On the face of it, these are exciting times for the catering equipment distribution channel.
An improving economic picture is restoring confidence to the market, a revival in eating out among the British public is inciting rapid high-street restaurant growth and initiatives such as free school meals have elevated the importance of catering in key sectors such as education.
Across the UK, meanwhile, cities such as Manchester, Bristol and London are seeing new dining concepts springing up at a rate that would appear to far out-pace the number of closures. All of this points to a busy 12 months ahead for catering equipment distributors possessing the install, supply and service skills to meet customers’ requirements.
But you’ll be hard pressed to find anyone in the market willing to admit they expect things to come easy this year. For all the trends unfolding at operator level, distributors are still having to fight extremely hard to win their share of business and remain competitive. Retaining margin, growing profitability and adding value in an industry that has become obsessed with reducing cost is far from easy.
The challenges that traditional catering equipment distributors face in 2014 are both varied and enduring, but for many the ability to overcome these will hold the key to how well individual companies, and the wider industry, performs over the next 12 months.
Jonathan Skinner, director at Yorkshire-based Marshall Catering Equipment, is concerned about the ‘box-shifting’ mentality that has enveloped the industry, although he does believe that attitudes are slowly changing among dealers and suppliers.
He also highlights other areas where the apparent lack of a level playing field threatens to compromise some businesses in the market.
“I think that the challenges for smaller companies are competing during tendering processes with bigger companies that offer ‘deal sweeteners’ to win jobs. This is an increasing problem that we need to look into further. Lastly, retentions on scheme work: we need to unite and say no to these as other industries have already, but it can only be considered when everyone agrees to reject them.”
Richard White, managing director of Berkeley Projects in Surrey, is targeting a 20% to 30% rise in business this year, but is counting on the placement of more long-term orders to supplant the current “hand to mouth” workload.
As far as he is concerned, the demands now placed on distributors to complete schemes are far greater than ever before. “Lead-in programmes and duration on site have been reducing over the last 12 to 24 months,” he explains. “This demand pressures our ability to deliver a quality build. Clients firmly believe they are in a strong ‘buyer’s market’, which impacts on programme as well as cost.”
This, too, also manifests itself in other ways. Clive Groom, managing director of Gateshead-based CNG, says late or hesitant decision-making is a thorn in the side. “A new and challenging trend is that even after finalising designs and specifications — being absolutely clear and precise about the content of an order, and everything on order — clients seem to have a ‘review’ and we almost have to start again. This causes more than a little difficulty!”
Mark Drazen, boss of Blackpool-based Caterware, cites a number of hurdles that threaten the financial health of the distribution channel going forward. This includes managing the risks that come with serving an operator base that is no longer as creditworthy as it once was and learning how to combat the negotiation tactics and margin enhancement games played by main contractors.
He adds that the burden on distributors to ensure compliance also shouldn’t be overlooked. “Distributors are having to make sure they are up to date with statutory requirements, guidelines and policies and can still afford to implement them within the business, while having a margin large enough to carry the internal expense of such ‘bureaucracy’,” he says.
One issue that is impossible to ignore is the pressure inflicted on distributors to match prices that customers find on the web, even if they don’t actually have any intention to purchase online.
Martin Hall, general manager of Brakes Catering Equipment, argues that the “ridiculously low” prices advertised by some web-based dealerships simply aren’t sustainable in the long term.
“Tempting though these might be, the buyer is often left high and dry when it comes to breakdowns, service, maintenance, support and training,” he says. “To that end, we will continue to push our added value nature in terms of design, installation and back-up.”
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Hall is one of many distributors who calls for manufacturers to exert greater control and authority over buying and pricing terms in order to halt some of the aggressive discounting seen online.
“I would like to see manufacturers implement a better differential discount between large and small distributors,” he says. “They are too close at the moment, to the point where somebody working out of a spare bedroom can continue to prosper even when competing against a larger dealer who is buying 10 times the volume from the same manufacturer.”
This issue belongs to a much wider debate around the topic of loyalty, suggests Drazen at Caterware. “Manufacturers should evaluate where their business comes from to a greater extent, in that they should protect companies who sell, support and specify their products rather than offer the same discount levels to companies who just ‘complete tenders’ without any care or regard as to whose products they are supplying” he says. “This way, when tenders do arise, companies who regularly support those suppliers within non-tendered projects would be in prime shape to win these tendered contracts as a reward for their previous efforts.”
Colin Chettleburgh, director of Broadland Catering Equipment in Norwich, which has been a distributor for almost 40 years, says the pressure on margins from internet sales has become a “major issue” for companies like his. “We have to recognise the market will decide what is the right way to sell, but it is very difficult to provide the right quality and quantity of advice and service on one hand and compete on price with web sales on the other.”
Chettleburgh says he would like to see greater recognition for the status of distributors, positioning them as “specialist advisers” rather than shops or showrooms.
His views on pricing pressure are echoed by Jack Sharkey, boss of Vision Commercial Kitchens in Lancashire. He comments: “The biggest challenge facing distributors currently is the excessive discounting that has been taking place over the last few years. This has increasingly put pressure on businesses to compete and lower their margin return, which is simply unsustainable if they are to survive. The distributor adds real value to the whole process in terms of deliverables, but also in advice and equipment selection, so the internet and internet purchasing is and will always be a real challenge to the distributor.”
In terms of installers, Sharkey says that access to training and regular updates on training is a challenge. “We are increasingly looking at and installing more technologically-advanced equipment, so installers need to be kept abreast of the installation requirements. Having access to training is essential but not always easy, especially when you consider the cost to take an engineer off the road for a couple of days and the subsequent lost revenue from that, so this is a challenge, especially for the smaller companies.”
The evolution of the relationship between distributors and suppliers is another area that looks set to make for interesting viewing this year, particularly with some brands accused of targeting end-user accounts directly.
In general, though, most of the major manufacturers would appear to have aligned themselves with the distributor market and see value in the relationships the dealers have and the services they offer.
Chettleburgh at Broadland says that while it is understandable that brands are attracted by high volume buyers, he believes there is an increasing realisation that it is not the be-all and end-all. “We have seen a sea-change over the last two years in that they have recognised that, if their brand is miss-sold — often on price only — or poorly supported at after-sales level, short-term gains are negated by reputational damage. We will only distribute for brands who are so enlightened.”
Skinner at Marshall Catering Equipment adds: “Manufacturers as a whole are being very accommodating with dealers. From my experience, the pricing structures are geared towards helping the dealer get the sales and they are always up for helping on specialist jobs with extra discount. Working in tandem with that, trade associations and buying groups such as ENSE are doing a great deal in equalling out the discount structures with the rebate systems and opening up access to brands that wouldn’t usually be available to some dealers.”
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So what else can manufacturers do to support the dealers in 2014?
Several common themes are raised by dealers, including the need for easily available technical help, minimised lead times for spares and greater recognition that extras such as additional warranty years really can make a difference to winning jobs. There is also an argument that more manufacturers need to accept that weekends are more important than midweek in the hotel and restaurant sector, and therefore need to staff accordingly without passing on extra charges.
“The best suppliers are those who help, listen and react when needed, but are also proactive in their support,” remarks CNG’s Clive Groom. “Even in these better times business will remain challenging, so suppliers that make life easier by not over-complicating matters will always get our vote. Having worked in both the manufacturing and dealer side of the industry I also know that some companies on our side of the industry are totally unreasonable — so perhaps manufacturers respond accordingly?”
Hall at Brakes Catering Equipment says he would like to see an improvement in the service levels that are currently offered, citing accurate product consignments as an example of what he means.
“If we order 100 units of a product from a manufacturer we want to receive 100, not 90 with a promise that they will get the rest to us as soon as possible. And if they do deliver all 100, we want to get them on time! Also, we often have manufacturers coming to us with a new product, which we subsequently agree to promote and sell, only to then find they struggle to supply us.”
For Vision’s Sharkey, it is all about knowledge share. “More education and training on product is what needs to be delivered better to the distributor from the manufacturers, but likewise the distributor needs to make themselves available for that training, especially with some of the new product coming to market,” he says.
There is a long road ahead, but it is all set up to be an eventful year. Sit back, buckle up and enjoy the ride.
How will the catering market fare in 2014?
Distributors are bracing themselves for a pick-up in business this year as a combination of factors forces operators to invest in the latest energy efficient equipment and foodservice concepts to propel their own operations forward.
“I see 2014 as the start of a very good recovery for the foodservice and hospitality sector,” reveals Jack Sharkey, boss of Vision Commercial Kitchens. “I think there are several trends that will come to light over the next 12 to 18 months.
Operators have had to patch up and make do over the last four years and they will start to look at the total cost of ownership in more detail and not just the initial capital expenditure. The last four years will have acutely highlighted the cost of repairs and maintenance to keep their equipment going.”
Sharkey also predicts a strong move towards products that mix durability with true environmental accreditations in terms of energy, water usage and waste reduction. “They will be looking at new technology to achieve this, in addition to reducing their labour costs, speed up their production and improve the speed of service. This is not a new trend but one that I feel will start to strongly influence buying decisions over the next few years. I think there will be a number of innovative products that will come to market as a result,” he says.
Brakes Catering Equipment registered a 15% increase in sales last year and general manager, Martin Hall, anticipates more of the same this time around. He highlights the education sector as a market well-placed to spark growth.
“Following the government’s recent announcement in relation to free school meals, we expect that particular sector to really take-off,” he says. “Clearly, with more food being served, there will be a requirement for new infrastructure to deliver this, ranging from something as mundane as new utensils right up to a complete new kitchen.”
Growth in variable-use equipment, enabling kitchen areas to be smaller and restaurant areas to be larger, is cited as another trend that will gain momentum this year, while some expect more contracts going via main contractors than clients direct.
Colin Chettleburgh at Broadland Catering Equipment says that after five years of buyers and sellers being conditioned to be price-focused, the challenge is to continue educating clients that cheapest is often the worst option. “We are detecting that customers are starting to wake up to this, and coupled with some easing of the economic situation are becoming more receptive to whole life-cost investment decisions,” he says.