Affiliated Distributors' announcement that it has launched a power transmission division is significant on many levels.
It’s a natural product line extension for the $31 billion contractor and industrial products wholesale buying/marketing group. Our market research division, MDM Analytics, estimates the core U.S. electrical products market to be more than $100 billion (not including controls), and the core U.S. industrial supply market to be between $100 billion and $150 billion, depending on how narrowly you define the product portfolio.
The next largest product category is power transmission, which MDM Analytics estimates at roughly $55 billion, depending on product categories included. About $8 billion of that is in bearings, the largest single category, with more than a dozen additional fragmented product categories rounding out the portfolio.
In recent years, these three product verticals have seen the walls between them melting. Each has complementary products to sell for each of the respective specialists. And from a national accounts perspective, AD starts to fill the gaps its competitors had been systematically filling.
Power transmission distributors have been acquiring industrial supply companies to broaden their offerings. More recently, there have been several strategic acquisitions between PT and electrical products distributors. Through its SupplyForce affiliate, AD will now have a platform to go after national account business held in large part by the top three power transmission distributors.
Competitively, it impacts the primary buying/marketing group in power transmission – IDC-USA. The cooperative, formed in 1987, has 85 members with about 300 locations nationally. AD, a privately held company with seven divisions, has historically had a policy of exclusive membership – member companies can’t belong to competing buying/marketing organizations. According to sources, six IDC members that are currently AD members – five electrical division members and one industrial supply division member – will leave IDC for AD.
It sets up a contrasting set of value propositions. IDC built a strong platform for independent distributors to be more competitive with the dominant national distributors – Motion Industries, Applied Industrial Technologies and Kaman Industrial Technologies. Specific value-proposition strengths of IDC have been its warehousing network, IDC-branded products to complement its support of select brands and inventory sharing.
There is a primary difference between AD’s entry into power transmission markets and its established positions in other product verticals. The electrical division is AD’s core, formed in the early 1980s, and today accounts for roughly half its member revenues, according to sources. It formed the industrial supply division in 1994 and now has more than 120 members. Both the electrical and industrial channels are fairly fragmented, and AD has had a longtime stake developing national accounts business. The top three power transmission distributors hold an estimated market share position of 15 percent or more – even greater if framed by the representative associations that define the core of these distribution product sectors. The barrier to entry equation in large PT national account customers could be substantially different due to the greater consolidation in this part of the PT market.
Of the founding members announced in AD’s PT division, IBT is ranked 10th in the 2014 MDM Market Leaders list of the largest North American power transmission distributors, with estimated 2013 revenues of $138 million. Van Meter, another founding member, was ranked the 24th largest electrical distributor in the 2014 MDM Market Leaders list, with 2013 revenues of $235 million. Both companies have been IDC members.