In Part II of MDM’s interview with Wolseley CEO Chip Hornsby, he addresses the differences between the global building materials and HVAC/plumbing distributor’s North American and European markets, and Wolseley’s aim to grow significantly on the European mainland -doubling its market share every five to seven years.
MDM: Can you talk a little about the European distribution landscape?
Chip Hornsby: The first thing I had to understand -we laugh about it all the time -was that in fifth-grade geography they didn’t teach us that there’s another continent out there called the UK. And then there’s Europe. And those 22 miles are bigger than the ocean between us and them. I get asked all the time when the Brits are going to give up the pound. Well that won’t happen in my lifetime. But when you look at the UK and the influence it has, it is different than the balance of Europe. You can begin to see things that work in our favor with the EU; the borders are nowhere near the obstacle they were in the past. The currency is nowhere near the obstacle it was in the past. Certainly there are exceptions. I don’t know when the Swiss will ever give up the Swiss franc.
But what we’re finding is that a contractor is a contractor, and in terms of needs for the services that you provide, there are a lot of similarities. Don’t get me wrong. You’ve got to do business at the local level with local talent, but some of the things that we can go in and consolidate, like these large Distribution Centers that may ship into more than one country, are a real opportunity for us. They’re enormous investments and Wolseley paid dearly by allowing Ferguson to develop a format from the late & lsquo; 90s to today. It was a learning curve and we’re only going to learn it one time. So the guy that has been responsible for the North America (transition) is also responsible for Europe.
MDM: Are customers there looking to buy from smaller local distributors or is that shifting?
CH: Parts of Europe. But the consolidation in the UK and France is more mature, if you will, than it is in the U.S. In the Czech Republic, Hungary, Slovakia and Poland, there is no consolidation. It’s very, very fragmented because of the maturity of the industry. Some of those markets really just began about 15 years ago.
MDM: Do those Eastern European countries have real growth potential or is it too early to tell?
CH: Percentage-wise, yes. But probably the most exciting market that I’ve seen in the last 12 months is Ireland. & hellip; Maybe this is inaccurate but I give credit to the EU and the influence that that’s had on that country and their ability to begin to grow jobs and that type of thing. It’s pretty exciting. I would envision there are two or three more in Eastern Europe that will occur that way, but again you’re dealing with countries that have 5 and 8 million people. We have some cities in the U.S. where that would be a suburb. & hellip; The real markets in Europe, the major markets, continue to be who you envision: the UK, France, Germany, which all have a population base of 65 million-plus people.
MDM: So in five years what does that European market look like for Wolseley?
CH: For us, our objective is to be on a growth pattern of doubling every five to seven years. That means you’ve got to grow at a compound growth rate of somewhere between 10 and 15 percent. I would envision that over a period of time, particularly as we get further into the distribution network and put more emphasis on the area of leadership development there, that we’ll grow at least at that pace, if not faster. Our share there is significantly smaller. Again, when you look specifically at Europe and not include the UK it’s nowhere near as complex or as overwhelming as what I expected it to be a year ago, but you’ve got to have the right leadership. You got to have the right leadership in France, which is different than Czech, which is different than Belgium.
MDM: So language, culture is a barrier but it’s possible to work through?
CH: If you’re installing a boiler in Boston or in Birmingham, England, or in Linz, Austria, you’re installing a boiler. The needs are very similar.
MDM: Is the idea of value-add similar in North America and Europe?
CH: Well, it’s not so much North America and Europe as it is the customer type. For example, they don’t build many homes in Europe out of timber yet, but it is beginning to evolve so we’re looking at selling roof trusses in France. The biggest difference I found is that in Europe in general they build homes to last centuries. We build homes to last decades. And so the RMI market is huge (in Europe). They don’t have the urban flight where everybody leaves the city and hopefully comes back one of these days. & hellip; They don’t allow urban sprawl. They keep going back over and redoing the same infrastructure.
& hellip; So you’ve got to understand the different traditions. In the U.S. as the market moves more away from the DIY to the just-do-it-for-me, there are services we need to understand. Ferguson today installs a fair amount of appliances but installing appliances is getting that sub-zero refrigerator into the kitchen without scratching up the floors and plugging it in and hooking up an icemaker, so it isn’t very complicated. On the reverse side we do a lot of end-finishing with steel pipe, whether it be threading, a little bit of flanging, but a lot of grooving. So it varies depending on what the market requirements are and the opportunities.
MDM: Is that value-add an area of growth?
CH: Yes, but you’ve got to be careful that you’re providing the customer with something he wants and not something he’s threatened by. For example, in order to enter the Las Vegas market, because of all the national homebuilders, you literally have to frame the house; you don’t just sell the sticks. We would never consider doing that in Raleigh, NC, at least not in today’s environment.
MDM: That’s interesting.
CH: We’re capable of doing those things but don’t want to lose sight that we’re a logistics provider. That’s what we do. We want to buy in bulk from tens of thousands of different suppliers, bring it into an area, ship it in pieces but combine it with thousands of other suppliers.
MDM: With your international positioning, do you gain some leverage, synergies or advantage with suppliers?
CH: Just beginning to. We have an individual who is now responsible for sourcing. We deal with literally thousands of individuals a day in the local market but he’s beginning to explore and have discussions with the top 30 to 50 suppliers to Wolseley. And there are some similarities. We’re really not a global company. We’re an international company because we only intended to be on two continents. There is some overlap there and opportunities on commodities whether it be copper or steel or some of the others, but some of the brand products are still a transfer.
MDM: What about Asia?
CH: Certainly an enormous opportunity is out there but in dollars we see between North America and Europe somewhere in the range of better than $1.2 trillion. It’s going to be $1.2 trillion in annual spend, so I’m not crazy about going that far away today when we’ve got so many gaps to fill. It’s an opportunity and, again, it’s not a matter of if. It’s when, but it’s time for us to really commit to mainland Europe. We’ve had a lot of success in the UK and a lot of success in the U.S., and Europe is a very exciting market for us.