Parts Town was a name that few dealers in the UK knew much about until two years ago – when it swooped in to acquire First Choice Group. That deal was just one piece of a much larger puzzle aimed at changing the way in which OEM spare parts are procured and creating a global industry force. Catering Insight’s sister publication – Catering Insight USA – sat down with Parts Town CEO Steve Snower in Chicago to get a no-holds barred account of what it takes to build a $500m (£411m) juggernaut:
Parts Town has delivered some extraordinary growth over the past 15 years, going from a business with $3m (£2.5m) in annual sales and five members of staff to $530m (£435) and 1,700 employees globally. What factors do you attribute that growth to?
We have really driven that growth out of two primary insights – the first of which is partnering with the manufacturers and the industry rather than competing against them. We only sell pure genuine OEM parts that are safe, reliable, meant for that equipment and protect the warranties of the equipment – and that delivers the safest, best solution to keep equipment running most effectively for the longest period of time. It also keeps employees of the restaurant safe and so on, so we are huge advocates of genuine OEM parts, and that is something that differentiates us very significantly.
With that commitment to OEM and to the manufacturers, we have generated very deep partnerships and support that has helped the business grow and succeed, but also helped the manufacturers. They participate in the parts revenue when we sell a part because it is always genuine OEM and it helps their equipment perform better, which is what will keep customers coming back again and again. That is very significantly difference for us – we really embrace the manufacturers and partners, and partner with them.
And what about the second factor behind the growth?
The second thing is we have brought a lot of new technology to the industry. We have been the first mover on virtually every major technology that has been launched in the last 15 years in the parts and service industry, and that started with PartsTown.com, which was the first real comprehensive ecommerce capability that the industry has ever seen.
That was followed by our mobile site and our app, as well as some other technologies that we have brought to the table which have helped customers identify parts when and where they need them, and understand how to repair the equipment through access to technical manuals and information at the push of a button on their devices. It has helped improve service capabilities in the US and around the world by more efficiently connecting customers with the information they need.
We live in a society where people expect everything instantly these days. Given the extent of your online operation, how has that trend manifested itself in the parts world?
We have developed the industry’s broadest and deepest inventory of OEM parts, because the thing that is most important to the customer is that parts are in stock and shipped immediately. We guarantee same-day shipping of all product out of Chicago as long as it is ordered before 9pm, and we have a very late cut-off time in the UK as well through First Choice. Having the part in stock, available to ship quickly, and the technology and the safety and quality that comes with OEM, has enabled very significant growth.
You have begun to expand internationally. Tell us a bit about your thinking there…
We have begun to expand pretty significantly internationally, and the UK is a market that we are a leader in through the First Choice acquisition, which is a great company that lined up with the Parts Town values, commitment to OEM, commitment to manufacture partners and inventory availability. First Choice has actually been very high-performing since joining the group and it is having a terrific 2019 so far with really nice growth.
We have also recently added another logistics centre in Dusseldorf to further expand our reach and deliver next-day to more areas of Europe and the Middle East. So we will have the UK-focused operation in First Choice that has some reach beyond the UK as well – although [MD] John Whitehouse and the team really focus heavily on the UK market, which is an awesome market for us – and the Dusseldorf operation that will help us reach other areas of the continent.
Is the Dusseldorf operation trading as Parts Town?
Yes, it trades as Parts Town. We opened it earlier this year and really what we have seen there is manufacturers looking for a partner that will honour the commitment to OEM and help grow in partnership with them. Much like we have seen in the US over the years, we are now seeing that demand in other areas of the world where manufacturers would really like to have a partner that is committed to OEM and supporting them fully. We are ramping up over there right now.
Is that your first foray into mainland Europe?
We have a good base of business there already that is distributed out of the US, so we are already selling into Europe. The Parts Town distribution centre shipped to almost 200 countries out of the US last year. The distribution speed and quality, with the support of the technology, is very attractive. Around the world we have got some unique logistics programmes, but the Dusseldorf operation takes it to another level.
Tell us a bit about what’s happening at your HQ. Is there any work going on to improve your central distribution centre?
Yes, we are in the midst of a major capital investment in our distribution centre in the US, which is really exciting. 55% of our orders today are picked by robots in our distribution centre. That has made us incredibly efficient and raised the quality standards to a new level and opened up a lot of capacity in the distribution centre, and we are expanding that capability further. Later this year we will be up to 70% to 75% of our transactions being picked in an automated fashion.
We are also launching master distribution programmess where manufacturers put their full parts programmes through us in order to reach their service companies more efficiently and faster, and to help service companies deliver the highest quality service in the industry.
You are clearly seeing a lot more master distribution opportunities and are in a fantastic position to benefit from those. But are there still manufacturers out there that would prefer to manage their parts in-house?
Yes, they are still some. I would say the transition from the legacy model to the more efficient, focused distribution model is maybe 30% to 50% complete – no more than that. There are a lot more manufacturers that are still moving in that direction but haven’t done it yet or which are thinking about it or just not ready to because their models don’t support it at this time. One of the biggest trends that we see in the parts industry is the move towards master distribution and more focused distribution that is more efficient for the manufacturer and provides a better customer experience.
You talked about technology innovation earlier. How much of your business now comes from online transactions?
Over 60% of our transactions are now transacted digitally and that is growing in leaps and bounds each year. And even within that trend, transactions are moving more to the mobile device and away from traditional ecommerce on the laptop or desktop, so that’s a really big trend in the industry. And, of course, we have major end-users that are looking for one source for all their parts to simplify and get better data, and custom-ecommerce and things like that.
Do you take inspiration from other industries with a reputation for a high level of technical innovation around parts, such as the automotive sector?
It is a good question. In the early stages of our development we took some inspiration from the major industrial supply and electronic component distributors globally. There are some incredible distributors in that arena. But in recent years the inspiration for our new technology endeavours have come more from retail than they have from distribution businesses, so we find features that are very unique in the consumer-retail environment and look to adapt them to the B2B parts industry. We have found a lot of interesting things going on there.
We’ve also gained inspiration from our own people, our customers and manufacturers that have seen the type of things we are capable of. It has created a snowball effect of new innovation opportunities for the company. We feel like we have two or three years’ worth of really unique innovations in the funnel and we are just working on ways to deliver them faster at this point.
The foodservice equipment parts market is notoriously fragmented. As the market leader, are you aiming to consolidate it further in the way that you have done in the UK with First Choice?
Selectively, yes. We are not looking to acquire for the sake of acquiring just to become a larger company. We are very specific about the companies that we look to bring on as part of the group. We are looking to bring in really high quality companies that offer something to the group that’s unique and different; companies that are very well-managed with good brands. We have completed 11 acquisitions over the past 5 years and we always have lots of opportunity, but we want to bring the right companies into the group. We are active in the M&A market but companies have really got to fit our vision.
Presumably there is a big chunk of companies out there that you would never entertain acquiring then?
Yes, that’s right. There are companies that fit our model and there are companies that don’t – and that’s not to say there aren’t great companies out there that don’t fit our model, there are lots of great companies throughout the industry. But we have our model that we want to strengthen and that means deepening manufacturer partnerships, supporting them even further, improving the customer experience more and advancing our technology further.
Are there any parts of the product range you are consciously looking to grow, or any parts of the market where you feel you need more coverage?
Between Parts Town and First Choice we cover most of the food equipment service parts very well. There are certain lines where there are always gaps that we are looking to fill and usually we look at those organically. Often we just need to get out and build the relationship and the partnership. But as we grow we also have customers asking us for more stuff and wanting to do more with us that’s a little bit outside of the foodservice equipment parts realm. We don’t have anything that’s imminent there, but we are evaluating different opportunities.
Are those opportunities within the hospitality sector?
Without getting too specific, really what we would look at there are products that our existing customer base would love to buy from us. We don’t want to bring new products that we need to bring to new customers, we want to start from a position of strength which is our loyal customers who know us, use our technology every day, appreciate the level of service and trust that we have built with them and would like us to bring more products to them. So we listen to the customer, we track what they are asking for and those are the types of things we would evaluate. But I am going to stop short of getting too specific on what those lines would be today.
Just finally, you crossed the half-a-billion dollar mark last year after posting sales of $534m (£439m). There’s an argument that the bigger the business becomes, the harder it will be to achieve the growth rates you’ve been used to. What’s your response to that?
People have been telling me that for 10 years! And we always find a way, and that comes from the culture. If you can get the culture right with a team of really enthusiastic, energised people that have high ambition and who are innovating, the idea that once you get bigger you can’t grow, we don’t really think about that. We set a high standard and we have had 15 consecutive years of at least 20% organic growth. We intend to keep that streak alive and the organic growth of the Parts Town accounts has been very high again so far this year. We are not signing up for the idea that you can’t grow at high rates once you are a larger company. We just need to keep investing in the culture, our people, our technology and the relationships that we are building.