Despite forecasts calling for a looming economic slowdown, many industrial distributors reported continued considerable sales growth in 2022. The pace of growth for some companies appeared to slow during 2022’s fourth quarter, but overall wholesale distribution revenue in the 19 industrial, commercial and building products sectors MDM tracks finished at approximately 17% above that of 2021.

And while distributors’ reported revenues saw significant increases during the past two years, real revenue resumed its slow-and-steady pre-pandemic growth trajectory when inflationary factors are removed. Distributors reported year-over-year growth of 8.7% in November, which visually appears as a giant leap compared with 2020 data, according to MDM’s Wholesale Distribution Economic Trends Report. When adjusted for inflation, however, the rise appears more subtle and less jarring. (See charts below.)

And as stakeholders sort out inflation’s true impacts, overall price increases continue their slight but steady fall. The U.S. Bureau of Labor Statistics recently reported its largest monthly decline in Producer Price Index for final demand since April (0.5% in December), continuing a consistent decline since last summer. The bureau also reported this month that the core Consumer Price Index rose 0.3% year-over-year in December, following a 0.2% November increase. (The overall CPI dipped 0.1%, heavily driven by a 4.5% decrease in the energy index.)

Lingering inflation and other factors affected pricing for many distributors in 2022, but just how much did pricing actions impact revenue growth?

One of our rotating questions in the 2022 4Q Baird-MDM Industrial Distribution Survey asked distributors, “What percentage of your company’s 2022 revenue growth was attributable to pricing impacts?” Of the approximately 500 respondents — primarily consisting of distributors — 55% said between 0-20% of growth was attributable to pricing impacts; 14% said 21-40% was due to pricing; 16% said 41-60% was due to pricing, 9% said 61-90% was due to pricing; and just 5% answered that 81-100% was due to pricing.

“What percentage of your company’s 2022 revenue growth was attributable to pricing impacts?”

Below, find a selection of commentary reflecting each option chosen.

Zero to 20%:

• “The pricing impact for revenue growth buckets should have been in 10% increments. While I selected 0-20%, it was just under 10%. The reward for incredible cost control is big bonus for each team member.”
• “In 2022, we had one price change and that was only on 30 separate items. We have seen a big increase in our replacement business; it constitutes 54% of our overall business.”
• “Our impact from pricing was around the 10% level. We have had two overall price decreases the last two price updates, bringing the final impact to near 8% for the year.”
• “Our pricing initiatives allowed some gains, but substitutions and spots-buys chewed up much of these gains.”
• “We raised our service agreement prices about 11%, and there was some attrition — clients who cited price as reason for taking business elsewhere. We viewed this as a positive, as we signed on many more and feel our average client profile was upgraded by the end of the year.”
• “We had planned for the issues with supply chain for our largest revenue-generating product line and had overstocked our inventory with these items 12-16 months in advance. When supply chain issues increased, we had sufficient stock to service our customer’s needs. So, pricing didn’t have much impact as we had inventory. However, we had customers placing larger order quantities, which we provided price breaks; this did reduce our gross profit.”
• “We believe the impact of price adjustments was responsible for approximately 5% of our growth in 2022. We did pass along increases at the end of 2021, but did not pass along further increases until the end of 2022.”
• “This is something I’ve tried to come to a conclusion on myself, but it turned out to be beyond our system due to all the different increases versus the business percentage of the vendors. But I will say that our largest vendor had the most increases over the year.”
• “Our larger customers require months advance notice for price increases, so some not in effect until 2023.”
• “The significant price increases was mostly to cover increases in raw materials due to shortages and logistics wherein if a component is available, we were airfreighting to continue production.”
• “We have been increasing prices to stay ahead of increases to our materials and labor cost. Materials and component costs are rising much faster than labor. Additionally, due to a strong market we have been able to increase margins as well in last few months.”

21-40%:

• “Deflating wood prices and a reduction of overstock items brought about from the supply chain catching up is reducing gross profit for Q4 2022 and Q1 2023. Overall SG&A inflation is cutting into the net profit wedge for 2023 if we don’t pivot.”
• “Price increases blunted a more significant drop in demand.”
• “Freight prices dropping significantly played a big role with our import side, with lower raw casts also contributing. A normalizing supply chain has brought back a larger pool of vendors and opportunity for competitive purchasing.”
• “Price increases are commonplace and are more frequent than they have been since the 1970s. I do not see this changing as energy, raw material, and labor costs continue to increase. Surcharges are also a new revenue stream for many companies.”
• “Business conditions closely aligning to inflation, market contraction, wage increases and cost to acquire new hires and customers rising.”

41-60%:

• “Price increases were passed on to customers. Yet we maintained margin % as costs went up. The pricing increases across various product categories varies depending on the makeup: petro and metal product groups had the highest price increases in 2022.”
• “My market relies heavily on price, and excessive time is spent updating prices to clientele — to re-attract them back to your product line. We import 65% of the product, and the freight costs were a killer, but we all were in the game together; now, gloves are off and a new battle begins.”
• “We look at month-over month-revenue, but our barometer is gross profit and, ultimately, operating profit.”
• “Most noticeable with HVACR equipment; less so with supplies and parts.”
• “As price/inflation moderates, unclear if volumes will recover as we enter recession. Challenging year.”

61-80%:

• “Our volume was only up 1-2%. Price increase accounted for the majority of our revenue growth.”
• “Pricing impact may be overstated due to change in customer/product mix as low price/margin customers left and new higher price/margin customers were added in 2022.”
• “Do not expect volume growth, but not sure about how much volume will decline at this point based on the economy.”
• “Prices were increased in-line with industry increases.”
• “Depending upon the product line, it was nearly 100%.”

81-100%:

• “Unit growth decelerated throughout the year while the inflation impact accelerated. While inflation is still a tailwind for revenue early in the year, we anticipate supplier promotional activity and potentially outright price decreases will be much more prevalent over the next couple months, particularly towards the end of Q1 as suppliers try to make up for revenue shortfalls.”
• “Customers beginning to push back on constant price increases and more pressure from low-cost online players appearing.”
• “New pool equipment purchases fell off a cliff in 2022, which we expected.”
• “We saw unit declines but both price and margin were up.”
• “Supply chain issues led to customers switching to suppliers with available products. The net effect will be realized in 2023.”