Foodservice Equipment Reports

FER EXCLUSIVE: Acquisitions, Internet Boosted FER Top Dealers In 2013

Acquisitions rejiggered the lineup of Foodservice Equipment Reports Top Dealers for 2014 in an historic way as TriMark USA jumped ahead of Edward Don, thanks to its acquisition of Strategic Equipment & Supply, to become the largest dealer in the U.S. with sales approaching $1 billion. Meanwhile, surging Internet sales continued to drive growth for a relative handful of dealers. 

These dynamics, apparent not just this year but since the recovery from the Great Recession, beg two questions: “Are Internet sales taking shares from smaller regional dealers?” and “Is equipment and supplies distribution in the U.S. becoming national in scope?” Given how dynamic the market remains, there are no easy answers to these questions.

The 52 companies that verified their volume this year in our fourth annual listing and analysis of the size, scope and service offerings of the leading foodservice equipment and supplies dealers in the U.S. saw combined revenues jump 16.1% to $5.165 billion in 2013 from $4.448 billion in 2012. Seven dealers verified their volumes for the first time this year, including such prominent companies as C&T Design and Equipment, Central Restaurant Products, Chefs’ Toys and Premier Restaurant Equipment.

But that remarkable growth rate was goosed by the TriMark-Strategic combination, which occurred in the spring of 2013, as well as several other major acquisitions among prominent dealers. On its own, Strategic reported verified sales of $231.1 million in 2012. Pull TriMark out of the Top Dealers list and combined growth of the remaining 51 companies was a still robust—but more reasonable—10.2% last year. (Comparing TriMark’s and Strategic’s 2012 sales with the $944 million reported for 2013 yields an organic growth rate of 11% for the combined companies.)

In comparison, combined revenues for 46 dealers reporting last year increased 11.4% in 2012; 44 dealers verifying their volumes for ’11 reported a combined revenue increase of 10.3%. In our first Top Dealers report, 31 dealers reported a combined increase of only 1.4% in ’10.

Combined sales of the 37 other leading dealers that reported, but did not verify or that we estimated, grew 5.5%, although we, of course, have less confidence in those numbers. A different group of 37 dealers on the reported and estimated list grew 5.8% in 2012.

The largest dealers in the U.S. certainly are growing faster than the industry as a whole. Current FER estimates have the total E&S market growing 4.5% in current dollars in ’13.

Internet Sales Have Multiple Impacts

Internet sales obviously are fueling the growth of a number of dealers, including Clark Associates, Tundra Restaurant Supply, KaTom Restaurant Supply, Burkett Restaurant Equipment and others. But it’s hard not to believe that this growth is coming, at least in part, at the expense of smaller dealers.

Clark had another remarkable year of growth in 2013, up nearly 37% to $326.8 million. The more than $88 million in added revenue it rang up last year would place it at 15 on the Top Dealers ranking. While much of this growth comes from its ubiquitous webstaurantstore.com website, launched in 2004, Clark is a complex, multifaceted enterprise that sells equipment and supplies in just about every way imaginable. Among its stable of holdings are cash-and-carry operations (such as The Restaurant Store, now with seven locations throughout the Mid-Atlantic region), several contract and bid operations (including a state contract division for Pennsylvania and a separate design and contract division in Florida), a jan-san distributor and even a service agency serving a four-state area around its Lancaster, Pa., headquarters. Even with its larger base, Clark has more than doubled sales since 2011 and grown more than 300% since 2009. It is truly one of the most remarkable growth stories in the history of E&S distribution.

But Clark is hardly the only Internet-oriented dealer showing strong growth. Tundra Restaurant Supply and KaTom Restaurant Supply both surpassed the $50 million mark in 2013, and Burkett Restaurant Equipment posted growth of nearly 30% with sales of $25 million last year.

As we’ve often stated, the average customers for Internet sales tend to be smaller, independent operators, both commercial and noncommercial, that are only occasionally in the market for equipment and supplies. But it is also becoming apparent that more and more E&S sales are migrating online, even with larger operators. Nearly all dealers we speak with say more of their sales are slowly moving to electronic formats. This includes the chain smallwares activities of companies such as Edward Don and Wasserstrom, sales of traditional catalog houses such as Hubert Co. and Gill Marketing/TriMark and nearly every full-service dealer.

Chain And Full-Service Dealers Still Rule

But while the Internet is having a significant effect on E&S distribution, even a cursory glance at the FER 2014 Top Dealers list makes it clear chain-oriented and full-service dealerships still rule the roost. All of the Top 15 dealers in our list, including Clark, have significant chain clients and operations. Wasserstrom, The Boelter Cos. and Hockenbergs each posted double-digit gains in ’13. Bargreen Ellingson nearly did. C&T Design and Equipment, which verified for the first time this year, is very chain oriented and grew 20% last year. Several big dealers we estimate, including Concept Services, QualServ Solutions and Aydelott Equipment are chain specialists. And we don’t even include in these listings the giant kitchen equipment suppliers, such as Franke Foodservice Systems Americas, H&K Int’l. and others, even though they distribute hundreds of millions of E&S they don’t fabricate themselves.

But it also is true that many of these companies are quite diversified. Wasserstrom runs cash-and-carry operations and does significant bid work. Edward Don, Singer Equipment, Bargreen Ellingson, Hockenbergs, Mission Restaurant Supply and R.W. Smith design and equip many high-end, chef-led restaurants. Nearly all do work with institutions in all of the segments. Ace Mart Restaurant Supply now has a flourishing contract division. TriMark is diversified by its very nature, doing everything from chain work, high-end design, fabrication and bid work to general local market and government sales.

Acquisitions Also Fuel Growth

Merger and acquisition activity among the big dealers slowed from 2012’s blazing pace when tax law changes going into effect January 2013 prompted a number of companies to take advantage of lower capital gains. But the effects of the mergers can be seen throughout the Top Dealers ranks as many of the deals are just being counted. 

In addition to the TriMark-Strategic deal, acquisitions by Hockenbergs, Chefs’ Toys and Kittredge Equipment added significantly to those companies’ growth in 2013. Not counted in the 2013 numbers is The Sam Tell Cos. purchase of the assets of Paramount Restaurant Supply, which will combine two more formerly Top 25 companies.

And while there is no certainty as we go to press that the deal will go through, Sysco Corp. offered to buy US Foods last December.

Slower Growth Among Smaller Dealers

Mid-tier and smaller dealers in the Top Dealers ranks saw slower growth in 2013. Dealers ranked 35-52 in this year’s list saw reported combined sales fall 5.4% last year. Among those 18 companies, 11 saw revenues decline. In comparison, growth of the 17 largest dealers was 18.4% in ’13; growth of those ranked 18-34 was 10.4%.

As we’ve also said many times, a host of factors can lead to swings in dealer revenue, and revenues are no certain guide to dealer health. A company can have a large bid job or big state contract one year and not the next. A regional chain customer can slow or halt its expansion. Managing such swings is part of the challenge of running a dealership.

But one also can’t help but wonder if the combination of exploding Internet sales and the ever-increasing dominance of chains and other large multiunit operators served mostly by the largest dealers isn’t nibbling at the market share of smaller dealers.

There is little question that the market for E&S in the U.S. is becoming national in scope. While a well-niched, well-connected and well-run dealership likely always will have a place in the market, things are clearly changing.

Christine Palmer contributed research assistance for this article.



SIDEBARS:

Mergers & Sales Activity Slowed Last Year

Mergers and sales activity among major dealerships slowed in 2013 compared with the huge jump in deals in late 2012 prompted by anticipated tax law changes on capital gains and estate taxes. But the deals that did close were significant. The two biggest were TriMark USA’s acquisition of Strategic Equipment & Supply and The Sam Tell Cos. purchase of the assets of Paramount Restaurant Supply.

And on the broadline distributor side, Sysco Corp. made a bid for US Foods in December, although as we went to press, it was unclear if the deal will go through.

The following deals closed in 2013; they are listed in chronological order. For purposes of the ranking and listings, deals must have closed before July 1, 2013, to be counted as revenues in ’13.

• Hillcrest Capital Partners invested in Premier.

• TriMark USA acquired Strategic Equipment & Supply.

• FoodServiceWarehouse bought Loubat Food Service Equipment.

• The Sam Tell Cos. bought the assets of Paramount Restaurant Supply.

• Since the turn of the year, Bargreen Ellingson announced the purchase of Knapp Restaurant Supply, extending its reach to Wyoming, and Hockenbergs bought Grand Restaurant Equipment & Design.



What, How And Who We Count, Or, What’s A Dealer?

If you compare various listings of foodservice equipment dealers, you will find disparities. Everyone does it a bit differently. For FER’s Top Dealers report, we use the following criteria:

First, to be ranked as an FER Top Dealer, the dealer must independently verify its volume. This is usually done with verification from a certified public accountant. A dealer must verify its volume each year. Dealers can report their volume but choose not to verify. We list them alphabetically separately. Others do not report. We estimate those we believe have volumes exceeding $20 million.

If more than 50% of a distributor’s sales are from paper, chemicals and other non-durables, we do not include them. This excludes nearly all broadline distributors and paper distributors that have significant equipment and supplies volume, including companies such as Penn Jersey Paper and Alliance Paper & Food Service, which bought Schweppe & Sons in 2013.

We also pay attention to the markets dealers serve. We exclude distributors we know are mostly niched in the supermarket or convenience-store markets, even if they have large volume in foodservice equipment. We thus exclude distributors such as Fortier Inc., a c-store specialist, but include Stafford-Smith and QualServ Solutions. The latter do significant work in retail segments, but are historically—and remain—foodservice oriented. In other words, we try to keep these listings apples-to-apples.

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