Welcome to the Titans of Industry Roundtable special report. The Executives Of The World’s Leading Foodservice. Equipment Manufacturers Debate The Sector’s Future.
AROUND THE TABLE
Michael Jones (MJ) To start off, could I ask you to talk a little bit about your company and identify one particular challenge that your company is facing right now?
Rick Pyle (RP) Alliance Laundry Systems is corporately based in the US, in Wisconsin, and we have manufacturing facilities there as well as the Czech Republic and China. We are exclusively focused on laundry. We have multiple brands, multiple segments in which we participate, Europe being our largest region. We believe there are significant growth opportunities in each region but specifically in Asia, which is quite a focus for us. We consider ourselves specialists and if there’s one specific challenge for us, it is how we position ourselves in terms of being a specialist and being able to provide that service while providing growth.
Hubertus Muehlhaeuser (HM) I’m new to the job, having joined Manitowoc in August. I have spent most of my 23 years in business with American companies on the foodservice equipment side and I have a background in a family business. I grew up in the manufacturing industry environment in Germany. Manitowoc is at a fascinating time right now in the industry because it has two big divisions, a crane division and a foodservice division, yet we are under one roof. A strategic decision has been taken to spin the foodservice off and to bring this to the market as a publicly-traded independent company. My main focus right now is to make sure we have a smooth public offering and that we can then grow as an independent foodservice equipment company. The objective is to get the company back to where it once was – to become the world market leader. That is keeping us – the more than 5,000 people that work for the company – motivated every day. Over the last years we’ve tried to integrate a pretty complete portfolio for the commercial kitchen, hot side and cold side, and we basically subsume that under the fitKitchen concept. We have done a lot of integration and synergizing between the different areas because we strongly feel that the future will demand one solution for the customer and more systems, rather than individual appliances.
Massimo Giussani (MG) We operate in almost all the categories around foodservice equipment. Ali Group is a private company that is driven by the entrepreneurship of our managers, who have a high level of autonomy. We have a lean headquarters and we grew mainly through acquisitions, so growth is more due to M&A than organic, although there’s always a little bit of organic growth in our numbers. One challenge in taking the Group forward, is growth; it’s a small industry, worth $35bn in the world and assets are scarce now. Perhaps the biggest challenge is talent management. Because it’s an old industry, it’s an ageing industry, we need to find a way to attract young talent to refill the lines, especially on the operational side and in the general management of our companies.
We’re very local. We buy local companies with local knowledge and local expertise. We don’t mess around with the way they manage the customers and the markets. Claude Theisen (CT) T&S Brass is a family business that is small and privately-owned. I’ve been in the industry for close to 50 years now.
‘‘Because it’s an ageing industry, we need to find a way to attract young talent to refill the lines’’ – MASSIMO GIUSSANI
I kind of always knew I was going to be in this business and always enjoyed being a part of it. Our business has been doing extremely well lately and we had a nice solid run for a few years. There’s a number of challenges we’re constantly faced with, none that I would consider earth-shattering. One is the endless change in rules and regulations for our particular sets of products. Another is currency fluctuations, which have become more and more of a headache as we get more involved with our overseas businesses. Areas that, from my perspective, you can’t control are changes in the economy. But there’s no point losing any sleep over things you can’t control. We think we’re in good shape, really.
Thendy Susanto (TS) I founded Nayati 35 years ago with an OEM business. Then in 1990 we started our own brand and design. One of our greatest challenges is how to balance between the quality and the budget of the customer for the solution in Asia and Europe. At the same time we have to manage the global quality, as well as make the budget for the Asian market. So, this is our greatest challenge now, one we try to overcome. Ralph Winterhalter (RW) The Winterhalter Group is an independent, family-owned corporation. I am the third generation of the family to be involved in the business. For more than 60 years we have focused purely on professional warewashing. We have 1,200 employees working for us and we have 40 subsidiaries around the world. We have a long-term strategy and no matter what happens in the world, we sleep very well and we want to still be in a successful position for the next 10, 15 years. With an export ratio of 75%, we have some very mature markets and also some markets just starting up. Managing all these markets with their different needs is one of the challenges we are facing.
Alberto Zanato (AZ) I run the professional sector of the Electrolux Group. The group has major appliances, small appliances and the professional. The challenge for Electrolux is to accelerate the growth outside Europe. We are heavily balanced towards Europe, so our challenge is to initiate and accelerate growth outside Europe.
MJ Where are you feeling the competition coming from across the world? Is it the established players or new entrants to the market, and is it dependent on the region in which you operate?
AZ I’d say the brands I remember 20 years ago are still there, at least most of them are. Most of the competitors have been the same for many years. But new players have come along and Nayati is surely one that has started to play a key role. We see Turkish companies, for instance, coming to Europe. When you get involved in Asia, China in particular, there are many new companies that have been created or founded there in the past five, six, seven years, and now they are in niche markets, but they have a role. I would say that the arena is getting more crowded. The quality is growing, so the difference between the newcomers and established companies is getting smaller at least because these things are happening.
MG The new players are coming from parts of the world where this industry is not developed fully. So, they are taking space in our market. It will always be more and more difficult for us European or American-based companies to sell equipment in Asia, for example, because those key players naturally own those markets and they have a competitive edge on the cost. Those are developing markets, so they will grow. We can’t compete in their space now – that’s my feeling – because of price points and because of access to the market. It’s good that people develop because this means quality will rise and those economies will adjust and maybe in the future there will be space for us. At the moment we invest more than they do in research into innovation and technology.
HM I think there is going to be further industry consolidation. The top eight to 10 players have half of the market and despite a growing market with more players coming in all the time, I think you’re going to see consolidation happening between the larger companies, the $1bn-plus companies. I think there is a lot more buy and build to be done between the larger companies; selecting good leaders and regional champions in the developing countries. That’s a new way of thinking for me in this industry. I think a company’s goal cannot be just to acquire – just becoming bigger and having more brands – and be better because of that. We need to ask the customer about what they expect in the future. I’m hearing they are interested in a company that understands the whole range of what is needed in a kitchen. This is going to drive the shape of our industry. I believe it’s going to drive consolidation in our industry. It’s going to drive more of the big guys coming together, but it will also encourage the smaller leaders into joining larger groups.
‘‘If you are in a situation where you only compete on price, you have already lost. If you just acquire for lower cost, that will not be the solution’’ – HUBERTUS MUEHLHAEUSER
MJ Nayati, is making great strides around the world – growing into Europe and consolidating a great brand presence across Asia, putting pressure on established players. What about the competition that you yourself are facing?
TS It’s a big chance for us, an Asian company coming to Europe, because we have seen the quality level and price level. So, we have to convince customers to overcome the perception of low price, low quality. We focus on the quality and value to the customer. It’s key for us to be accepted in the European market. Competition-wise I think there will be more coming out of China and Vietnam; India are also going to emerge very soon. We think the only time we should grow is when we need to provide better solutions for the customer. At the moment investors are keeping investment low and making decisions short-term rather than long-term. This makes a big change in the market. Now, brand loyalty is less important to the plan. This is what we see, but how should we react to this situation? We believe in a vertical line system – not only mergers or acquisitions, but that opportunity lies through a line system to find a better solution for the market. It’s what we believe in.
RW The whole world is moving together. Our perspective is that Europe is still growing. I think all the Asian companies and the European companies are moving closer together. From our point of view the customer wants a perfect washing result for the least amount of money and the customer doesn’t mind whether that comes from an Asian machine or a European machine. So, that’s the big challenge. If you have a brand image, and it is based on this, this and that, you have to be able to prove it. A good brand image isn’t a guarantee for future success. You have to base it on facts.
CONSOLIDATION AND PARTNERSHIPS
MJ What’s your view on whether or not there will be more consolidation generally in the industry, more M&A activity? MG You always have to look for opportunities and when the right company comes up for acquisition it makes sense to move – if it fits your portfolio and covers a customer need that you can’t satisfy at the moment. I think there will be more acquisitions going forward. There will be more acquisitions from US companies and European companies in Asia, for example.
HM It’s not only acquisitions, but also partnerships. They are an important way for companies to get to know each other, seeing mutual benefit, understanding its cultures and how you complement each other. It might lead into an acquisition, but it might not. It might stay as a partnership. In my last job, we had a 50-year long partnership with the largest Indian tractor manufacturer. Both sides respected each other. We could take the benefits of having a lower cost base there. On the other hand we were moving technology in. If you are in a situation where you only compete on price, you have already lost. If you just acquire for lower cost, that will not be the solution.
‘‘Companies will experience greater expansion in new markets rather than established ones’’ – ALBERTO ZANATA
RP I do think there will be many more acquisitions. I think one area the industry has not maximised yet is the ability for some sort of strategic partnership. From our niche in laundry we have sourcing relationships with competitors that have made sense for decades. It has helped our company. It has, actually, really been a win-win situation. There are many markets, especially emerging markets, where I think it makes a lot of sense. It is something that we, as a group, have probably not looked at as much.
AZ Companies will experience greater expansion in new markets rather than established ones. However, to do this successfully you need to have a local presence. There are markets where you cannot compete if you merely export to them. Consider Brazil. It is a market that is very difficult to enter if you are not local. Or China – a Chinese laundry is pretty similar to a Western laundry operation, but a Chinese kitchen will not have many Western products.
GROWTH AND DIVERSIFICATION
MJ Some companies do one or two products very well, really focus on them and otherwise don’t diversify. They’re all about organic growth. Is there a particular temptation to diversify and do more products away from the tried and tested ones?
RW Our key to success for the last 60 years was really that we stay in our competence, which is professional warewashing. And that’s not a golden rule, but for us it was a real key to success and I think we were quite lucky that we stuck to that recipe. CT We established a new side to T&S Brass with the acquisition of EnviroPure; it was just an opportunity that appeared and we thought we could do something with it. It was a different area and was just something that came up. Our growth over the years has been mostly internal and sticking with our core competency and all that sort of stuff has worked out very well for us.
‘‘You always Have to look for Opportunities And when the Right companyComes up for Acquisition it Makes senseTo move’’ – Massimo giussani
MJ Which territories in the world are presenting more opportunity to your business?
AZ The US is the region probably where you need a critical mass to really play an important role in the market, to get creep on distribution. And then all the other markets that are growing faster than Europe is doing. We are trying to get much more local in Asia, China in particular but in Asia in general, and another area is Africa and the Middle East. It’s probably the less developed market, according, at least, to our polls, but it is a market where there are a lot of dynamics. We try to get in contact as much as we can with the construction companies, with the consultants and with the hotel chains in order to predict their plans so that in two, three or four years, it will be our business, because our business tends to come more or less two or three years after the business of a construction company, or from the plans of hotels, or what the consultant has designed. When we talk about projects in particular in those areas, the lead time is pretty long. It’s not like in the US or Europe where the lead time is shorter.
HM What I’d like to echo is I think we don’t yet talk enough about Africa in our industry, but I think that’s a gigantic growth market. It has been said to be for many years but it seriously is going to be. You can also see the development of wealth in Africa and population growth. You have to choose your battles, obviously. You know, you can’t be everywhere, but there are very, very interesting patches that we are certainly targeting.
‘‘We think the only time we should grow is when we need to providebetter solutions for the customer’’
CHINA AND BEYOND
MJ Let’s discuss China for a moment. Claude, T&S Brass opened its first facility in China in 2000; how has having a presence there helped your company?
CT It’s worked out very well for us. Just the ability to acknowledge things in the local languages and currencies for us has been beneficial and it has put us in a much stronger position over there. It was a transition and a learning experience and obviously it’s been beneficial. So, all things considered it’s done very well for us.
AZ We recently acquired a company in China to have a presence there. It is an expandable operation. We were just discussing how different the dynamics in the Chinese market are. We are seeing a softening now of what we call ‘important business’ – what was structurally the main business we had in China with the high-end, international hotels. That is softening and getting smaller. The acquired company is doing very well and we see this further developing, absolutely.
MJ What’s your view on the recovery in China?
RP I think we are focussing quite a bit on China in all the segments that we participate in and you have to have some belief in the numbers. Not just by the outside companies that want to do business in China but the Chinese people and what they believe their government is going to do, because it’s opening up in terms of the free market, although it’s still obviously very much controlled and impacted by the government. It’s an unpredictable situation for the common person in China to read, and it’s even harder for those of us outside of China. But both economic and even social demographics are so big in China, you can’t ignore it and I think there are some predictable things that you can never usually guarantee, but that are willing to drive further growth in China. I would expect that these rates of, 8%, 10%, 12% – if that’s what you mean by coming back – I don’t think we’re going to see that; you’re not going to jump straight back to 12%. China is slowing down, yes, but it’s slowing down to 6% and even when we’re talking about things coming back in the US we’re still at 2% or 3% growth. So, it’s still outpacing that growth in some of the more mature markets and it remains a really significant opportunity.
TS We invested in China 10 years ago, to learn how to do business and how to find the supplier and how the subcontractors work. Just to learn how they do business. The way they operate is so different. Everything comes by weight. They cost by weight, even the plastic. It’s totally different from what we are doing. So, what I see in China is that the government policy plays a very important role in the economic growth of the country, especially in the hospitality setting. One factor is the corruption. A lot of projects have been purposely slowed, not because of the market, but because of the political slowdown. Those policies caused a lot of changes in our industry. So, this is what we see.
RP In terms of what drives business growth, there are economic and social indicators that I think are predictable. Where you have an increasing population, you have a rising middle class, dense population, these things are the same that they were in the US 30, 40, 50 years ago. The same as when they were in Japan in that time HM The cost advantages of being in China are also eroding rapidly, as we all know.
It’s becoming a high-cost country quickly. Costs are going up like crazy. That’s the reason why, when we look at Asia, we look far broader than China. You have to be in China. It’s a large local market, no doubt, we’re localising our product there, but we are definitely looking outside of China as well to find partners, to find good companies. We’ve just closed our joint venture where we have bought out our partner in Thailand, so that’s going to be one important area for us, where we’re going to move our Singapore business in, because that is already, of course, a high-cost country and I think we’re going to continue looking for good partners in the area outside of China. Let’s not forget India. It’s a perfect manufacturing base with ample growth opportunities. Obviously you have to choose your segments and where you go in, but it’s the same as the dynamics we discussed in China.
What growth are you going to have? India’s growth is less than China’s. You will also find it’s not as fast as in China because you have a democracy and democracies tend to slow down your development. Despite that India is going to come as well.
RW I think the whole Chinese side really changes from that rapid growth. I think they realised that now they had to pay a price for it. But I would also like to mention the environmental challenge, which hasn’t been mentioned yet. All that appetite for growth that you have seen, they realise now that it has destroyed the whole environment there and I think they have come to the conclusion that it can’t go on like that. There are challenges we have to overcome – the demographic challenge, the social challenge, the environmental challenge, but I think in the long run the market will grow. However I think they need to change and adapt.
MJ Rick, post financial crisis, Alliance did some very smart investment internationally into some countries that were struggling, particularly in Europe. What did you do?
RP We think we were smart. It remains to be seen whether it’ll all turn out that way. Because our view was longer-term, it wasn’t reacting necessarily or making decisions based upon what was happening, but we actually viewed that as a good time to invest because your costs are dropping during that time. Spain is one example, which obviously was hit very hard and has not necessarily come all the way back, but I do see signs of improvement there. It is similar with Brazil – it’s going to recover to some level and we have the same view there. So, because your view is longer you have a bit more patience on that and you can be more strategic, even in a downturn time, because you inevitably want to be there when it comes back. You want to have the infrastructure in place and you want to have the contacts there and the presence, so when it does come back, you can capitalise on that.
MJ What specific innovations, either from your own companies or from elsewhere in the industry, do you think have been the real game-changers recently? Is there anything out there that this is going to change the way companies operate or the way kitchens are run? AZ Innnovation-wise, I don’t think this is an industry that’s so revolutionary. Yes, here and there are some new applications. What we see, and of course we are also looking for, is in some way a shift from the product. We were talking about a value-added proposition. We look at what we call a ‘life cost cycle’ instead of purely the cost of the product. The sensibility to evaluate a product for what it will cost all along its life, instead of just looking at what it costs to buy, is growing.
RW I think we’re not working in an industry where we get an innovation that changes everything every three to four years, like we see with computers or handhelds. Our industry develops gradually, step by step, but if you take a look back, maybe 20, 30 years, at how commercial kitchens looked at that time and how commercial kitchens look now, I think you can see a huge difference. I think what we are just seeing the start of now is the whole cost transparency, lifecycle costing, no matter if it’s a combi oven or a dishwasher, getting more out of your given space with less energy while maintaining a perfect result, no matter if it’s the perfect food, the perfect dish. I think we’re just at the beginning of that, and it’s being influenced by Industry 4.0, digitalization and so on.
HM I think we have the potential to see disruptive change in some areas, and I know we are probably all working on it. Nanotechnology has a lot for the cold side to play with and that’s going to be very interesting – technologies that have been developed outside of our industry that could be a game-changer. The Internet of Things, or Industry 4.0, could also be disruptive because if you compare how that production entity is managed today and how much potential you would have if you compare it to a normal production facility or a car manufacturer… If you transfer that logic, with analytics, to the kitchen, I think there is a potential for real disruptive change. That’s going to be the interesting one, whether we’re going to get our act together and create that change or whether we just develop the innovations through evolution.
MJ In terms of the sustainability agenda, are operators interested in machines that genuinely use less energy?
HM Obviously energy has a cost to it and you’ll have to look at your lifecycle cost, which also then stops this discussion on price, and we have seen that in other industries. We’re still thinking price, price, price and the direct price comparator and we have to move into total lifecycle cost. Then, obviously, energy cost is a key component.
AZ In the UK, the total power used by the professional kitchen is equivalent to half of the total energy used in the country of Sweden. What I mean is that our industry is absorbing an enormous amount of energy, water and the detergent used in the laundry appliances. This is an industry that is energy-intensive, if I can say it this way, and sooner or later will come the need to reduce it. There is research showing that customers are willing them to spend a little bit more for so-called ‘sustainable’ products
MG I see a lot of activity going on in terms of developing sustainable products, more than other industries. There’s a lot of willingness by the manufacturer to do something and we want to make something that we can take to the customers and tell them they can save on their bill and it’s a better product. I think we’re doing a fair bit on sustainability as manufacturers.
The problem is that we make our products thinking of sustainability, but we have in mind that a dish has to come out clean. The regulators are just paying the big numbers like the consumption, so they set limitations that sometimes don’t fit the final purpose. I think that warewashers and laundry and washers on the domestic side are designed by the regulators.
CT It is a serious problem in the US. They are passing rules and regulations that result in products that don’t perform the function they’re, designed to perform. It’s a real headache.
HM We need to make sure that the regulation is achievable. We need regulation and we need to be driven also as an industry to become more sustainable. We are the largest waste producer and that is a huge issue.
MJ Thendy, from the perspective of Nayati, an Asian-headquartered manufacturer, is that sustainability imperative as high as on the agenda for that part of the world?
TS It is catching up with the regulation, following the example of Europe and the US, because that’s the only way that we can keep up with what they’re developing in that area. So, this is what we are doing. We are following very carefully how we develop that.
MJ Massimo, you said a long-term challenge was making sure there’s enough talent coming through to replace people who have been in the industry for a long time. What do you do and how do you position yourself, first of all as Ali Group, but also as an industry generally to attract the right people, specifically the right young people, for those positions?
MG We’re everywhere in the world, so we’ll have to approach things regionally, probably, in different countries. One thing we can do is be more proactive. Sometimes, in engineering, you have to pay more money than the industry standard. I think there are some very smart kids out there, so I think the talent remains as good as it has been in the past.
HM Usually what happens in a larger corporation is that the culture of entrepreneurialism is completely lost. The more centralisation you have, the more it kills the entrepreneurial spirit. But at Manitowoc I put it as one of our core values, that we are entrepreneurial. I foster that and I like to incentivize that. I tell people they should treat the business as if it was theirs. This creates a bit of anarchy, but I think a bit of anarchy is not bad in a strong group. Entrepreneurial spirit is key, as is challenging the status quo.
MJ Do you see this as a male-dominated industry and do you see that changing?
RW Our company is male-driven, yes, but if we have women in the position, fine. We don’t recruit by gender, we recruit, as everybody else, by qualification. But if the right candidate is male, it’s male and if it’s female, it’s female. The important thing for us, because we have a long-term view, is to foster that Winterhalter spirit, that entrepreneurial spirit among the people that work for us. We are a small company, but we delegate responsibility to the people and that’s mainly the way forward.
MJ What about the role of the consultant in all of this? Do you think they have as important a role to play in this industry as they did, say, 10 or 20 years ago? Why do consultants matter to the sector?
CT Yes. From our perspective they’re extremely important and well thought of. That we provide the products that they’re looking for is very important and for us one of the main methods for the success of our business. Over a long period of time we’ve gotten to know these people, and as and when they need something for a specific area or purpose, we will provide it – make it for them if needs be. Over the years consultants have became an important part of our business and will continue to be.
TS I think it’s more and more about helping the consultants with the important role they play working on the projects. How we can provide them with the correct information is vital because the consultants can’t know every detail of every product. It’s our job to ensure they have all information they need.
RW I think that’s a challenge for all of us because all the products in the kitchen, refrigeration, cooking, warewashing, are getting so complex. It’s about convincing or giving the right information at the right time to the consultant so they can provide the customer with the best possible solution. That’s also a big challenge and I think that is growing every year.
MJ Is there anything that we haven’t picked up on or anything else that we can add at all?
RW In our industry it’s getting more and more important to do more lobby work because of all the regulations we are seeing. Not just our own industry, but in our entire life. I think all the regulations are created by people who aren’t from the industry. Politicians, say, “OK, we need to cap emissions or cap energy”. That’s fine, but what are the implications of that in terms of the washing result? I think you need to see all the regulations from 360 degrees, and I think our job is to do more lobbying.
CT With regards to lobbying, we’re in our infancy, but we’re trying. Politicians look at the numbers and say, “I want 30% down”. In the US if you can bring in a large restaurant chains’ views, it will up your ante a lot as to your ability to convince somebody of something. So, if you can get a McDonald’s or a Burger King or some of these guys that have thousands of employees ,and dealerships all over the place, that can be a factor. But it is extremely hard to do well and extremely expensive. I believe that’s the issue we have.
We would like to thank our participants for contributing to our inaugural Titans of Industry Roundtable, as well as thanking the organisers of Host 2015 in Milan, Italy, for their assistance