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
M&A dominates the sector as sweeping changes affect top distributors. No other sector saw as much consolidation – especially at the top – as building materials & construction. Builders FirstSource Inc.'s $1.6 billion purchase of ProBuild Holdings LLC, announced in April 2015, united two of the largest building materials companies in the United States. ProBuild was No. 2 and Builders FirstSource was No. 7 on the sector's 2015 MDM Market Leaders list. That deal helped push Builders FirstSource into this year's No. 1 position.
Beacon Roofing Supply Inc.'s acquisitive year was highlighted by its $1.1 billion purchase of Roofing Supply Group in July. And the merger of Stock Building Supply Holdings Inc. and Building Materials Holding Corp., announced in June 2015, formed a building materials distribution services and solutions company wound up at No. 9. US LBM Holdings (No. 6) and SRS Distribution Inc. (tied for No. 10) also made their Market Leaders debuts.
The sector has been one of the best performing across distribution – and that shouldn't change. Thanks to healthy commercial and residential construction, distributors are growing organically, as well, and overall revenue growth for the 2016 Market Leaders was 11.8 percent. "We've seen better than expected growth for the first half of the year," says Bill Sauter, president, OHARCO Inc., Omaha, NE, and president of the North American Building Material Distribution Association. "It's a very positive environment and a very busy environment in the marketplace, both commercially and residentially."
After posting 3.4 percent revenue growth in 2015, building materials & construction wholesale distributors are forecasted for 10.1 percent growth this year and 15.9 percent growth in 2017, according to the newly released 2016 Economic Benchmarks for Wholesale Distribution report. "We're looking at double-digit growth through mid-2018," saysBryan White, membership and operations manager, NBMDA. "Our outlook over the next couple of years is very good."
Looking at the industry region by region, some are "much stronger than others," says Dan Tinker, president and COO, SRS Distribution Inc., McKinney, TX. "In the construction space, the South is obviously very strong, as are the West and the Sun Belt in general. The Northeast is doing OK. If there is a soft spot, it's probably the Midwest corridor in the Rust Belt."
Labor is one of the biggest supply chain disruptions. The labor shortage at the entry level within distribution – as well as with distributor customers (contractors) and vendors (manufacturers) – is growing more troubling, according to Sauter. "The channel for labor is an issue for all the construction trades," he says. "They're having trouble finding people." With sales and management positions, the industry is struggling to attract millennials because it isn't a "sexy" career and doesn't have the technology opportunities that many younger workers seek, Sauter says. "But we're true and steady, so we can offer them consistency that they can't find elsewhere."
Customers' evolving needs are forcing distributors to improve technology and processes. Technology adoption not only helps with recruiting the next generation of employees, but it enables the industry to keep pace with its customers who are looking for more mobile ordering at job sites. And the right processes – especially lean principles – will help distributors build "an optimized supply chain that provides exactly the right product in exactly the right place at exactly the right time," says Randy Aardema, executive vice president, supply chain, US LBM Holdings LLC, Green Bay, WI.
Merger & Acquisition highlights in 2015:
Builders FirstSource Inc. paid $1.6 billion for ProBuild Holdings LLC in April 2015.
ABC Supply Co. Inc. made a dozen acquisitions in 2015, including Norandex, the U.S. distribution business of European materials supplier Saint-Gobain.
Beacon Roofing Supply Inc. paid $1.1 billion for Roofing Supply Group in July 2015.
Stock Building Supply Holdings Inc. and Building Materials Holding Corp. announced their merger in June 2015.
Average growth for companies on the Building Materials & Construction Market Leaders list: 11.8%