Distributors change with the times

Finding new customers and developing better business methods are top priorities, as traditional markets continue to change

By Victoria Fraza Kickham, Managing Editor -- Industrial Distribution, 8/1/2005

Statistics from Industrial Distribution's 59th Annual Survey of Distributor Operations show that industrial distributors are continuing to look beyond traditional markets to build business. Though categories such as machine/job shops and the automotive industry still top the list of distributor end markets, other areas such as the construction, food and utilities markets are gaining in prominence. At the same time, new industries such as electronics are beginning to show up on the radar screen.

Of the nearly 800 respondents to ID's survey, 64 percent and 55 percent, respectively, said they sell to machine/job shops and the automotive industry—the top two markets identified. Fifty-three percent said they sell to construction customers, followed by 52 percent to the food industry and 50 percent to utilities. When asked what additional end markets they serve, many respondents listed the electronics sector; this is the first time that segment received such a positive response.

Though these changes may seem subtle, they speak to a larger trend that continues to shape the U.S. industrial market: as the traditional manufacturing base erodes, distributors are looking for new sources of business, or new ways of doing business, to stay in the game.

Atlantic Industrial Technologies of Islandia, N.Y., is experiencing the trend first hand. Company president Bob Ferrara said his customer base is dramatically different than it was 10 years ago. While this hydraulic systems distributor still sells to manufacturers in the region, the company has developed a specialty in, of all things, the entertainment business.

As Ferrara explains, it all started on Broadway.

In the mid-1980s, Atlantic Industrial began selling automation solutions to companies that build sets for Broadway shows. The company designs and installs the hydraulic systems used to make stages and scenery move. The Tony-Award winning show Les Miserables was one of the firm's first projects. The Broadway business cooled off after a couple of projects in the '80s, but has heated up again in the last several years.

'People just started calling for automation projects,' Ferrara said, noting that Atlantic Industrial developed a reputation for delivering solid systems in quick time—requirements of this specialty market.

'[The entertainment business] is based on how quick you can deliver and how reliably your system works,' he explained.

As the Northeast's manufacturing base—once Atlantic Industrial's bread and butter—continued to change, Ferrara and his management team realized they should capitalize on this high-margin/low-competition business.

'We saw that and said, 'we have to jump on this.' So today, most of our work, hydraulically, is project work. We don't get an OEM saying, 'I need 25 power units a year'...anymore,' he said. 'The way our business looks today is much different than it looked seven years ago. The phone doesn't ring as much.'

But business is good, nonetheless. Atlantic Industrial's new niche has helped the company move beyond New York borders in search of business opportunities. The firm has done work for production companies in Taiwan, for example, and completed work this year on the newest Cirque du Soleil show in Las Vegas. Ferrara said he anticipates even more of his business going this way in the future, and he hopes to start working nationally with more theater companies.

'That's our niche, and it's how we're coming to survive,' said Ferrara, noting that just 50 percent of his business is in what would be considered traditional manufacturing markets.

Greg Drouillard, president of Target Building Materials in Windsor, Ontario, has experienced a similar, though less dramatic, situation north of the border. A construction distributor by trade, this company is adjusting its focus to serve the growing renovators market in the region. General contractors—Target's traditional customer base—are increasingly hiring specialty contractors for renovation work, Drouillard explains. For Target, the shift means selling new products to a new group of end users, and developing specialty markets—such as selling to renovators who do soundproofing work in homes and offices, which is a growing trend, according to Drouillard.

The situation allows Target to further hone its niche as a specialty distributor. Drouillard points to a key difference in this new customer base: in most cases, the person the distributor calls on is the person doing the physical work at the job site. As a result, Drouillard says he and his staff have found that these customers are more receptive to product and process recommendations. And that goes a long way toward increasing sales and building business, Drouillard said.

'Renovation contractors, in their own rite, are specialists,' he explained. 'And that falls in line with what we are.'

If they aren't selling to new markets, chances are distributors have made themselves invaluable to their existing customer base. That's the case at Consumers Interstate, a janitorial, safety, paper products and office supplies distributor based in Connecticut. Company president Kenn Fischburg says his customer base has not changed drastically in recent years, despite the poor health of the manufacturing industry in the United States. Though he has picked up business selling to Connecticut's casinos, which have emerged in the last 10 years or so, manufacturers still remain his company's focus.

'We've remained focused on the manufacturing industry—and that's been terrible,' Fischburg laughed. 'But there's still a lot of market share for us. We're growing every year, and we're enjoying it.'

Fischburg says Consumers Interstate has grown because it's found ways to make those customers run more efficiently—something he says the manufacturing industry, in particular, desperately needs. Consumers Interstate has helped manufacturers find better ways of ordering supplies, for one thing—specifically, by using an Internet procurement method that saves time and money. The distributor also has added to its product base, enabling customers to buy more from one source.

'Our focus of attention is to help a customer not only reduce the steps it takes to place an order, but also to eliminate suppliers that have limited value,' Fischburg said. 'A better supplier supplies more products, competitively.'

Whether it's new markets or new methods, the distributors who are still around today are doing something right, Fischburg said.

'The reduction in the manufacturing base has taken its toll on everyone,' he said. 'The fact is, the suppliers that exist today in the marketplace, if they're surviving, they're excellent companies.'