Even though the market is already crowded with distributors and suppliers, two industry veterans – Larry Davis and John Allenbach – joined forces to launch a new master distributor, AgoNow. Davis and Allenbach recently spoke with MDM Publisher Tom Gale about why their company is different and why the market needs a player like AgoNow.
Tom Gale: Why start AgoNow?
Larry Davis: We talked about creating a company that was sustainable, that made a difference. But there’s a much more practical reason. Through a lot of conversations with distributors and suppliers, it was very clear that there were a lot of unmet needs in the marketplace, including somebody that could step in and meet those needs as a partner.
Gale: What’s the significance of the name?
Davis: What the name really means is industrial strength partnership. And there’s intention in that phraseology; we want to be a great partner. For us it comes down to two things. One is commitment. If you want to be somebody’s partner, you have to make a commitment to do that.
The other is capability. You have to invest in and know the business well enough to have the capabilities that distributors and suppliers need to be more competitive in the market. That’s where we found some pretty significant gaps and designed a business model specifically to pursue closing those gaps for our customers and our supplier partners.
Gale: What are the products and distribution segments that you’re focused on?
Davis: From a product standpoint, we want to take a merchandising approach to building our portfolio and making sure that we’re meeting the needs of the ultimate end user that’s consuming products. The other piece is the “voice of customer” (VOC). One of the things we’ve heard loud and clear is you have to increase your relevance in our business to be a better partner over time.
As we go forward, you’ll see us expand our product categories to be more relevant to the distributor, and making sure that we’re delivering best-in-class suppliers and product category coverage, so that the distributors can be more relevant and more sustainable to their end users. We’re going to start out with MRO lines, so safety will be a big category for us.
Gale: Is there a size of distribution companies within these segments that you’re targeting?
John Allenbach: We started out thinking that our focus was going to be on the independents. What’s been interesting about the VOC work is that we get much different reaction from the nationals and larger distributors than we expected. It really comes down to a consistency of need. Everyone’s working hard to manage their working capital. That’s a huge objective for companies, whether you’re a $2 million independent distributor or a billion-dollar industrial distributor.
Gale: The market’s crowded with distributors, it’s crowded with suppliers. Why is there a need for a new master distributor?
Davis: Distributors have more options and more supply sources than they ever have, so they need a partner that can help solve some of these problems. Yes, there are a lot of people that do master distribution. The question is do they do it right and in a way that serves the needs of the distributors and the suppliers?
What we’ve heard is that that’s not the case and that somebody has to step into that space and deliver great service levels, strong category representation and knowledge, and a customer experience that helps the distributor enhance the relationships they have with their customers.
They need a partner that is solution-oriented, so we’re going to bring an analytics platform. And by signing a legal agreement not to compete, we’re hoping that some of them will share their data with us, and we can use those analytics to challenge the way they’re running their business and help them innovate and find ways to continually be more competitive. The feedback from distributors and suppliers is very clear that they need much more than a traditional master distributor today, and we’re building that. That’s been our blueprint.
Gale: Can you talk about sharing data?
Davis: What we’d ultimately love to be able to do is two things. One is bring data and knowledge sources back to our partners and help them better understand their markets. What are the categories consumed? What is their share? What is the segmentation of their customers and what are those patterns of what they buy?
And what do we know about them that we’re not getting? How do we make them more intentional
and more crisp in their execution and targeting of revenue growth?
If we can combine a lot of that data to a much more macro level – and with the support and consent of the distributors – we can provide guidance to suppliers on how they can be a better partner and how their products do or don’t work. Or how they’re easy or not easy to do business with. To be able to do all that factually with analytics is a game changer.
This market is so big and so complex and so competitive that we feel compelled to step into this space to help our distributors, because you know Amazon’s doing it, and you know other people are doing it. How do we help our customers and our partners have those capabilities that are certainly going to be a source of competitive advantage.
Gale: John, from your voice of customer research, in markets where end users have so many sources, isn’t it about low cost?
Allenbach: Certainly cost is a factor, but I think there’s so much more to it. End users are looking at ways to get products exactly when they need them to drive productivity and getting the right product to drive that productivity. Distributors are challenged by that. Also, distributors are challenged by the fact that they’ve got to carry so much inventory, and that carrying cost is so significant that it becomes a balancing act of cost versus working capital.
One distributor that has been doing this for over 15 years latched onto this model of working more through wholesale than direct with manufacturers because they felt like the working capital model overrode the price. Certainly there’s a differential there between the cost direct and the cost through wholesale, but it still plays into the overall financials.
I think there’s a shift in the overall thinking of the marketplace towards the role wholesale can play and the fact that cost is not the overriding factor on everything.
Davis: Our intention is to be very agile when it comes to customers and how they want to interface with us. If you want to be a transactional customer and operate with us extraordinarily leanly and all you want is the best price, we can accommodate that. But if you’re somebody that wants to partner with us and collaborate at a very high level, we can function with you that way too.
We’re going to be able to enable distributors to take market share and hold it, because we’ll be measuring the customer experience in our processes to live up to the commitments we made to those end-user customers.
Gale: What are the key gaps or pain points that you identified as key pieces that you can solve?
Davis: One, this whole concept of being pure and not competing with your customer has really come through very strong. Through some of John’s VOC work, we challenged the buyability of wholesale out of the gate. I was concerned about what the future of wholesale looked like, because recently suppliers, and customers to a certain degree as well, have withdrawn from using wholesale in many circumstances.
Commercially, we’re going to be very focused on being more relevant to our partners, making stronger commitments to fewer suppliers, covering categories completely but with one or maybe two powerful brands that can do that, and making sure that the customer has what they need. Pricing guidance, market planning and partnering with world class companies like MDM Analytics and others to help us help distributors identify market potential and grow.
With supply chain, we’ve heard loud and clear that what’s most important to them are high service levels, low invoice-to-order ratios and some kind of lean platform.
Gale: What about the physical infrastructure that’s just required from a logistics standpoint? How does the model that you’re building here differ from traditional models?
Davis: It’s great if you have tons of distribution centers all over the place, but if the service levels don’t match, that becomes irrelevant. What we decided ultimately is to come out of the gate with one distribution center covering the U.S. in two days with LTL and three or four days in small package. By doing that we can deliver much higher service levels. We can get them unique items much more consistently and in a leaner fashion because it’ll be on their next order.
Because of our digital platform, our customers will have line of sight, access to every SKU that’s in a supplier’s portfolio, lead time and tracking ability all the way to their customer. That physical
infrastructure has to match the digital infrastructure to deliver the experience the customer’s looking for.
Gale: How is the role of a master distributor changing?
Davis: The challenge now is that everybody needs an enabler, somebody that can help them move faster, move stronger, execute better, deliver a stronger value proposition than they could on their own. There are more competitive forces than there have ever been. The market is certainly as competitive as it’s ever been in terms of just pricing and other pressures.
The message that we’ve heard over and over again is, “We need somebody that can bring capabilities to us that can help us advance our strategy, that we just can’t do on our own.” That brings you back to the whole trust factor. “Can we depend on you to do it?”
Gale: What does the model look like in terms of the value proposition for suppliers that’s different, either the services or the types of support and visibility through the channel?
Allenbach: What we’re talking about is moving to where the puck’s going to be, to use the Wayne Gretzky analogy. The market is so complex and only getting more complex. Working capital has become such a huge focus and is only going to get a higher focus as interest rates go up. Manufacturers are looking for different ways to go deeper into their portfolio, and their distributors are carrying fewer products. Wholesale has played a big role, and it’s going to play a bigger role for manufacturers and suppliers.
Gale: What role does this increasingly complex market play for the mix of brand and private label?
Davis: It’s incumbent upon us to provide great counsel to distribution to supplement their work. To say, “Here’s a brand in this product category that outperforms its peers,” and that’s why we’re choosing to represent them.
If you look at any kind of portfolio strategy at the product category level, it involves some kind of opening price point component that has to be there to defend the brand from getting pulled down into a different competition. Call it private label, call it opening price point, call it a commodity. Whatever you want to call it, there has to be something in your portfolio strategy to address that or you risk not being able to represent the premium brand appropriately.
Gale: From a marketing standpoint, is what you’re describing a different approach, or is it really just building on the additional capabilities that you’re able to leverage either through your technology or the specific relationships that you have throughout the channel?
Davis: It’s kind of a different approach because historically everybody’s just said it’s been a very reactive model. “Here are your choices. Whatever you pick, we’ll have that.” We’re saying, “We’re going to do the work up front to make sure that we’re presenting to you the best products in that category for you to represent for your customers.” We’re going to be much more proactive in a sense to make sure that the distributor has flexibility to build their portfolio.
Allenbach: In my past, I would have thought of wholesale as a follow-on business. I would have looked to wholesale to expand on products that were already out there and had been out there for years, not necessarily as a lead for new products. With the digital capability and our ability to run campaigns and have those be put in the marketplace and measured immediately, we can play a significant role for suppliers and distributors around new products.
Gale: From a macro standpoint, what are the key challenges in industrial product markets and channels over the next three to five years, and how do you fit in to help meet the needs of and support the industry?
Davis: There’s no question that the complexity continues to grow. That’s driven by the need for productivity at the end user – and there’s nothing slowing that down. It’s our belief that the complexity of product consumption and supply chain demands continue to get progressively more challenging. We expect it to get more competitive. There are new players, there are new influences, people coming at it from different perspectives, whether that’s Amazon Supply or Google or eBay. The complexity continues.
One of the biggest and most significant challenges for the future is quantifying and proving your value contribution to your customer. We can help manage complexity. We can help people be more competitive. And we can help them document and communicate the value that they’re ultimately creating.
Somehow you have to tie that to the financial statements because, if you’re saying your influence is in the productivity of a manufacturing company, that should be obvious in the financial statement.
Those are the three big things I think we can play a role in.