Survey of CFESA members showcases growth areas by market segment and equipment type.

Service growth is positive for both hot and cold equipment, according to the results of a study of members of the Commercial Food Equipment Association administered by Foodservice Equipment and Supplies magazine. In fact, participating service agents indicate that growth for cold equipment appears to be somewhat more robust than hot equipment. Still, hot equipment represents a higher percent of revenue for most service agents.

While service agents are experiencing some growth overall, the segment does not lack its own pain points, including:

  • Loss of revenue and profitability due to extended service warranties
  • Manufacturers could do a better job of communicating new product line introductions
  • Finding qualified service technicians

The following is a brief summary of the survey's finding.

Service Revenues by Customer Type

In terms of customer type, commercial foodservice operators represent 66 percent of the business done by the average service agent. Noncommercial operators represent 30 percent of the typical service agent's business. In fact, 48 percent of service agents report an increase in sales from commercial operators. Similarly, 37 percent of service agents report an increase in revenues from noncommercial operators. Only 17 percent of service agents report a decrease in revenues from commercial operators and 8 percent report a decrease in revenues from noncommercial operators.

"The economy is driving a longer life cycle with more repairs before replacement. Our company is adding capacity to capitalize on that," according to one service agent. "We are growing as the opportunity presents itself. Also, the competition we face has been diminished as the economy remains poor."

While the study shows some noncommercial operators are turning to in-house personnel to handle maintenance and repair issues, there still seems to be an emerging opportunity for service agents in this segment. That's because service agents feel the poor economy has not had as dramatic an impact on the noncommercial segment, which is in stark contrast to the restaurant segment. Also, the increasing population continues to make educational and healthcare operations growth segments for service agents.

Hot Equipment Revenues

Looking at the segment by equipment type, hot equipment is responsible for flat to conservative sales growth for most service agents. Overall, 90 percent of service agents report their hot equipment-related activity was increased (40 percent) or remained consistent with 2010 levels.

Among those service agents reporting an increase in hot equipment related activity, the primary driving factors include market segment or geographic growth, more customers repairing rather than buying new, the service agency focusing on operator segments that are growing, and more active marketing and relationship development.

The top three factors driving the decrease in hot equipment-related activity are unqualified/unfair competition, the challenging economic environment and the fact that a growing number of estimates are going unfulfilled due, in part, to operators requiring more bids than before.

"In our area there are a lot of 'trunk slammers' that are doing the work at a lower rate than we can," said one service agent. "Of course they are making their money on the parts that they sell on the job. They are buying their parts from the parts houses such as Parts Town, Heritage, 3 Wire, etc. That also is cutting into the bottom line for us."

Cold Equipment Revenue

Turning to cold equipment, 87 percent of service agents report their revenues have increased (60 percent) or remained the same (27 percent). Only 13 percent of service agents report a decrease in revenues related to cold equipment.

Factors driving an increase in cold equipment sales for service agents include being able to capitalize on the company's expertise and experience, better marketing of the company's services, focusing on growth segments and geographic expansion, more planned maintenance contracts and the simple fact that this past summer was a hot one in many parts of the country.

Among those service agents citing a decrease in cold equipment sales, the top three factors responsible for this are increased competition, the challenging economic environment and more operators turning to requests for proposals to award their contracts.

Operators' Service-Related Behaviors

Foodservice operators continue to employ multiple strategies to help manage their service-related expenses, according to the study. In fact, the top responses reported by the participating service agents show that operators remain very conscious of price. Here are the top five steps operators continue to take to reduce their repair costs:

  1. More haggling and scrutiny of prices
  2. Not repairing an item if multiple units are available
  3. Opting for the minimum repair necessary to get the equipment running again
  4. Operators furnishing the parts and asking the service agent to install
  5. Scavenging parts from non-working equipment to keep items operational

In addition to the steps outlined above, a growing number of foodservice operators are receiving extended warranties when purchasing new equipment. And the factories continue to offer extended warranties to entice operators to buy. In fact, 75 percent of the service agents surveyed reported seeing an increase in the number of equipment lines offering extended warranties in their territories.

And only 30 percent of service agents perceive extended warranties as being good for their business. The vast majority of the service agents surveyed indicate that extended warranty work will make it harder to remain profitable. As a result, service agents are considering a number of different tactics to help boost their bottom lines, including revising pricing strategies, which can include raising street rates or other charges; carrying fewer items in inventory; and changing market strategies to target operator customers that do not have extended warranties.

The nature of the responses, both closed and open-ended, made it clear that the subject of extended warranties represents a hot button issue for service agents. For example, here is one verbatim response from the study: "Extended warranties take away from the revenue that we recoup on street rates and parts sales after the equipment goes out of warranty. We need an extra year or so to make up the lost revenues that doing the warranties provided. We originally did warranties at a loss of revenue to get the customer base. With extended warranties we are pushing out the ability to recoup that and return a profit."

Of course, not all service agents see the proliferation of extended warranties as a negative development. Some of the more positive, or in other cases neutral, attributes of this development include an introduction to new customers, the opportunity to develop closer relationships with operator customers and the chance to continue repairing the equipment after the warranty expires.

"The impact so far has not been severe. When we are doing the warranty work I think it balances out by exposing us to new customers. Extended warranties are good if structured to have enough margin to be profitable," according to one service agent. "Along with that, they 'force' the customer and the servicer to remain in close contact during the warranty. If that relationship works for both, other parts and service business should come from it and make the overall business relationship good for all parties, even if the warranty is somewhat of a drag by itself."

As a result of the very strong feelings among service agents and the business related issues, this is one issue worth monitoring very closely in the months ahead.