And this year's Big 50 are...Click here to find out.

Last year proved to be a solid one for Industrial Distribution'sBig 50 distributors. Most of the Big 50 reported record sales and earnings, with many citing double-digit growth. But what were some of the factors driving this exceptional year?

For one thing, it was the economy. Strong capital equipment purchases, factory expansions, acquisitions and the Internet helped drive sales and profits.

"Sales growth in capital equipment was a positive indication that confidence in the segment was on the rise," says Bill Henricks, vice president of marketing for DGI Supply—a DOALL company, No. 30. "This confidence has carried through to the first part of 2006, as capital equipment sales continue to be strong."

Several industrial sectors continued to expand, particularly in the wake of Hurricane Katrina, causing some markets to enjoy growth opportunities.

"Chemical plants continue to see improvement and are finally making much-needed upgrades and turnarounds to ensure growth," points out Randy Adams, vice president of sales and marketing for Red Man Pipe and Supply, No. 16. "Utility companies are finally looking at adding power plants and gas distribution pipelines to meet economic growth and strong demand for electricity and gas. Overall, 2006 will be an even better year than 2005."

The rising cost of energy in 2005 caused problems for distributors, as fuel costs cut into some profit margins. But for some, the spike in oil costs has meant additional business. For example, the Big 50 distributors who sell to the mining sector recorded excellent sales in 2005.

"Mining is a cyclical business, and with the price of energy skyrocketing, coal mining is skyrocketing," says Bill Currie, director of sales for Perry Supply, which debuts at No. 34 this year. Perry sells to nearly 20 surface mines in the United States, as well as to a number of mining companies in Central and South America. Its parent company, the Drummond Co., has a major mining facility in Central America, and Perry supplies it with a number of products.

This year is promising to be as good—if not better—than last year for companies in the mining industry. Lewis-Goetz, No. 50, was up 16.8 percent in the first quarter, thanks in part to the strength of the coal industry, says Dave Goetz, chairman and CEO. "We sell a lot to the coal-fired oil plants and the aggregate industries. The cost increases in oil are pushing the coal industry—and road construction is strong, too."

Lewis-Goetz is proving to be an acquirer of major proportions, as well. Earlier this year, it purchased Goodall Rubber Co., one of the larger players in the hose distribution sector, and No. 44 on this year's list.

Mergers and acquisitions were the big story for our Big 50 distributors in 2005. And 2006 promises to be the same.

Wolseley, No. 1 on this year's list, continues on the acquisition trail, even after more than 30 purchases in 2005. Last year, its North American subsidiary, Ferguson Enterprises, made a huge acquisition with Endries International, a former Big 50 company, as well as Full Service Supply, a division of Kennametal. Consolidation is a key part of Wolseley's growth plan: the company says it plans to grow double digits every year, half by organic and half by acquisition growth.

John English, director of investor relations for Wolseley North America, says the pipeline is full of good acquisition opportunities in both North America and Europe, and that the company will continue to pursue those opportunities. He said Wolseley is not ready to do business in Asia, but is watching that market as well. English said the company is looking for diversification of products—within the scope of its existing focus on contractors, tradespeople and industrial accounts—similar to what it did with Endries.

Growing business through acquisitions is what many of our distributors say they may do in the years ahead, as markets continue to grow outside the United States. Bill Purser, president and COO of Applied Industrial Technologies, No. 9, says AIT will continue to look for acquisitions that, "we feel are of strategic importance to our company." Plans are to stay in North America, although Purser says the company is keeping an eye on other markets as well, particularly in Eastern Europe and Asia. Last year, Applied purchased Groupe GLM in Canada; Spencer Industries, a regional fluid power distributor in Washington; and this year, the company made a major acquisition with its purchase of Minnesota Bearing, strengthening its position in the upper Midwest and adding to its fluid power capabilities.

Airgas, No. 6, made more than 10 acquisitions; Lawson Products, No. 21, bought Rutland Tool Co.; and WinWholesale , which debuts at No. 8, surprised many industry observers with its purchase of Noland Co. last spring.

One company to watch in our Big 50 is, of course, Home Depot Supply, No. 5. In 2005, Home Depot Supply acquired National Waterworks, a distributor of products used to build, repair and maintain water and wastewater treatment transmission systems, and Litmor, Canada's largest commercial lighting distributor. The biggest news was its blockbuster purchase this year of Hughes Supply, No. 4. Earlier purchases of White Cap Industries, Maintenance Warehouse, and Apex Supply make Home Depot Supply a force to be reckoned with. And the company says it has plans for more acquisitions.

"The strategy of Home Depot Supply is to repeat in the professional space the same type of market transformation The Home Depot has pioneered and executed in the do-it-yourself retail space," says Joseph DeAngelo, the company's executive vice president.

Depending on the product line, the Internet and e-commerce is proving to be a good selling tool for the Big 50 distributors.

“We have a B2B site we’ll be rolling out later this year,” says Dean Wagoner, president of Dillon Supply Co., No. 39. “We’re optimistic that it will be another tool that will help our business. The Internet is still
important, and we get many hits on that each week. So when we roll out the B2B site, it will add some value to our business. We have a lot of customers asking for it and looking for it. So we feel that, in years to
come, it will be a big part of our business.”

Idelle Wolfe, president of Barnes Distribution, No. 20, says that technology is differentiator” for her company. “We offer our customers sophisticated e-commerce integration methods that allow them
easily have MRO products flow through their e-procurement, ERP and other operating systems,” she says. “Technology has played, and will continue to play, a significant role in our business in other ways, including warehouse management, vendor collaboration, business intelligence and
sales force automation systems.”

Production Tool, No. 27, is continually upgrading its Web site in order to help customers easily navigate through the site. “Ecommerce is an extremely important and growing part of our business model,” says
Larry Wolfe, company president. “As a growing number of people become more comfortable with working online, we see an increase in stock checks and orders placed via the Web site, and we are confident that this trend will continue.”

Technology is performing another important role, as well.

“Technology is playing, and will continue to play, a key role in allowing us to achieve our productivity gains that we have targeted. We are working on eight productivity initiatives that are technology driven,” says Gordon Duncan, president of Kinecor,
No. 29. “The most important ones are centered around the product.”

However, some Big 50 companies say the Internet and e-commerce have not played a significant role in sales, simply because of the nature of the products they’re selling. Perry Supply, for example, says the Internet
is, “only somewhat important” to them.

“It is important for customers who are looking for products and information, but the percent of sales from the Internet itself is less than 5 percent,” says Currie.

Likewise, Hydradyne Hydraulics, No. 47, says that because of its highly engineered product mix, it sells virtually nothing online. That isn’t stopping the company from upgrading its computer system, though.

In fact, many of the distributors interviewed for this report say they intend to upgrade their software in 2006, primarily to get better and more timely information for their management teams.

The people problem

It doesn’t matter if you’re one of the biggest distributors or one of the smallest: Finding people is your main challenge.

In fact, it’s one of the things Applied’s Bill Purser says keeps him up at night. “Finding people has been my number one concern for the past few years,” he says. The company is addressing the issue by focusing on its
recruiting and training programs, something Purser says they continued even during the economic downturn a few years ago.

Adds Chris Circo, president of Precision Industries, No. 26: “The most significant problem we face today is the recruitment and retention of excellent people, which will allow us to take our business to the next level.”

Will Oberton, president of Fastenal, No. 12, says companies should look outside the industry for future leaders. “You have to be creative,” he says. “Finding people is no different than finding new business. If you
always look under the same rock…”

IBT, No. 41, takes a different approach to attracting with its industrial recruiting service, says president Mike Nemechek.

“We provide to our customers and vendors traditional head-hunting and recruiting in our industrial marketplace,” he says, referring to jobs such as plant managers, technical sales reps and engineers as examples
of positions they’re filling. “We’ve seen that the pipeline for industrial talent is drying up, so we’re getting aggressive about how we go out and bring in new talent to IBT. At the same time, we’re doing that for others in the industry…who are suffering from the same problem.”

The situation is especially acute when hiring technically astute salespeople, says Rodney Lee, president of Tencarva Machinery, No. 48, a specialized, engineered sales distributor. “We recruit at engineering
schools, but it’s difficult to get people who are in engineering to get into sales,” he says. “It’s not an easy thing to do at all.”

Going global

Globalization continues to be a major problem—and opportunity—for distributors, as the U.S. manufacturing base continues to shrink. For instance, while U.S.–based power transmission distributors have
expanded throughout North America, few have ventured abroad.
“But it’s imminent,” says Jack Cahill, president of Kaman Industrial
Technologies, No. 17.

At least one of the distributors on our Big 50 list has set up shop in Shanghai, China, while several others say they may be testing the waters shortly.

Making sales over the Internet has led some distributors to either sell overseas or source product from new manufacturers abroad. The interviews conducted by the ID staff show that distributors’ global efforts are aimed at working to improve their core competency: Finding new ways to reduce costs for customers.

“Outsourcing to Asia, and the troubles facing the automotive industry, continue to press suppliers like DGI Supply to find innovative
solutions for cost reduction and productivity,” says DGI’s Henricks. “Our commodity management programs are more relevant today than they have ever been.”

ID’S Big 50 was compiled by editors Jack Keough, Victoria Fraza Kickham, Alison Lutes, Kimberly Griffiths, and Joe Nowlan.
For more information on the Big 50 go to www.inddist.com/big50.

METHODOLOGY