As the pandemic fades, the takeaways are still fresh as ever in the minds of distributors who found their businesses heavily disrupted almost overnight. Our Survey of Distributor Operations has existed for 75 years, but these past two have been as challenging as any on record, as companies large and small battled variables from shutdowns, shortages, inflation and more. This year, we examine the results of our annual survey in the context of a market where costs are high, supplies are often scarce and talent is hard to come by. Perhaps it’s a new normal, but it doesn’t appear that industrial distributors feel gun-shy. While their primary concerns are many, it seems distributors are also eying opportunities to grow business in a time where demand is high.
As always, Industrial Distribution’s Survey of Distributor Operations aims to provide a snapshot of the industry and how distributors are faring across an array of operating areas. The coming pages will examine seven main categories:
- Demographics — establishes a profile of survey respondents based on company size, years in business, sales volume and product line.
- Challenges, Trends & Economy — outlines the initiatives distributors are undertaking to address key business and market concerns, as well as mergers and acquisitions and how distributors view the impact of the economy.
- Tech Usage & Investments — covers areas like e-commerce and other big-impact technology solutions for now and the future.
- The Balance Sheet — offers insights into revenues and profitability, addressing areas of investment, concern and other analysis of factors impacting revenue.
- Best Practices — sheds light on distributor relationships with suppliers and customers, as well as their global business plans and what challenges are involved.
- Value of the Distributor — addresses the reasons our survey respondents believe customers do business with them, and which service offerings play a significant role in the industry.
- Employment — identifies hiring and layoff trends, recruitment and compensation.
In the first of a two-part report, a look at major economic patterns and distributors' investments in new technology.
The results of this study are based on an email survey sent to Industrial Distribution subscribers in April 2022, with a collection time of three weeks. Recipients of the survey were offered an incentive to complete the questionnaire. The majority of ID’s subscriber base is comprised of readers who identify as executive, upper management, sales or sales management. Results are based on our pool of survey respondents from within this subscriber base.
Comments on this year’s results? Email ID executive editor Anna Wells, at [email protected].
This year’s survey respondents, as usual, represent a wide swath of geographic regions, with 28 percent hailing from the Midwest; 24 percent from the West and Southwest and 21 percent from the Northeast. Interestingly, this is a good indicator of a somewhat different pool from last year, where only 13 percent of our respondents hailed from the Midwest.
Other evidence of this shift in respondent demographics is in the number of businesses who report to be 50 years or older. This year, 47 percent say they represent such businesses, with just 20 percent reporting from businesses that were established 25 years ago or less. Last year it was essentially backwards, with 15 percent hailing from firms established 50 years or more, and 56 percent from distributors 25 years or younger.
In our 2020 survey, 45 percent represented companies established 50 years or more, suggesting last year’s composite group may have been an outlier. The impact of this may have applied to some of the more dramatic changes in data year-over-year between this and last year, and may indicate these younger businesses are more aggressive or, at a minimum, more agile.
Family-owned businesses still employ a large portion of our survey respondents, but that number has been slowly declining. For example, in 2005, 78 percent of our respondents characterized their businesses as “family-owned,” a result that’s whittled down over the years as consolidation changes the makeup of the market. Today’s survey pool was comprised of 68 percent family-owned businesses, which is largely in line with what’s been represented in the survey results the past two years.
Additional demographic details include the following:
- Revenue Bracket: 22 percent of respondents represent companies whose sales this past year were $250 million or higher, though the largest group was the 31 percent who earn $10 million or less annually.
- Product Lines: 54 percent said that, compared to last year, the number of product lines they carry has expanded. 45 percent said the same last year, compared to 53 percent in 2020. This number has generally grown in the past decade and has been as high as 69 percent.
- Markets: 88 percent of survey respondents sell into the manufacturing/processing industry. Other major buyers include construction (57%); OEM (50%); government (43%); machine shops (43%) and energy (42%) businesses.
Challenges, Trends & The Economy
While the initial pandemic shutdowns and related economic turmoil threw business into a tailspin, the ensuing recovery has come with its own challenges. We asked respondents to select their top three business concerns from a list of 19 options, and these came out on top:
- Economic conditions (49%)
- Increased operating costs (42%)
- Keeping qualified employees (41%)
- Finding more qualified people (41%)
- Inflation (41%)
Runners up include issues like price competition, distributor competition and e-commerce.
It is common for “economic conditions” to be identified as a top concern by many survey respondents – a phenomenon that occurs even in the best of years. And while many sectors like manufacturing and construction have been growing by leaps and bounds over the past 12 months, many businesses may fear an impending recession. That said, in our 2020 survey (issued in late March of tht year), those who selected economic conditions as a top concern soared to 85 percent. Last year it was 53 percent, so a mild slide further suggests economic concerns for distributors have stabilized post-pandemic.
Inflation was a newcomer to the list of options – for obvious reasons – and it’s clear that businesses are scrambling to deal with this undesirable element that they can’t address without impacting pricing or margins.
To offset these variables, distributors have an eye on strategic growth and most hope to leverage their existing customer base to increase sales. Sixty-nine percent of respondents said growing sales among existing customers was one of their primary growth strategies. Fifty-four percent said they hoped to add to their customer base and 24 percent plan to take market share from specific competitors. Last year we saw greater interest from distributors in product line changes (either broadening or specializing), which may be a more difficult feat this year amid supply chain limitations.
Mergers and acquisitions continue to play a big role in distribution, though it seems that this year’s pool of more established distributors is less amenable to a buyout offer than those who reported last year (77 percent said no thanks). Additional impacts of M&A include the following:
- 24 percent of respondents said they are actively looking for a company to acquire.
- 19 percent said they pursued an acquisition in the past year.
- 21 percent said they were approached.
Tech Usage & Investments
Many industry experts have been ringing alarm bells for years over what’s largely been viewed as a lagging approach among industrial distributors when it comes to e-commerce. When the pandemic hit in 2020 and the lights went out on outside sales, the impetus became even more clear as both consumer and business buyers had no choice but to look to the internet for the majority of their purchasing.
It was likely this phenomenon – and the demographics of last year’s survey respondents who were hailing from newer companies – that influenced a big spike last year in distributors saying that e-commerce was “a priority” (89 percent). This year, that number has come back to earth, with 57 percent saying the same — more in line with the data reported in the 2010s. Outside of a demographic seesaw, another thing influencing this downward trend is probably market conditions: the adapt-or-die fear we saw driving business decisions last year and the year prior may have settled as distributors address the timely concerns around the heavy demand of 2022.
Either way, distributors still appear to be actively using traditional technology-oriented business tools to operate efficiently. Those that are said to provide the biggest payback include CRM, online ordering and ERP. Respondents have also added that the business conditions of the pandemic have driven them to consider new investments. Twenty-six percent say e-commerce is a consideration, followed by cloud solutions (23 percent) and investments in service offerings (21 percent).
Additional points of interest relating to technology include the following:
- 44 percent say they currently generate revenue from their websites, though the vast majority (67 percent) yield less than 10 percent of sales from those platforms.
- 62 percent of respondents say web sales will increase in the coming year and 38 percent say they will stay about the same, leaving zero respondents who believe web sales will decrease.
- 34 percent of distributor respondents say their business has a mobile app.
Distributors who have websites vary greatly in the frequency with which they update them. While 26 percent update their sites daily or weekly and 33 percent do so monthly, a fifth of respondents say they update their sites every few months and an additional fifth say “hardly ever.”
Check out part two of the 2022 Survey of Distributor Operations.