Jorge Sanchez assembles a conveyor pizza oven on the factory floor of Middleby Corp. in Elgin. Middleby manufactures large commercial cooking products, such as toasters and ovens, for the food industry. (Jim Prisching/Chicago Tribune)

Dow Jones Newswires | Middleby Corp. is betting the restaurant industry will be adding new
kitchen equipment in small bites as restaurants try to lure back
customers.

Middleby Chairman and Chief Executive Selim Bassoul has been acquiring
niche equipment companies with unconventional cooking technologies on a
hunch that the restaurant industry’s future spending on equipment will
be more limited and cost-conscious than the full-scale build-outs of
restaurant chains that reigned during most of the past decade.

Middleby, whose product lines include commercial pizza ovens, ranges,
deep fryers and griddles, has made four niche-product acquisitions in
the past three years, including oven-maker TurboChef Technologies Inc.
in 2008. The cash-and-stock deal worth about $160 million was the
largest acquisition to date for the Elgin, Ill., company.

TurboChef ovens can cook up to 12 times faster than standard convection ovens, but the primary attraction for Middleby is the ovens don’t need the ventilation fans and ducts required by most municipal building codes for conventional ovens. For TurboChef customers such as Subway and Dunkin Donuts, the countertop ovens have allowed them to expand their menus without the cost of remodeling their outlets for oven vents.

“My goal is to create a ventless kitchen. An oven hood costs people money every single day,” says Bassoul, who estimates eliminating hoods for ovens, ranges and other appliances can trim $20,000 from the installation cost of a full-service restaurant kitchen. On top of that, Bassoul adds that hoods make appliances’ less energy efficient by drawing heat away from the cooking process.

Middleby also bought St. Louis-based Wells Bloomfield LLC from United Technologies Corp. in 2007 for $29 million primarily for a Wells’ grill featuring a self-contained fan and filtering system to trap smoke and grease.

Last year, Middleby paid $9 million for Chicago-based CookTek LLC to obtain its line of cooktops that generate heat from electromagnetic energy, making them more portable and safer to use than a gas-powered range. Earlier this month, Middleby announced the purchase of Perfect Fry Co. for an undisclosed amount. The Alberta, Canada, company manufactures a line of ventless countertop deep fryers, complete with their own suppression systems for hot oil fires.

Bassoul, 53, who became chief executive in 2001, envisions the fryers being popular with bars and delicatessens looking to add French fries, chicken wings or other deep-fried items.

“They’re emphasizing 1 8 ventless equipment 3 8 sooner than others, which is typically what they’ve done in the past in latching on to other value-added attributes,” says Tony Brenner, an analyst for Roth Capital Partners in California. “They were the first to emphasise energy savings 10 years ago and now everybody is doing it.”

By some estimates, industry-wide sales of commercial kitchen equipment fell almost 10 percent in 2009 from $9.5 billion in 2008. Industry analysts predict equipment sales will recover slowly, especially since the U.S. restaurant industry remains burdened by a glut of locations at a time when people are eating out less. Consumer spending at restaurants fell 3.5 percent last year from 2008. The outlook for 2010 is for restaurant spending to increase by 0.6 percent.

“The industry is moving to smaller restaurants,” said David Henkes, a vice president for Chicago-based restaurant consultancy Technomic Inc. “When you look at where some of the equipment growth is going to come from, it’s from smaller types of things. Middleby is smart to be investing in those things.”

Acquisitions have helped Middleby achieve a five-fold increase in sales since 2001 to $646.6 million last year. The company’s knack for quickly pulling out excess costs from its acquisitions has made the company one of the most profitable in its industry. Even with falling sales and income in 2009, Middleby’s earnings per share are up an average of 8.6 percent over the past three years compared with 3.3 percent growth for a kitchen appliance sector that includes other high-margin operators, such as Illinois Tool Works Inc., and Manitowoc Co.

Middleby’s stock, which has climbed 14 percent so far this year, was recently trading down 1.9% at $56 a share.