Foodservice Equipment Reports

SPECIAL REPORT: FER’s Top Dealers Rebounded In 2011

Foodservice Equipment Reports Top Dealers grew in two ways in this, our second annual report and analysis of the size, scope and service offerings of the leading foodservice equipment and supplies dealers in the United States.

First, the number of dealers who independently verified their sales volumes—the critical rule for those wishing to be ranked and have their services detailed in this report—jumped from 31 in the first go-round last year, to 44 this year.

Second, the Top Dealers report their sales volumes rebounded dramatically from the recession years of 2009 and ’10. Combined sales for the 44 verifying dealer companies rose 10.3% in ’11 compared with ’10. Growth in’10 versus ’09 for the 31 companies verifying last year was a paltry 1.4%.

Combined revenues for the 44 in this year’s report totaled $3,818,228,559. And when comparing this growth with other industry data, it appears the Top Dealers (which skew toward the larger distributors and dealer groups in the market) are growing faster than the industry as a whole.

For example, manufacturers’ reps surveyed for the Manufacturers’ Agents Association for the Foodservice Industry’s MAFSI Business Barometer, reported quarterly year-over-year sales growth in the US in the 4% to 6% range last year. The seven publicly reported E&S companies grew 8.3%, though the five equipment-oriented companies among them saw combined revenue increase 10.2%. At least on the revenue side, the Top Dealers had a much better year in’11 than they experienced in any year since the Great Foodservice Recession began beginning in late ’07.

In other words, they appear to be taking a larger share of the total E&S market. We say appear because other factors may enter into the growth number. Understandably, dealers who have tough years seem less likely to report and verify.

Methodology
Before we move on to further analysis, let’s review the methodology and rationale for the FER Top Dealer Report. Dealers who are ranked and have their service offerings and facility details listed must provide independent verification of their revenues. Most do this by providing a signature from a certified public accountant (CPA). Ethics and licensing requirements preclude CPAs from signing accounting documents that are not true. For this reason, the CPA can be on staff at the dealership. A few dealers provide other forms of verification, such as confirmation from the dealer’s banker, or, in a couple of cases, copies of the company’s full verified financials!

The reason we insist on verification is simple: We want our multiunit commercial and noncommercial operator and consultant readers to be able to rely on the data and information when they access dealer partners. Given the value of these buyers/specifiers’ E&S activities, we don’t want to mislead them.

Dealers who do not wish to verify—and there are many and many reasons for not doing so—can report numbers to us that we include in the separate “Other Leading Dealers” listing as “unverified.” But there also are dealers who refuse to participate in any way. For those, we estimate their volumes using sources such as manufacturers, manufacturer’s reps and competitors. We try to provide estimates for all nonparticipating dealers who we believe have revenues of $20 million or more. By comparison, we list any dealer of any size that reports volumes and/or verifies.

Now, the cautions: Hal Schroeder, president of Concept Services, the Austin, Texas, dealership that serves many chains, doesn’t report. He wrote us an email explaining his reasons. After mentioning that he appreciates what we are trying to do, he wrote “After some additional consideration, I still don’t think sales are a very good measure of a dealership…. Did the dealership unwisely take a bunch of bid business just to show some purchase activity? Did a dealership do a poor job of managing members of its sales staff [who] give product away? Did a dealership secure chain business at any cost [and then] can’t execute? Sales are really just a poor measure for our industry.”

We agree; sales don’t equal value or performance, and year-to-year swings—up and down—can be a matter of a big chain roll-out or a bid job. But we also know that many customers need and want to know the size and scope of a firm. Concept Services has plenty of both. Given that it serves such chains as Panera Bread and Chipotle, we estimate its volume last year at $87 million. We’ll keep working on Mr. Schroeder.

Renovations, Roll-Outs Drive Growth
A closer look at the verified Top Dealer and “Other Leading Dealers” lists reveals a number of interesting trends that reinforce what we have seen in other industry data. Chains emerged from the Great Recession last year anxious to refresh and re-equip worn facilities as many operators held off renovations and other capital expenditures. The competitive environment also is a factor in the renovation boom. Leading chains on the quick-service side such as McDonald’s and Darden in casual dining, as well as leading fast-casual operators such as Panera and Chipotle, continued to upgrade and build out units throughout the Great Recession.

Many dealers with chain clients were very busy helping them renovate and upgrade public areas, reconfigure kitchens and replace equipment. Many helped roll-out new equipment and supplies for a rash of new menu initiatives. This explains in part the very strong growth among the Top 10 verifying dealers, most of whom count larger chains among their customers. It’s also apparent in the surge in estimated volume at Centerville, Ohio-based Aydelott Equipment, which participated in the big Wendy’s roll-out of its new burgers and at the previously mentioned Concept Services. And Hubert Co., Harrison, Ohio, benefitted from growth in Europe in part from Aramark’s expansion there.

Looked at another way, the Top 10 of the Top Dealers saw combined revenues rise 11.6%, not on easy task on such big bases. The remaining 34 verifying companies, many of which have more balanced customer profiles including smaller chains, independents and local-bid and negotiated institutional work, grew 6.8%. As has been clear from both the publicly reported E&S company data, the MAFSI Barometer and operator data from The NPD Group and Technomic, these segments have yet to fully recover from the downturn.

Internet And Merger Effects
One key factor in the growth of several dealers is a dramatic increase in Internet sales. Top 10 verifying dealer Clark Food Service Equipment, Lancaster, Pa., has seen its sales surge from $81.3 million in ’09, to $103.3 million in ’10 to $158.5 million last year. Clark has a trifecta of business units that employ the web in one way or another: a multi-location, hybrid online/bricks-and-mortar, cash-and-carry concept called The Restaurant Store; a purely online distributorship called The WEBstaurantStore.com and another division, ClarkIT, that provides online E&S ordering and inventory management for chains and larger institutional customers. These are all separate, but obviously interrelated concepts that along with the more traditional full-service dealership, Clark Food Service Equipment, are all part of the parent company Clark Associates. To grow that fast in the midst of the worst downturn in modern foodservice history is quite remarkable.

But there are other big and fast-growing dealerships exploiting the Internet. Tundra Specialties, Boulder, Colo.,owned by the same private equity company that owns All Points, the parts distributor, has grown quickly the past several years. The company reported unverified volume of $40 million for last year, up from $32.1 million in ’10.

KaTom Restaurant Supply, with volume we estimate at $37.8 million in ’11, has also been growing quickly. The Russellville, Tenn., dealership has a very significant Internet presence.

Not least, by any measure is Instawares Holding Co., Kennesaw, Ga. The Internet dealer pioneer has an agreement with Sysco that has helped fuel its growth. We estimate its revenues at $56 million in ’11.

It’s important to note that while these Internet-centric distributors have experienced noticeable growth, nearly all larger dealers are using the Internet to good effect, whether through custom websites for chain customers or general online ordering.

Two big deals helped Top Dealers grow last year. (Our rule is we count the combined volumes of merged dealerships only if the deal closed before July1, the mid-year point.) Singer Equipment, based outside of Philadelphia in Elverson, Pa., acquired M. Tucker, the prominent New York City dealership based in Patterson N.J. The deal pushed Singer’s volume from $125.7 million to $172.7 million and created a mid-Atlantic powerhouse.

A smaller but still significant deal was Hockenbergs Food Service Equipment & Supply’s purchase of Global KES, Lees Summit, Mo., (a key E&S supplier to Subway, among others) from SubTechnologies Inc. The deal was one factor in Omaha, Neb.-based Hockenbergs sales jump to $96.3 million last year from $81.8 million in’10.

Another Good Year Ahead
While we’ll have to see how the year plays out, with five months now history, it appears the current year is generating good growth for most leading E&S distributors. The chains continue their renovation and replacement thrusts, and there is evidence the street and spec markets are beginning to recover

We’ll work to see if we can’t entice even more dealers to verify as an FER Top Dealer next year.

We hope more dealers will verify next year, once they see how we handle this data and see the benefits. Many that did not verify told us they will participate next year.

And we also hope our operator and consultant readers find this a helpful, reliable guide to potential dealer partners. As we said at the beginning, everyone needs the services dealers provide.

Christine Palmer and Janice Cha contributed research assistance for this article.

To see charts that were part of the story, please click here.

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