The British supermarket industry has been firmly in the spotlight over the past year, as the ‘big five’ have come under pressure from aspiring rivals and the shift from larger stores to smaller, local premises has intensified. Supermarkets are historically major buyers of catering equipment, but as the sector undergoes transformation, FEJ caught up with some of the suppliers servicing this market to find out if the good times are coming to an end.
As far as foodservice concepts go, you’ll be hard-pressed to find a sector that encompasses so many under its banner. Whether it is in-store delicatessens, butcheries, bakeries or fishmongers — or coffee shops, staff restaurants and branded restaurants — supermarkets need to make a fairly substantial investment in commercial kitchen kit to keep up with the pack.
There is a view from within the industry that due to their size and buying power, supermarkets are more due diligent with equipment as they generally roll out solutions to dozens of sites within their chain. This means they are not only seeking a commercially-viable solution, but the production capability to make lots of products quickly and effectively.
Equally, consideration has to be given to the logistics of getting equipment distributed and fitted into the chain. Suppliers need to have a business model capable of working with supermarkets as the volume of the demand is high and usually compressed into small delivery windows. Cash flow is therefore critical to suppliers who operate in this segment as a result of the high ordering volumes and the need for sufficient cash and assets to procure the materials and labour necessary to deliver these volumes.
Karl Hodgson, sales director at refrigeration manufacturer Adande, notes that the rewards are high for suppliers who get it right: “It is well established that supermarkets are demanding customers, expecting the very highest levels of product and service at competitive prices. However, this can be balanced by the volume of sales that equipment manufacturers can expect to receive from supermarket customers. If one of the major retailers decides to roll out a particular product across its whole estate, this can provide significant volumes of business for manufacturers and suppliers.”
There has been a slowdown in new builds, but we are still actively involved in supporting our customers”
One company with extensive experience of working at close quarters with the supermarket sector is Alan Nuttall Ltd, the manufacturer and installer of interiors and display equipment. It has partnered with all the big names, including Asda, Sainsbury’s, Morrisons, Tesco, Waitrose and The Co-operative.
Mick Steele, technical director at Alan Nuttall, says supermarket retailers typically still operate a very segmented approach to the central purchasing of equipment. “Catering equipment tends to be procured separately to ‘shop floor’ refrigeration equipment, with the buying and design process for in-store restaurants and cafes usually led by different teams within the supermarket structure,” he says. “Refrigeration equipment procurement for shop floors is very stringent, with only certified and approved refrigerators permitted; the health and safety risks associated with storage of foodstuffs for longer periods dictating that the refrigerators perform within safe parameters,” he says.
“The products are tested and certified to EN/ISO 23953-2:2005 and have to be independently signed off by external consultants; Nuttalls being one of the few UK manufacturers which has these facilities in-house and designs for this approval process. Catering refrigeration, on the other hand, is generally not required to be to this standard as the products displayed within them are sold for more immediate consumption.”
All the evidence suggests that supermarket retailers are increasingly calculating full lifecycle costs, rather than merely capital costs, as they look to maximise their return on investment.
It is a trend that Adande’s Hodgson recognises and he believes his company is well-placed to take advantage of it. “Equipment which can offer a reduction in running costs, through day-to-day energy savings, will be looked upon favourably by retailers. The inherent versatility of Adande units has advantages for retail counter operations. The fact that the drawers can function as chillers, freezers or blast chillers, at the touch of a button, provides cold storage flexibility to meet seasonal variations in the retail offer. The versatility of the units also means that fewer refrigeration units are required, reducing the overall capital investment and taking up less space on the sales floor.”
Refrigeration equipment with a proven track record for reliability and low maintenance remains highly attractive to supermarket operators. Adande has incorporated a range of design features to specifically protect against day-to-day wear and reduce maintenance costs. These include runners mounted on the outside of drawers to eliminate the impact of moisture and freezing and high integrity robust horizontal seals, which are resistant to degradation. “The internal location of the condenser unit, which improves efficiency and reduces duty on the compressor is another feature which promotes the longevity of Adande units,” says Hodgson.
The storm surrounding Tesco’s financial disclosures, coupled with the trading difficulties facing some of its main rivals, have forced many of the top players to become very inward-looking in a bid to right-size their businesses during a time of change. This has reportedly led to a decline in spend on items such as new catering equipment as projects have been put on hold and store opening schedules have slowed.
With many now focusing on solutions such as home delivery and click and pay, which are growing faster than traditional sales, there is extensive restructuring taking place. The re-invention of traditional supermarket retailing is likely to mean that the number of new store openings will diminish, and any new stores will be smaller and more efficient than the existing ones.
This subsequently poses a major threat for the catering equipment supply chain because it suggests that not as much kit will be required.
“Less refrigeration equipment will be procured, and the new equipment will have to be ‘greener’ and more energy efficient as power consumption ratings will be placed on commercial equipment similar to domestic appliances with A,B and C ratings,” predicts Steele at Nuttalls, although he does propose a silver lining: “In the near future, this will, conversely, have a positive impact on the catering equipment industry as supermarkets invest in refurbishing and enhancing existing stores, integrating new self-service equipment to lower staffing levels with more in-store concessions and distractions.”
Commercial catering and display refrigeration specialist Genfrost, based in Peterborough, claims the extra scrutiny placed upon supermarket procurement teams is actually playing into its hands as buyers are now looking harder to find more economical solutions than they might have done in the past. “We work with small and large operators, and the trends we are most certainly spotting are longevity and energy performance,” says director Lewis Bourne. “They want cases that will cost them less over, say, a five- to 10-year period.”
We are seeing the roll-out of in-store QSR offerings, grab-and-go café-style outlets and more sophisticated bar and dining establishments in some of the larger supermarket stores”
Steve Hemsil, national distribution manager at Manitowoc, takes a measured view of developments in the supermarket channel. On the one hand he acknowledges that catering equipment spend has contracted, but on the other he points to pockets of strong growth as supermarkets spread their wings.
“We have seen a noticeable increase in food-to-go opportunities within supermarkets in recent years, as well as in their traditional cafe-style offerings,” he comments. “We have also seen a move towards more casual dining outlets within supermarkets for which Manitowoc has solutions and brands to fit. Cost is clearly a key factor so equipment that is multi-use or which doesn’t need a water supply or extraction is a plus from an operator’s point of view.”
Catering equipment manufacturer Lincat also points to the bigger picture. Paul Hickman, development chef at the company, says: “There has been a slowdown in new builds, but we are still actively involved in supporting our customers. There is a level of refurbishment and maintenance still taking place with existing cafés, as the stores that are proving to be profitable are still receiving investment.
“The kitchens for supermarket restaurants are following the trend of high street restaurants with open kitchens and theatre-style cooking, so equipment which is good looking and easy to clean is a popular choice.” Additionally, Hickman claims, the current trend for food on the go is driving demand from supermarkets for combi steamers and pizza ovens in particular.
The emergence of supermarket chains such as Aldi and Lidl, who are beginning to make a dent in the market share of the incumbents, provides an intriguing sub-plot in the supermarket tale. What sort of impact it has on the catering equipment supply chain remains to be seen, but there are plenty who believe it can only be a good thing. Hemsil at Manitowoc says there are aspects of the supermarket industry that are calling out for foodservice equipment innovation at the minute.
“Bakeries within supermarkets are a growth area and the use of combi ovens instead of traditional deck ovens has opened up large opportunities for Manitowoc. There has also been an increase in emphasis on staff feeding, which has proven another great opportunity. Food outlets of all descriptions still provide supermarkets with good returns and customers are demanding more choice and quality for their money.”
Like their restaurant rivals on the high street, supermarkets have become more receptive to the idea of concepts that provide new revenue streams or keep customers in-store for longer.
Ice cream machine manufacturer Carpigiani is now working closely with several of the big five supermarkets to develop innovative new concepts in some of the largest stores nationwide.
Sales director, Scott Duncan, says the trend mirrors supermarket models in the US. “We are seeing the roll-out of in-store QSR offerings, grab-and-go café-style outlets and more sophisticated bar and dining establishments in some of the larger stores,” he says. “We’ve recently worked with one chain to introduce a quality soft-serve ice cream provision in their cafés while with another we’ve helped launch a frozen yoghurt offering, allowing customers to choose their own toppings, fresh fruit and sauces in a bid to stay on-trend with the focus for healthy living.”
Looking to the future, Carpigiani expects supermarkets to continue diversifying their offering further with the introduction of fresh gelato, produced in-store for the ultimate flavour. “We’re working with some of the big chains to identify the opportunity presented by this lucrative proposition, considering everything from the machines and effective display cabinets through to menu development and the choice of ingredients,” comments Duncan.
It isn’t only the prospect of new types of catering equipment that needs to be considered in this evolving era of supermarket retail. Service is important too, especially as chains with a 24/7 operation begin to extend the availability of their food offerings as well. The level of support required will need to reflect the longer opening hours and greater frequency with which the kit must work. “Supermarkets generally expect a fast breakdown service within four hours,” says Lewis Bourne at Genfrost. “As many operate 24/7, they are aware of the sales they are losing due to a cabinet breakdown and they won’t tolerate this.”
Regardless of how supermarkets react to the changing landscape around them, the necessity to be as competitive and aggressive as possible won’t change — and that counts for foodservice, too.
“It’s all about competing for the consumer pound,” concludes Simon Frost, chair of CESA. “Supermarkets will continue to innovate to draw in the consumer. Foodservice is a key element of this, so supermarkets will continue to invest in catering equipment, whether it’s a full on-site diner or café in an out-of-town superstore, or a grab and go hot snacks and drinks offering in a ‘local’ site. It’s not a matter of supermarkets competing against the high street foodservice providers, it’s more about providing consumers with what they want and attracting them into the store.”