This is a part of the 2013 Distribution Trends Report. The annual report was researched and written by MDM editors based on interviews with dozens of wholesaler-distributors, as well as industry experts and manufacturers. MDM also conducted a survey of its readers to uncover the trends outlined in this report.
2013 Distribution Trends Report
Consolidation by the largest players in the wholesale distribution industry continues throughout the U.S. and Canada as they grow product breadth, geographic reach and services capabilities. Regional distributors also continue to acquire, boosting their national presence. Private equity is helping to drive the latter.
“The cost of being in the game keeps getting higher … to fund what customers are demanding,” says Charlie Lingenfelter, president and CEO of Industrial Distribution Group, Belmont, NC. “So consolidation is happening at a faster pace.”
In many distribution sectors, including industrial, the market remains relatively fragmented, but there are still impacts on independent distribution businesses.
Brent Grover of Evergreen Consulting says when companies change hands, the new owners tend to be more interested in upgrading the acquired distributor’s technology platform and analytics capabilities.
Distributors who remain independent are also pushing up their investments in online platforms and other initiatives that will help them compete on a more even playing field. And as a result of the increased power of the national distributors, more small and mid-sized distribution companies are joining buying and marketing groups to increase their buying power and ability to serve customers on the national stage.
Some smaller or mid-sized distributors are also using partnerships and sometimes acquisitions in their local markets to expand reach and complement their portfolio of products and services to compete more effectively.
Part of the challenge for smaller companies is that they have financial and resource limitations around training and technology investments, says David Parks, executive vice president of fluid power distributor Hydradyne, based in the Dallas-Fort Worth, TX, area. Parks says larger companies can share inventory over larger regions, as well as back-office functions. “The synergies out there from consolidation are making life for the small, independent distributor more difficult every day,” he says.
Still, a few decades ago many predicted the demise of the small local distributor, according to Mark Kahn, founder of Kahn Tools and former president of Production Tool Supply. That hasn’t happened yet. He says he knows small distributors who literally live “in the shadow of Grainger.” Customers just like doing business with the smaller companies. “That’s the relationship that so many distributors have built,” Kahn says.
Manufacturer consolidation is also providing some challenges for distributors. Mike Rowlett, CEO of fluid power distributor Womack Machine Supply, Farmers Branch, TX, says relationships going back many years can change dramatically overnight when a vendor is acquired. “That change, and the change in the acquired company, isn’t always a good thing,” he says.
Customers are not exempt from the consolidated trends either, which challenges distributors to prove their value to the new owners.
Julia Klein, CEO of specialty building products distributor C.H. Briggs Company, says that it is often assumed that when markets improve, consolidation slows and those that wanted to sell already have. But she doesn’t think that is true.
“I think that will continue to happen at the customer, vendor and distributor level as we come out of this really deadly recession,” Klein says.