Grainger: Consolidation is Slowly Changing Marketplace

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May 23, 2007

Grainger: Consolidation is Slowly Changing Marketplace

Grainger President and COO Jim Ryan told analysts this week that the competitive landscape has shifted thanks to growing consolidation. "Small regional and local distributors still command the overwhelming share of this market -- more than 75%," he said. "But they're under attack from larger regional and national players. The billion-dollar plus players are growing at a disproportionate rate to the market and to their smaller competitors.

"...There is going to be a need for specialist distributors, and there is absolutely a place for large-scale distributors. The ones who will find it more difficult are the generalists in the middle."

When asked about the potential impact of a possible HD Supply spinoff by Home Depot, Ryan said HD Supply's position would not change. "The challenges in (building) the HD Supply business exist regardless of who owns them: building a tightly integrated supply chain, building an information systems network, rationalizing product lines and rationalizing sales forces.

"All are easy to deal with in concept, but in application those are some challenging problems. It takes time, patience and a lot of money. That said, it can be done. ... A change in ownership doesn't change any of this."

Ryan also described trends in the facilities maintenance industry as businesses and institutions reducing the cost of procuring the tools, safety equipment, lighting and other products they use to keep their facilities running by relying on fewer suppliers and carrying less inventory.

He explained how Grainger's plans to use its scale advantages and position to capture market share in the highly fragmented, $145 billion North American market. Ryan also highlighted Grainger's international expansion plans.

He was addressing analysts attending the annual meeting of the Electrical Products Group of New York.

W.W. Grainger, Inc. with 2006 sales of $5.9 billion, is a broad-line supplier of facilities maintenance products serving businesses and institutions in Canada, China, Mexico and the U.S. It has nearly 600 branches and 18 distribution centers.

A copy of his presentation can be found along with a link to the audio Webcast of his remarks on the Speeches and Presentations section of Grainger's Investor Relations Web site.

Beyond HD Supply: What do you really need to know about M&A in 2007? Learn about trends, valuations, and opportunities. Order the CD, handouts and transcript from MDM's recent audio conference, "Distribution M&A 2007 Update," here.

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