This is a part of the 2016 Distribution Trends Special Issue. The annual feature was researched and written by MDM based on interviews with dozens of distributors, industry experts and manufacturers. MDM also conducted a survey of its readers to uncover the trends outlined in this issue.
2016 Distribution Trends Special Issue
Air Liquide's $10.3 billion acquisition of Airgas will alter sector. While consolidation is nothing new, the level of consolidation – notably the mammoth Air Liquide-Airgas acquisition, but other smaller deals, as well – will make some suppliers that work with distribution "a little bit nervous," says Bill Visintainer, owner, Atlas Welding Supply Co. Inc., Tuscaloosa, AL, and president of the Gases and Welding Distributors Association. "As they get fewer and fewer customers that are distributors, I guess those fewer and fewer distributors who are comprising more and more of their sales into the marketplace have a bigger say, don't they?" Visintainer says. "A guy that represents 1 percent of their business doesn't have the same voice as someone who might represent 25 percent of their business."
Respondents to the first-quarter MDM-Baird Distribution Survey agreed that distributors face short-term opportunities and long-term challenges with the deal, inked last fall and finalized in May. For example, Air Liquide is selling some U.S. facilities by order of the Federal Trade Commission in connection with its acquisition of Airgas. "Initially it could be a unique opportunity to increase market share and establish advantages for our customers to work with independent distributors," one respondent said. "Ultimately, however, the pendulum will swing back to price pressure."
Look for more effects of rampant M&A. Consolidation among the larger players is empowering the hundreds of remaining distributors who "have had a chance to sell and decided they don't want to," Visintainer says. "They want to stay the course. Maybe it's not so bad having to compete against these larger, inflexible distributors," he says. The industry also is seeing a number of companies that now seek to become large regional distributors. "There's a number of them now that 10 years ago they may have been a $20 million company – and today they're over $100 million," he says. Look for M&A to ramp up among mid-sized distributors, and also look for it to spark an increase in private labeling, especially from the larger regional distributors who haven't done so in the past but are looking to expand their own brands.
Traditional brick-and-mortar distributors will move online. Gases & welding equipment distributors are looking for ways to migrate sales away from stores to their e-commerce channels with hopes of growing into new geographies and improving profitability. They just need to "figure out how to do it, how to make money on it, how to have peace with the suppliers as they are doing it," Visintainer says.
Gas shortage update. The industry is seeing an "unexpected outage on hydrogen" and tightness in the argon market, but the biggest supply and demand issue right now is helium, Visintainer says. While supply is back up after shortage in recent years, demand is down. "Manufacturers are trying to hold onto the price increases they got in the time of short supply," he says. "Some manufacturers … are putting it back into the BLM for storage. They're putting it into their inventory and taking some of that supply off the market in order to, I believe, keep pricing up."