Foodservice Equipment Reports

Sorting Through Distribution Channels

I had another one of those long conversations with a consulting group last week, trying to explain how foodservice equipment and supplies get distributed in the U.S. market. This, and a cogent question from a reader who works for a second-tier or master distributor, led me to realize that we don’t talk very often about these “other” distributors, but we should. For traditional dealers, they are both competitors and partners.

In fact, we don’t even have very good or generally accepted names for them. I’m not speaking of broadline distributors, but of two classes of E&S-only distributors we’ll call master distributors and dealer-fabricators. Both types of distributors play unique and essential roles in the market. So, at the risk of being obvious to those of us who have worked in this business for a while, let me define these roles.

Like traditional full-service dealers, master distributors take title to equipment they distribute, inventory product and sometimes even have showrooms and test kitchens. Like independent manufacturers’ reps, they call on dealers, consultants and end-users. (In fact, some reps have separate master-distribution businesses.) Most factories that use two-tier distribution do not use manufacturers’ reps.

But unlike traditional dealers, they have franchised relationships with their factories, serve defined territories that are, for the most part, exclusive and usually perform service and inventory parts for the brands they carry.

Most of us are aware that manufacturers of certain types of products tend to use master distributors: ice machines, beverage dispensing, soft-serve equipment and certain specialized types of cooking equipment, such as pressure fryers, microwave ovens and chain broilers. The equipment in two-tier distribution tends to be pricey, complex and critical to an operator; it also has a high service component. Many operators would have to shut down if equipment in these categories failed. Think of a McDonald’s without an ice machine, a KFC without a pressure fryer, a Burger King without a functioning chain broiler, or a Dairy Queen without a soft-serve machine.

Master distributors play a very valuable role not just for the operators they serve, but also for traditional dealers. Think of the added carrying costs dealers would have to absorb if they had to inventory extensive stocks of these types of equipment.

My consultant interlocutor asked me how many master distributors there are in the U.S. I don’t really know. I guessed somewhere between 120-150. Most factories that use two-tier distribution cover the nation with 25-35 distributors. It would be a worthy database project for us to identify them all one of these days.

Then there are dealer-fabbers, also often called kitchen equipment suppliers (KES) by their chain clients. It is often very difficult to distinguish a traditional dealer from a dealer-fabber or just from a fabricator. All of them can fabricate as well as purchase equipment—perform “buyouts”—from other manufacturers.

My old colleague Greg Richards, v.p.-business development for Franke Foodservice, and I once spent a long lunch figuring out the difference. We needed to do this when we created FER’s verified Top Dealers listings to make sure that companies, such as Franke, didn’t belong in that list.

We came up with this simple definition: Dealer-fabbers are primarily manufacturers, not primarily distributors. More than 50% of their total sales volume comes from products they make for a particular chain or customer (some dealer-fabbers serve the institutional bid markets). So while they perform many of the same functions as a traditional dealer, their core business remains in manufacturing. Greg’s boss, Tom Campion, then was serving as president of NAFEM, not FEDA. So it seemed to make sense. I ran this definition by Brad Wasserstrom at The Wasserstrom Co., and he completely agreed.

Once again, my consultant friends asked me how many dealer-fabbers there are. That’s even harder. Duke Mfg. is a very prominent KES, serving scores of chains. (I visited them two weeks ago, so they are top of mind.) Are they a dealer-fabber?  No, they are a manufacturer, but you see the problem.

We’ve said many times before that E&S distribution in the U.S. is labyrinthine. It helps to remember just how complex it is when considering your competitive environment.

Some other time, we’ll talk about distribution in the global market. One of the questions I’ve long asked is why more big U.S. dealers haven’t ventured offshore.

Cheers,



Robin Ashton

Publisher 

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