As a true one-stop-shop for genuine OEM spare parts, First Choice Catering Spares is a business that many manufacturers and services firms would be lost without today. But as First Choice’s co-founder and director John Whitehouse reveals, the 90-strong company has had to alter the way that spare parts supply is perceived by the industry to get where it is today.
You and Carl Bate formed First Choice back in 1999 after leaving Electrolux. What expectations did you have when you set out?
We really didn’t know how we were going to make any money, we just realised that Electrolux was about 4% of the market and they seemed to survive and make a handsome profit and look after a lot of people. We felt that if we could supply spares for the other 96%, as well as some of that 4%, then there must be an opportunity to make a living.
Our first mission statement was really to be part of the industry, to be in control of what we did, to be the most professional we could, and to grow to £1m within five years. At the start we were literally making coffees and quoting export customers, and held no stock at all. But we soon went to four or five people and 18 months into a three-year [lease] contract we outgrew the unit.
How many manufacturers were you representing at that point?
We weren’t representing any! We were just buying and selling. Because we were exporting at the beginning, it meant that we could take enquiries, turn them around, get the order, receive payment for that order in many cases, and buy the stock to sell it. We learnt over time that we needed to work with manufacturers and we needed to sell genuine parts, but we couldn’t really get the deal at the beginning. Eventually it was a leap of faith on our part and on some manufacturers’ parts for them to say, ‘let’s work with this company and give them terms so that they can trade’.
Was that when the model changed and you started working with manufacturers in the UK rather than buying from the export market?
Yes, we started brand by brand and developed a relationship that guaranteed them 100% genuine parts. A few agreements happened around the same time, with companies such as Electrolux and Enodis. I think Electrolux was probably the first co-operation of any scale. Both Rational and Electrolux more or less stopped stocking spares in the UK at the same time. They supplied spares from Germany and Italy but they actually stopped the spares supply business in the UK and outsourced to spares partners.
Genuine part supply has got to be the only way to go really. It was a fundamental change to our model but from that point the turnover just doubled every year for a two- or three-year period, and it always grows between 15% and 25% now. It hasn’t stopped from day one; we have never seen a plateau at all.
What sort of revenues do you expect to do this year?
Our financials run July to June and at the end of June this year we turned over £17m. We are now budgeted for £20m this year and on the first two months we are projected to do £24m. It is quite mind blowing to see 12,000 invoices go out in a month. It is a lot of transactions. We have invested heavily in the web in the last four years. It is now 40% of the order intake.
What is your average order and how large do you think the UK catering spares market is?
Our average order value is £117 and the average line order value is about 1.2 parts per order. We do get big stock orders of hundreds of parts, but in general it is very small or single orders: one thermostat, one knob, one gasket — it is reactive, as I said. And because we offer same day and next day delivery options, services companies are carrying less on the vans because the parts are more accessible now. The overall spares market in the UK is worth £150m in my opinion — £100m if you want to be conservative.
How many items do you stock?
I think there are 24,000 different part numbers that we hold in stock and over half a million available to us within days. We still use some strategic partners in Italy to be able to get refrigeration components in at a very fast rate when we need to, for example. The OEM business is one part of what we do and then there is the component part. If someone just wants a compressor part number — but not a specific Foster or Williams compressor for instance — we can offer that as well.
Presumably your favourite manufacturers are those that produce equipment which breaks down a lot?
Well, I think all equipment breaks down, especially as a lot of customers now stop the planned preventative maintenance and just go to reactive maintenance. When they are at reactive they are only going to call a service company when it breaks down — and it will break down because they are not doing the checks on it regularly. A company like Rational is probably one of our bigger accounts but is that because it is rubbish? No. It’s because they have got millions [of products] out there.
A lot also depends on the type of product. Dishwashers are becoming more complicated; combis are becoming more complicated; so too are the microwaves even. When you add electrics and water together, and combine it with gas, there are lots of little areas that can go wrong.
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More and more manufacturers are increasing their parts and labour warranties beyond the standard one year. Is that bad news for you?
No, because we work with the manufacturers. If they offer a year’s warranty we can move those [spares] as well. If they offer a two-year warranty on parts and we are a preferred agent we can take that on and become a source for it as well. Most manufacturers have looked at us and said that we are an extension of what they do and therefore if somebody orders a part there is usually a process to charge it back to them. Some of the manufacturers even buy the parts from us because we have got them all anyway.
Do you feel that there are still discrepancies in the way that equipment manufacturers view spare parts companies?
Yes. We are like Marmite! It’s not so much the case now, but it used to be that you either loved us or hated us. The ones that hated us tended not to know or understand what we did, but anybody that hated us and came to look at the operation saw a different side. It’s all down to perception. Some companies have always looked at us and said that we don’t sell the genuine part. We have been through a lot of phases of trying re-educate manufacturers that we are not patent parts suppliers, we are manufacturer’s choice and we work with the OEMs. And over time that is how we have developed.
What about your customers’ perceptions of you?
Customers’ perception of what we are now has changed. Our customers are service companies and when they go into a kitchen there is an average of 20 to 40 pieces of equipment. If they have taken on multi-kitchen service contracts they have to do all of it because the customer doesn’t want five manufacturers coming in and doing their own little bits. They want one company to go in and service it for them.
At the same time, that service company doesn’t want to ring Falcon for its part, Enodis for its part and Hobart for its part, and have three lots of carriage charges costing more than the spares to bill back to the customer. They want a one-stop-shop because it is easier for them. As long as we can be competitive and get all those parts together, we can normally consolidate all the orders. Even if we end up being slightly more priced on the spares we are cheaper by combining the carriage.
Why is it so important for you to promote genuine manufacturer OEM parts?
As an industry, we have to take responsibility for what we sell. We could make a lot more money not working with manufacturers and buying components in high volume direct from the sources. But the fact is that manufacturers spend a lot of time and effort developing the product and the components within that product to work professionally and properly. Everything we sell we want to have an audit trail back to the right source. All our catalogues are two thirds manufacturer parts and a third consumable non-branded, such as switches, lamps and valves.
What are your main plans and priorities for the business over the next 12 months?
Next year is really about continued growth — an additional 11 staff have been put in the budget — and managing the second phase of our warehouse streamlining. We have agreed to install more lean lifts [to automate the pick and pack process] as we are trying to make our processes smarter. We are also looking to enhance our sales operating system to manage the orders and the stock. The systems we are looking at self-calculate the order levels based on our criteria, allowing us to look at projected sales against historical sales and alter our reorder levels based on delivery times to give us absolute optimum stocks. We are doing that now but not to that extent and to that level of automation.
First Choice facts
1999 Year company was founded
£20m Sales target for current fiscal year
24,000 Number of parts it holds in stock
90 Number of staff it employs
12 State-of-the-art lean lifts it will own next year