SPECIAL REPORT: Distributors predict sector direction

Catering Insight asked several distributors to look into their crystal ball regarding the future of the UK catering equipment market.

The UK catering equipment market is seemingly ever changing, if the stream of stories landing on the Catering Insight newsdesk is anything to go by. But what does the future hold for the industry? A selection of distributors took up the challenge of looking ahead.

When asked whether there would be any more business consolidation for distributors, Shine Catering Systems’ MD Julian Shine responded: “I’m not sure about consolidation, but I can see more business failure. The market is changing at a rate that is unprecedented, and agile businesses may continue to pick up the pieces of those caught out by the pace of change.”

While London-based Millers Catering Equipment MD, Dean Broadbent, believes: “I can see more consolidation over the next year, as the market is made up of many small players where there will be good opportunities to drive overhead savings and improve efficiencies.

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“I believe that where there is a sound business model with growth and profitability it will make perfect sense for bigger players to acquire them. The market will benefit from this, like many other markets have in the past. The only negative consideration here is that many small suppliers are owner-managed and the expected valuations will likely be unrealistic. In the long run though I fully expect to see a bigger mid-sector within our industry.”

At ABDA Creative Design & Build, MD David Summers pointed to external impacts on the industry. “There are number of factors bringing pressure on the food and beverage market that will in turn create consolidation of the market for distributors,” he forecasted. “Mainly the uncertainties around Brexit and the number of high profile businesses we have seen moving into administration, or closures in the last 12 months, in particular the retail sector and high street fast food chains have been closing stores.”

For Hopkins Catering Equipment’s capital equipment sales manager Phil Dixon, he feels that: “As the market conditions continue to provide challenges across a number of areas and a squeeze on margins, I believe companies will continue to adapt and evolve to work within our market sector as it is now.

“This will lead to a continuing trend of distributors looking to do as much under one roof as possible and consolidating their offer. Some of the traditional labels we have used to earmark distributors in the past may no longer be applicable or relevant.”

He detailed: “Previously where certain businesses may have shied away from specific sectors or certain types of work, there will be more of a willingness for companies to embrace that business or look to find ways in which they can get involved. Combined with this will also be a trend of companies looking for new and different solutions for their customers that may offer more favourable commercial opportunities as opposed to traditional products and solutions that may have been commoditised.

“The knock-on effect of this situation may be a changing distributor landscape with some smaller companies (and maybe even larger ones) who don’t adapt or expand their offering falling by the way side, unable to compete with other distributors who may be able to provide a larger range of services and products to the same client at a competitive price.”

United Hygiene, Catering & Equipment’s (UHC) MD Andrew Husband agrees that a consolidated offer from distributors has become more prevalent, saying: “Our customers have become accustomed to a one stop shop experience and from a personal point of view we have already found ourselves consolidating our business supply chain, to meet such demands.

“It is so much easier to choreograph the arrival of goods rather than bits and pieces of a project arriving in a fragmented manner. We may be taking a small hit in margin but we remove a lot of risk along the way too, thus hopefully giving a better result and a better customer experience.”

At Portishead-based Tailor Made Catering Equipment Services, MD Jim Stevens believes the rate of consolidation depends on which sector a dealer is working in. “I have not noticed any slowdown. I think there is still confidence, and in our particular area things are looking stable.”

He further predicted that markets would remain stable, adding: “In all walks of business, if operators keep doing the same thing they will get the same results. Brands and gimmicks have a shelf life so it’s important to remain inventive. However the challenges that face all operators are finding the right premises and staff to work them. This restricts growth, which impacts on the design houses.”

Shine MD Julian Shine forecasted instability in the construction sector, which he believes will promote selective tendering.

However, Shine forecasted instability in the construction sector, which he believes will promote selective tendering. “It’s interesting to see who you can get worthwhile credit insurance on at the moment. Clients seem to think its fine to expose their supply chain to companies that they themselves would not risk working for,” he commented.

While ABDA’s Summers analysed: “The overall market will become very competitive over the next few months with added uncertainty of the Pound’s strength against the Euro, so long-term project costing will be challenging and manufacturers’ costs could potentially increase.”

UHC’s Husband sees the biggest operating challenges for dealers as cash flow and getting paid. “We have recently seen a large, well established competitor of ours go into administration and it is a reality to check on where we are as a business,” he warned.

“For independent outfits such as ours, managing the way we price jobs from both a margin point of view and the risk to our cash flow will certainly influence what work we take on and more importantly what we turn down. We have drawn a line under selling items too cheaply – particularly with online sales.

“With this in mind I see the biggest operational challenges hitting these ‘web-based’ businesses who don’t operate with a team on the ground. It has already been pleasant to see some of the big brands in the industry already pulling discounts and support for these type of operations as it devalues what we do in the industry.”

Dean Broadbent, Millers Catering Equipment MD, feels internet dealers are still driving down margin on equipment.

Millers’ Broadbent expressed similar sentiments about online dealers, saying: “Winning profitable business will continue to be a challenge with internet dealers still driving down margin on equipment. The key is to differentiate your offering, which can be done where there are bigger projects, but which is difficult on individual asset upgrades here and there. On the whole though I see many more opportunities than challenges.”

Dixon also underlined that the main watchword will continue to be margin. “As the industry continues to evolve and adapt into its current state and embracing all routes to market, the margin opportunities continue to fluctuate, mainly in a downwards trend for some products.

“Service-led business will continue to offer the best opportunities for distributors. This may have a knock-on effect with the supply chain. Some well-known brands that have historically been strong sellers in our market may not become commercially viable for some companies any more, leading them to look for alternative solutions for their clients.”

He believes that this could provide opportunities for new brands coming into the market, or brands that haven’t previously been able to capture much market share. He cautioned: “This then poses operational challenges as distributors need to find these solutions, get to grips with new suppliers/brands and also ensure they provide the customer with what they need while offering a better commercial opportunity for the distributor itself.

“The changing nature of our market (something that has been happening for several years now), driven by new routes to market, changes in technology and changes in the way customers shop/find out information, has transformed the landscape of our industry and continues to do so. This in turn brings with it challenges across the board for companies to keep up and also to adapt to survive/grow.”

In terms of new technology itself, Tailor Made’s Stevens predicted: “Energy efficient products are now something that is regularly discussed by customers, whereas it was not top of the list years ago. I see more induction, speed cooking and less labour-intensive equipment being used in the coming years.”

Elsewhere, according to Shine: “Energy management systems will play a bigger part in new build or refurbishment projects due to the low hanging cost reductions having already been collected. DW/172 2018 will also see a move towards demand controlled ventilation and away from wood-fired cooking.”

Husband also sees energy efficient equipment as an obvious candidate for continued development, whether that be via induction or increased battery life. “Plus we are seeing a lot more demand for multi-purpose kit coming into the market from the likes of Frima and Rational. End users are being more aware of energy consumption and the environment too, and no doubt there will be increases in legislation which will only drive it on further,” he said.

Summers at ABDA agreed: “Efficiency and versatility of equipment is the key driver allied with connectivity to aid equipment monitoring and maintenance.”

Broadbent cited smart kitchen technology as becoming increasingly important as well. “There will be a gradual move towards connected cooking with the ability to check the performance and data from assets remotely,” he forecasted. “For me, I am not sure how much of an advantage there is here to many end users but I suspect that the internet of things will morph into our market too.”

Hopkins Catering Equipment’s Phil Dixon believes the main industry watchword will continue to be margin.

While Hopkins’ Dixon predicted: “On the whole, many of the same technologies and products will drive the market over the next 12 months with no vast changes across the board, as people continue to adapt to current market conditions.

“I do however think we will continue to see the growth of induction cooking with the development of good quality units at a lower price points than previously seen before. Accelerated cooking solutions also continue to be developed and evolve to suit the more demanding needs of the QSR market.”

He reported that combination microwaves in particular are becoming an ever-larger range of solutions from manufacturers, and agreed with Broadbent that the connected kitchen is very much on the radar.

Dixon concluded: “With a requirement from customers for all devices to be as smart as possible, an expectation brought from the domestic market, manufacturers are realising the benefits that this can give commercial catering equipment. The obvious benefits are on the service side of things with companies who have large estates able to keep tabs on equipment and its status reducing downtime but also the ability of equipment to be guiding the user will become ever more apparent.

“With the continued de-skilling of staff in establishments looking to reduce costs, equipment that helps with how to use the item or even guides on the preparation, cooking and presentation of meals will be of interest to certain sites.”

Booming sectors

When asked about which end user sectors will be taking off in the next few years, the distributors had differing views.

For instance, Hopkins’ Dixon believes: “As the overall economic picture for the country remains in a state of flux, I think the market will continue to face challenges leading to a restriction in opportunities, as we have seen with some big names in the high street suffering recently.

“A lot of the more traditional public sector and high street chains may not offer as many opportunities as they once did. However, what for many distributors may have been secondary or tertiary market sectors in terms of focus such as nursing homes and garden centres may still flourish, due to them being sat in different market sectors completely.”

Jim Stevens, Tailor Made Catering Equipment Services’ MD, noted that energy efficient equipment is now regularly requested by end users.

Whereas Tailor Made’s Stevens sees casual dining and street food as remaining profitable. “Whilst there is obviously a place for traditional restaurants – long lunch and dinners, I would say that weekdays invariably people want to be in and out of an establishment. Operators that can offer this will win,” he commented.

Shine reported: “We are seeing an uplift in projects funded by inwards investment. Could it be that the risk reward calculations regarding Brexit are starting to improve?”

Summers of ABDA also cited the potential impact of the UK’s EU departure, saying: “All sectors will feel the pinch with Brexit looming, but potentially opportunities will rise to the surface in the economical leisure sectors and where those nervous to travel into Europe will look to the UK holiday market.”

While UHC’s Husband detailed that no sector is performing extraordinarily, adding: “We are keeping busy in the independent market which is our core business at this moment in time.”

Broadbent agreed with this analysis, saying: “I think that there is still a big growth opportunity for independents looking to target the higher end of the market.

“We see many of our customers looking to upgrade equipment or to expand but they are offering premium products in the main. There is still a high level of consumer disposable income and the millennial market drives eating out still further. However, people are ever more looking for provenance and quality, but this will drive the right establishments to prosper.”

 

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