We’re excited to provide the readers of Industrial Distribution with the results of our 68th annual Survey of Distributor Operations. The objectives of this report, as always, have been to understand the most critical issues affecting distributors, and to provide data to help drive their educated business decisions. Through these findings, we’ll discuss new and ongoing industry trends, and what trends have fizzled.
In this segment, we focus specifically on:
- Demographics, which establishes a profile of survey respondents based on company size, years in business, sales volume, and product line.
- Challenges, Trends & Economy, which outlines the initiatives distributors are undertaking to address key business and market concerns. This also covers mergers and acquisitions, and how distributors view the impact of the economy.
- The Balance Sheet, which offers insights into revenues and profitability. This addresses areas of investment, concern, and other analysis of factors impacting revenue.
- Best Practices, which sheds light on distributor relationships with suppliers and customers, as well as their global business plans and what challenges are involved.
- Tech Usage & Investments, which covers areas like e-commerce and other big-impact technology solutions for now and the future.
- Value of the Distributor, which addresses the reasons our survey respondents believe customers do business with them, and which service offerings play a significant role in the industry.
- Employment, which identifies hiring and layoff trends, recruitment, and compensation.
The results of this study are based on an email survey sent to Industrial Distribution subscribers. Recipients of the survey were offered an incentive to complete the questionnaire. Industrial Distribution’s subscriber base is comprised of 30,000 readers, the majority of whom identify as executive, upper management, sales, or sales management. Results are based on a pool of respondents within this subscriber base.
Because Industrial Distribution transitioned to a new publisher in 2010, no survey was conducted that year. Therefore, results which track comparisons over the past decade will reflect a gap between 2009 and 2011.
Comments on this year’s results? Email ID’s executive editor, Anna Wells, at Anna.Wells@advantagemedia.com.
Challenges, Trends & The Economy
When it comes to industrial distribution, day-to-day challenges abound. While many of these issues are here to stay, as the landscape for distributors shifts, so do their primary concerns. This year, the number one concern was once again price competition, which nearly 54 percent of respondents identified (Figure 2). Other top concerns include economic conditions (48 percent), distributor competition (37 percent), and finding more qualified people (31 percent). Last year, economic conditions also ranked second, but it has dipped a few points from the 52 percent of respondents who identified this last year. This category peaked as an industry concern during 2009 where it was ranked “primary” by 70 percent of respondents. The lowest level of economic concern in the recent past was in 2006, when only a quarter of respondents expressed concern.
We’ve again seen incremental increases in the level of concern distributors have over e-commerce. In the early 2000s, those identifying this area were in the low single digits, but started to rise in 2009, when ten percent said the same. This year, 20 percent identified e-commerce as a top concern, up from 17 percent last year. “Finding more qualified people” is also up a few points over last year, a category that’s been trending upward since hitting a low point (15 percent) during 2009’s peak unemployment. Write-in concerns included things like port strikes, government regulations, and “multiple distribution channels for the same products.”
When it comes to managing their businesses against these issues, most distributors in our survey plan to counteract these challenges with growth strategies like growing sales among exiting customers (77 percent), adding to their customer base (64 percent), and taking market share from specific competitors (33 percent). These growth strategies have held fairly steady over the past year. Growth via “internet sales” has continued to appeal to distributors, reaching 25 percent (from 24 percent last year, and 18 percent in 2013). Areas that are low on the growth strategy list include:
- Attending more conventions/trade shows.
- Charging fees for services.
- Diversifying into non-distribution businesses.
Likewise, only six percent say they plan to invest more in catalogs as a primary growth strategy.
Besides these internal strategies, mergers and acquisitions continue to dominate the discussion. For some, targeted acquisitions serve as a springboard into new geographies or industries, or add bulk to inventory or expertise. And yet for others, the record M&A levels simply create stiffer competition, as some of the larger distributors continue to grow. In the last twelve months, 9 percent of our survey respondents say their companies were either merged or acquired. Another 17 percent say they were approached, but a merger/acquisition did not go through. As shown in Figure 1, most distributors we surveyed feel that either the same number or more will consolidate throughout the course of the next year, with only 14 percent predicting M&A activity scaling back.
It’s likely the majority are on target. Earlier this year, Will Burnett of private equity firm ORG (Owner Resource Group) wrote a column for Industrial Distribution where he outlined the drivers behind this consistent consolidation activity. “First, companies have been pretty prudent since the Great Recession and are sitting on strong balance sheets for the most part,” explained Burnett. “In addition, the debt markets are about as generous as I’ve ever seen them, with banks providing good companies incredibly favorable rates and terms. And private investment firms have plenty of capital which they are hoping to deploy in this sector. This all means that good companies looking to make acquisitions have plenty of access to capital. The other part of the equation – the need for capacity – is nearly as robust.”
Likewise, Jack Keough reported in July that the world economy is seeing an increase in the number of transactions across many business segments and that experts expect the pace of the industry consolidation to pick up. It’s possible that independents with a lack of capital, growth strategy, or a succession plan might fi nd themselves more amenable to the possibility of a buy-out, while other businesses simply wish to strike while the (valuation) iron is hot. For whatever reason, 22 percent say they would be agreeable to the right buy-out offer.
As for those looking to add depth to their own businesses, 35 percent say they are actively looking to acquire another distributor (Figure 3). This is up five points in four years, as consolidation continues to ramp up as a business strategy in industrial distribution.