2013 MDM Market Leader Profile

Interline Brands has made significant changes in its product mix, expanding aggressively in the jan-san space. Interline’s most recent acquisition in the space was of Davidson, NC-based JanPak, which had $232 million in sales for the 12 months ended Oct. 31, 2012. Editor Lindsay Konzak spoke with Interline Brands President Ken Sweder about the distributor’s growth in janitorial supplies, its plans for its other product categories and the impact of the company’s recent ownership change, moving it from public to private.

MDM: How is business going?

Ken Sweder: Things are going well. Sales are up just over 21 percent (in the first quarter 2013). A lot of that is driven by our recent acquisition of JanPak. We’ve seen growth across our three primary end-markets: multifamily, residential and institutional.

It’s been nice to continue to transform the business over the last few years. We closed 2009 at about $1.06 billion in revenue, and we’ll probably close 2013 with an excess of $1.6 billion. It’s been a really significant change for us as we worked to continue to build leadership positions across each of our primary end-markets.

MDM: Interline Brands was acquired by GS Capital Partners and P2 Capital Partners in late 2012. Previously Interline was publicly held. What is the impact of the ownership change on the company?

Sweder: That was a very exciting event for us late last year. First of all, let me say how pleased I am to be partnering with Goldman Sachs Capital Partners and P2 Capital Partners. They’ve been thoughtful and very supportive of everything that we’re working on. I should also note that this was a nice opportunity because you have a lot of the senior management team as investors in this business with our partners.

In terms of what’s changed, recall that Interline Brands has been public and private before. It’s not a big transition because we’ve thrived in both public, as well as private settings. If anything right now we see this as a really nice opportunity for us to continue to stay aggressive with the business and to continue to think about where it makes sense accelerating certain investments so that we can add capabilities that will allow us to further accelerate our growth rate and, of course, scale as we grow.

MDM: Interline Brands has grown significantly in the jan-san segment with the acquisitions of AmSan and JanPak and others. Why has this segment been a target for you?

Sweder: We think that we’ve built something today that has become a really attractive institutional business. Today arguably we think that we are one of the largest broadline national jan-san distributors in the United States. It’s roughly about half of our revenue stream, on a pro forma basis approximately $800 million. And that is a very, very big change than even three, four or five years ago.

We’ve done that really for a few reasons. First, the jan-san business is a very consumable and stable business. It’s been nice to add that to our portfolio, and it complements some of our end-markets very well. But what’s more is that we think we have a really great opportunity to begin to sell all of our janitorial customers a much larger product bundle. So as you look at the other half of our business, it’s all around electrical and lighting, HVAC, faucets, plumbing, security and such. All of our jan-san customers, of course, need those products today. So we see this as a nice opportunity to also sell them everything beyond jan-san.

One thing that we like to say is for every dollar of jan-san that is typically spent within an institution, more than a dollar is spent on MRO. Right away we think we have an opportunity with product that we already have to become more relevant, to increase our share of wallet and to prove that we can not only do a great job on the jan-san side but also on the MRO side of the business.

Now, finally, beyond trying to build No. 1 or No. 2 share positions and expanding our product bundle in breadth, having built this national platform, we feel there aren’t a lot of other folks within the jan-san space who are truly national as we are. As you know we built our business particularly through multifamily on very high service levels, product breadth, next-day product fulfillment, and we think that’s going to serve us really well as we branch out and leverage our national account capabilities across the institutional facilities maintenance space.

MDM: Could you talk a little more about your most recent acquisition, JanPak?

Sweder: This is about a $230 million business. The thesis around JanPak was getting more jan-san scale nationally, but also filling in some areas where we just didn’t have as much jan-san infrastructure and spend as the team over at JanPak did. So, for example, we have a very large MRO operation in the state of Texas. JanPak has a very large jan-san platform in the state. It’s really a great opportunity for us to marry those two product bundles not only in Texas but throughout the Southeast.

MDM: Do services play a big part in your growth strategy?

Sweder: Yes. As we think about what our customers are asking of us, certainly there’s the product, but there are a lot of things beyond the product. This is a subtle but very important difference relative to the B-to-C side of the house where folks want a quick e-commerce experience. A lot of our folks are senior executives within very large REITs or large building service contractors or owners of commercial real estate. They want to have full visibility into exactly what’s happening at each and every one of their assets. So they’ve been looking for us to build out Web functionality that gets to product standardization or workflow approval or building out linkages with our customer’s budgets. Those types of capabilities and services we think will continue to become even more important, and that’s why we want to continue to be a market leader across that dimension.

Switching gears a little bit and talking about our supply chain programs, we have aggressively grown a lot of our vendor managed inventory and prepositioned inventory programs because we think we have a really nice offering for our customers particularly on the residential side of the business who just don’t want to be in the inventory management business anymore. They’ve realized the costs of holding this inventory. That’s something that has helped to grow that side of the business. We think this will bode well for us long-term because we’re a business that has the size, the scale, the profit and the cash flow to continue to invest aggressively in services and capabilities like that.

MDM: Are you planning to grow or make acquisitions in the other segments you’ve been targeting such as electrical and HVAC?

Sweder: Sure. We hope that folks don’t see our investments in the jan-san side or the institutional side of the business as being mutually exclusive or really keeping us from other market opportunities. We absolutely plan to continue to invest across the entire MRO platform of Interline Brands. … I’m not sure what the crystal ball holds but we are not passing on any great opportunities be it in electrical or plumbing or HVAC, the other core parts of our business.

MDM: What do you think has been the legacy of the recession on the distribution industry and how distributors operate or how customers perhaps want to be served?

Sweder: There’s a lot here to think about because we think that a lot has changed. One is that people’s growth expectations have changed. Two is that certain aspects of the industry, particularly smaller folks, have probably become a little bit more conservative. Third, I think you’re going to continue to see more of a polarization coming out of the recession between those who can aggressively invest in their business and those who can’t.

Customers during this downturn jumped in to their procurement functions more. They thought about how to use technology to gain efficiencies and to cut costs. And all of that flows back across the supply chain and what I’d call the distribution value chain. So what we see as one possible outcome is that there aren’t going to be as many folks who can invest $10 million in their IT or continue to build out an expert sales force or to continue to think about global teams. Those things will continue to separate some of the larger businesses from others who aren’t either willing or able to make those investments.

A lot of that is borne by increasing customer expectations. So table stakes in three to five years will be the right technology and a lot of product breadth. And experts in the field to help people manage their assets more efficiently or more safely in a healthier fashion.

I think that’s a pretty profound change. And if anything it’s probably accelerated the rate of change across our industry. That acceleration can take a number of different forms be it in terms of service expectations, supply chain expectations, breadth expectations or really even a blurring of some of the lines from B-to-B to B-to-C. All of those things have all sorts of implications across the industry.