovative opportunity or aha! moment, we have the relationships and are prepared to move together,” Cribb notes.
That spirit of collaboration will work its way into other, more tangible areas, too. “There’s been a lot of noise about factory consolidation,” says Mike McGuire, a managing partner with Zink Foodservice, a Columbus, Ohio-based independent manufacturers’ rep firm, whose business operates in part or all of eight states. “Things will settle down and the industry will start focusing on developing new products that will address such issues as reducing labor requirements. And we will all do it together collaboratively.”
Strengthening Each Link in the Supply Chain
When it comes to the way the supply chain will add value in the future, one thing will remain constant. “We need to bring ideas to our customers, and that’s a tale as old as time,” Ellingson says. “If we are only pushing paper and collecting checks, that’s not going to end well for us. Our customers need labor-saving ideas. They need more autonomation. They need to be able to work during dark hours. They need a partner they trust to present these ideas in a way that resonates with them.”
In other words, despite all of the consolidation across all segments of the industry, individual members of the supply chain will need to work together productively and in partnership to serve the best interests of the foodservice operator. “There are massive conglomerates on both the dealer and factory side, but there’s still ample room for someone who has the ear of the customer,” Ellingson says. “Our name is on the side of the building, but our associates are like franchisees in that they have their own brand. It has to be a relationship. It can’t be transactional.”
For reps, evolving often means diversifying their product offerings. Such is the case with Zink Foodservice Group. “If we were going to try to sell only single pot fryers, we would be out of business,” McGuire notes. “Reps want to be part of the bigger picture and provide bigger input into our parts of the process. We are getting involved with designing dealers, consultants and now even architects. We are working with them at all of those levels. In the past, though, they may not have had a rep involved in those discussions at all. We are working with the dealer to give the operators what they need.”
The company’s line card now includes ventilation systems and walk-ins, in addition to more traditional equipment and tabletop items. “We wanted to be an engineered products company designing walk-ins or ventilation systems and not a company that sells just off-the-shelf replacement items,” McGuire says. “We do sell a lot of those items, but we want to be on the front end of the project, helping design the operation or even tabletop. Being a specialized rep in a very small category will become fewer and farther between. They will have to add some of those engineered products.”
And as reps evolve, their dealer partners continue to lean on them more than before. One such example is to help coordinate the installation of equipment such as walk-ins, ice machines and ventilation systems, McGuire says. “We sell those items to the dealers and then coordinate the install with the general contractors,” McGuire says. “The dealers used to handle that themselves. But because we are closer with the factories, we can better coordinate that with the project team. We only have one walk-in factory to talk to, and that’s the one we are installing. It saves a lot of steps in getting the product installed.”
Many reps continue to look for ways to scale their businesses, too, as they strive to enhance and refine their value propositions. This represents a critical step, according to McGuire. “Reps are getting bigger, and they have to in order to have the resources necessary to invest in their businesses,” McGuire says. That growth could come from “buying other groups or even private equity coming in to buy a rep firm. We will follow the same path as the rest of the industry.”
Some reps continue to maintain their local focus while developing a broader network. In the case of Zink, that meant being one of the founders of Paradigm, an organization of rep firms from around the country that works together in developing shared services across technology, human resources, culinary skills and more. “Paradigm has gone better than we had expected. While serving as president of MAFSI, I got to see what factories’ heartaches were with their representation, and it was basically inconsistency from one territory to the next,” McGuire says. “We wanted to work with a collection of like-minded rep groups and develop a model that drove consistency across the territories. That was the goal, and it’s been a real coup for us. Our shared services are getting better. Our quoting systems are getting better. And our planning has gotten better. What the factories get from us on a monthly basis, quarterly basis and annual basis has really improved.”
One thing has not changed about the rep link on the supply chain, though. “The rep is still a local business. We have relationships in our markets,” McGuire says.
Evolution will also lead service agents into new areas. Cribb sees a real opportunity when it comes to industrial refrigeration. “These Amazon stores and distribution centers that are popping up — I can’t imagine a world without these huge industrial refrigeration systems at these sites,” he says. “I am talking about 30,000- to 300,000-square-foot facilities. The equipment needs to be installed and maintained, and that’s on us. It’s coming, and someone needs to figure it out. We should lead the way on that.”
Expanded use of technology, including foodservice-related items as well as project management systems, will play a key role in how individual players continue to evolve and work with their supply chain partners. “Every consultant is discussing how to be more of a team player when it comes to technology,” Condenzio says. “We used to say, ‘We talk about the hood.’ The rest of the HVAC system was not our problem. No consultant says that today. And now it applies to all things technology related. Take, for example, food lockers. You can’t talk about food lockers informatively without being able to discuss the interface and other aspects of the system.”
Along those lines, Ricca Design continues to evolve the service it offers across several fronts, including technology. For example, Ricca Technology Solutions represents an arm of the company that creates content for business information modeling applications. “What’s driving that is everyone is finally realizing BIM is here to stay. And that’s no real secret. It just took people a while to fully realize it,” Condenzio says. “For BIM to work, though, you really need to have complete product families. We figured nearly every family we pulled down from other sources either lacked information or was just plain sloppy. That meant we had to rebuild our families. FCSI tried to get some standardization in there, too. Factories were using some pretty high-paid engineers to build their families along with some other organizations. While I respect what they did, I felt we could do something from the consultant perspective that would be helpful.”
In addition, Ricca Design is undergoing what Condenzio describes as “the early stages of a progressive experiment” with The Webstaurant Store, a renowned foodservice equipment- and supplies-oriented e-commerce platform owned and operated by Clark Associates. The experiment involves an online platform that helps with both foodservice design and equipment specification. “We believe in that product wholeheartedly, though the market for that product has not turned around entirely,” Condenzio notes. “The mom and pop who want to start their own restaurant don’t need an architect. They just need good, solid foodservice design.”
Technology, specifically in the form of automation, seems poised to play a key role in the way reps like Zink continue to evolve, too. For example, the company added a robotic coffee kiosk to its product line. Zink installed the first unit at a hospital in its home market of Columbus, Ohio, in the first quarter of 2022 and saw interest begin to percolate from there. “We are involved in a couple projects, and we see a lot of runway in unattended retail. People think it’s vending, and it’s not,” McGuire says. “You use foodservice operators to supply and restock these items. We are looking at opportunities in other segments. As a rep, we are already in these operations, talking to them. And within the next five years, that’s our biggest opportunity.”
None of this is possible, though, without having the right people in the right seats at the table. “We have to recruit better for our entire industry. We have to make that niche of cooking equipment, refrigeration equipment and HVAC attractive to students who are in middle school right now,” Cribb says. “We have to market our industry in a way that it’s really attractive the way other industries are. We have to be a part of the career conversation earlier.”