During my investment career, my favorite question to ask a CEO was "if you were to lose market share over the next 5-10 years, what would be the primary reason why? I've spent countless hours thinking about this same question for FE&S dealers. Why will they win or lose the future?
I'm biased but I strongly believe that technology and expanding service offerings will be the most important factors (and they are linked). Restaurants & equipment vendors are investing heavily into technology and new software platforms for restaurants are born every year that have no affiliation with dealers.
I believe dealers must respond aggressively and with urgency to maintain and grow their wallet share. So I decided to write about it. This post starts with understanding how dealers create value for their customers today, and how that value could increase or decrease over time due to changing technology.
Here's the kicker though. Instead of just voicing my views, I interviewed an Artificial Intelligence bot! All of the answers below were produced by a computer. So not only does this post highlight the technology risks for dealers, it also shows how quickly technology is coming.
P.S. If you don't believe me and wish to verify, go to https://chat.openai.com/auth/login and test it out!
SG Question: What are the revenue streams for foodservice equipment dealers? Please provide them in bullet-points.
There are several potential revenue streams for foodservice equipment dealers, including:
- Sales of new or used equipment to commercial kitchens
- Parts and supplies sales, such as replacement parts for equipment and consumables like cleaning supplies
- Service and maintenance contracts
- Installation and setup services
SG Question: Why do restaurants not just buy directly from manufacturers? What value do dealers create?
- Convenience: Dealers have a wide variety of equipment in stock, so restaurants can easily compare different options and make purchases without having to deal with multiple manufacturers.
- Expertise and advice: Dealers have extensive knowledge about the products they sell, so they can provide valuable guidance to help restaurants choose the best equipment for their needs.
- Support and service: Dealers often provide additional services, such as installation, repair, and maintenance, which can be valuable to restaurants that need help with their equipment.
- Financing and leasing options: Many dealers offer financing or leasing options, which can make it easier for restaurants to afford the equipment they need.
SG Question: How will technology impact these value drivers?
- Convenience: Online platforms and mobile apps can make it easier for end users to browse and purchase equipment, or to schedule service and maintenance visits.
- Expertise and advice: Artificial intelligence and machine learning can provide personalized recommendations and advice based on the specific needs of each end user.
- Support and service: Predictive maintenance and other technologies can help proactively identify and address potential problems with equipment, helping to reduce downtime and improve the performance of equipment.
SG Question: There are many software platforms that sell to kitchens that have no affiliation with dealers. Could they leverage the technology cited above to target the rest of a dealer's business?
Software platforms that sell to commercial kitchens can be considered competitors to dealers. These platforms typically offer services such as repair and maintenance, employee management, and back-office services. It's possible that these software platforms could eventually expand their services to selling equipment or providing installation services. It's also possible that new digital platforms get created that target a dealer's business.
These platforms could use AI to help customers identify the right equipment for their needs, based on factors such as the size of their establishment, the type of food they serve, and their budget. Additionally, these platforms could use technology to streamline the equipment sales and installation process, by providing online tools for customers to easily search and compare different equipment options, and to place orders and schedule installations. AI could also be used to provide real-time support and assistance during the installation process, to help ensure that equipment is installed correctly and is ready to use.
Finally, these platforms could potentially provide a more convenient and seamless experience for customers who need to purchase replacement equipment. For example, the platform could automatically identify when equipment is due for replacement based on its age or usage history, and could provide customers with recommendations for suitable replacement options.
SG Question: Could manufacturers move downstream and restaurant chains move upstream to bypass dealers?
Yes, with better technology and more extensive product catalogs, manufacturers could compete more directly with dealers particularly for replacement equipment and customers with prototype kitchens that consistently use the same equipment. Larger, more sophisticated commercial kitchen operators could also vertically integrate with better in-house technology that replicates a dealer's services. In fact, some large chain restaurants have already vertically integrated their operations and no longer work with traditional dealers.
SG Question: How can dealers effectively respond to these risks? What are the key investments do they need to make to continue to create more value than these potential competitors?
Dealers can effectively respond to these risks by making strategic investments in technology and additional services. This will make it more challenging for new platforms and manufacturers to compete with them and make it harder for restaurants to in-source dealer services.
Some of the key investments that foodservice equipment dealers may need to make include:
- Leverage technology to improve their internal operations so they can deliver better products and services at a lower cost
- Investing in online tools that make it easier for customers to search, compare, and purchase equipment, and to schedule installations and repairs
- Offering additional services and support to customers, such as training and certification programs, warranty and support services, and after-sales support