The Impact Of Chains And The Internet On E&S Distribution

Two trends are very clear from our annual Top Dealers survey detailed in this issue. First, the biggest dealers, those in the Top 30 or so, continue to grow rapidly, partly by exploiting their chain orientations and partly through acquisition of smaller dealers that fill in regions or niches for them. Many of these dealers in essence have become national. The combination of TriMark USA and Strategic Equipment last year is an obvious case in point, propelling TriMark toward $1 billion in annual sales and the clear position as the largest dealer in the U.S.

The second trend is the impact the Internet is having on E&S distribution. Once again, one of the factors in Internet sales is a “nationalization” of the market. More on the Internet in a moment.

Consolidation is another reality of the distribution market. Other deals having a major impact on the Top Dealers lists this year include Chefs’ Toys’ purchase of Star Restaurant Equipment, Wasserstrom picking up parts of PrimeSource Foodservice Equipment and Kittredge Equipment buying Northeast Food Service. Late in 2013, The Sam Tell Cos. bought the assets of Paramount Restaurant Supply. The full impact of that deal won’t be apparent until next year. And since the beginning of the year, Bargreen Ellingson and Hockenbergs have picked up regional dealers located on the edge of their core territories.

Many of these larger dealers are posting good organic growth as well. If I’m calculating correctly, TriMark and Strategic grew revenues 11% on top of the effect of the merger.

Separately, the impact of online sales on E&S distribution is profound. The growth of Clark Associates, Tundra, KaTom and Burkett, among others, is very apparent. Clark, which has seen its sales explode by more than 300% since 2009, is truly one of the most remarkable stories in the history of E&S distribution. It is now the fourth largest dealer in the country.

These “national” distribution entities appear to be taking shares from mid-tier and smaller regional dealers. Eleven of the 18 dealers ranked 35-52 in this year’s list of verifying dealers saw sales decline last year. As a group, the combined sales of those 18 were down 5.4%.

I would argue that it’s the growth of the big national dealers, with their chain and full-service orientations, as much as the Internet, that’s driving these dynamics. I’m going to guess that somewhere between $500 million-$1 billion of E&S sales have migrated online. (We have the problem of defining an Internet sale, so forgive me the wide spread. If a chain franchisee with a dealer’s custom smallwares catalog orders online, is that an Internet sale?) Yet the volume of just our 52 Top Dealers exceeds $5.1 billion. Add in the volume of the other 37 big dealers that report or that we estimate, and we’re at $6.4 billion. There are a pile of non-Internet sales there, and a lot of it is controlled by 25-30 dealers.

A key factor, if not the only one, driving this nationalization of E&S distribution is the ever-increasing dominance of multiunit operators in U.S. foodservice. As we’ve been saying since we founded Foodservice Equipment Reports 18 years ago, “It’s a multiunit world.” The structural impact of that is simply unmistakable.