Cast a wide net

Distributing to markets other than manufacturing and construction can be lucrative

By -- Industrial Distribution, 10/1/2000

In the whirlwind economic growth of the past few years, business performance superlatives about rising revenues and spiking profits eddy in the media and general conversation. Yet with the broad shift to service-based and virtual businesses, and increased overseas production, distributors are realizing the importance of finding new markets to sell their wares.

Hospitals, prisons, apartment management companies and biopharmaceutical firms are a sample of the types of buyers distributors are courting beyond traditional customers like aerospace companies and automobile manufacturers. Many products suited for, and in some cases designed for, industrial production are in high demand in other market segments.

More than 75 percent of distributors responding to Industrial Distribution's 54th Annual Survey of Distributor Operations selected "add customer base" as a method to grow their businesses in the upcoming year. Although the option clearly encompasses both traditional and non-traditional markets, it topped the list of 13 choices and bested the next highest pick by more than 30 percentage points. Industry consultant Don Beveridge says the importance of reaching out to new customers cannot be overstated.

"Everybody wants to think it's bad times out there for distributors, but it's not," Beveridge says. "But it is if you're not selling the entire product line to all of the available classes of trade."

On another question in the 54th Annual Survey , 55 percent of distributors reported selling to municipalities and nearly 49 percent indicated sales to hospitals, schools and prisons. Last year's survey results were 53 and 51 percent, respectively. The two categories were combined in previous surveys, and in 1998, nearly 77 percent reported sales to those sectors compared with just over 69 percent in 1997.

Mill Supplies, Inc., a Fort Wayne, Ind.-based general line house with about $17 million in sales each year, is one example of a distribution company seeking a diverse customer base. President Jim Beckstein says his construction salespeople call on hospitals because those buildings require constant repair and maintenance.

"I don't care whether we sell a step-ladder to a construction company, a municipality or a crib operation," Beckstein says.

Beckstein says MSI serves a wide range of customers by offering a broad mix of products. Through the years, he's expanded and changed his product line to meet a higher percentage of customer needs. Beckstein says he would have scoffed at the idea of selling rags, buckets and mops five years ago, but cotton rags, for example, are an extremely profitable product for the company.

As Beckstein discovered, distributors interested in selling to non-traditional markets must be receptive to the hot-buttons customers respond to. Examples include additional products or services and salespeople with technical knowledge of the customer's field. Other distributors have succeeded in selling to new markets through strategic prospecting or by altering the company's strategy.

No stone unturned

No matter how good the books look, Beveridge says, it's important for management to determine the appropriate percentage of time each sales representative should spend prospecting. The mix of industries and businesses in the territory, market share and current revenues and profits are just a few factors in the equation. Finding new leads can mean extensive legwork, and Beveridge's suggested homework includes sifting through company directories at libraries.

"A distributor can function [in industrial cities like] Detroit, Atlanta and St. Louis for years and only sell 20 percent of the product line," Beveridge says. "When times are good, all you have to be is there. Good times mask poor performance."

Having a sales manager to bounce ideas off of is also key, Beveridge adds. Too many companies select "super sales reps" for the management posts, and encourage them to continue spending the bulk of their time selling, he adds. Beveridge describes a true sales manager as one that spends most of his or her time coaching and training representatives.

The advice rings true, but management guidance is not always enough. In some cases, a company-wide strategic shift is required. Take for example Apostle Nelson, Inc., a cutting tools distributor in West Hartford, Conn. Apostle-Nelson has spent the better part of two decades expanding its customer base.

Company president Mark Nelson says the firm began in 1972 by selling primarily to the aerospace industry, in particular, Hartford, Conn.-based aerospace giant United Technologies, Corp. Nelson likens the former strategy to a "one-legged stool." Today, the company also sells products to the printed circuit board manufacturing industry and about 10 percent of the company's sales comes from the manufacture of specialized tooling.

To sell to the circuit board industry, Nelson turned to the Route 128 high-tech corridor in Massachusetts. "We never competed with the traditional industrial distributors-we were selling products they were not selling to the high-tech companies," Nelson explains.

Taking a gamble

Norwich, Conn.-based Consumer's Interstate Corp., which is also in the heart of United Technologies country, took a roll of the dice when it began supplying two casinos run by Indian tribes and a fiber optics company. Consumer's Interstate sells janitorial, MRO, safety and electrical supplies and fasteners, as well as a wide variety of office and packaging supplies, to customers in Connecticut, Massachusetts and Rhode Island.

Each with thousands of machines and a wide variety of games and live entertainment, Connecticut's FoxwoodsrResort Casino in Mashantucket and Mohegan Sun Casinos in Uncasville are 24-hour operations. Since Consumer's Interstate is a local company, the casinos sought its services, says company president Kenn Fischburg. Fischburg emphasizes that these customers require the same types of services manufacturing companies do, such as electronic or vendor-managed inventory and order processing and knowledgeable sales representatives.

"Casinos sometimes need JIT services in off-hours," Fischburg says. "Some manufacturing companies have the same degree of spiking of activities. Everybody's producing something."

The casino business may have fallen into Fischburg's lap, but he actively pursued an account at the Bloomfield, Conn. branch of JDS Uniphase Corp. Headquartered in San Jose, Calif., JDS is a high-tech company that manufactures and distributes products for the fiberoptics market. The relationship has expanded to the point that Consumer's Interstate has three full-time employees at the Bloomfield site.

"We order the merchandise and manage their inventory," Fischburg says. "They're growing tremendously. Having us available and on-site relieves them of the demand for inventory control."

Fischburg's approach to the fiber-optics and casinos market mirrors Beveridge's advice to distributors to mentally and physically leave the products in the car and focus on customer's real needs.

"You have to find out what their objectives are," Beveridge says. "It's always profitability, décor, sanitation or safety. You can't just walk in there and say 'I've got hoses.'"

Embracing new technologies

St. Louis Valve & Fitting Co. president Michael Gallagher says a slowdown in traditional markets drove the company into the biopharmaceutical market. While the global debate on the ethical and health questions surrounding genetically-engineered agricultural products, sometimes called "Frankenfood," rages on, St. Louis Valve is gaining a foothold in the niche business of selling components to biotechnology and pharmaceutical companies.

The St. Louis-based Monsanto Co. is one of St. Louis Valve's most well-known customers, but this fluid power distributorship sells components to other similar companies and pharmaceutical firms like Mallinckrodt, Inc., which is based in Hazelwood, Mo.

The shift required a higher level of technical competence among the sales force, so Gallagher has been sending his sales reps to American Society of Chemical Engineers seminars and additional training at manufacturing companies.

"We're not experts [in biotechnology] but we try to be as expert as we can in this little niche," Gallagher says. "It's more working with our customers to find out what degree of cleanliness they need to be most cost-effective. Some requirements are on the extreme, but many other processes would be fine with lesser requirements."

Gallagher's strategy is similar to the tactic Beveridge recommends. Beveridge says customers want, above all, a resource salesperson. "They don't need someone to talk to about features, benefits and specifications," Gallagher says. "They want to know how it relates to solving their problems."

When it entered the biopharmaceutical market, St. Louis Valve built on a foundation of 25 years in the electronics industry. Gallagher sees parallels because the electronics industry requires ultra-pure components to manufacture semiconductors from silicon chip wafers.

About five percent of the company's $5 million in annual sales is to biopharmaceutical companies. Gallagher expects to grow that portion of the business to 15 or 20 percent of revenues in the next few years.

A grand plan

Selling to non-traditional markets isn't limited to the small and mid-sized distributors. Wilmar Industries, Inc., ranked number 38 inIndustrial Distribution's 2000 Top 100 Distributors list, leverages strategic acquisitions and a focus on multi-family housing markets to grow the business.

Wilmar sold $226 million worth of plumbing, hardware, electrical and janitorial products last year. The Moorestown, N.J.-based firm also acquired two large distributors in December: Sexauer, a distributor of plumbing specialty products with annual sales of $60 million, and Trayco, a $25 million company.

Bill Sanford, Wilmar's CFO, says the company has acquired 14 companies since 1995, which helps support distribution to apartment management companies. Wilmar started as a hardware distributor, Sanford explains, and then began focusing on the special needs of multi-family housing.

The company's strategy for entering new markets involves starting with one line of products, then cross-selling other lines. Last year, Wilmar added same-day delivery service because the multi-family customers required it.

"When we go into a new market, we lead with our plumbing line, which is extensive," Sanford says. "Then we start selling hardware and other products, which are our secondary lines."

Increasing the company's customer base is a critical long-term survival factor for most distributors, but they need not limit their vision to traditional manufacturing firms. With a strategic plan, creative prospecting and the willingness to offer different products, services and expertise, distributors can shop their industrial wares just about anywhere.