Top Distributors List Shows Consolidation, E-Commerce Emphasis

Plenty of room for further mergers and acquisitions among Market Leader companies.
Person in warehouse using cellphone to automate processes

The shifts in Modern Distribution Management’s new Market Leaders list of top distributors in the U.S. reflects some major industry trends, including a lot of consolidation and greater reliance on e-commerce.

Tom Gale, MDM CEO, and John Gunderson, MDM vice president of analytics and e-commerce, in a recent webcast discussed trends in the list, which is based on 2018 revenue data: The distribution industry is still fragmented and consolidating faster than before. The big distributors keep getting bigger. More distributors are expanding into new channels, especially safety and Jan-San.

The industry’s combined revenue was $550 billion in several sectors alone: industrial, electrical, building materials/construction products, HVAC, plumbing, power transmission/bearings, and fluid power and flow control.

In the newest ranking, Ferguson Enterprises and W.W. Grainger are the top two industrial/construction distributors, while Sonepar USA and Anixter International are the top two electrical distributors.

Gale said, “Consolidation is accelerating. It gives a pretty good picture that there’s a lot of room in most of these sectors for much more consolidation to take place.”  He added, “By far, the electronics wholesale distribution sector is the most advanced in terms of consolidation and concentration.”

Many distributors are exploring ways to grow their product lines and branch out into new sectors. Gunderson said, “Almost everybody on this list is trying to expand lines and move into other channels and add safety products and automation.”

Even with all the consolidations, the industry is likely to experience a slower growth rate this year, compared to last year.  Gale pointed out, “The years 2017 and 2018 were the first in a long time where you had two strong growth years strung together. So far this year, there’s a downshift taking place and a lot of uncertainty in terms of how 2019 ends up and what 2020 looks like.”

Digital Transformation

Online commerce is both threatening and boosting value propositions for distributors. E-commerce has made it much easier for companies to enter new channels quickly, compared to 10 years ago. The definition of local inventory is changing due to e-commerce, and there’s a trend toward companies having fewer local branches, Gunderson said.

“Digital is really a key driver in a lot of the shifts that we have seen in 2018 and continuing into 2019,” Gale confirmed. “One of them is the stronger product expansion capability. Once a distributor gets an e-commerce platform in place, it opens up a lot of opportunities to build off that platform strategically in terms of what makes sense for their channel and the market opportunities they identify.”

Distributors have been feeling competitive pressure from Amazon in recent years.

Gale stated, “Amazon has had a critical impact. It has taken some share from very specific sectors. There are very few sectors that it hasn’t touched in terms of the more commodity-type products that were add-ons and easy-type sales in yesteryear.”

He added, “Amazon has been a threat, but it’s driven a lot of investment [in digital sales] and a lot of hard thinking in term of strategy, as well. Amazon is just one part of something that’s much larger in terms of the whole digital transformation journey and how customers are buying and how distributors are shifting their sales models to meet that.”

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