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
For distributors, increasing wallet share with existing customers tends to be a more effective way to grow sales than finding new customers – though successful distributors are likely doing both. As a result, more distributors are expanding not only their product lines, but also the categories of products they offer. And they’re expanding the ways in which they go to market.
“Wallet share is becoming an even bigger focus than ever before,” says David Gordon, president of Channel Marketing Group. “That’s driving companies to look at these alternatives.”
Industrial Supply Co. Inc., in Plymouth, MN, recently changed its name to ISC Companies to reflect its changed market focus, according to Chris Bursack, director of marketing. “We’ve broadened our product and service offering into so many different areas that Industrial Supply Company just didn’t fit the overall market strategy that we’re employing,” he says. The company began in 1939 as a “true power transmission and bearings distributor,” Bursack says. And while that segment is still very important to the company, it has since added a machining and fabrication business and a sensors and controls business.
“With a flat market, more nationals will continue to add adjacent product categories, and safety has seemed like the most prime category,” says Tim Loy, president of Mallory Safety and Supply, Longview, WA. “It is a product category you can feel very good about selling because it keeps employees safe and injury-free, so I expect to see more of the big guys adding safety.
“Channel convergence seems pretty natural given the low-growth reality and high-growth ambition.”
Interline Brands, Jacksonville, FL, is another example of channel convergence happening – and in the past five years or so accelerating – in today’s distribution markets. The distributor has expanded its reach in janitorial supplies significantly, and it now makes up about half of the MRO distributor’s revenues, or $800 million pro forma, President and COO Ken Sweder says.
The market is attractive to Interline Brands for a few reasons: Jan-san is a consumable and stable business; it complements the end-markets the distributor already serves; and it offers the opportunity to cross-sell Interline’s full suite of products to more customers.
“There are a lot of folks focusing on product expansion, this concept of endless aisle, different supply chain linkages so they can offer more through online portals,” Sweder says. “It’s also a very, very large industry. So the space is large enough to have multiple large players here and to have those folks thrive and survive.”
But distributor desire to expand and grow isn’t the only driver of this trend. Customers are also looking for ways to streamline and cut costs from their operations. Reducing the number of distributors they need to do business with is one way they can achieve this, says Mike Gassmann, chief growth officer at Van Meter Inc., Cedar Rapids, IA.
“Customers understand that it costs them money to have multiple suppliers in different areas,” Gassmann says. “If, for example, a company can buy their mechanical products and their electrical products from one distributor, … it will be more cost effective for them.”
The distributor, in turn, becomes more important to the customer, Gassmann says, making it harder to sever that tie. “It’s a win-win situation,” he says.
With more companies considering new ways to go to market – from manufacturers exploring direct sales to more e-commerce options – the competition to become more important to customers will only grow.
“What we’re seeing from our customers, particularly the smaller ones, is that there are cases where they’re feeling the pressure of the squeeze in their geographic region from someone else’s e-commerce channel,” says Jonathan Bein, senior partner with Real Results Marketing. That pressure is more pronounced for distributors that don’t have a strong online presence.
Expanding into new sectors is not without its challenges, however. Distributors expanding into new product lines may not have a real understanding of that channel, Gordon says. Or they may not have the expertise to really do more than supply the product – which is not what most customers are looking for in today’s market.
Manufacturers need to be convinced of the viability of these types of market moves, as well.
“You have to understand where you can be successful and what segments you can be successful with,” Gassmann says. “You have to have some credibility with the suppliers in order for the suppliers to take you seriously. If the segments are widely different, it’s more difficult to get into that space.”