Grainger looks to the future

Sales may have slowed at Grainger, but the firm looks to some solid growth vehicles in 1999

By Industrial Distribution Staff -- Industrial Distribution, 6/1/1999

Sales growth of 4.9 percent in 1998 was down dramatically from 1997's 15.7 percent rate. How do you account for this?

"Our 1997 numbers had a number of months of the Acklands-Grainger acquisition in it, but I would say that some parts of the economy we deal with are not as robust as the rhetoric you read in the press. So sales for us were a little tougher to come by. [1999] has started pretty much the same way. I anticipate the same kind of things with regard to growth.

"It's been fairly well publicized in the analyst community that our Canadian business has been soft for the last year or so as the Canadian dollar has softened and that economy [natural resources in particular] has been impacted by what happened in Asia."

How have your other business units performed?

"The good news on our growth is that we have a couple of growth engines that are real bright spots. Lab Safety Supply has been doing quite well, our Internet business has been growing very robustly and our integrated supply business has been growing in mid-double-digit rates." (Grainger's financial report for the first quarter of 1999 revealed integrated supply grew 25 percent).

Distribution is consolidating rapidly. Grainger has been quiet since acquiring Acklands in 1997. Will you re-enter the acquisition arena anytime soon?

"Well, let's put it this way; we have a business strategy and acquisitions, as appropriate, could be a tool to implement that strategy. But I would say that it's not an acquisition-based strategy necessarily. We're not out looking to make acquisitions to help consolidate the industry or just accumulate growth. In our core business, for example, we already have geographic coverage over North America, so adding an acquisition would be much more complex than just adding another facility with our current business model. We have pretty good product coverage. But if the right opportunity were there for the right reasons, consistent with our strategic direction, we would consider it. The Acklands acquisition added a whole new geography for us, and it was a great fit culturally. But we're certainly not in active pursuit of acquisitions."

How is Grainger addressing increasing demands for service from the customer?

"We made a decision a year-and-a-half ago to really get our businesses focused on specific sets of customer needs, as opposed to trying to serve a broad range of customer needs in one business. Some time before that we had set up our integrated supply business and we really returned the focus of our core business to a standard solutions, rapid-access speed and convenience-oriented business. And, we are still in the process of creating a business we call Grainger Custom Solutions to provide large businesses with complete solutions across a set of product categories and to be able to provide customized service. [That is a] somewhat different business model than we've had historically, and that's a good chunk of our old national accounts business."

How is Grainger dealing with customers who may be unprofitable?

"We have our focus on growing profitable business, and our screen is a little more rigorous now. Also, as we go through [our old national accounts program]...we've defined that business model very specifically and we may have some businesses here and there that don't fit with that [business model]. We either have to find a way to work with that customer to make it work, or perhaps from time to time say, 'No we're probably not going to renew that contract.'"

Grainger recently unveiled Orderzone.com. What is the company's commitment to e-commerce?

"We disclosed in our year-end release that over the last two years we've invested about $20 million on the Internet. I think that it's fair to say it will [continue]. This is a major [opportunity] in business. I think the mix of that investment will shift somewhat from technology to marketing, but it's going to be there. [The Internet] is showing the ability to grow explosively and seems to be gaining rapid acceptance. I'm sure you've seen the Forrester Research forecast for rather astounding numbers by 2003 of over a trillion dollars."

Speaking of that potential, what has been the reaction to Orderzone.com?

"We have 30 customers up, and our beta testers are providing us with good input. We have had live customers testing it for a number of months, and we expect to open the doors as advertised around the middle of May. I would describe it somewhat on the order of an electronic department store as opposed to an electronic mall, in that the look and feel, the cataloging, the search method, the place to order, where you make your payment, and who you talk to about customer service all has the look and feel of one business."

Where do you see distribution in five years?

"If you want to look at the way we have positioned our business...and I would describe our positioning as a portfolio of businesses that are positioned to handle MRO needs across the entire spectrum, whether you're on the Internet and you don't want to talk to anybody, or it's integrated supply and you want to outsource it entirely, or everything in between including our consulting group, which works closely with the customer. This is where we've placed our bets for the future, and I have to say that where we are investing our money would suggest that we think these newer businesses have some promise. Internet-based e-commerce will be very significant over the long haul, and we're trying to position ourselves to take advantage of that." (In April Grainger announced a strategic alliance with PSDI, a provider of enterprise asset maintenance systems, and MRO.com, PSDI's new Internet commerce subsidiary. Grainger also made a strategic investment in PSDI representing an equity interest of approximately four percent, and an option to acquire a five percent equity interest in MRO.com, Inc. )