More than just pipe dreams
By Susan L. P. Srikonda -- Industrial Distribution, 1/1/2000
Pipe, valves and fittings distributors are beginning the new millennium with a positive outlook. In fact, 69 percent of PVF distributors expect their sales to increase in 2000, and only five percent expect sales to decrease, according a study published by Supply House Times, a sister publication to INDUSTRIAL DISTRIBUTION, in October.Survey respondents said they expected their growth in the next year to come from four major areas: diversification into new market segments and product lines; improved operation efficiency and personnel productivity; existing product lines; and improved service via more sophisticated technologies.
PVF distributors attribute much of their optimism to increases in manufacturing construction and to growth in specialized markets like pharmaceuticals and biotechnology.
"We've budgeted for another increase next year and we're pretty optimistic," says Ernie Coutermarsh, vice president of industrial sales for F.W. Webb, a $255 million PVF, HVAC and MRO distributor headquartered in Burlington, Mass. "One area that is growing is the biotech and pharmaceutical business and we've invested in creating a division specifically to address that market. The PVF materials that we sell to that industry are referred to as sanitary PVF. They have to be extremely careful of contamination when you're manufacturing pharmaceuticals, and the same applies when you're doing biotech research."
Corrosion Fluid Products Corp., a distributor in Farmington Hills, Mich., which specializes in corrosion resistant PVF materials, saw a sales increase of 12 percent for the first nine months of 1999, compared to the same months in 1998.
"1998 was flat as far as sales increases, but we picked up in '99," says president Joseph V. Andronaco. He attributes that growth to increases in chemical and pharmaceutical sales, as well as sales to steel producers that serve the automotive industry and to manufacturing construction.
However, several distributors note that sales in traditional industries like pulp and paper are flat and that they continue to seek efficiencies to compensate for tightening margins.
"A big part of our business, probably almost 40 percent, comes from the pulp and paper industry in some fashion and that industry has been very slow over the past three to four years," says Rick Mousa, president of Piping and Equipment Co. in Conyers, Ga. "With the competition from overseas they've been slowing production and closing down plants."
Despite the slugging pulp and paper industry, Piping and Equipment Co. saw a slight increase in sales in 1999 (from $153 million in sales in 1998) and is looking to sole source agreements for growth.
"We're going to stay in the industrial side of the business, but we're looking to add some product lines," Mousa says. "Our strategic focus is on sole source agreements right now and we're concentrating on adding products that we can add on to a purchase order of existing customers. So we're trying to build upon our scope of products with products like gaskets or cleaning compounds, things that we can be competitive in, although we're probably not going to get into other businesses like HVAC or plumbing. We want to concentrate on what we do best."
Andronaco notes that margins for PVF distributors are continually being squeezed.
"Even though we had larger growth this year, our margins were lower. We have to look at things a little bit tighter and try to buy the best way we can with large volume buys," Andronaco says. "Sometimes there's not much you can do because the market is certainly being squeezed. That squeeze is coming from competition, which for our industry is more severe than it was several years ago. There aren't any new players, but I think the market is cannibalizing itself to some degree. And customers are demanding lower prices because of their globalization and so they're squeezing their suppliers."
Andronaco says that, in response, his company will look to acquisitions and internal growth in current markets to increase sales in the future. The seven-branch company hired eight salespeople and upgraded its computer systems in 1999 in an effort to encourage internal growth.
Consolidations both within the PVF wholesale industry and within its base of industrial customers affect every PVF distributor.
"There's definitely consolidation in this industry," says Mousa. "Every company in the $100 million and down range is saying 'I'm going to have to do something some day because I don't have the resources to compete.' I think everyone is looking for some kind of an exit strategy or some way to get bigger without having to open up branch after branch.... In three to four years you'll have about 15 distributors in the $300 million plus range, hardly anyone in the mid-range, and probably a lot of niche players in the $10 million and less range."
The rapid encroachment of the Internet into the supply chain arena is also on PVF distributors' minds.
Supply House Times reported that in 1998, fewer than 42 percent of the respondents to its annual survey had Web sites: this year that figure jumped to 50.6 percent, with almost 48 percent reporting doing business over the Internet and another 28 percent expecting to do business online within a few years.
Both F. W. Webb and Piping and Equipment are responding to current and anticipated consumer demand for electronic commerce by participating in Affiliated Distributors' new integrated supply and e-business solution, supplyFORCE.com. The supplyFORCE.com Web site is scheduled to go live late in the first quarter of this year.
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