I attended nearly a dozen industry events during 2022 — the first year that in-person conferences, expos and summits were back in full force since COVID-19 arrived — and I’m looking forward to another full slate in 2023. This year’s itinerary kicked off with the National Association of Wholesaler-Distributors (NAW) Executive Summit in Washington D.C., where approximately 350 executives in or with ties to distribution convened to learn and network.
MDM’s M&A Virtual Summit, to be held Feb. 22-23, has something to offer for any distributor on the dealmaking spectrum. We’ll cover the current state of M&A; how to maximize valuation; integration do’s and don’ts; ESOPs; the culture side of the M&A process; and more. Get details and register here.
At any industry event, I try to do as much straw polling as I can, usually asking distributor and manufacturer executives the same couple of key questions: What is your company’s biggest challenge? And, what are you hearing in terms of demand?
Previously, I would just make mental notes of the responses to those questions and write what the overall sentiment from them was. At NAW’s Executive Summit, I wanted to actually capture those responses for our audience. So, like we did with the last MDM Podcast episode of 2022, I secured brief (5 minutes or less) interviews with a trio of executives at the event and used the resulting audio as a collective podcast.
It’s a newer format we’re trying out here at MDM to get more voices in front of our audience from industry events, which always serve as excellent networking opportunities. It’s also where executives tend to be more transparent and comfortable sharing details that go beyond what they would typically share in a company news release.
Before interviewing them, I figured the biggest challenge that most distributors are still dealing with is labor. Based on MDM’s surveys from the past year and general industry chatter, that seemed to be the case for 2022, and I’m sure it will remain a top issue throughout 2023. But neither of those three executives said it was their biggest challenge right now. One mentioned international supply chain issues; one mentioned choosing the right digital transformation innovations to pursue; and one mentioned keeping up with the pace of digital innovation.
Dakota Supply Group has an ESOP ownership model, which Kennedy said has really paid off on the labor retention front as the company has actually improved its retention rate over the past several years. Meanwhile, Derry and McCarthy acknowledged that labor remains a key challenge at Field Fastener and ORS/MEDCO, but given that the industry has now had several years to adjust to current labor conditions and demand, it’s become more manageable.
And what about demand? Throughout the second half of 2022, much of the economic noise focused on a looming slowdown and potential recession. Respondents in the 4Q22 Baird-MDM Industrial Distribution survey indicated that most distributors agree that a slowdown is coming, but in terms of what they’re hearing from customers and field sales reps and seeing in their latest sales data, I keep hearing the same response: “We’re not seeing it yet.” This is evidenced by continued robust 4Q revenue figures for many publicly-traded distributors, and even more recently, Fastenal reported that its January daily sales growth outpaced that of December by a decent margin.
“I hear and read about softening, but we’re not seeing it,” Derry told me. “Our customers are busy. Last year was record revenues for us. The fourth quarter was our best quarter ever. So we’re not seeing any softening at all.”
“We’re continuing to hear some of the same information about softening demand, but we’re not seeing it in the numbers,” McCarthy echoed. “So, we continue to see strong demand from our customers, and as far as we can tell, they continue to see strong demand in their markets.”
“We did see a little bit of softening in November in December, but January bounced back to where we thought it was going to be,” Kennedy noted. “From a demand perspective, from our sales team out in the field and from our customers — outside of residential new construction — they’re very upbeat, optimistic, and our backlog reflects that.”
Besides challenges and demand, I asked those three executives what one industry issue they tired of dealing with, talking about or wish would just disappear immediately; what their company is looking to do differently this year; and what they hoped to get out of attending the NAW Executive Summit.
Check out the full podcast via the audio player above, and see our full library of MDM Podcasts here.