Grainger’s multichannel model lets customers be served the way they want to be served, according to Court Carruthers, Grainger U.S. president. He was speaking at the $8.1 billion distributor’s recent annual analyst meeting, available at grainger.com.
And it has allowed the distributor to adapt to changing economic conditions, Carruthers said.
At the annual meeting, Grainger’s leaders provided an update on Grainger’s growth drivers, homing in on the concept of a multichannel approach, or using a mix of sales force expansion, e-commerce, service centers, KeepStock inventory management services and branches to reach customers. This has resulted in a stickier customer relationship for Grainger, Carruthers said.
As an example of the value of the multichannel approach in serving customers the way they want to do business, Carruthers said that 25 percent of the transactions on the distributor’s new mobile app are reservations for will call at local branches, compared with just 2 percent of transactions on grainger.com.
The distributor’s branch network remains relevant for a key segment of customers, he said, but Grainger has seen a shift in the amount of business that has gone through the network, making a multichannel approach even more critical.
To stay ahead of that shift, Grainger has closed 70 branches in the past three years and increased the productivity of the labor and other assets in the remainder of the branch network.
It’s invested the savings in sales force expansion, e-commerce and its other growth drivers, resulting in a more profitable branch network, Carruthers said. The distributor plans to adapt the network based on demand going forward.
But it’s e-commerce that Grainger calls the “glue” that holds the multichannel model together.
“This is the one place the customer can go to get all the information related to transactions with Grainger whether or not (the transactions) are happening in e-commerce,” Carruthers said.
Paul Miller, vice president of e-commerce and customer information for Grainger, said Grainger is thinking beyond just the world of MRO when it comes to e-commerce leadership. “We’re setting our sights on how we can be the top e-commerce destination. Period,” he said.
The distributor, which had $8.1 billion in sales in 2011, is expecting that more than 31 percent of its 2012 sales will be from its e-commerce platform, or about $2.5 billion. The channel is Grainger’s fastest growing. In October 2012, year-to-date e-commerce sales were up 17 percent, with the growth rate increasing each month, Miller said.
The goal of its e-commerce platform remains to increase integration with its customers, making it easier to do business with Grainger, Miller said.
Its newest feature on its website, auto reorder, is aimed at doing just that. Auto reorder allows customers to set a quantity and frequency to automatically reorder products online. The product is then delivered to them when they need it.
For example, one customer has paper towels automatically delivered every two months. “They don’t have to think about it anymore,” Miller said.
“That (loyalty) is hard for anyone to replace – especially competitors that deal in only one channel.”
In addition to building out features that build loyalty, the distributor has been busy optimizing its e-marketing campaigns. It has significantly grown its investments in paid search marketing, going from managing 10,000 keywords two years ago to 5.6 million keywords now. As the distributor’s product assortment goes up, that number will go up, Miller said.
The distributor sees an aggregate return on its ad spend of 6:1 on paid search marketing. Together, paid and organic search marketing are driving more than 25 percent of site traffic.
The distributor is also investing in a relatively new tool, remarketing, which is driving a 10:1 return on Grainger’s ad spend.
Through remarketing, when you visit a company’s website, you pick up a cookie and continue to see their ads on other websites you visit. “It’s about timely and relevant messaging that goes out to our customers,” Miller said. It’s been so effective, he said, that vendors have helped pay for the strategy.
Recognizing the importance of e-commerce and mobile to its business, Grainger has created an “innovation center” for e-commerce in downtown Chicago to help attract and retain top talent.
“We’re not close to being done,” Miller said, referring to the distributor’s recent developments. “When you think of the new opportunities in phone and tablet there’s an incredible runway ahead for innovation.” The distributor is now working on its next generation e-commerce platform.
Is the distributor concerned about rival e-commerce platforms from companies such as AmazonSupply? Miller said Grainger’s multichannel approach makes the distributor more valuable to customers, and that customers consider several factors when making a purchasing decision.
“When you add it all up, I look at this and say we are very well poised to continue winning in this space,” Miller said.
Sales Force Expansion
While e-commerce has had great success for Grainger, sales force expansion continues to be a key part of the distributor’s strategy in the U.S. “When we put feet on the street, and put sellers in front of customers, good things happen,” Carruthers said.
The distributor has 2,400 sellers today, and continues to add corporate and commercial account managers.
Grainger says it has also had “great progress” with the mid-sized customer using territory sales reps, a newer effort that it has been refining, Carruthers said, by modifying the customer profiles they target, the profile of the territory sales reps they hire and the training they go through.
The distributor also made seller mobility a priority, with apps for smartphones that make salespeople more productive in the field.
The plan for 2013 is to add up to 100 sellers. If the economy is stronger, Carruthers said, the distributor may flex that number up to 200 or 250. The distributor is building up to 4,000 sellers over the next three to five years, covering the mid-sized and large customers throughout the U.S.
Inventory Management Services
Another critical piece of Grainger’s multichannel puzzle is its KeepStock inventory management services. “This is not about a one-size-fits-all solution,” Carruthers said.
KeepStock includes customer managed inventory, vendor managed inventory, automated mobile VMI technology for contractors and transportation companies, a vending program and a suite of on-site solutions that include having a full Grainger branch on site.
So far, the distributor has had 40,000 KeepStock installs, Carruthers said. It is aiming for 10,000 more in 2013, with 2,000 vending machines in 2013. Carruthers emphasized that vending machines are not the main focus. “We’re not trying to put in as many vending machines as we can,” he said.
The ultimate goal is 100,000 KeepStock installations. These customers are a priority, he said, because customers using KeepStock inventory management services are growing 15 percentage points faster than Grainger’s overall business and accounted for more than $300 million in incremental 2012 revenue.
According to Carruthers, Grainger’s approach is working. The distributor has increased revenue by 28 percent with large and mid-sized customers, and through a combination of sales coverage, inventory management and e-commerce, Grainger says it is growing market share in a number of segments.
The focus on a diversified customer base also is helping despite uncertain economic conditions, he said.
And reaching those customers through several channels has built a more powerful and sticky relationship Grainger is counting on for continued growth.