# Buying a Foodservice Equipment Dealer

What a foodservice equipment dealer is worth, why federal energy rules bind the maker and not the seller, and what the backlog really says.

Source: https://searchspheresource.com/guides/buying-a-foodservice-equipment-dealer

## Selling the Kitchen, Not the Meal

A foodservice equipment dealer supplies restaurants, schools, hospitals and hotels with the machines a kitchen runs on, from ranges and fryers to walk-in refrigeration, and usually with the smallwares that fill the shelves beside them. The 2022 Economic Census counts 3,220 establishments in this code across 2,693 firms, with 32.99 billion dollars of sales and 46,791 employees, which makes it the smallest population in this theme and the one with the fewest branches per firm. The customer is a business that has to open on a date, and that date is what the dealer is really selling against.

## What Foodservice Equipment Dealers Trade For

Two revenue lines behave differently and a buyer has to separate them: equipment is project work, lumpy and quoted months ahead, while smallwares, parts and service repeat and carry the margin. No publisher bands the trade by name, so the closest published band is the wholesale and distribution class, running 2.00x SDE at the lower quartile to 3.44x at the upper on a 2.68x median. It is a main street dataset, and a size-banded survey of brokered sales reads nearer 3.1x SDE at one to two million dollars. Ask for gross profit split across the three lines for three years before either number means much.

## Federal Energy Rules Bind the Maker, Not the Dealer

This is the useful negative in the trade, and it is worth knowing because it is often assumed the other way. Federal conservation standards cover commercial refrigerators, ice makers, prerinse spray valves and walk-in coolers, but the prohibited acts are written against manufacturers and private labelers and not against dealers, and the statute behind them binds any manufacturer or private labeler. The consumer labeling rules cover household appliances and not commercial kitchen equipment at all. A dealer's obligations here are contractual, imposed by the manufacturers whose lines it carries, and not federal.

## The Service Bench Is What Holds the Line

Equipment gets bought on price and gets kept on who fixes it at six in the morning. A dealer that is a factory-authorized service agency for the lines it sells earns warranty labor, sees the failures first, and is the number a chef calls before a competitor's salesperson can get a quote in. It is also the hardest thing in the business to replace, because the authorization is granted to a shop with trained technicians and not to a company name. Establish which authorizations exist, how many technicians hold current training, and how much of the service revenue is warranty and not billable.

## What to Verify in Diligence

Read the backlog, the authorizations and the deposits, in that order. Verify:

## Financeability Notes

The complication a lender will find here is the deposit. A dealer holds customer money against equipment not yet delivered, and that cash on the balance sheet is a liability and not working capital, so a purchase priced off the bank balance is priced off somebody else's kitchen. Expect underwriting to net deposits out and to look hard at project concentration, since one delayed opening moves a quarter. Model debt service after a market wage for whoever runs the warehouse and the install schedule, and after the parts inventory the service bench needs to be useful.

## What this guide verified

- The 2022 Economic Census counts 3,220 other commercial equipment wholesale establishments across 2,693 firms, with 32.99 billion dollars of sales and 46,791 employees, the smallest population of the wholesale supply trades covered here. (2022 Economic Census, NAICS 423440 Other Commercial Equipment Merchant Wholesalers: https://www.census.gov/programs-surveys/economic-census.html)
- Federal energy conservation standards for commercial equipment are enforced through prohibited acts written against manufacturers and private labelers and not against the dealers who resell the units. (10 CFR 429.102, prohibited acts: https://www.ecfr.gov/current/title-10/chapter-II/subchapter-D/part-429/subpart-C/section-429.102)
- The federal size standard for this code is 100 employees, the tightest headcount ceiling among the wholesale supply trades covered here, and it is counted together with a buyer's affiliates. (13 CFR 121.201, SBA table of small business size standards: https://www.ecfr.gov/current/title-13/chapter-I/part-121/subpart-A/subject-group-ECFR882d0d17e0a5c56/section-121.201)

## Terms of the trade

- **Hot side and cold side**: The trade's split between cooking equipment and refrigeration, sold and serviced by different people. The two halves share a customer and almost nothing else. They come from different manufacturers, carry different margins, fail in different ways and are fixed by technicians with different training, so a dealer strong on one and weak on the other is really half a business in the customer's eyes. Ask for revenue, margin and service capability on each side separately, and find out which side the departing owner personally sold, because that is the half that will need replacing first.
- **Spec book**: The itemized equipment schedule for one kitchen, listing every unit, its model and its utilities. It is the document a project is quoted from and the place a dealer's real expertise shows. Whoever writes the specification shapes which manufacturers can bid, so a dealer that gets in early on design is competing on a narrower field than one that receives the book and prices it. In diligence it tells you something else: how many of the open projects were specified by this dealer and not handed to it, because the first kind repeats and the second kind goes out to bid again next time.
- **Turnkey kitchen package**: A whole kitchen designed and supplied by the dealer and not a list of units sold one at a time. It is the difference between a supplier and a partner in the customer's mind, and between a bid and a relationship in the dealer's accounts. A package is designed, specified, supplied and installed by one dealer, which raises the margin, lengthens the sale and makes the dealer hard to substitute halfway through. It also concentrates risk, since one delayed opening moves a whole quarter. Ask what share of revenue arrives this way and how many packages are open at once.
- **Dealer buying group**: A co-operative that pools independent dealers' purchasing to win rebates and manufacturer terms. It is how an independent dealer buys anything like a chain does, and it usually carries more than price: program access, marketing, sometimes a warehouse. The membership rarely transfers automatically, and the rebate tiers reset on a change of control more often than sellers expect. Since the rebate can be a large share of a thin net margin, establish the group's transfer rule and the tier the business currently sits on before treating last year's earnings as repeatable.
- **Factory-authorized service agency**: A shop a manufacturer authorizes for warranty labor, on factory training and OEM parts. Authorization is granted to a shop with trained technicians and not to a company, which makes it the most personal asset in the deal and the one most likely to lapse quietly. It pays twice: warranty labor is revenue, and being the shop that shows up at six in the morning is what keeps the next equipment order from going out to bid. Establish which lines are authorized, how many technicians hold current certificates, and what the manufacturer requires of a new owner.
- **Smallwares**: The unpowered goods of a kitchen: pans, utensils, chinaware and everything filling the shelves. Smallwares are the quiet half of the business and often the profitable one. They repeat, they are ordered without a bid, they carry a margin equipment cannot, and they keep a dealer in front of a customer between projects. A dealer whose smallwares revenue has been drifting to online catalogs is losing the part of the relationship that does not depend on winning the next build. Ask for three years of smallwares gross profit by account, not in total, because the drift shows up account by account.
- **Freight damage claim**: A claim against a carrier for equipment damaged in transit, filed inside the bill of lading's window. Commercial kitchen equipment is heavy, awkward and easy to dent, and a dented door on a delivery day is the dealer's problem whoever caused it. The window is set by the bill of lading and federal law will not let it run shorter than nine months from delivery, with the carrier owing an acknowledgement in thirty days and a decision in a hundred and twenty. So a poor recovery rate is a receiving process and not bad luck. Ask for two years of claims filed, recovered and written off.