Roundtable: adding value to the distributor channel

Success in the catering equipment market place hinges heavily on the relationship between manufacturers and distributors.

As the industry emerges from a difficult few years, the ways in which suppliers can add value to the dealer channel for the benefit of the wider industry are inevitably changing. Catering Insight, in association with Hobart, invited a number of major players from the industry to discuss what the distributors of today expect from their suppliers tomorrow.

The panel included:
David Riley, MD, warewash, Hobart UK
Jack Sharkey, MD, Vision Commercial Kitchens
Mike Nunn, sales director, Dentons Catering Equipment
Paul Gilhooly, head of sales, Gratte Brothers
Peter Kitchin, MD, C&C Catering Equipment
Tim Taylor, MD, Ecomax Catering Equipment

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How would you assess the relationship between suppliers and distributors today? Have the dynamics changed since the recession?

David Riley: It is interesting that you say ‘since the recession’ because I think that when you go through recessions and orders are tight, everything gets a bit more aggressive in the market. But now that orders are flowing quite a bit more freely, it is about how we hone and develop relationships as we move forward. We’re never going to please everybody, but we want to get it as right as we can.

Everybody knows the varied history of relationships that Hobart in general has had with distributors going back in time. In 2003 we created Hobart Independent, which is a dedicated dealer business that has grown enormously over the years and been one of the most successful things that we’ve done. We’re now on this path to move much more of our other turnover through the dealer channel, and we’re up to about 65% at the moment, which is quite an achievement. And it’s about how we make that difference to dealers as we move forward in the relationship.

Jack Sharkey: If you go back to the early 90s, when we were just coming out of the last recession before this one, there was a lot of exclusivity between dealers and suppliers. That progressed and the dealer and supplier landscape changed quite a bit. I think when we came into the last recession, there was a knee-jerk reaction from a lot of the manufacturers and they were looking for business everywhere, so they decided to do a lot more direct supply and kind of ignored what the contribution of the distributor was.

As we went deeper into the recession and business started to dry up, I think they started to realise – and I am being quite general here – that distributors have got close relationships with the clientele, and that forming strong partnerships with distributors is the right way forward.

Tim Taylor: Carrying on that point about the knee-jerk reaction of going direct, I think the problem is that some manufacturers have also gone about just giving everybody an account. It doesn’t matter what the dealer’s position is, they’ve just opened it up to everybody. [[page-break]]

How exclusive can suppliers or distributors realistically become though?

Tim Taylor: It’s a question of balance, isn’t it? If we get a client that we’ve been trading with for X number of years and they come to us and say we want a specific brand but it’s not a brand we deal with then we’d like to think we can get access to that brand rather than seeing our client disappear with potentially another dealer or competitor.

So you want access to the other brands but I think there needs to be a balance there. It’s that fine line between manufacturers opening accounts too freely and sitting down with the distributor to find out what is going on, getting a bit of background and understanding what the deal is before they open an account. And we’ve lost clients through this situation – you’ve developed a client over a long period, it has taken you 5 years to get them onto a particular refrigeration manufacturer and then another dealer has come in and absolutely butchered the price and literally taken 4% or 5% to get the work.

Then when you speak to the sales manager, he doesn’t even know who the dealer is. So how have they gone in there and done that? The manufacturer hasn’t then protected the dealer who’s been developing that customer and switching them onto its brand. I know manufacturers can’t necessarily say, ‘no, I’m not giving you an account, it’s completely exclusive’. It’s trying to get that balance. It is difficult.

David Riley: One of the ideas is to set up a second tier of dealers that buy off the other dealers. The trouble is I’ve never known anyone successfully run that.

Paul Gilhooly: I think it comes down to differentiation. And it is really important for suppliers to distinguish between the single guy in his bedroom with a laptop and a proper, multi-site distributor that is in CEDA and doing all the right things.

There is a real gulf in their own costs and the margins they have to make, and in the spend or potential spend that they can build with that supplier. Partnerships in any form of life are about trust and a long-term strategy. It should always be honourable, and I think as long as it’s transparent and fair then people don’t have an issue with it. Therefore, differentiation between different types of distributor or their potential spend or their actual spend is a key thing for us.

We don’t mind any other company accessing products that we access at the same level, as long as they are giving the suppliers the same value we give. And that’s a proactive sales team that are knowledgeable, proactively selling their product and giving time to training and their account managers to learn about their products so that we can better advise ours.

That’s a big distance away from somebody coming in after all the hard yards have been won, and saying, ‘I’ll do it for a 5% margin’. It’s very unfortunate if they are allowed to do that and still be competitive against the person that’s done all the hard yards.

Mike Nunn: Some manufacturers don’t realise that we have got the choice. We could have 20 brands sitting opposite us to sell us one item of equipment and they don’t always appreciate that is actually happening. Sometimes the loyalty isn’t there. When you have got instances where our margins or customer bases are eroded, it isn’t helpful.

Peter Kitchin: I think suppliers get quite a kicking in the industry at times. The way I look at it is that suppliers are so important to us. I actually said this when we were at Hobart last year, that hopefully you consider we’re quite important, we’re a client, but we consider you important because if you shut our account, we can’t function.

And that’s the case for other suppliers as well, be it Rational, Foster or someone else. If your main suppliers close your account down, you’re not a dealer anymore and you can’t function! So I think people have got to see that it’s two-sided and not just a case of the ‘bloody suppliers’. [[page-break]]

Outside the core function of supplying the product, how best can a supplier support its distributor partners?

Tim Taylor: You have got to have the right after-sales support from the manufacturer or it can be hours, if not days, of grief and phone calls. And it leaves a sour taste in the mouth of the customer when you’ve had the best intentions but the manufacturer lets you down afterwards. It can be the best machine in the world, but that doesn’t matter if the manufacturer doesn’t turn up or it takes 3 days to get someone booked in and lots of chasing. It’s the amount of time and effort, and cost implications with that. Service is a big factor for us.

Mike Nunn: The support is crucial, particularly when it comes to the fixing of equipment. That means parts, parts availability and engineers that can cover the whole of the UK. We’ve had problems in the past with a manufacturer that only gives 12 months parts and no labour, and it has cost us a fortune in labour. It’s short-sighted of them to be honest with you because the next job that comes up, they don’t even get a look in.

Paul Gilhooly: Conversely, a lot of suppliers have extended their 12 months parts and labour to 2 years during the tougher times we have been through recently and actually used that as a selling tool and an added value.

Mike Nunn: It is an important factor when selecting equipment. If you get someone like Gram that gives a 5-year warranty, then you can use that as a sales tool. It is great because people think, ‘well, if they are going to put a 5-year warranty on that, it must be a good fridge’.

Jack Sharkey: A lot of the big distributors don’t carry their own service engineers because it is not really that cost-effective and when you are trying to service a part on six different warewashing brands, it is not practical. I would much rather send in a manufacturers’ trained technician on a specialist piece of kit, such as a combi-oven or warewasher, even when it is out of warranty, because the first-time fix rate is always higher and the parts are on the [engineer’s] vehicle.

There are a couple of brands out there that have their service partners, and that works really well because the challenge we have from an ‘out of warranty’ point of view is that the manufacturers’ engineers’ cost charged to us is too great for the market place. We can’t recoup that hourly charge.

David Riley: It is a big juggling act, particularly when you come back to the point about some dealers and distributors having their own service departments. As soon as you extend your warranty to 5 years, regardless of what equipment is, the first thing you have done to any dealer that has got service is taken away 4 years’ revenue from them.

I am all for extended warranties, so long as it is linked to regular service and an understanding of the customers’ duty with regards to the care and cleaning of the machine. If I wind the clock back to when I first joined Hobart, I looked after a company called Littlewoods. They had part-time ladies that looked after the dishwash areas and they virtually polished the machines every night. They would be upset if the rack dishwasher didn’t last 20 years. [[page-break]]

How effectively do suppliers communicate to the distributor channel? How would you like to see the lines of communication improved further?

Peter Kitchin: It depends on the individual. I prefer to get an e-mail off someone telling me what’s what so I can send it onto however many people in the company who need to know about it. I’d always prefer that than a phone call, but other people are the other way round.

David Riley: I think it changes over time as well, and I can give you one real example. They will remain nameless but it was somebody quite senior in the industry. They sent an order with the previous year’s price about half way through the year. I pointed it out and he said, ‘I haven’t been sent a price list’. I said, ‘we sent out an email where you could download it’, and he said, ‘that’s no good to me, I want a physical paper price list’. So the year after we sent him a physical price list and he said, ‘what are you doing sending me this, I want the digital one’.

Jack Sharkey: It is about the difference between one company and another. If you are a much smaller company you can come in and see the owner; the owner is the guy who is probably doing most of the deals and liaising with the client. If you come and see a large organisation that has got half a dozen or so guys on the road then unless it is to set up a new deal or commercial terms, you probably aren’t going to get any extra business seeing the owner. You have got to go and see the guys on the road, as they are the ones influencing the clients.

Mike Nunn: The manufacturer visits can get more and more awkward. You get a rep who has got a 12-month plan and he has been told he has got to see us once a month to update us, but if he doesn’t have any new products there is nothing really for him to say, so it becomes a complete waste of time.

David Riley: But that is only if you view a manufacturer’s rep as coming in just to give a new product story. If they are bringing enquiries, or talking about work you are doing or offering something useful then it’s different. What we have been saying to our guys is that as we develop this business relationship, what we want to try and do is map your structure against ours.

Paul Gilhooly: What we absolutely don’t want though is this round-robin monthly call, even for the area sales guys or the key account managers. I basically see it as a waste of their time and I get annoyed. If there is a real business purpose, a lead, they are working on a joint enquiry, they are providing more product knowledge or equipping our sales guys with the skills to sell the product, that is absolutely fine. But just cold-calling for a catch-up isn’t.

Peter Kitchin: I think we know how our business sits and we know the people that we do a lot of business with and if any of the big guns want to come in and talk to us then we will see them. I think it is really important to do that because you can find out so much about what’s going on, about your competitors, about schemes, about life in general, and it helps to grow the relationship.

Paul Gilhooly: I agree with that, but – and it has happened – just turning up unannounced because they know one of our project managers is in or one of our designers they have worked with before is in. I don’t blame them for trying because I have actually done that role myself and door-stepped people.

Peter Kitchin: I get that, and we wouldn’t just see anyone if they hadn’t made an appointment, in the same way we wouldn’t just call into see one of our customers and say, ‘I was passing by, can I come in for a coffee’. I just think it is about being professional. [[page-break]]

Are distributors’ expectations of suppliers changing now, particularly as economic conditions improve and the market strengthens?

Paul Gilhooly: One of the key things I want to know from a manufacturer’s representative is what are the key points of difference between them and their competitor. It is alright them knowing about their own product, but they should know about their competitors’ product as well.

They won’t tell you where their weaknesses are, but I encourage them to say what they think their strengths are because that might just give us that golden nugget of information when we are in front of a client and trigger something that says, ‘right, this is what you need’. That is often lacking with manufacturers – they focus in on their own product, and they don’t really look at the nearest companies to them.

David Riley: That is something we do – we train our guys on the difference between ours and other people’s products.

Jack Sharkey: You’d be amazed how many don’t, though. It all comes back to the add-on value that a distributor can provide. I think that we as a distributor are good at assessing and portraying to our clients the strengths and weaknesses of each of the brands that we are talking to them about, so if I am talking about three different brands of combi-ovens I can give them the pros and cons of each one from an independent perspective.

Some of those ingredients will tick all the boxes for a client, some of them won’t, and therefore they will select one particular brand because it suits their need across all the different tick boxes. It is important for us to know about all those particular brands, so we want to be trained by Hobart and we want to be trained by manufacturer A, B and C so that we understand their products.

 

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