FER Top Dealers 2018
Last year’s FER Top Dealers Report, reflecting 2016 activity, began with the happy news that the top verifying dealers reported a combined sales increase of 15.7% with revenues reaching $7.53 billion. That was the second highest increase in this report’s eight-year history, outdone only by ’13’s 16.1%, the year TriMark USA and Strategic merged.
In this year’s report, reflecting ’17 activity, the number drops to 10% with revenues of $7.96 billion, the lowest increase since ’11’s 10.3%. Everyone agrees it was a slow year. But it was even slower than the 10% might indicate. If you pull out TriMark USA, which was up 17.4%, and Clark Associates’ 25.3% gain, the remaining 53 reporting dealers in this year’s survey really only saw 4.8% growth. The lower half, 28 distributors, only realized a 1.5% gain; the bottom third, only 0.9%.
In last year’s TDR—to compare— the 55 verifying dealers not including TriMark and Clark experienced an 8.5% sales gain. The bottom half saw revenues rise 9.4% and the bottom third 4.5%, and even that latter number beat out the overall E&S market growth of 4.3%. Eight of those top dealers reported revenue declines in ’16, five of them in the lower third of the list. In ’17, 13 verifying dealers reported revenue declines, six in the lower third.
On the flip side, another eight of the top dealers in ’16 experienced exceptional organic growth of more than 20% (Amundsen rose 64%, Clark 43%, Rapids 38%), but only five grew more than 20% in ’17, and only two of those reached north of a 30% gain. Big bid houses and companies that have ramped up design/contract services along with experienced internet players are weathering the market slowdown best. KaTom, a strong internet presence, reported the highest revenue increase—as much as 34.5% in ’17.
“At KaTom, we know you can’t spell the word ‘challenge’ without ‘change,’” says Patricia Bible, Owner, CEO and President. “We are constantly evolving our approaches to improve our performance in every segment of our business. Our e-distribution channels are realizing very healthy growth (even as we conquer many challenges while watching players such as Amazon, Google and other e-commerce giants adjust their strategies). We found our largest growth came from our contract and design segments, as well as our outside sales team. They scour their local markets looking for those awesome projects that most complement our strengths.”
Taking The Industry Pulse
For the four quarters of ’17, the MAFSI Business Barometer came in at 3.1% 1Q, 3.6% 2Q, 2.6% 3Q and ended the 4Q at 2.8%, a four-quarter moving average just a little higher than 3%. “After six years of 4% to 5.5% annual growth, we are now adjusting to a new norm of nearly half that former level,” observes Michael Posternak, Principal at PBAC Associates, and creator of the Barometer. But even at the reduced levels, and even factoring out price increases, we’re still talking about growth. It’s frustrating, but it’s not the end of the world.
The reps’ forecast of 2.7% growth in the first quarter of ’18 hit 1.5% in reality. The 2.2% forecast in the latest report, released mid-May, continues to reflect the sluggishness of the market. Robin Ashton, FER Publisher, suspects they are being cautious out of the gate. “They still forecast 3.7% growth for all of ’18. John Muldowney, Clarity Marketing and forecasting partner, and I are even more cautious. We have our ’18 overall E&S market forecast set to grow 3.4%.” One positive aspect of the 4Q Barometer is that reps are reporting more quotation and consultant activity than are reporting less, by healthy point differentials. In fact, the quotation activity really bounced back in 4Q of ’17 (after taking a dive in the 3Q) and continues to look positive for the 1Q and 2Q of ’18. In the Barometer released mid-May, 44% of reps say there is more quoting activity and 19% says there is less, a 25-point differential. As for consultant activity, 37% of reps report more activity, 12% less, again, a 25-point difference to the positive.
Major M&A Activity
M&A activity continued throughout ’17, though not at quite the furious pace we saw in ’16, a pace we believe was unprecedented in the history of this report.
After the ’16 acquisitions of R.W. Smith and Adams Burch, TriMark USA started ’17 off with a bang with the February purchase of Hockenbergs Food Service Equipment & Supply. Hockenbergs is TriMark’s 14th division. TriMark USA itself was sold in Aug. ’17 by former owner Warburg Pincus to Centerbridge Partners, a private investment management firm with bases in New York and London.
Edward Don & Co. made it clear that acquisition was part of its strategy in working with investor Vestar Capital Partners in March ’17. In late Oct. ’17, Don made its first Vestar-backed move with the purchase of Atlanta Fixture and Sales Co. ($58 million in revenues reported in ’16). Just a few months later, in Jan. ’18, the company added Smith & Greene Co., to the portfolio giving Don a strong presence in the Pacific Northwest. The dealer reported sales of $78.3 million in ’16.
The last quarter of ’17 was very busy for Singer Equipment Co., the TDR’s sixth largest distributor with revenues of $325.7 million. That number reflects a 10.7% increase over ’16 and makes perfect sense with the giant’s acquisition of Ashland Equipment in Sept. ’17 and Facilities Services two months later.
BHS Foodservice Solutions, a portfolio company of Lorraine Capital, reported (but did not verify) revenues of $65 million since its acquisition of H. Weiss Co. in the spring of ’17. For Buffalo, N.Y.-based BHS, H. Weiss immediately gave the distributor a strong downstate presence.
Also in ’17, Richard’s Restaurant Supply purchased the name and intellectual properties of Loubat Glassware & Cork Co. (established in 1875) from Food Service Warehouse, which filed for bankruptcy in Oct. ’16.
Progressive Distributors, a distributor of grocery and food products, pharmaceuticals, health and beauty lines, souvenirs and apparel, bought Hew’s Hotel and Restaurant Supplies in Aug. ’17. That same month, Great Lakes West purchased Kessenich’s Ltd.
Finally, TriVest Partners merged B&J Food Service Equipment and Beltram Foodservice Group into BJ Beltram Holdings in May ’17. It’s now the 22nd largest dealer on our list with revenues of $68.1 million. The company offers new and pre-owned commercial foodservice equipment, kitchen supplies, smallwares, furniture and design/project management services. In May this year, BJ Beltram acquired Louis Wohl & Sons which, in addition to E&S sales, also offers foodservice design consulting and services.
What’s Coming Up?
Myriad factors, some easy to recognize and understand, others stymying, contribute to the continued slowdown of the market. Independents and multi-concept urban microchains had shown a lot of vitality, but are facing a correction, according to Pentallect, the Chicago-based foodservice research firm. Skyrocketing rents, rising labor costs, unit saturation, inability to differentiate or execute well, and competition—not only from national chains but supermarket prepared food (also slowing), meal kits and home delivery services add to the challenges.
Bob Goldin, Partner with Pentallect, is not at all surprised by the E&S sales numbers for ’17. “There was a major slowdown in new unit openings all over as the major QSR chains focused on same store sales vs. new openings. The fast-casual segment experienced a definite slowdown. Also, the closure of independents creates a robust market for used/refurbished equipment.” The good news: same-store-sales numbers appear to be rising, according to a Nation’s Restaurant News story on Black Box Intelligence findings. It reports this April’s 1.5% same-store-sales growth was the highest in 31 months.
The spec market is a bit puzzling. Although we hear from our many consultant friends that they’re getting more business than they can handle, MAFSI’s quotation and consultant activity numbers aren’t showing that the designs have led to hard orders yet, though as we mentioned, the quotation activity continues to look promising. We understand the lag time on spec market projects, but it’s still odd.
Metal Costs Affecting Equipment Pricing
The rising cost of metals continue to impact manufacturers and will in turn impact dealers. While many makers hedged against or absorbed materials cost increases in ’17, it’s not likely they can continue without passing along some of the burden. And burden it is; prices for carbon steels doubled from Jan. ’16 to March ’18. Aluminum prices are up nearly 35% since Jan. ’16. Copper is up nearly 40% during the same period. Stainless prices shot up more than 44% Jan. ’16 to March ’18. Metal Miner says the outlook for all four metal categories is for still higher prices. And they, like all of us, are waiting to see what the final tariff situation looks like.
On May 23 (after press time), the U.S. was able to begin imposing its tariffs against China on about $50 billion worth of goods, including steel and aluminum, and China is expected to retaliate. Other countries, friends of the U.S., that were temporarily exempted could have seen those exemptions run out as soon as June 1. The tariff landscape, tied up in renegotiations of NATO and other agreements, is complicated and highly uncertain. And uncertainty is never good for the economy. For full tariff talk, go to https://bit.ly/2Ir7xaa.
Several clear-sky indicators are peeping out from behind the clouds. According to the National Restaurant Association’s March report (the most recently available at press time), the Restaurant Performance Index, restaurant operators reported an increase in sales for the fifth consecutive month and traffic rose in March for the second time in the past 12 months. We might need to settle in for a period of slower growth, but at least it’s growth.
Christine Palmer contributed research assistance for this article
For the FER 2018 Top Dealers chart, click here. For a look at Canadian dealers as well as broadliners, click to the next page.