The View From Up North
I’m up in Canada this week for the MAFSI Canada annual charity golf outing. My friends Danny Collis, principal of The Collis Group and former MAFSI president, and Chris Jeens, principal at W.D. Colledge, and current MAFSI president, asked if I could say a few words at dinner after the tournament, given that we just published our annual FER Top Dealers Report, which includes listings of leading Canadian dealers. I figured I would share with you what I will tell them.
The dealer environment in Canada is, in many ways, very similar to that in the U.S. Consolidation has become a very big issue. Last year’s blockbuster deal putting together the country’s two leading dealers, Hendrix Restaurant Equipment & Supplies and Russell Food Equipment, surprised nearly everyone. The combined company, Russell Hendrix Foodservice Equipment, had verified combined sales of more than $250 million Canadian in 2016. Russell Hendrix CEO Larry Vander Baaren told us he estimates the company controls as much as 25% of E&S distribution sales in Canada. That makes the company more dominant in Canada than TriMark USA is in the U.S.
Consolidation is also happening in other parts of the country. Big Erics out in the Maritimes has acquired a number of smaller dealers. Broadliner Gordon Food Service bought Trimen and United Restaurant Supplies a few years ago. And there have been mergers and acquisitions out in Alberta and Saskatchewan, too.
What’s driving the consolidation in Canada are the same factors we see in the U.S.: family-owned business getting into the second and third generations; plenty of private equity and other investment monies available for deals; and a multiunit-oriented operator environment that rewards dealers that can operate nationally or at least regionally.
One thing that is different in Canada is the lack of a dominant internet player. The Nella Group, now the country’s second largest dealer by FER estimates, does have an internet arm, Zanduco, and nearly all dealers have websites and sell some product online. But Collis says he thinks most customers looking to buy online go to the prominent U.S. sites. “It’s partly because there is a perception that everything is cheaper in the U.S.,” he says, a perception that given landing costs, freight and customs, is by no means true.
Meanwhile, the E&S market in Canada has been surprisingly strong, as the base operator market has been doing well in spite of the general economy’s doldrums thanks to low prices for oil, gas and other commodities. Restaurants Canada estimates operator sales industry-wide grew a whopping 5.8% in 2016 and forecasts 4% growth this year. Technomic Inc. just released its forecasts of Canadian operator sales for 2017 and 2018 and have ’17 growth pegged at 4.7% nominal and 2.2% real. On the nominal side, that’s a full point stronger than their U.S. operator forecast. The NPD Group reported a nearly 2% increase in customer traffic in Canada first quarter. And the MAFSI reps in Canada reported 4.2% sales growth in the first quarter 2017, compared to 3.3% for the MAFSI Barometer as a whole. They forecast 4.9% growth in the second quarter and 4.1% growth for all 2017.
So, in Canada as in the rest of the North American E&S market, change is the constant. But at least folks are buying stuff.