FER News Exclusive: Middleby’s Bassoul Discusses Viking Plans, Operator Needs

Shortly after Middleby Corp. announced Dec. 31, 2012, that it purchased Viking Range for $380 million in cash, FER Publisher/Research Editor Robin Ashton called Middleby Chairman and CEO Selim Bassoul to check on the thinking behind the deal. The phone call turned into a broad discussion not only of the rationale and plans for Viking, but the larger strategy behind the company’s acquisition and growth initiatives, and Bassoul’s views about what foodservice operators are currently looking for in products and partnerships.

FER: Why the big move into residential appliances? We both know how many commercial equipment companies, including ones you were running, have tried and failed to get traction. And the record of residential appliance makers coming into the commercial arena is equally poor.

Bassoul: You’re correct. From the commercial side, we’ve all tried organic penetration into the residential side. We tried at Vulcan, we tried at Southbend. Recently, TurboChef and Jade tried, too. Everyone gets to $2 million, then gives up. It’s 2% of Middleby sales now, but it’s so hard to get beyond that.

But the difference here is we went out and bought an iconic brand; they are number one in premium residential cooking appliances. If you want high-end stainless, Viking is it.

We don’t have the call centers or residential marketing infrastructure, the distribution through high-end kitchen and bath designers and distributors, we don’t sell the wine coolers or other ancillary products, and we don’t have the Internet savvy. (Viking founder, Chairman and CEO) Fred Carl and his folks have that part fully in place. They have 60 cooking schools! Two planes fly designers into Greenwood, Miss.

FER: What synergies do you see between Middleby and Viking? What are the growth strategies? The domestic market has been battered by the housing bust. Is that market beginning to improve?

Bassoul : There is power in this brand. Fred created this premium segment. The company has amazing marketing relationships. We see this as a billion dollar market on the cooking side that can grow. And it’s not just tied to housing starts, though those are improving. One thing we learned during the downturn was that business wasn’t just about new unit construction. During the downturn we grew through innovation and when chains made menu changes. I think renovation will become the big driver in the U.S. residential market, too. People won’t necessarily build a big new house, but they will want to upgrade their kitchens.

The housing downturn hit Viking hard. It lost more than half its sales. But it’s a very well-run company and it remained profitable. Viking and we both understand it has to reinvent itself. It will move toward higher end features and more carefully manage the value equation. A basic Viking is $6,000. We will compete against brands selling at $10,000 and regular white goods brands that sell between $1,000 to $1,500. We need to create a quality $3,000 range.

I’ll tell you a story. I bought a Viking in 2000. We’ve used it for years. Without my knowing it, my sister who lives in Beirut, bought Viking for her flat there in 2006. I didn’t know until I visited. I saw that and said to myself, “This is a company and brand I want to own.” It’s transportable, scalable, it has worldwide appeal.

And we have great expertise in global markets. Half of our employees live and work overseas. It would be hard for Viking to ramp up in global markets. We can leverage our infrastructure worldwide.

We will also broaden the product offerings. We need to invest in refrigeration, including undercounter units, wine cellars and the like. The premium residential refrigeration market is $600 million to $700 million and SubZero has more than 50% of it. It’s an opportunity. Because of the downturn, Fred hasn’t been able to do that, but now we can.

FER: Both you and Fred mention technology transfer opportunities in your releases about the sale.

Bassoul: Yes, we think our speed cooking, combi and HydroVection, TruVection and other technologies have potential. The biggest thing to me is I want to take all that we know about cooking to the home chef.

We’ve already done this when we went into commercial food processing in 2005. We took our expertise in combustion technologies, we took our experience with speed, consistency, yield and automation, energy savings—the same factors we saw with chains—and applied them to food processing. We saw that processors would pay a premium for these technologies and benefits. And we also leveraged our global sales and service networks. Food processing is now 30% of our revenues, $300 million a year. We’ll do the same with Viking.

And there are other opportunities, too. We just created a $35 million outdoor cooking business with Viking and MagiKitch’n’s MagiCater line.

FER: If you can say, what are the plans with Viking’s commercial division?

Bassoul: They have some interesting bells and whistles. We will keep it, but probably rationalize it within Jade. We’d like to keep the separation clear: Middleby commercial, Viking residential.

FER: What do you see happening with the commercial markets right now? What do you have planned for NAFEM?

Bassoul: Since we’ve come out of the downturn, we are seeing operators focusing on three or four key areas. First, energy efficiency is now almost a given. The big players expect that products will have Energy Star ratings. But water is now becoming the big thing.

Second, they also assume your technologies will allow them to create a quality product. But even more so than in the past, consistency is the challenge. How does one ensure that a sandwich in one location is cooked precisely the same everywhere? This is obviously a controls issue, but they need simplicity, too. And this is also taking us away from products such as ranges, which require operational sophistication, to dedicated equipment.

Third, labor is the cost center they are all looking to attack. After all, next to food cost, it is the larger cost component. Part of this has been prompted by Obamacare, but it’s a lot more. Operators are finding that if they work closely with their equipment suppliers—and I don’t mean just us—they can cut headcount and save two, three, even four points of margin. That’s huge going forward.

Finally, speed is always an issue. It has driven so many of the technology advances of the past 10 years or so.

Our new offerings at NAFEM fit these needs. Speed cooking is still very big. We have a new TurboChef steamer and a Holman 30-second toaster. We’re showing a completely new line of Blodgett combis. We are unveiling some unique, new, ventless technologies. And then we’re showing our wood-burning options from Beech Ovens.

Shortly after Middleby Corp. announced Dec. 31, 2012, that it purchased Viking Range for $380 million in cash, FER Publisher/Research Editor Robin Ashton called Middleby Chairman and CEO Selim Bassoul to check on the thinking behind the deal. The phone call turned into a broad discussion not only of the rationale and plans for Viking, but the larger strategy behind the company's acquisition and growth initiatives, and Bassoul's views about what foodservice operators are currently looking for in products and partnerships.

FER: Why the big move into residential appliances? We both know how many commercial equipment companies, including ones you were running, have tried and failed to get traction. And the record of residential appliance makers coming into the commercial arena is equally poor.

Bassoul: You're correct. From the commercial side, we've all tried organic penetration into the residential side. We tried at Vulcan, we tried at Southbend. Recently, TurboChef and Jade tried, too. Everyone gets to $2 million, then gives up. It's 2% of Middleby sales now, but it's so hard to get beyond that.

But the difference here is we went out and bought an iconic brand; they are number one in premium residential cooking appliances. If you want high-end stainless, Viking is it.

We don't have the call centers or residential marketing infrastructure, the distribution through high-end kitchen and bath designers and distributors, we don't sell the wine coolers or other ancillary products, and we don't have the Internet savvy. (Viking founder, Chairman and CEO) Fred Carl and his folks have that part fully in place. They have 60 cooking schools! Two planes fly designers into Greenwood, Miss.

FER: What synergies do you see between Middleby and Viking? What are the growth strategies? The domestic market has been battered by the housing bust. Is that market beginning to improve?

Bassoul : There is power in this brand. Fred created this premium segment. The company has amazing marketing relationships. We see this as a billion dollar market on the cooking side that can grow. And it's not just tied to housing starts, though those are improving. One thing we learned during the downturn was that business wasn't just about new unit construction. During the downturn we grew through innovation and when chains made menu changes. I think renovation will become the big driver in the U.S. residential market, too. People won't necessarily build a big new house, but they will want to upgrade their kitchens.

The housing downturn hit Viking hard. It lost more than half its sales. But it's a very well-run company and it remained profitable. Viking and we both understand it has to reinvent itself. It will move toward higher end features and more carefully manage the value equation. A basic Viking is $6,000. We will compete against brands selling at $10,000 and regular white goods brands that sell between $1,000 to $1,500. We need to create a quality $3,000 range.

I'll tell you a story. I bought a Viking in 2000. We've used it for years. Without my knowing it, my sister who lives in Beirut, bought Viking for her flat there in 2006. I didn't know until I visited. I saw that and said to myself, "This is a company and brand I want to own." It's transportable, scalable, it has worldwide appeal.

And we have great expertise in global markets. Half of our employees live and work overseas. It would be hard for Viking to ramp up in global markets. We can leverage our infrastructure worldwide.

We will also broaden the product offerings. We need to invest in refrigeration, including undercounter units, wine cellars and the like. The premium residential refrigeration market is $600 million to $700 million and SubZero has more than 50% of it. It's an opportunity. Because of the downturn, Fred hasn't been able to do that, but now we can.

FER: Both you and Fred mention technology transfer opportunities in your releases about the sale.

Bassoul: Yes, we think our speed cooking, combi and HydroVection, TruVection and other technologies have potential. The biggest thing to me is I want to take all that we know about cooking to the home chef.

We've already done this when we went into commercial food processing in 2005. We took our expertise in combustion technologies, we took our experience with speed, consistency, yield and automation, energy savings—the same factors we saw with chains—and applied them to food processing. We saw that processors would pay a premium for these technologies and benefits. And we also leveraged our global sales and service networks. Food processing is now 30% of our revenues, $300 million a year. We'll do the same with Viking.

And there are other opportunities, too. We just created a $35 million outdoor cooking business with Viking and MagiKitch'n's MagiCater line.

FER: If you can say, what are the plans with Viking's commercial division?

Bassoul: They have some interesting bells and whistles. We will keep it, but probably rationalize it within Jade. We'd like to keep the separation clear: Middleby commercial, Viking residential.

FER: What do you see happening with the commercial markets right now? What do you have planned for NAFEM?

Bassoul: Since we've come out of the downturn, we are seeing operators focusing on three or four key areas. First, energy efficiency is now almost a given. The big players expect that products will have Energy Star ratings. But water is now becoming the big thing.

Second, they also assume your technologies will allow them to create a quality product. But even more so than in the past, consistency is the challenge. How does one ensure that a sandwich in one location is cooked precisely the same everywhere? This is obviously a controls issue, but they need simplicity, too. And this is also taking us away from products such as ranges, which require operational sophistication, to dedicated equipment.

Third, labor is the cost center they are all looking to attack. After all, next to food cost, it is the larger cost component. Part of this has been prompted by Obamacare, but it's a lot more. Operators are finding that if they work closely with their equipment suppliers—and I don't mean just us—they can cut headcount and save two, three, even four points of margin. That's huge going forward.

Finally, speed is always an issue. It has driven so many of the technology advances of the past 10 years or so.

Our new offerings at NAFEM fit these needs. Speed cooking is still very big. We have a new TurboChef steamer and a Holman 30-second toaster. We're showing a completely new line of Blodgett combis. We are unveiling some unique, new, ventless technologies. And then we're showing our wood-burning options from Beech Ovens.

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