Clean sweep

AmSan Inc.'s goal is to consolidate the fragmented janitorial and sanitary supply industry

By -- Industrial Distribution, 10/1/2000

The janitorial and sanitary supply industry is an estimated $17 billion industry filled, for the moment, with independent distributors. AmSan Inc., a subsidiary of American Sanitary Inc., is working hard and fast to consolidate this fragmented industry.

Now in its third year, AmSan's annual sales exceed $300 million. The private consolidator made its first acquisition in October 1997 and, at press time, had acquired 41 companies operating out of more than 60 locations in 35 states. Also at press time, AmSan, which is headquartered in Cary, N.C., had three other acquisition prospects going through the due diligence process.

The company distinguishes itself from other consolidators in the industrial distribution industry by dedicating itself to janitorial and sanitary supply and by providing facilities

maintenance programs and intensive service and solutions, such as regional and national account service capabilities, cleaning problem solutions, employee training and equipment service and repair. In other words, it specializes in the very things that separate a dedicated jan-san house from a general line distributor.

"If it's all about boxes, general line distributors are a serious competitive threat," says John Muthe, AmSan's CEO. "But we believe at the end of the day that the issue is less about product than about reducing the customer's total cost of operation: service, repair of product, and training the customer's employees to use the product and equipment effectively. It's about total cost management, which deals with the reality that customers expect to get more for less, and helping them achieve that.

"We don't look at industrial distributors as being direct competitive threats," Muthe continues. "There are opportunities, however, in the long term for us to participate in integrated supply alliances because of the expertise that we bring in the maintenance supply arena."

A look at AmSan's growth and the stories of two formerly independent distribution firms that have joined the organization shed some light on what's driving the consolidation trend in the jan-san industry today.

Deciding to sell

Muthe says multiple factors make the jan-san market ripe for consolidation, including issues related to retirement desires or second and third generation ownership, technology changes and the role the customer plays in the supply chain.

The most poignant of those issues relates to the human stories behind the decisions to sell made by individual companies like Vonachen Service and Supply, based in Peoria, Ill., and Nogg Chemical and Paper of Omaha, Nebr. The industrial market represents 30 percent of both companies' customer base.

"We were very happy being an independent, family-owned, family-operated business," says Jay Vonachen, now a group president for AmSan. "It was as much a way of life for us as it was a business.

"But we realized that some of our significant customers were looking for services that we weren't in a position to provide-from an e-commerce standpoint or a geographic standpoint," Vonachen continues. "And we just felt like we would lose a lot of those significant customers if we weren't in a position to give them everything they wanted technology-wise or by being a regional or national supplier." AmSan acquired Vonachen Supply in January 1999.

Shelly Riha, president of AmSan's Nogg Chemical and Paper unit, says AmSan offered her and Nogg's other former owners the best possible exit strategy.

"We knew that we weren't going to be passing this business on to the next family generation of children, and when we looked at what was happening in the marketplace we felt we needed to sell," Riha says. "We felt AmSan offered an optimal way for us as owners to be able to get our value out of the company, but at the same time we were very concerned about having the company continue on as a viable business with the existing base of employees who contributed to the success of Nogg up until that time." AmSan acquired Nogg Chemical in July 1999.

Muthe says AmSan takes pride in its track record of retaining nearly all company principals, like Riha and Vonachen, after the acquisition of their companies because they provide stability within the organization.

"Our secret is that if you buy good companies, treat people fairly, provide opportunities for self-improvement, you've got a winning combination," Muthe says.

Riha says AmSan's hands-off approach has made the transition easy for Nogg and its customers.

"The day-to-day operational responsibilities and decision making is still very much right here at the local level," Riha says. "And as for our customers, unless we tell them we're an AmSan company, as far as they're concerned they're still doing business with Nogg Chemical and Paper."

Expanding market reach

Teaming up with a national consolidator is one way for jan-san distributors to satisfy the increasing number of customers that want their suppliers to serve locations across a broad geographic area.

Nogg Chemical benefits from its relationship with AmSan, Riha says, because it allows Nogg Chemical to have global capabilities coupled with the flexibility to think and act locally.

Riha says her customers' main concerns were that the management and sales staffs remained in place and that the distributor's policies remained the same. After those concerns were addressed, they were happy to hear of Nogg's new national reach, she says.

Vonachen says geographic market reach was one of the primary things his company considered when deciding whether or not to sell. The distributorship-which serves both Illinois and part of Iowa-explored the alternative of growing to become an independent regional supplier but decided it did not have the people and capital resources required for such growth.

In the end, Vonachen says the change has been transparent for most customers, but adds that some of the company's larger customers take comfort in Vonachen Service and Supply's association with a larger entity.

"The larger customers need somebody who can certainly provide product, but it's really the way you deliver that product," Vonachen says. "All the support things that go with the product-delivering what they want, where they want, at the right price; dealing with the logistics of the transaction in as automated a way as possible; and being able to give them the kind of information they're looking for. Increasingly, if we're talking about a regional or national customer, they want to understand that you're part of something that is capable of giving them what they need."

Consolidation within the jan-san industry also helps manufacturers to meet the demands end users are placing on them to offer a greater variety of buying options, Vonachen says, by creating regional and national buying opportunities through companies that can afford to keep up with changes in technology.

The technology wild card

Technology is the wild card distributors hadn't fathomed 10 years ago, much less prepared for. And it's technology that is contributing to the consolidation and partnerships forming in the jan-san industry, just as it is throughout the industrial distribution industry.

Technology is changing the way jan-san distributors do business, Riha says, and she's happy to turn to AmSan for support in that area.

"We have to have the financial backing to do the things necessary from a technology standpoint, such as keeping up with the software updates and the Internet capabilities that you have to have, all the way down to laptops and what type of technology your sales rep has to have when he's talking to customers. It runs across the board and it's such an important decision because it could literally make or break you," Riha says.

Muthe says AmSan's approach to technology systems and solutions, as well as the Internet, is to use them as tools to strengthen the company's facilities maintenance capabilities and its relationship with customers and suppliers.

Even as new dotcom companies enter the market and threaten to encroach upon the janitorial-sanitary supply and service industry, Muthe remains unfazed.

"I think the Internet is important in establishing B2B connectivity, but I do not believe that the Internet is in any way the be-all, end-all for the jan-san industry," Muthe says. Somebody has to get the right product to the right place at the right time and show the people how to use the product-and that's what the Internet can't deal with. Our people can show the customer how to use the product, how to deliver effective sanitation and that's the missing ingredient in an Internet box shipper.

"I believe that the Internet provides a means for customer connectivity that never existed before," Muthe continues. "As we deliver partnerships, we can use the Internet to eliminate redundancies and opportunities for mistakes and take costs out of the equation. It supplants, but does not replace, a traditional distributor relationship. However, a distributor without an e-commerce effort and effective distribution won't survive. I think both are required and we're investing heavily in it."