This article first appeared in the November/December issue of Industrial Distribution. To view it in the original format, please click here.
Recently, Industrial Distribution’s contributing editor, Jack Keough, wrote a two-part blog series on our website (www.IndDist.com) about the travails of the independent distributor. Jack’s insights garnered a significant amount of feedback from the online audience, since independents seem to face an unending barrage of competitive challenges — and everyone’s got something to say.
In Keough’s column, he relays a conversation he had with the owner of a large independent distributorship who had sold his business to a large chain:
“He lamented the state of independent distributors and wondered whether these independents would be around in the years ahead because of national contracts, lack of capital, and ecommerce.
He also questioned their ability to compete with some of the huge mega-distributors that have expanded so greatly throughout the country.
“I heard from a number of distributors, some of whom said they will survive because of services they provide their customers.
“But others, well, seemed to disagree.”
For many of the dissenters, some of the specific challenges feel insurmountable, and include:
The growth of integrated supply: As distributors with a large footprint increase their breadth of products, one-stop-shopping becomes more commonplace and smaller niche distributors face increasing competition.
The growth of the mega-distributor: There are more billion dollar companies than ever on this year’s ID Big 50 List, many of whom continue to expand their reach both organically and through acquisition. Some smaller businesses struggle to compete on price, delivery, or service when bidding against these large companies for national, regional, and multi-location contracts.
Ecommerce: Without a strong online effort, many smaller companies struggle to reach Millenial buyers or may lose business to industrial procurement giants like AmazonSupply.com.
Small business growing pains: Earlier this year, ID interviewed DGI Supply on their views as a consolidator — specifically how they looked to mitigate some of the issues facing these smaller independent companies. DGI Senior Vice President David Crawford outlined how small companies often struggled to scale up in order to compete with the resources of the larger marketplace: “It’s a pretty scary position to be in when you’re in the twilight of your career and to think that if you lost one or two customers, it could dramatically affect the business. Because of this, they try to manage the business at a certain size, and it’s not always easy to do. They might wind up losing people if they can’t provide the services the customers are ultimately looking for. But if the principles aren’t willing to invest in that technology, then they’re going to have a stagnant organization that is now more at risk. So you see that and say, ‘I’ve got to do something different.’ The pressures of the (bigger organizations) are getting too great, and they need a different plan.”
An Independent Resource
Despite being faced with a host of competitive landmines, it’s arguable that these independent distributors also face some of the most opportunity. Organizations like IBC, a dynamic national buying and marketing group for Independent Distributors and manufacturers of industrial, construction, and manufacturing supplies, look to support their network companies by providing resources they might be otherwise unable to access due to their size. IBC specifically targets ways to improve the independent distributor’s ability to compete for national end user and minority accounts. We spoke with IBC’s President & COO, Ron Nunez, and Ted Buck, IBC Director of National Accounts and Supplier Diversity, about some of the ways independents can utilize groups like IBC to identify new opportunities for growth.
ID: Explain the critical role of the independent distributor in the industrial economy. Why is it important to IBC to keep these businesses healthy?
RN:Independent distributors combine in-depth technical and product knowledge with services levels that are simply unmatched by big box companies. These added value services help end users look at cost from an entirely different angle. Price is not everything. Getting down to the “cost per hole drilled” is a more strategic means of calculating cost savings. That is what IBC members do all day long and they are able to do so because they have polished their craft over several generations. An independent distributor acts as a trusted advisor, one who will go to the ends of the earth to solve a customer’s problem.
Independents are the unsung heroes in our industry. Many companies take independents for granted — specifically those end-users that focused solely on price. Most independent distributors are committed to end users, not Wall Street: who would you rather invite into your shop?
ID: How does IBC serve independent distributors specifically?
RN:It is IBC’s job to harness the power of our independents and create a national offering to end users. We have the best, technically driven distributors — problem solvers that love to roll their sleeves up to help a customers. IBC has built a buying group to assist our distributors from a purchasing perspective. We have also developed a National Account Platform that allows our distributors to compete for any piece of business that is going national.
For example, if a distributor’s largest customer decides to take their MROP spend national and the distributor is not part of IBC, there is a good chance they would be out of the running. Through our National Accounts Program, IBC is not only able to save business for that distributor — but also plug in other IBC distributors to meet the needs of the national contract.
In fact, 93% of all IBC contract business is new business for our independents. IBC is also a minority owned business. The value we provide to our distributors, through our contract business and buying group, allows IBC to offer valuable minority credits to our distributors’ customers.
ID: What are some of the biggest issues facing independent distributors today? How has consolidation specifically affected this group of businesses?
RN: Big boxes keep getting bigger, as they are entering other areas of the marketplace. Driven by Wall Street, the big boxes have to get creative with delivering numbers. Acquisitions and expanding reach produces headaches for the independents, especially when end users are too focused on price.
Consolidation affects independent distributors unless they have a home. I can recall trying to recruit a distributor in the Midwest and the owner was flat out against joining a group. He ultimately chose not to.
Two year later, when his biggest customer went national, it was an IBC independent distributor who was awarded the business. In the end, IBC ended up delivering two million dollars in new business to his regional competitor.
TB: However, consolidation is not always seamless for the customers that are involved. Customers that are accustomed to personalized service will still gravitate to independent distributors for their product knowledge and technical expertise. When companies get acquired, it can cause disruptions and delays in the decision making process. This is an opportunity for independents to show how their technical expertise and nimble customer service can benefit the customer — providing value that is outside the box.
While it may be something of an uphill battle, indepedents would be wise to consider how strong organizations like IBC (as well as Affiliated Distributors, IDC USA, or NetPlus Alliance, for example) can leverage economies of scale to help improve the competitive advantage of the independent distributor. There’s no doubt it’s tough out there, but industry experts like Keough think there is a future for these businesses in industrial distribution — though a challenging one: “I’m still not predicting the demise of the independent distributor. Distributors have overcome all sorts of difficulties over the years, but this may be the most challenging time in recent memory for those who continue to remain independent.”