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
E-commerce continues to grow as a critical sales growth tool. MSC Industrial Supply recently reported 40 percent of its sales come from its online platform; and Grainger’s sales through grainger.com continue to grow at a quick pace. Mid-sized distributors are following behind, launching new websites. But the gap between the haves and have-nots continues to widen, with many smaller industrial distributors just now starting to build out more robust platforms even as Grainger dedicates hundreds of employees to its e-commerce business.
Distributors continue to expand product categories, but face some challenges. Just as with e-commerce, more small and mid-sized distributors have followed the larger distributors into new product categories, especially after the recession when many were looking to bounce back by growing spend with existing customers and appealing to new end-markets. For some, it’s been effective. But some industrial distributors that have ventured outside their core have reported challenges with resources or profitability in new product categories. Still, it remains a growth avenue for many in this sector.
Vending services continues to explode, especially in MRO. Last year, MDM reported that vending machines were increasingly being used by a broader range of distributors as a way to embed themselves in customers’ facilities. The Fastenal Company continues to be the leader in implementation, but MSC Industrial Supply’s acquisition of Barnes Group’s North American distribution business this year will strengthen its position in vending and other vendor managed inventory services. Grainger has incorporated vending into its inventory management programs, but vending remains a small percentage for the distributors. Many other distributors in this sector are also using vending as a growth vehicle or testing out vending with select customers in response to the national distributors’ push.
Customers are consolidating suppliers and demanding more services. Thanks to their own work force cuts during the downturn, customers accelerated consolidation of their supply base, but beyond products, they are asking for more services from distributors. Many have stepped up to the plate, adding more services to their portfolios. But many distributors still struggle to adequately document and get paid for the added value they are providing.
National and regional distributors expand via acquisition. New product categories, services and expansion into more geographies are driving ongoing consolidation in the industrial sector. Canada and Mexico are still targets for distributors of all sizes for growth, and many distributors continue to follow customers overseas, to Europe and Asia in particular.
Distributors continue to pursue national reach. National accounts or integrated supply opportunities are growing for distributors in this sector. Distributors of all sizes continue to work with other distributors via buying and marketing groups or through co-ops or partnerships to compete more effectively on this level.
2012 and the start of 2013 was a busy time for M&A in the industrial distribution sector. The past year has seen a lot of activity from regional and national industrial distributors.
MSC Industrial Supply has acquired Barnes Group’s North American distribution business, adding $300 million to its revenue base. The distributor now has more reach in Canada and can take advantage of Barnes’ vendor managed inventory services base.
Interline Brands agreed to buy JanPak for $82.5 million at the end of 2012, expanding its reach in janitorial supplies. Interline Brands also went private in 2012, agreeing to be acquired by GS Capital Partners and P2 Capital Partners.
McJunkin Red Man Corp. is now MRC Global and public, listed on the New York Stock Exchange as NYSE: MRC.
Kaman expanded its reach in electrical and automation components with the acquisition of Zeller Corp. Kaman also sold its Canadian branches to Wajax Industrial Components and entered a partnership with the Canada-based distributor to serve customers on both sides of the border.
Applied Industrial Technologies acquired Parts Associates in December 2012, with 200 employees.
WinWholesale made several acquisitions in 2012, as well as opened new locations throughout the U.S.
HD Supply continued to streamline its business in 2012 with the divestment of its industrial PVF division to Shale-Inland Holdings, an affiliate of two private equity firms. HD Supply also merged its electrical and utilities businesses under the name HD Supply Power Solutions.
Ferguson Enterprises acquired Davis & Warshow in New York, which operates eight wholesale and seven showroom lcoations.
Grainger acquired Techni-Tool, with 2011 sales of $88 million.
DGI Supply made two acquisitions in 2012 and one since the start of 2013.
Amazon launched AmazonSupply.com in 2012, with 500,000+ products.
Flow control products distributor FCX Performance continues to expand via acquisition, with two in 2012.
Mining supplies distributor United Central Industrial Supply and industrial rubber products distributor GHX Industrial were combined in 2012 to form The United Distribution Group.
BlackHawk Industrial continued its growth path, acquiring EF Baily Co. in Seattle, WA, the seventh acquisition of BlackHawk putting it now in the Pacific Northwest.
Airgas acquired 12 businesses with aggregate annual sales of $39 million in 2012.
Average sales growth for the Top 40 Industrial Distributors: 12.6%