Strong Brand: One of the best-known names in professional kitchens and by far, the world market leader with over 50% market share
Healthy Balance Sheet: Almost no financial debt with net liquidity position and high equity ratio of 0.76
High Capital Efficiency: Profitable business model with average ROCE(5y) of 33% and low capital intensity with high cash flow generation ability
Global Economy & FX Sensitivity: High sensitivity to global economic activity; Around 50% of group revenues come from foreign currency sales (primarily in USD)
Growth Drivers: Shortage of skilled workers, population growth, rising costs for energy and labor are driving forces for future growth potential
Introduction of Rational AG
Established in 1973 in Landsberg am Lech, Germany, RATIONAL’s story began when Siegfried Meister, founder of the company, combined steam to the hot and dry air in the oven, in a single appliance. Since then, RATIONAL has become a global leader and revolutionized the large and commercial kitchens of the world.
Since its IPO in 2000, it has been listed in the Prime Standard of the Frankfurt Stock Exchange, and is currently included in the MDAX, which lists German companies that rank in size immediately below the companies included in the DAX index.
Product and Service Excellence
Interestingly, the first combi-steamer, for which RATIONAL is known today, was pioneered in the late 1960s by Burger Eisenwerke, acquired by Juno, which is now part of the Electrolux Group, one of the competitors based in Sweden.
However, RATIONAL’s remarkable journey from a small German startup to a global powerhouse for thermal food preparation systems, is attributed to its commitment to innovation and customer orientation, as summarized by Walter Kurtz, Chairman of the Supervisory Board, in the 2022 annual letter.
“We concentrate on what we do best: the preparation of hot food in professional kitchens. It is the heart of any professional kitchen — or, as Siegfried Meister once put it, also its biggest bottleneck. If it is not possible to prepare high-quality meals efficiently and sustainably while maintaining strict hygiene standards, the operation will cease to function or fail to be competitive in the long run. We address this bottleneck and offer our customers solutions that work best in the given context.”
In 2020, the company introduced the newest version of its flagship product, the iCombi Pro, succeeding the SelfCookingCenter, which combines traditional cooking methods with heat and steam, integrating stoves, ovens, and steamers into a single unit.
With the introduction of iVario Pro, who succeeded the VarioCookingCenter in 2020, the company extended its service range from boiling to deep-frying functionalities.
The iVario Pro was founded and manufactured by its subsidiary FRIMA in France, which became part of the RATIONAL group in 1992, which marked a significant expansion of its product range.
According to RATIONAL, when both products are used in combination, they cover 90% of the cooking processes in professional kitchens. This makes the company very appealing as an almost complete solution provider commercial kitchens, eliminating many manual tasks and making workflows as efficient as possible.
In the world of thermal food preparation, RATIONAL stands as the clear global leader, holding of around 50% of the market share based on its own estimates. With a local presence in over 120, the company serves a wide range of a customer base ranging from restaurants and hotels to large-scale mass catering options, such as hospitals and company canteens, as well as retail, including supermarkets and service stations.
Management
All members of the executive board, with the exception of the CTO, have served for at least a decade for the company, with Dr. Peter Stadelmann as CEO since January 2014.
Low management turnover signifies stability and resilience, and the exceptional performance and capital efficiency of RATIONAL’s business operations over the last decades, to some extend, is also reflected in the persistency of it’s key leadership positions.
In terms of remuneration, in FY22, the Executive Board received a total remuneration of EUR 6,895 thousand (1.22% of 2022 gross profit). Managers in key positions were paid EUR 8,130 thousand (1.44% of 2022 gross profit).
The company provides a very detailed explanation of how the Exetuctive Board and Managers are getting payed and incentivised. Most interestingly, they started using Return on Capital Employed (ROCE) not just to measure financial performance of the business, but since FY22, it has been included as a long-term financial key performance indicator (KPI) in the remuneration system for the Executive Board, which accounts for 20% of total target remuneration. Tying long-term incentives (LTI) to ROCE establishes a framework for fostering sustainable growth by focusing the management to invest capital wisely, resulting in better cash flow, and a competitive advantage, as in the case of RATIONAL.
Industry & Business Model
According to RATIONAL's estimates, the global market potential for combi-steamers comprises around 4.8 million kitchens, 75% of which still utilize traditional cooking technologies, and even 96% when considering the addressable kitchens targeted by the iVario.
Given the high untapped market potential for both product groups, RATIONAL faces significant opportunities to transition professional kitchens from traditional technology to multifunctional intelligent cooking systems. This is also driven by factors such as the shortage of skilled workers—dramatically increased by the pandemic—and the push for further automation due to cost pressures.
Interestingly, RATIONAL has provided examples demonstrating the payoff of its customers' investments, with savings of up to 50-70% in areas such as space and energy costs, which makes its products a logical choice for kitchen chefs worldwide.
For instance, an investment calculation presented during its 1Q18 report illustrated that for a restaurant preparing 200 meals per day, investing approximately EUR 25,000 in 1x SelfCookingCenter and 1x VarioCookingCenter could generate around EUR 5,000 in extra profits per month, achieving a break-even in just about 5 months.
Although the numbers from 2018's may not fully reflect today's reality, given the increased costs of raw materials and energy, they still underscore the attractiveness of buying these products for restaurants and chefs worldwide.
Another accelerating trend in recent years, the rise of so called ghost or cloud kitchens, which are commercial kitchens optimised for third-party food delivery service, creates increasing demand for efficient, and space-saving kitchen equipments provided, which creates additional growth opportunities. For those interested, Middleby, one of RATIONAL’s main competitors, has published several articles about how ghost kitchens are changing the landscape of the foodservice industry and how provider of foodservice equipments leverage technology to benefit from this trend.
Competition
While RATIONAL still maintains its dominance in the global market of combi-steamers, the commercial foodservice and food processing kitchen equipment industry is characterized by intense competition and fragmentation, featuring numerous global and local competitors. One such player is Middleby, a US-based manufacturer comprising some of the most well-known brands in the foodservice and beverage equipment sector.
Unlike RATIONAL, which primarily emphasizes organic growth and has undertaken only one notable acquisition, that of FRIMA in 1992, Middleby has extensively utilized acquisitions to broaden its business scope. Since the start of 2019, Middleby has engaged in over 30 M&A activities, diversifying investments across various sectors within the foodservice industry, ranging from frying technology to multi-purpose cookers. For instance, Middleby introduced the CTX oven, an automated cooking platform capable of cooking, baking, broiling, searing, and steaming, all within a single appliance, directly competing with products offered by RATIONAL.