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FE&SEditorial Archives2004 — March — Point Counterpoint

Should Manufacturers Sell Direct?
When and why manufacturers should distribute E&S through traditional dealers is this month's point of contention between two veteran industry leaders.

Bernard Stever
By Bernard Stever,
President (Retired),
Middleby Worldwide,
Elgin, Ill.
Steve McGarry
By Stephen McGarry,
Paramount Restaurant Supply Corp.,
Warren, R.I.

The topic of whether a manufacturer should sell direct has been raging from the time I began my career in this industry working for a dealer/fabricator in 1957. Later, the manufacturer I worked for always maintained both a strong national dealer network, as well as a strong direct division. While our authorized dealers were extremely loyal to us, believe me, we were not nearly as popular with the segment of the dealer community that didn't sell our equipment! In my experience, traditional E&S dealers were and are the backbone of our industry. Dealers have continued to represent a cost-effective way for manufacturers to get their products through the distribution channel and to end-users. That said, I do believe that there are situations in which manufacturers should opt to sell direct or use alternative methods of distribution to move their products to the operators.

As we all know, national chains are manufacturers' most likely candidates for direct sales. To facilitate direct purchasing, some national chains have established their own in-house dealerships that, initially, may have been acquired in order to obtain the expertise to buy direct. Because of the importance and focus of these organizations, chains generally are able to run their captive dealership most efficiently. In other cases, chains have simply hired personnel with the needed expertise on the open market. They made the investment and therefore were able to bring onboard the skills to buy direct; in these instances, the chains usually do not require the services that a dealer offers. These multi-unit operators are not only national but, also, in many cases, international in scope. When chains become global players, they require special services that most dealers cannot economically provide. In many cases, manufacturers themselves find it difficult to fulfill these services. Wasserstrom and Franke are two examples of fabricator/dealer hybrids that have managed to sell chains direct quite successfully.

For decades, specialty equipment such as ice machines, soft-serve machines, coffee makers, carbonated beverage systems and vacuum packaging systems have been examples of products for which manufacturers effectively use alternate methods to go to market. Many years ago, the dealer community had the opportunity to sell products such as these but, in general, made the business decision not to develop the expertise or make the financial investment necessary to be successful at distributing these items. This forced manufacturers to use alternate forms of distribution; in some cases, they established their own distribution channel or, in others, factories took specialty equipment to market through independent stocking reps or distributors.

There is no single right or wrong way for a manufacturer to go to market.

Telemarketing and direct mail, though rarely used in our industry, are additional avenues that manufacturers can employ if their products lend themselves to this type of direct sales. The ultimate decision about how best to get their products to end-users always resides, of course, with manufacturers. Nonetheless, there are exceptions to the examples I have outlined; there always are. Some dealers also successfully function as distributors and a few have international branches. The essential point to remember is that dealers must offer value-added services to be successful. If they cannot do so, end-users will look at other methods of obtaining equipment and the services required to open their operations. Likewise, manufacturers will also look at the most cost-effective way to get their products to customers and to provide after-sale satisfaction. It is important to remember that there is no single right or wrong way for a manufacturer to go to market. All manufacturers have to make their own decisions based on the types of products they make, the markets they serve and the most cost-effective ways available to get their products to customers. Ultimately, this may or may not be through the traditional dealer system.

The foodservice industry has survived two recessions during the last 30 years and has remained strong and vibrant. Given that manufacturers have invested in the products and services they offer, they have the right to decide what is best for their companies. This freedom of choice actually broadens and strengthens our industry by creating more jobs and business opportunities. With profits shrinking due to the proliferation of more sophisticated and better educated buyers, manufacturers and dealers must remain tuned in to the needs of all types of end-users. After all has been said and done, it is the operator-customer who dictates how our business is transacted.

The foodservice industry is undoubtedly unique. With so many different industry members working together to achieve common goals, there is a plethora of consultants, designers, architects, engineers, manufacturers, reps and dealers all striving to service end-users in a professional, timely and cost-conscious manner. All of the services members of the different groups provide have merit and are invaluable to end-users. In my counterpoint, I am narrowing the playing field down more specifically to the relationship between the manufacturing and dealer communities. From my perspective, manufacturers want to accomplish three things. First, they want their products correctly specified in a wide variety of markets, including healthcare, government institutions, hotels, and chain and independent restaurants. Second, they want their products delivered in a timely manner and installed correctly and professionally. And, third, they want and have the right to get paid.

Could manufacturers provide all these services? Yes ... but only by increasing their costs.

Those three simple priorities seem easy enough to ensure on paper, but what would be the additional cost to manufacturers if dealers were not involved? Yes, manufacturers could perform all of these functions themselves to get their products successfully into different market segments but, in the process, which details would need to be learned, how many staff would have to be hired to do this, as well as to follow up, collect and perform related functions? Perhaps the best way to argue against the practice of manufacturers selling direct is take a look at what "contract dealers" actually do.

  • Spec the Products. Whether performed by an engineer, salesman or estimator, a decision must be made to select a particular manufacturer's products for projects that will offer the best solution to end-users.
  • Provide Design Services. Many dealerships have engineers and project coordinators either in-house or subcontracted who provide detailed project layouts. This is a task that takes considerable time and involves many meetings back and forth with clients, as well as revisions, revisions and more revisions to plans, not to mention the multiple sets of drawings that must be printed and overnighted. This is an essential service provided by dealers and one that requires a thorough and complete understanding of a job, not just individual manufacturers' product lines.
  • Expedite the Orders. Many dealers also have staff contact manufacturers on a daily basis to follow up on the status of all purchase orders. Shipments are gathered and systematically tracked, ensuring that dealers meet their customers' timelines. Once again, dealers work with multiple manufacturers to consolidate projects while making them as problem-free as possible.
  • Receive and Warehouse. Dealerships receive products from manufacturers, examine them for freight damage and tag and store received items in their warehouses.
  • Perform Delivery and Installation. Coordinating with a contractor to ensure correct installations, dealers' staff typically work with field personnel to resolve their questions and concerns. Dealers also work with plumbers and electricians to guarantee they have the correct plumbing and electrical rough-in drawings and other needed information.
  • Ensure Start Ups, Parts and Service. Dealers' staff further undertake the task of assuring that warranty manuals are assembled and provided to clients at the completion of all projects. These reference documents provide maintenance information, as well as warranty contact information. Dealers' parts and service departments also field calls related to equipment repairs and warranty issues.
  • Guarantee Payment. Dealers make payments to manufacturers and collect from clients (either by cash or pre-arranged financing) whenever a job is delivered. Could manufacturers provide all of these services? Yes ... but only by increasing their costs. Additional office staff, warehouse personnel, warehouse space and competent installers would all have to be employed. Why re-invent the wheel? At a time when it is difficult to find reliable people, our factories' role is to manufacture and advertise their products. I believe it would cost manufacturers more money to set up these functions than to have dealers perform them. That is one reason why manufacturers should not work with certain customers directly and do the rest of their business with dealers. It should be an all-or-nothing commitment. By selling direct to certain accounts, manufacturers erode the base that dealers are counting on to run their businesses. In summary and to answer this point-counterpoint's question ... "Should manufacturers sell direct?," I would cast a strong vote against the idea. Not only from my perspective, but also that of end-users who continue to rely on the dealers that provide them with the fine service they have the right to expect.

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