Rationalizing The E&S Distribution Channel

With dealer buying group meetings filling the calendar in the month ahead, it’s an apt time to reflect on the complicated relationship between foodservice equipment distributors and manufacturers. The relationship is complex because dealers play a variety of roles in the E&S distribution channel, some entirely favorable to equipment manufacturers and others, arguably, not so much.

To begin, full-service equipment dealers represent a primary contact point for operators looking to purchase equipment and supplies. By stocking a variety of brands and models, dealers provide customers with choices, varied price points and comparative information about different products that help to guide purchasing decisions. Dealers also promote factories’ equipment through periodic mailings, catalogues, calls by their own sales representatives and via displays on their web sites. Most pivotally, dealers are positioned to be equipment manufacturers’ primary customers, buying direct and building inventory for future sales. This function allows a dealer to be an operator’s go-to guy when a fryer fails during a Friday lunch rush and an immediate replacement is required. However, as manufacturers’ customers, dealers’ self-interest impels them to look to sell products on which they received the best deals from factories and/or those that will be the most financially rewarding. This has two potentially negative consequences.

First, dealers can be swayed by simple economics to sell equipment that is less than optimum for an operator’s program, either to improve margins or to earn a year-end rebate. If the customer becomes unhappy with the purchased equipment’s performance, the factory can be seen as the culprit. Second, the mere presence of rebates helps to keep a multitude of dealers in the black, maintaining an over-abundance of suppliers and fomenting price wars that both diminish brands’ value and exert additional pressure on factories to make goods available at the lowest possible prices.

Make no mistake, the E&S distribution channel as we know it could not function without dealers and distributors. But is long past time that distribution partners should work together to eliminate incompatible financial incentives, reward fair, profitable pricing and rationalize their relationships.