What drives Grainger?
W.W. Grainger, tops among ID's Top 100 again this year,looks to maintain solid growth in 1998
By Staff -- Industrial Distribution, 6/1/1998
Once again, W.W. Grainger sits atop Industrial Distribution's Top 100. This year, the distribution giant checked in with sales of $4.1 billion. Recently, company chairman Dick Keyser took some time to talk with ID about Grainger's growth prospects, its recent acquisition of Acklands, and the future of integrated supply and the Internet.
Q: Grainger experienced another strong year in 1997, going over the $4 billion mark in sales. Do you have a growth rate for the future?
A: "Of our growth in '97, a nice chunk of that was the result of our Acklands acquisition. We acquired that in December of 1996. Our intrinsic growth rate is in the high single digit range, and so far we've been maintaining that for some time. We'd like to see it higher but that's where it's been running."
Q: The Acklands deal was Grainger's biggest ever. How has it fit in with your firm?
A: "It has really been terrific and a very pleasant surprise. It's been a great cultural fit and a great business fit. We have some opportunities there. In the analysts' reports, the original expectation was that it would slightly dilute our earnings per share. In fact, Acklands-Grainger Inc.'s performance added 10 cents per share to our 1997 earnings. The Acklands business is very strong in Western Canada and has more opportunity to grow in Eastern Canada, where a lot of the industrial base is. We've had a number of opportunities to augment their product offering and they now carry a number of our lines; we've been able to help them add to their lines, and we've helped them improve warehousing. We still have work to do, but it's a great fit."
Q: Does Grainger have plans for more acquisitions?
A: "We're not out looking for acquisitions per se. We've always said if the right thing came along with the right fit, [that] we're in position to act on it and are willing to. But we don't have a lot of people out there with hunting licenses."
Q: Do you consider consolidation good or bad for the industry?
A: "It's neither good nor bad; it's a fact of our environment. There's an opportunity for the people in position to participate in that. I still feel that niche players who are really able to define the value they add for customers will be well received in the marketplace, whether they are big or small. The people who aren't so clear [in defining value added] will struggle. Whether people like it or not, consolidation is ongoing and it probably will continue."
Q: Next to consolidation, integrated supply is the biggest issue affecting distribution. Is integrated supply here to stay?
A: "I think it is here to stay. The demand for it is growing fast. What we call integrated supply requires a lot of commitment on the customer part as well as the distributor, and we see more and more companies willing to step up and look at outsourcing in various aspects of their business. I don't think it's going to go away as long as we're able to continue to reduce costs in the relationship. If it's well done it will continue to prosper."
Q: Two years ago, sales resulting from your alliance with Motion Industries and Ferguson were around $100 million. How has that alliance progressed?
A: "Today that would be closer to a quarter billion. It's pretty consistent with how fast we've invested and geared up that operation. To some extent, it's been a management exercise to balance the rate of growth there with our ability to deliver. When we take on an integrated supply deal, we want to be prepared to do it well, and we've done a good job of that. We don't want to grow out from our ability to deliver."
Q: What is the status of your national accounts program?
A: "Our national account business has gone from zero in 1988 to over $1 billion, and our integrated supply revenue is largely indebted within that. Our integrated supply business was well over $200 million last year; that would be included within the $1 billion."
Q: Is it possible you'll be saying the same thing about Web site-generated revenue in the not too distant future?
A: "Our party line is that it's less than one percent [of revenues], and it's growing at an explosive rate. We're excited about it, and we're investing in it. I think it could be extraordinarily significant, and people who ignore [the Internet] do so at their own peril."
Q: What does the future hold for the Internet in distribution?
A: "I personally believe the direction is clear. I don't think any of us know how fast things are going to happen. You have to assume it could happen quickly and ask what kind of position you want to be in when it does happen."
Q: What kind of response have you had from your Web site?
A: "Our Web site was included in Business Marketing's Top 200 business-to-business sites. There were lots of high-tech companies on the list. We don't necessarily think of Grainger as high-tech, but we're pleased with that recognition. The important thing to remember is that not only is it another way of accessing Grainger, but it really is establishing the technical base that has the long-term potential to merge all of our channels and the business offerings we have. A lot of the pieces are going to be needed to put that all together in a way that really drives the industry."I
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