The competitive landscape has shifted thanks to growing consolidation, Grainger President and COO Jim Ryan said recently.
Small regional and local distributors still command the overwhelming share of this market,” he said. “But they’re under attack from larger regional and national players. The billion-dollar plus players are growing at a disproportionate rate to the market and to their smaller competitors.
“…There is going to be a need for specialist distributors, and there is absolutely a place for large-scale distributors. The ones who will find it more difficult are the generalists in the middle.”
Ryan was addressing analysts attending the annual meeting of the Electrical Products Group of New York. Grainger is a $5.9 billion broad-line supplier of facilities maintenance products in North America and China.
When asked about the potential impact of a possible HD Supply spinoff by Home Depot, Ryan said HD Supply’s position would not change. “The challenges in (building) the HD Supply business exist regardless of who owns them: building a tightly integrated supply chain, building an information systems network, rationalizing product lines and rationalizing sales forces.
“All are easy to deal with in concept, but in application those are some challenging problems. It takes time, patience and a lot of money. That said, it can be done. … A change in ownership doesn’t change any of this.”
Ryan also described trends in the facilities maintenance industry. He said businesses and institutions continue to reduce the cost of procuring tools, safety equipment, lighting and other products by relying on fewer suppliers and carrying less inventory.
To that end, Grainger is zoning in on its bin restocking program, already serving 400 customers and implementing the program at 500 more. Ryan said it was a great way to expand the scope of product it sells to each customer. For example, Grainger recently started selling lighting products to a hospital; it learned of the customer’s coming operating room relighting project during one of Grainger’s weekly visits.
“That’s a great example of how being on site and letting customers know about our broad offering can get us additional revenue,” Ryan said.
Grainger has in the past three years nearly doubled the size of its catalog, and plans to continue broadening its product lines in the next few years. Ryan reported that in 2008, it will see $500 million in revenue from new items; in 2009, Grainger will see $750 million from the new items. “We’ve got the capacity to do more, and we expect to go at the same pace for the next several years,” Ryan said of Grainger’s product plans.
Ryan also highlighted Grainger’s international expansion plans. “Business in Mexico is growing fast and is profitable,” he said. “& hellip; The strategy in Canada is to fix the business, make it profitable and then expand.”
Grainger is slowly growing in China. “There is little brand awareness of Grainger in China. The challenge is to get them to try it,” Ryan said. Grainger is expanding its sales force there and using direct marketing to grow brand recognition there.
A link to Ryan’s remarks can be found on the Speeches and Presentations section of Grainger’s investor relations site.