Essential No. 1: Creating Exceptional Value

How Middleby's fueled its growth in kitchen gear even in recessions by creating and sustaining exceptional value for its customers

By David G. Thomson

When I moderate CEO panel discussions on The 7 Essentials, the CEOs invariably make practical suggestions that stun the audience. "Why didn't I think of that?" or "I am going to try that tomorrow!" are candid responses I frequently hear. There is one panel discussion that really stands out for me that proves how a company can achieve exceptional growth by focusing on delivering a highly differentiated, valuable set of benefits.

Selim A. Bassoul serves as chairman and CEO of Middleby (MIDD), a member of the select set of companies that have achieved high revenue growth through both the 2002 and the current recession. His company is the leading value-added manufacturer (No. 1 or 2 in market share in each product category) of ovens and ranges used in commercial restaurants, institutional kitchens, and food packaging. Middleby's customers include restaurants such as Panera Bread (PNRA), Dunkin' Donuts, Subway, Papa John's (PZZA), and Morton's The Steakhouse (MRT).

When Bassoul took the reins at Middleby in 1999, revenues were $132 million, which shrank to $100 million by the start of the 2001-03 recession. "We had very limited resources and capital, we were running out of cash, and we were highly reliant on three customers that generated more than 60% of our sales," Bassoul remembers. "We lacked innovation, and the products we were generating or creating were very 'me-too' kitchen products across a very broad range, including mixers, refrigerators, and ovens. Roughly 30% of the orders were not shipped on time. You could say we had a case study of a lousy company."

No Quibble Warranty

Bassoul recounts that Middleby desperately needed to find one or two market differentiators. "We needed to build the premium brand in order to be No. 1 in our category, so we focused on ovens and backed it up with a 'No Quibble Warranty.'" The company will take back any piece of equipment, for any reason, no questions asked. "The goal is to meet or exceed a customer's cooking and service expectations," says Bassoul. "While Costco (COST) and Nordstrom's (JWN) are two of the few companies that offer 'no questions asked' warranties, ours was even more compelling since returning a kitchen is a lot more costly than returning a shirt!"

Another point of differentiation: Middleby's tests each oven before it is shipped. "This creates an internal incentive for us to ensure that premium quality is built into everything we do: engineering, production, installation and service," says Bassoul. "This may sound basic but is not done by all our competitors."

Middleby's growth turnaround incorporated more than operations excellence and an industry-leading warranty. Bassoul focused on transforming Middleby's value proposition. "Our sales team focused on building relationships with new and current customers. I called on our competitors' customers, not to sell them, but to find out why they bought our competitors' products and to listen to their insights about the market."

During the turnaround timeframe in 2001, Bassoul says he heard two things about his competitors' restaurant customers that seemed directly related to his business: Restaurants were cutting back on food costs, and the trend of casual dining-out was growing every day."

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