The 2020 Mid-Year Economic Update_long

Commentary: Without Price Inflation, Where Would You Be?

The second half of 2006 is staying strong. Distributors across many product sectors are reporting monthly year-to-year sales increases, many higher than 15 percent. Most economic projections pointed to a downturn by now, fueled by inflation pressures, high energy costs, and slower production rates.

Except for the building materials sector, the economy is still firing, or just showing the first signs that the mixture is about to lean out. Several distributors have told MDM that capital expenditures are the foundation for this year’s positive results. North American markets are enjoying benefits of continued strong growth spots globally.

But this publication has always had a tendency to look for clouds on even the brightest days, and this year offers no reason not to stay concerned about underlying stresses currently masked by cash flow and price inflation.

Consider the analysis by Adam Fein on how distributors have enjoyed top-line growth due to commodity price inflation the past few years. His key question: How much would your top-line revenue growth slow down if product prices remain flat over the next 24 months? He argues that volume growth will become critical as a source of revenue growth. Even if you disagree, consider the scenarios he presents.

What level of resources are currently invested to position your team in the highest potential growth areas? Are you testing new products, new services and new markets to probe for the best fits with your current strengths? If the answer is your organization is too lean or simply too busy to dedicate to these strategic tests into the future, then carefully consider what happens if gross profit dollars stagnate, drop moderately or drop a lot. What does that mean to your current competitive strength?

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