FER Industry Report

How Big U.
S Chains And
Institutions Purchase Equipment
And Select Suppliers
By Robin Ashton, Publisher,
Beth Lorenzini, Editor-In-Chief
Foodservice Equipment Reports
Hotelex, Shanghai, P.R. of China
31 March, 2014
Foodservice
Equipment Reports 2014
1
Researching How Multiunit Operators

Buy E&S And Choose Suppliers
Big chain, institutional and other multiunit foodservice
operators rule the U.S. and global markets.
They continue to grow and gain market share everywhere.
In the U.S. market, they clearly purchase a majority of all
new equipment and supplies.
As multiunit operators, they have unique needs and much
more complex specification and purchasing processes.
To better understand these needs, processes and the
criteria they use to evaluate and choose E&S suppliers,
FER undertook exclusive new research.
Foodservice Equipment Reports 2014

During the past year, FER surveyed first chain and other
commercial operators, then large institutional operators;
FERs exclusively multiunit operator circ. lists were used.
The 16-question surveys, specific to commercial and
noncommercial segments, were e-mailed using Survey
Monkey research software.
The questionnaires probed which functions are involved in
spec and purchase decisions, outside influences with input,
and criteria used in supplier and brand selection.
We received 99 complete commercial surveys and 124
complete noncommercial surveys.

The research is not designed to be statistically accurate, but to
serve as a guide to how these large organizations evaluate and
select E&S products and specific suppliers.
We, of course, found that there is a great deal of diversity in
criteria and procedures in these complex organizations.
Few operators organize their E&S spec and purchasing
operations exactly the same.
But there are commonalities that the research reveals.
Some of it may surprise you; it did us.
But before we dig into the research, lets do an overview of the
structure and typical spec processes in the U.S.
U.S. Foodservice & Equipment Markets

The foodservice market in the United States is huge,
complex, diverse and relatively mature.
Chicago-based research firm Technomic Inc. estimates
U.S. market at end-user level at US$682 billion in 2013.
Technomic details 20 foodservice segments, purchasing
$245 billion of food, beverages and non-foods in 13.
NAFEM/FER estimates equipment and supplies market at
$9.6 billion in13 at manufacturer level.
Equipment accounts for 82% of total U.S./Canada E&S
market, durable supplies and tabletop 18%.
U.S. Foodservice Market By Segment

Food & Beverage Purchases, 2013
Total: $244.6 Billion
Source: Technomic
3%
8%
5%
31%
7%
8%
9%
29%
LSR
FSR/Bars
Lodging/Rec.
Retail
Education
Healthcare
Business
All Other
U.S. Foodservice Market By Segment

Unit Distribution, 2013
Total: 1,130,924
Source: Technomic
0%
7%
5%
25%
12%
18%
25%
8%
LSR
FSR/Bars
Lodging/Rec.
Retail
Education
Healthcare
Business
All Other
U.S. E&S Market By Product

E&S Market Share By Product Category, 2013
Total: $9.603 Billion
Source: NAFEM & FER Estimates
11%
20%
8%
6%
9%
23%
4%
13%
7%
Cooking Equip.
Refrig./Ice
Storage & Hand.
Serving Equip.
Food Prep Equip.
Warewash & San.
Cust.Fab/Furnish.
Smallwares
Tabletop
Operator Market Structure

There are 1.3 million foodservice kitchens in the U.S., but
its a multiunit world.
U.S. foodservice is dominated by chain and other
multiunit operators including foodservice management
companies and big institutional operators.
Top 500 chain concepts control nearly 60% of restaurant
sales and 40% of all units.
On the institutional side of foodservice, management
companies operate 20% to 80% of key segments.
U.S. more chain dominant than most other developed
and developing foodservice markets.
Top 500 Chains Market Share 2012

Share Of Restaurant Sales
Total: $435 Billion, 2012
Share of Restaurant Units

Total: 518,533, 2012
Source: Technomic Inc.
Top 500
42%
58%
Rest of
Industry
41%
59%
Top 500
Rest of
Industry
FS Management Companies Control Of

Key Institutional Operator Segments
Share Of Purchases , 2012
79%
55%
38%
37%
17%
16%
19%
NPD: Traffic Share Of Chain Vs.

Independent Restaurants, 2010
Chains
Independents
Share of Visits
24.6
38.2
36.0
40.7
43.7
54.9
55.8
63.7
74.1
77.1
83.4
75.4
61.8
45.1
44.2
36.3
25.9
USA
Canada
Australia
64.0
59.3
56.3
Great
Britain
Germany
22.9
France
Spain
16.6
Italy
Japan
China
Russia
Operator Market Structure

Chain domination is especially pronounced in the giant
limited-service restaurant segment.
Technomic Top 500 LSR chains control 83% of industry
sales and 65% of units
In the burger category, Top 500 brands control 95% of
sales and 87.5% of units.
According to NPD Group CREST data, quick-service
concepts account for 79% of all restaurant visits.
Major chains (those with 500+ units) controlled 64% of
all visits in 2013, a number that has grown, says NPD.
Big Chain Control Of Restaurant

Sales By Service Type
Limited-Service Restaurant Sales
Full-Service Restaurant Sales

17%
Top 500
Rest of
Industry
83%
33%
67%
Top 500
Rest of
Industry
Big Chain Control Of Restaurant

Units By Service Type
Limited-Service Restaurant Units
Total: 281,494, 2012
Full-Service Restaurant Units

Total: 237,039, 2012
12%
35%
65%
Top 500
Top 500
Rest of
Industry
Rest of
Industry
88%
NPD Traffic By Segment

Total Restaurants
JAS '13 Traffic 0%
Traffic % Change vs. Year Ago
QSR
( 79%)
0%
2%
2%
-4%
-3%
1%
1%
1%
-3%
-2%
-2%
0%
1%
1%
-2%
-3%
Midscale
( 10%)
-4%
0%
Casual Dining
( 10%)
-1%
-4%
Fine Dining/
Upscale Hotel
(1%)
-2%
3%
3%
-2%
-2%
-3%
9%
5%
0%
-1%
-1%
4%
5%
-2%
6%
6%
JAS'11 OND'11 JFM'12 AMJ'12 JAS'12 OND'12 JFM'13 AMJ'13 JAS'13

(Share of Traffic JAS '13)

The NPD Group, Inc. | Proprietary and Confidential
Source: CREST
Major Chain Traffic Share, NPD
Major Chain Traffic Share, NPD

Total Restaurants
OND'13 Traffic -1%
Traffic Distribution - OND

PCYA
Major
Chains
Small
Chains
Independents
CAGR
61%
62%
63%
64%
64%
-1%
1%
11%
11%
11%
11%
11%
-1%
-1%
28%
27%
26%
25%
25%
-2%
-2%
2009
2010
2011
2012
2013
ReCount Unit Counts PCYA
CREST Major Chains
Sm. Chains & Independents
CAGR= Cumulative Annual Growth Rate 2009 to 2013
1%
0%
PCYA = % Change vs. Year Ago
Source: CREST / ReCount
18
U.S. Foodservice & E&S Market Realities

A few thousand organizationschains, FS mgmt.
companies, big institutionsare keys to U.S. market.
They not only control a majority of operator sales, but
account for an estimated 70-75% of new E&S purchases.
They dont purchase E&S like independent operators.
They are the most brand sensitive and have complex
specification, evaluation and distribution processes.
This is particularly true of the big QSR brands, but is also
true of other chains and big institutions.
Which is why FER researched those processes.
U.S. E&S Buyer, Specification &

Distribution Channels
The paths and influences in big operator E&S buying,
specifying and logistics decisions are multi-faceted.
The normal path is OEM manufacturer to independent
multi-line sales rep to dealer to operator.
Big institutional operators usually also employ an
independent design or concept consultant
Many chain and big institutional operators generally
follow these normal paths and channels.
But there are also many side paths, direct relationships
and other outside influences.
U.S. E&S Buyer, Specification &

Distribution Channels
How Chains Purchase Equipment:

Overview
U.S. restaurants chains come in all sizes, service and
menu types and ownership structures.
These differences influence, if not dictate, how they
evaluate equipment, select suppliers and purchase E&S.
As weve seen, specification and distribution are very
complex, with multiple influences and channels.
Generally, larger chains deal more directly with the OEM
manufacturers and their sales reps; a semi-custom world.
The larger the chain, the more specialists influence
equipment selection and purchase procedures.

Overview
Quick-service giants are usually franchised, while
full-service chains often own all or most of their units.
Franchised systems have another layer of buyers, the
franchisees themselves.
Many franchised systems have purchasing co-operatives
that are jointly owned by the company and franchisees.
Quick-service equipment packages are more custom,
often designed by company R&D engineers and OEMs.
Full-service chains generally have larger kitchens and use
more standard equipment items.

Overview
Smaller chains, both quick- and full-service, generally rely
more on manufacturers reps, dealers and distributors.
These entities help specify and provide a kitchen package, as
well as provide the services for opening stores.
In smaller chains, there are fewer specialists, and senior
execs, operations execs, and chefs are key specifiers.
Even the largest chains use some form of dealer or KES
(kitchen equipment supplier, usually also a manufacturer),
even, in a few cases, in-house distribution.
The FER Commercial Multiunit Purchasing Practices Survey
reflects this diversity.
Chain Purchasing Study Demographics

Operator Type
Company Owned Units
Franchisor
Franchisee
Hotel Chain
FS Mgmt.Co
6% 3%
Title/Function
(All that apply)
42%
38%
32%
23%
19%
15%
8%
19%
44%
28%
Chain Purchasing Study Demographics

Number of Units
Annual E&S Purchases

>$100K
$100-500K
19%
27%
8%
22%
24%
1 to 10
11 to 50
51 to 250
251 to 500
500+
12%
37%
13%
7%
10%
21%
$500K$1MM
$1MM$5MM
$5MM$10MM
$10MM+
Chain Functions That Evaluate

E&S Suppliers
No matter the size or structure of a chain, multiple
functions have some input into selecting suppliers.
Almost always, operations management have
significant input as do senior execs and culinary.
But when it comes to the most say in supplier choice,
senior execs are key, especially in smaller chains.
About one in five respondents name purchasing or
operation management as the key chooser.
In larger chains, R&D personnel, both equipment
engineers and culinary are named more often, along
with other specialist titles.
27
Chain Functions That Evaluate

E&S Suppliers
Have Some Input
(All That Apply)
Have Most Input

(Name One Only)
41%
76%
64%
61%
34%
39% 39%
21%
21%
26%
10%
6%
0%
2%
Outside Influences On Chain

E&S Supplier Choices
Outside distribution and purchasing partners, designers,
architects and food suppliers can also have spec inputs.
Affiliated purchasing co-ops or distributors, and
dealer/KES partners are mentioned the most often.
Food suppliers have more input than one might expect,
perhaps because of their role in new menu items.
Architects and general contractors and culinary
consultants have the least role.
Most surprising are percent of respondent who say none
of these functions have a role in choosing E&S suppliers.
Outside Influences On Chain

Some Input
(All That Apply)
Most Input
(Name One Only)
38% 39%
34%
26%
23%
21%
18%
16% 15%
9%
10%
2% 3%
7%
Sources Chain Buyers Use To

ID And Evaluate E&S Suppliers
Chain spec/buyers tap into many sources when looking
for and evaluating E&S products and suppliers.
Dealers, consultants, trade magazines and shows, even
food suppliers enter into the mix.
But when asked to name the sources they depend on
most, existing suppliers and mfrs. reps are dominant.
Recommendations from other operators, word of mouth
is also a very significant and important influence.
Dealers, trade magazines and consultants are still factors.
Its significant how much chains rely on existing OEMs.
Sources Chain Buyers Use To

Sources Used To ID/Evaluate Potential Suppliers
62%
42%
69%
50%
35%
35%
27%
47%
18%
13%
18%
Use (Name All)
44%
55%
15%
9%
16%
2%
13%
Use Most (Name 3 or Fewer)
27%
56%
Criteria Influencing Chain Buyers

Choice of E&S Products/Suppliers
Many different criteria are involved in chain buyers E&S
product and supplier choices.
Labor savings, ease of use, energy efficiency, both initial and
lifecycle cost, speed and previous experience with the supplier
are all named by more than 50% of buyers.
But the most critical criteria is clearly the products and
suppliers impact on food and menu product quality.
Ease of use, initial cost and labor savings are the next most
commonly mentioned criteria.
Unique technology, water savings and availability are cited by
the fewest respondents as important.
Criteria Influencing Chain Buyers

Choice of E&S Products/Suppliers
Criteria Influencing Product/Supplier Choice
Some Influence (Name All)
Most Influence (Name 3 or Fewer)
62%
42%
35%
11%
46%
17%
17%
72%
85%
58%
42%
78%
68%
17%
23%
0%
41%
72%
54%
11%
40%
59%
Other Testing & Evaluation Procedures

Where Do You Test New E&S Products?
52%
31%
3%
4%
5%
3%
On-Site Operating Mfrs. Test Mfrs. Rep. Dealer Test Consult.

Test Kitch.
Unit
Kitch.
Test Kitch.
Kitch.
Test Kitch.
4%
Food
Supplier
Kitch.

Chain buyers most often test and evaluate new E&S
products in existing operating units.
But a significant number have on-site test facilities.
The testing is the key determinate of the E&S products
impact on food product quality.
But chains also test to help them determine operational
impacts, speed of service impacts, etc.
Big chains have very rigorous supplier testing and vetting
processes including factory visits, financial vetting,
service network reach and warranty history analysis.
U.S. Chain E&S

Purchasing Take-Aways
U.S. chain spec/buyers purchase billions of dollars of
E&S products every year.
They employ complex criteria and procedures to evaluate
products and suppliers.
They listen to nearly everyone they can in identifying and
evaluating potential products and suppliers.
They also have complex testing and evaluation processes.
But while they are open to new products, suppliers and
technologies, their complex multiunit needs and scale
requires suppliers of equal experience and scale.
How Big Institutions Purchase

Equipment: Overview
Big institutional foodservice operators are usually true
multiunit operators, just like chain restaurants & hotels.
But their kitchens, from huge production facilities to
commercial style a la carte serveries are more individual.
They purchase more stock equipment and supplies.
But they also buy a great deal of custom fabrication for
serveries, tray-make up systems and the like.
They usually purchase equipment less often, partly
because their volumes are lower, their staff better trained
and because they maintain equipment much better.

Equipment: Overview
This is how the process works for most big projects,
whether new construction or major renovations:
Project is conceived and announced.

Architects and general contractor are chosen by institution execs.
Foodservice director works with internal teams to outline scope.
FS director usually (but not always) hires design and/or concept
consultants to help create menus, concepts and kitchen design.
Design consultants specify E&S, including brands.
After approvals, including budgetary OKs, project is put out to
equipment dealers for bid.
Consultant helps FS director chose winning bid.
Facility and kitchen are built and the kitchen equipment installed.

Equipment: Overview
But in fact there is a lot more complication and back and
forth than the normal process entails.
The architect/GCs sometimes select the foodservice
consultant without the foodservice directors input.
Lots of prime specs are broken for monetary reasons,
both budgetary and to help the dealers make some money.
Since most dealers belong to buying groups, back-end
rebates help offset traditionally low bid-work margins
Normal replacement is more dealer-based, but beyond an
item or two still usually requires a bid process.

Equipment: Overview
Because of the size of the projectsequipment packages run
into the millionsOEMs and their reps sit on the
foodservice directors, consultants, dealers and others involved.
In the noncommercial world, the foodservice director is clearly
the key specifier.
They often have a great deal of E&S brand knowledge and
opinions, based on experience.
The opinions of culinary staff are listened to very closely.
And because many institutions have dedicated facilities
personnel, they have good data on maintenance and reliability.
Noncommercial Purchasing Study

Demographics
Operator Type
Title/Function
60%
8%
2%
3%
24%
34%
30%
Healthcare
Schools
College
Corrections
Business
Other
19%
11%
7%
1%
7%
Noncommercial Purchasing Study

Demographics
No. of Prod. Kitchens
Annual E&S Purchases

>$100K
14%
30%
10%
15%
17%
14%
1
2 to 3
4 to 6
6 to 10
11 to 15
15+
7%
$100-500K
9%
27%
21%
13%
23%
$500K$1MM
$1MM$5MM
$5MM$10MM
$10MM+
Noncommercial Functions That

Evaluate E&S Suppliers
In most larger noncommercial foodservice operations,
foodservice directors are the key equipment specifier.
Other functions, including administrative execs and
purchasing personnel have some input.
Input from facilities personnel is often sought in
institutions; they usually keep detailed equipment records.
The influence of culinary personnel such as executive
chefs is larger than the survey shows.
But while others have input or sign-off authority, the
foodservice director is by far the dominant specifier.
Noncommercial Functions That

Evaluate E&S Suppliers
Have Some Input
(All That Apply)
Have Most Input

(Name One Only)
63%
90%
53%
44%
52% 48%
7%
9% 12%
4%
11%
2%
Outside Influences On Noncommercial

Noncommercial operators also rely on a variety of outside
sources for help in evaluating products and suppliers.
Design consultants are a significant influence, especially for
new facilities and big renovation projects.
Dealers also still matter, especially for replacement items, and
when projects need to be value engineered.
Purchasing co-ops and gross purchasing organizations (GPOs)
are prevalent in some segments, especially healthcare.
The need for bids for many buys beyond $5,000-$10,000
likely constrains outside influence on brand choice.
None of the above answers are even higher than in chains.
Outside Influences On Noncommercial

Some Outside Influence
(All That Apply)
32%
27%
27%
37%
32%
24%
23%
18%
5%
Most Outside Influence

(Name One Only)
14%
10%
4% 3%
6%
Sources Noncommercial Buyers Use To

Noncommercial operators also use a wide variety of
sources to identify E&S products and suppliers.
Dealers, trade media, consultants and food suppliers are a
source for nearly half of all survey respondents at times.
And their mentions when the choices are limited to three
or fewer remain quite high.
But as we saw on the chain side, OEM suppliers and their
reps are the most commonly noted sources of info.
Trade shows are very important to this audience, as are
recommendations from other operators.
Sources Noncommercial Buyers Use To

Sources Used To ID/Evaluate Potential Suppliers
Use (Name All)
Use Most (Name 3 or Fewer)
57%
40%
26%
73%
21%
48%
44%
35%
21%
31%
28%
49%
23%
59%
8%
18%
7%
11%
42%
49%
Criteria Influencing Noncommercial

Choices Of E&S Products/Suppliers
The impact on product quality and labor savings and ease
of use issues are again the critical criteria in E&S choices.
Initial cost is still a very important criteria, but somewhat
less so than with chain buyers.
Lifecycle cost, on the other hand, is more important.
Both energy efficiency and water efficiency rank higher
as criteria among noncommercial buyers.
Energy efficiency is the fourth highest ranked criteria
having some influence.
Speed and availability are cited least often.
Criteria Influencing Noncommercial

Choices Of E&S Products/Suppliers
Criteria Influencing Product/Supplier Choice
Some Influence (Name All)
67%
39%
30%
16%
80%
Most Influence (Name 3 or Fewer)
34%
23%
81%
40%
3%
46%
81%
72%
4%
45%
67%
27%
59%
13%
6%
27%
54%

Where Do You Test New E&S Products?
50%
16%
13%
11%
4%
4%
On-Site Operating Mfrs. Test Mfrs. Rep. Dealer Test Consult.

Test Kitch.
Unit
Kitch.
Test Kitch.
Kitch.
Test Kitch.
2%
Food
Supplier
Kitch.

Equipment testing and evaluation in noncommercial
operation most often takes place in an operating kitchen.
But nearly one out of six operators has a test facility.
And noncomm operators are more like to use a dealer or
manufacturers rep test kitchen than chain buyers.
As in chains, the key criteria are checking impact on food
quality and labor and ease of use issues.
Since institutional kitchens generally use more stock
equipment items with fewer pre-programed controls,
control interface issues loom large in testing.
Noncommercial Operator E&S

Purchasing Take-Aways
Beyond restaurants segments account for as much a 40% of
the E&S market in the U.S.
Big institutions are very big buyers of E&S, not just when they
build new facilities or renovate, but for replacement.
They employ many of the same criteria and use many of the
same outside sources as big chain players.
As with chains, while dealers, consultants and others are
important influences, the OEMs are again prime sources.
Word of mouth recommendations from fellow operators is also
a very big influence on supplier and product choice.
The foodservice director is queen (or king) of specifications.
Closing Thoughts
Breaking in to these large multiunit organizations as an
E&S supplier is difficult and complex. It can take years.
But the value of such customers is so great, world-class
suppliers always find it worth the effort.
Knowing the complexities and criteria makes it possible
to develop a plan of engagement.
Remember each organization is unique.
When we asked what one thing suppliers could do to
make the task of selecting then easier, they answered,
Work harder to understand my operation.
Thank You
And
Good Luck!
Acknowledgements & Sources

This complete presentation is can be downloaded at
fermag.com/medialibrary/research.
We thank Technomic Inc. for the generous sharing of their research.
More information on their extensive products and capabilities is at
technomic.com.
We thank The NPD Group for allowing us use of their multi-faceted
research. More info is at npd.com.
We want to thank Hotelex and UBM SinoExpo for their ongoing
support of the Foodservice Forum. Special thanks to Zoi Fan, Alex
Ni and Alvina Kwok.
Not least, we thank our Forum sponsors: Greenfield World Trade,
Alto-Shaam, Scotsman/Ali Group, T&S Brass and Halton.

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How Big U.

Researching How Multiunit Operators

Researching How Multiunit Operators

Researching How Multiunit Operators

U.S. Foodservice & Equipment Markets

U.S. Foodservice Market By Segment

Foodservice Equipment Reports 2014

U.S. Foodservice Market By Segment

Foodservice Equipment Reports 2014

U.S. E&S Market By Product

Foodservice Equipment Reports 2014

Operator Market Structure

Top 500 Chains Market Share 2012

Share of Restaurant Units

Source: Technomic Inc.

Source: Technomic Inc.

Foodservice Equipment Reports 2014

FS Management Companies Control Of

Foodservice Equipment Reports 2014

NPD: Traffic Share Of Chain Vs.

Foodservice Equipment Reports 2014

Operator Market Structure

Big Chain Control Of Restaurant

Full-Service Restaurant Sales

Source: Technomic Inc.

Source: Technomic Inc.

Foodservice Equipment Reports 2014

Big Chain Control Of Restaurant

Full-Service Restaurant Units

Source: Technomic Inc.

Source: Technomic Inc.

Foodservice Equipment Reports 2014

NPD Traffic By Segment

Traffic % Change vs. Year Ago

JAS'11 OND'11 JFM'12 AMJ'12 JAS'12 OND'12 JFM'13 AMJ'13 JAS'13

Foodservice Equipment Reports 2014

Major Chain Traffic Share, NPD

Foodservice Equipment Reports 2014

Major Chain Traffic Share, NPD

Traffic Distribution - OND

CAGR= Cumulative Annual Growth Rate 2009 to 2013

PCYA = % Change vs. Year Ago

Foodservice Equipment Reports 2014

Source: CREST / ReCount

U.S. Foodservice & E&S Market Realities

U.S. E&S Buyer, Specification &

U.S. E&S Buyer, Specification &

Foodservice Equipment Reports 2014

How Chains Purchase Equipment:

How Chains Purchase Equipment:

How Chains Purchase Equipment:

Chain Purchasing Study Demographics

Foodservice Equipment Reports 2014

Chain Purchasing Study Demographics

Annual E&S Purchases

Foodservice Equipment Reports 2014

Chain Functions That Evaluate

Chain Functions That Evaluate

Have Most Input

Foodservice Equipment Reports 2014

Outside Influences On Chain

Outside Influences On Chain

Foodservice Equipment Reports 2014

Sources Chain Buyers Use To