Middleby 2Q17 Earnings Call Notes

Selim Bassoul – Chairman and CEO

State of the industry

“Yes, Larry, I could give a lot of visibility on what I see. So let me start with talking a little bit about the state of the industry. I think we have an expanding economy that is helping restaurant sales continue to advance in 2017. Even as the restaurant operators face continue margin pressures, a tightening labor market and some lingering consumer uncertainty. So, 2017 projected restaurant sales are projected to grow at 1.7% gain over 2016 adjusted for inflation. This is slightly below what it was in 2014 and 2015, and in line with 2016.”

Menu trends have become more concept based

“in 2018, restaurant chains will focus on new menu trends to fit dietary preferences to bring customers back in the store. And the food trends have become more concept-based than ingredient-based, with an evolving focus on production, sourcing, and preparation. ”

In store baking

“So, Jamie, the reason you’re addressing this because it’s the dream of every restaurant and every chain to have in-store baking. It’s the aroma, the scent, it looks fresh. And the reason only one sort of restaurant have done it is the complexity and the consistency of making this happen, and margins; now you’re having to bring a baker and a chef — a pastry chef and whatsoever to do this, so very few have been able to do it. What we’ve been able to do is now through that, our technology, to reduce the cost, and the complication, and the complexity of in-store baking. And that’s why chains have talked about that have flocked to Dallas to see this, because everybody would love to be able to differentiate and say, I provide fresh-baked goods on premise, because remember, millennials want freshness, they want quality food, they want to think it’s healthy. And in-store baking is definitely better than getting frozen stuff if you could do it. The complexity of working with your supplier all the way to store becomes very complex. And that’s why, literally, we have bridged that gap from sourcing to industrial supplier to in-store baking becoming almost one line.”

Most chefs and operators are millennials

“Most of our chefs and operators in our customer’s kitchen are millennials. They want different type of equipment. And I will address that shortly what does it mean. Millennials eat out three to four times per week. They spend over 50% of their food budget out of the home. Seventy four percent of them prefer delivery. Millennials spend 11% more on food than baby boomers and 33% more in restaurants than baby boomers. So if you look at our industry in general, you feel good about it? I do. I think the trend is [indiscernible]. When you have a generation of people wanting to eat more at least three to four times more in restaurants, I feel good. However, there is a seismic shift in food service. Dinning will go from 70 billion to 220 billion by 2020, just in three years. Those are explosive valuation. So restaurant delivery and meal kits will be huge drivers.”

Most delivery has failed

“And I love the quote by Ken Taylor who is the Founder and CEO of Texas Roadhouse. He said we encourage delivery because we do not serve lukewarm food. Meaning that the only thing that has prohibited delivery to take place is the ability to deliver quality food the way Ken mentioned. Most of the food other than the pizza business most delivery has failed in United States. I am not talking about China. I am not talking about the Middle East where we’ve been a big player there. However, our delivery system and our equipment have been very innovative. And you could see many of them at the National Restaurant Show and the [indiscernible] Show early on this year. We have been forefront, ahead of everybody else in looking up those seismic changes and doing that.”