Middleby Corporation: Rational AG Competition

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From a high-level perspective, do you have any sense of how the economics are typically split? For an oven costing the customer, say, $5,000, how much margin do dealers take? How are consultants typically remunerated, and how much flows back to the company?

Dealers can get up to a 25% discount. The discount system is a bit convoluted in the industry. In the U.S., they might call it something like 25-3-1-1, meaning there's a 25% discount, then another 3%, then another 1%, and another 1%. Instead of stating the result, which might be around 29.687%, they use this 25-3-1-1 system. It's basic in the commercial kitchen industry. If it's your first time hearing this, it might seem odd, but it's historically grown. Discounts vary depending on whether a dealer is gold, silver, or bronze. A gold dealer, for example, has a showroom with the latest Rational equipment. You have a list of criteria to fulfill to get the highest discount.

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Obviously, Rational is more of a single product company and has competed effectively without a broad product suite. So, the associated question is, do you see any evidence that the end customer is increasingly going for a best-in-breed approach, like a Hoshizaki ice maker or a Rational combi oven etc? Or do you think buying a full suite from Middleby still makes sense? What is the approach of the customer, and which of these two ways of thinking is proving most popular these days?

It's an education piece. Rational is working on replacing all the old kitchen equipment. If you're a dealer with Rational and other manufacturers, you're in the dilemma of selling a piece that can replace the whole kitchen while also wanting to sell as much as possible of the other kitchen equipment. This is a classic Middleby versus Rational scenario. Middleby can sell you any way of heating or cooling your food, whereas there's one best option, which is probably the combi steamer. Rational has this one product that can replace everything, especially in fast-casual and fast-food restaurants with limited kitchen space, budget, and training. After some education, they often go for the Rational approach because they only need this one piece of equipment.

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