FER EXCLUSIVE: FER Top Dealers Posted Strong, Balanced Growth In 2014
Two big things stand out when we run the numbers on the 57 foodservice equipment and supplies dealers that verified their volumes for Foodservice Equipment Reports’ fifth annual Top Dealers Report. First, in a mature foodservice equipment and supplies market, dealers of all sizes and niches are fighting intensely for market share, especially profitable market share. Second, 2014 revenue growth among these 57 companies was more balanced and less dominated by the very largest dealers than in last year’s Top Dealers listing.
To the first point about market-share battles, the customers—foodservice operators—have seen only very moderate revenue growth in the five years since the end of the worst sales downturn in the past 60 years. Last year, the total foodservice industry grew sales only 3.1% according to the latest 2014 estimate from Technomic Inc., Chicago.
Fortunately for those in the E&S industry, operators have been a bit more generous with their capital spending. FER estimates total sales of E&S at the manufacturer level grew 4.4% last year. But that is not a big base for robust top-line dealer growth.
So, totaling the numbers for 2014, the FER Top Dealers clearly are taking significant market share from other dealers and distributors and substantially outperforming the market, at least in revenue-growth terms. Overall, our Top Dealers grew combined verified revenues 10.6% in 2014 to $5.843 billion, up from $5.282 billion in 2013. That’s strong growth by any measure, even if slower than the remarkable 16.1% spurt in the Top Dealers’ combined verified revenues in 2013.
That growth rate was artificially goosed in part by several very large mergers, especially the combination of TriMark USA and Strategic Equipment and Supply Corp. in the spring of 2013 and Chefs’ Toys’ acquisition of Star Restaurant Equipment & Supply. Pull TriMark out of last year’s Top Dealers list and combined growth of the remaining 51 companies was a still robust but less frothy 10.2%. That growth rate is very much in line with the Top Dealers’ growth in 2014.
And the Top Dealers have been putting up similar numbers every year since the end of the Great Recession. Combined revenues for 46 Top Dealers increased 11.4% in 2012; 44 Top Dealers verified 2011 revenue increased 10.3%. Only in our first Top Dealers Report in 2011 did the 31 verifying dealers not report a double-digit revenue increase: Combined revenues rose only 1.4% in 2010, a recession year for the foodservice industry as a whole.
For a knowledgeable observer, there also is plenty of evidence among the Top Dealers themselves of intense share battles within market niches and regions. Not every Top Dealer—even some very large and dominant ones—grew faster than the market last year. But as Hal Schroeder of Concept Services reminds us every year when he respectfully declines to report or participate in the survey in any way, not all sales growth is profitable. Often, it makes business sense to let a competitor win a job, bid or contract. Real success is about the bottom line, not the top.
Growth Distributed Across Top Dealers List
Two revealing data points from this year’s Top Dealers list: TriMark USA became the first E&S dealer to surpass the $1 billion mark in sales and grew revenue 13.6% on that giant base without a significant acquisition. Hiawatha Chef, Bar & Janitorial Supply, the Escanaba, Mich., dealer with 2014 verified sales of $1,881,000—more than 500 times less than TriMark—grew 12.3% since 2013.
Sales gains clearly were more evenly distributed among the 57 reporting companies in 2014 than the 52 reporting in 2013. (All but three of last year’s Top Dealers verified again this year.) In last year’s Top Dealers listing, the Top 10 companies were up 20% and the largest 17 (the top third given our 52 reporting dealers last year) grew 2013 sales 18.4%. The bottom third, on the other hand, saw sales decline 5.4%.
This year, based on 2014 sales, the middle third of Top Dealers—those ranked 20-38—outperformed the Top 10 and the top third with a combined revenue increase of 13.9%, compared with 11.1% for the Top 10 and 10.4% for the top third. It wasn’t just one or two companies goosing the growth either. Nine of the 19 companies in the middle third reported revenue increases exceeding 15%. And three of the companies saw revenues jump more than 30%, including chain specialist Aydelott Equipment, Centerville, Ohio—verifying for the first time this year—and Chefs’ Toys, which saw very strong organic growth. Myers Restaurant Supply, the Santa Rosa, Calif.-based dealer headed by CEO Charlie Fusari, a former TriMark Economy Restaurant Fixtures executive, pushed revenues a remarkable 79.2% to more than $38 million. The Sam Tell Cos., benefiting in part from its acquisition of Paramount Restaurant Supply Corp. in late 2013, saw sales grow 23% to push it into the Top 20 at $65.3 million.
The bottom third posted market-beating growth of 5.5% with 12 of the 19 verifying companies posting growth in 2014; seven of the 12 reporting growth were up double-digits. This is a pronounced change from last year when 11 of the 18 companies in the bottom third of the Top Dealers list reported sales declines.
Overall, 12 brave Top Dealers reported a decline in revenues for 2014, compared with 14 companies in last year’s list. Companies that were off in sales last year also were more evenly distributed throughout the ranks, with four companies in the fast-growing middle tier posting lower sales than the year prior. For the second year in a row, only one company in the top third had sales that were off, and it was a very slight decline.
Another Big Year For Clark And All Internet Sales
The dominant dealer in online E&S sales, Lancaster, Pa.-based Clark Associates, had another remarkable year in 2014. Overall company sales grew 36% to a verified $444.5 million from $326.8 million in 2013. In fact, with its nearly $118 million in additional sales in 2014, Clark almost matched its 2013 growth of 37%.
Sales from Clark’s webstaurantstore.com website are a major driver of the company’s revenues but hardly the only element in its growth. Clark President Fred Clark told FER that while the company has many operations and divisions, its business really boils down to three “channels,” as he called them: the Internet, the company’s cash-and-carry stores (branded The Restaurant Store) throughout the Mid-Atlantic and the company’s chain and institutional contract sales. “All three channels grew sales more than 20% in 2014,” Clark said. “And all three would be in the Top 25 by themselves, to give you a sense of their scope.” But the Internet sales operations continued to grow even faster, Clark noted.
That growth has required substantial investment in bricks, mortar and people, not to mention Internet software and content. The company currently has three large distribution centers in Pennsylvania, western Kentucky and Nevada and is in the process of opening two more in Georgia and western Maryland. Clark also notes that one of every two Internet sales involves a call to a Clark customer-service representative; needless to say, the company has extensive customer-service operations.
While Clark’s Webstaurant Store is quite dominant online, it is far from the only dealership benefiting from surging online E&S sales. KaTom Restaurant Supply, Kodak, Tenn., and Tundra Restaurant Supply, Boulder, Colo., both with large Internet efforts, grew 16.6% and 15.7% respectively in 2014. And nearly every full-service dealer that is not a bid or contract specialist is seeing a larger proportion of their sales come through the Internet.
Barry Friends, a Senior Principal at Technomic Inc. who specializes in distribution trends, believes more and more E&S sales will migrate online for dealers and distributorships of all kinds. “In foodservice, the more esoteric the product type, such as equipment that needs to be heavily specified, the more conducive it is to source it online.” He says Internet-oriented dealers, such as Clark and others, “have created tremendous value for operators” through the deep and rich information on their websites. “For operators who don’t buy equipment regularly, it’s just easier to go online and get the information they need to start the process,” Friends said.
The analysis of FER Top Dealers in the coming years will test that prediction.
Christine Palmer contributed research assistance for this article.
Broadline Distributors Remain Significant Durable E&S Purveyors
The big broadline foodservice distributors—companies that sell food and other consumables—play a significant role in moving durable supplies and some equipment to operators in the U.S. foodservice market. Here we list durable supplies and equipment revenues for the leading broadliners for the first time since FER initiated its Top Dealers Report in 2011. It’s important to note their role in E&S distribution. By E&S sales alone, the four largest broadline distributors would fit within the ranks of the top 10 E&S dealers.
None of the listed broadliners would verify or report its E&S volume to FER. All except Sysco Corp. are privately held. We relied on a number of sources to make these estimates. All estimated E&S revenues include sales made through the companies’ “custom,” chain-oriented divisions, such as Sygma for Sysco and Performance Foodservice and PFG-Customized for Performance Food Group. The estimated E&S revenue for Gordon Food Service does not include that of its Canadian affiliates. (See section on Candian E&S dealers.) All except Sysco, according to our sources, have seen moderate gains in their E&S sales in the five years since we reported their 2010 sales.
Sysco has experienced a significant decline in E&S volume since 2010. (Sysco verified durable 2010 E&S sales of $700 million in 2011.) The decline results in part from a strategic shift from selling E&S through its branches and street sales forces to pushing all such sales online through its “Supplies on the Fly” brand. Most, if not all, of Sysco’s E&S sales now rely on Instawares Holding Co. for fulfillment.
Barry Friends, a Senior Principal with research firm Technomic Inc., and a former broadline distributor executive, told FER, “The big broadliners have been under a lot of stress in recent years as various competitors have eaten into their sales.” He said cash-and-carry operations, such as Restaurant Depot (the very substantial E&S sales of which we estimate here), and warehouse retailers, such as Costco and Sam’s Club, have taken shares away with business from smaller operators, while group-purchasing organizations have made serious inroads into broadliner sales in institutional foodservice segments. And, he added, the broadliners have not been able to supplant or outperform E&S dealers with many operators, especially among most big chain buyers.
Friends also agrees with other FER sources that the rapid growth of E&S sales through the Internet often have come at the expense of broadline E&S sales.
Big Canadian Dealers Manage Far-Flung Operations
Canada has about 11.5% of the population of the U.S. and a foodservice market that generates sales somewhere between 10%-12% of the U.S. foodservice market if one assumes an equivalency of U.S. and Canadian dollars. (This was true from 2011 until the U.S. dollar began to surge in 2013. One Canadian dollar was valued at 83 U.S. cents on May 9, 2015.) Technomic Inc. estimates the size of the total foodservice market at C$80.2 billion in 2014; Restaurants Canada, which calculates things somewhat differently, pegs it at C$71.8 billion.
As this first-time listing of leading Canadian equipment and supplies dealers demonstrates, the Canadian market is served by some very large companies. We sent the FER Top Dealers Survey to the largest companies. We had a number of sources who helped with estimating those from which we didn’t hear back.
Hendrix Restaurant Equipment & Supplies, based in Brockville, Ontario, verified its 2014 and 2013 volumes. We also list its service offerings in the Top Dealers Services table. Quebec City-based Doyon Cuisine reported its volume.
Hendrix sales surpassed C$100 million in 2014. In relative terms, this makes them as big in Canada as TriMark USA is in the U.S. market. The company now operates 10 stores plus two warehouses from Vancouver to Ottawa. Vancouver-based Russell Food Equipment is nearly as big with estimated 2014 sales of C$95 million. Nella Food Equipment, at an estimated C$65 million, also has far-flung operations, including a branch in Vancouver.
Three big dealers operate in the French-speaking province of Quebec: Doyon, which has four branches throughout the province, and Després Laporte, which has two, are based in Quebec City. Tzanet Inc., which has a huge showroom and active online business, is based in Montreal.
We also include, on a combined revenue basis estimated at C$62 million, two subsidiaries of broadliner Gordon Food Service in Canada. Trimen, based in Toronto, is a dealer/fabricator that serves a number of leading chains, among other clients. United Restaurant Supplies is a full-service dealer with a balanced product mix. Both operate independently under their own brand names.
Next year, FER will open its Top Dealers Report to any Canadian dealer that wishes to verify or report its volume, as the magazine circulates to operators, consultants and dealers throughout Canada and many U.S.-based chains rely on Canadian dealers for their operations in Canada.
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 a letter or signature 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 & Foodservice Equipment, which bought equipment dealer 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 volumes in foodservice equipment. We thus exclude distributors such as Fortier Inc., a c-store specialist, but include Stafford-Smith and QualServ. The latter do significant work in retail segments but are historically and remain foodservice oriented. In other words, we try to keep these listings apple-to-apples.