Middleby Corporation: Commercial Portfolio & Distribution Strategy

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That's an interesting line of thinking. Can you help us understand the advantages of scale and scope? Having various types of products to sell versus a more focused portfolio with fewer SKUs? Companies like Rational seem to do a couple of things very well and are quite successful, at least based on growth rates and margins. But it sounds like Middleby's approach is to leverage significant economies of scale by having a more complete portfolio. Can you help us understand why that is the strategy?

When you look at the kitchen's major components, consider what Middleby offers in that space. They have everything in the cooking line, almost everything in the prep line, and almost everything in the front of house. However, they don't have walk-in coolers or freezers, exhaust hoods, or dishwashers. When a customer considers a build, regardless of budget—whether it's a B-level budget, an A-level budget, or technology that's going to change the industry—Middleby is a player in that segment. Think of it like choosing a brand of shampoo at the supermarket; there are 15 brands owned by two companies, so whichever you pick, it goes to the same pocket. Middleby started with Southbend, and through acquisitions and strategic choices by Tim, they now offer a great combination of products. They can cater to different market segments and budgets, covering one-third of the total food service space. So, one-third of your kitchen equipment is Middleby equipment.

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Do you think there was any sales attrition because some sales reps might prefer to sell what they perceive as the best in breed, which might not always be Middleby in some instances?

I believe the decision for them to sell a brand from Middleby is not impacted today by what you just mentioned. There might be a brand out there with better features, a better price, or a better build, but they are trained by the factories to offset those discussion points and negative points, turning them into positives. Remember, every manufacturer today believes their product is the best. The sales manager at the factory level is engaged in educating the reps, consultants, end users, or dealers on why the product is the best and why they should buy it. If you run out of excuses and are only selling based on price, then shame on you. This is why Middleby continues to innovate and drive R&D, continuing to drive innovation in equipment. Once you are positioned in the eyes of the end user as a solution to their problem, the price is no longer an issue.

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