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Does size matter?17th of September 2012
The size of today’s distributor organisations can vary dramatically since the sector includes everything from large, multinational operations to small family-run businesses. But what do each of them offer the customer, and can they continue to co-exist comfortably in today’s difficult marketplace? Ann Laffeaty finds out.
The distributor sector was once generally made up of small, service-led companies whose role was to deliver essential goods to customers within a limited geographical area.
However over the years a growing number of large distribution networks covering vast regions have begun to dominate the industry. These offer a range of benefits such as economies of scale, significant buying power, a broad range of services and multiple brands.
Smaller firms are unable to compete on the same playing field. But they can provide advantages of their own such as a more individual service, bespoke deliveries and that personal touch – something that may be difficult for their larger rivals to offer.
So can these two types of distributor continue to co-exist comfortably, and are each of them able to thrive in their individual markets?
Wendi Tarling is sales manager of SA Patient, a family-run UK business comprised of 15 members of staff. The company supplies cleaning, hygiene and safety equipment mainly to customers in the south west of England. She believes that increased buying power is the only advantage that larger distributors can offer over smaller companies. “We feel we can provide a much more personal level of service and our customers really appreciate that,” she said. “For instance we can make same-day deliveries to any customer ordering from us before 9.00am, and I don’t know of any other company that can do that.”
She says a recent request to SA Patient from a large food manufacturer provided another example of the type of personal service a smaller distributor can offer.
“The company phoned us with an urgent order because they had made a miscalculation and desperately needed more PPE equipment - otherwise production would have had to stop,” she said. “I was able to deliver the equipment to them on a Sunday, something a larger distributor would just not do.
“I suppose bigger companies do have the advantage of carrying a wider range of stock – but there is no reason why a small company such as ourselves could not order in the same goods for the customer as and when these are needed.”
Paul Lemieux is president and ceo of Pro-Link, a member-owned association of 90 janitorial supply distributors with 120 locations throughout the US. “Our member companies have an average annual sales volume of around US$7,000,000 per year and in the case of individual companies this ranges from US$2 million to more than US$20 million,” he said. “These firms would probably be above the median size for distributors who focus primarily on the high service janitorial supplies segment. “
He says Pro-Link member companies serve both local and regional markets. “Most of them will consider any facility to be a potential account within their geographic reach,” he said. “However local branches of national firms may be less accessible if purchasing decisions are made at a corporate location. So our members are capable of servicing both large and small accounts where they have access to the decision maker.”
According to Lemieux the advantages of operating within a large network such as Pro-Link include classroom and in-service training, technical support, local and night-time deliveries and some managed inventory support. “Customers will select a service provider based on many factors and janitorial specialist distributors can provide many services that large ‘box-mover’ companies cannot deliver,” he said.
He adds that smaller distributors have the advantage of being very flexible and tailoring their services to the specific needs of customers. “They can also adjust to changing needs more quickly and fine-tune their offering to provide deeper support to specific niche markets.
“However, larger distributors may have a cost advantage when purchasing from suppliers along with some benefits of scale on the logistics platform. But smaller distributors that belong to buying groups may be able to offset the difference somewhat.”
Future for all
He believes there is a future for both small and large distributors in the marketplace. “Small distributors excel at service creation and delivery and will always have an advantage in creating customer-centric solutions to cleaning and hygiene challenges,” says Lemieux.
“Customers come in many sizes and degrees of sophistication and their needs will cover the entire spectrum - from those who are self-sufficient to customers who require a high level of service and support. Some customers may manage their own cleaning requirements using in-house staff, too, while others may outsource some or all of the work.
“While large distributors may have some advantages of scale in product delivery for self-sufficient customers, smaller distributors can provide flexible and tailored services appropriate to a wide variety of requirements. Since there are many types of customers with varying needs, there is also a need for many types of distributors with different capabilities to support them.”
Glen Smith is a director of Smith and Coburn, an independent washroom and janitorial company formed in 2008. The company tends to serve small, local customers close to its operating base in Hertfordshire in England.
“In my opinion customers prefer to deal with smaller companies since this means they receive a higher level of customer service,” said Smith.
He concedes that larger distributors offer certain advantages such as national distribution plus the funds to pay pre-bates and rebates to national customers. “However, I think that however big you are, the vast majority of people prefer to buy from people,” he adds.
Best of both worlds
Some distributors feel their operation combines both economies of scale and a personal service allowing them to offer the customer the best of both worlds. Among these is CJS Portsmouth, a part of the Nationwide group. According to sales director Keith Churchill: “Unlike some of the really big distributors that only have a few depots, we have 22 of them. This means we have national coverage – while the fact that we deliver from local sites means that we can get products to customers faster.”
Another organisation that considers itself to offer the best of both worlds is INPACS, a large European network of around 130 independent, family-owned distribution members. These have a
total sales volume approaching 1.7 billion Euros and the network’s partners range from small niche market manufacturers to multinational billion euro sales companies.
“We combine the power of a large company with the flexibility and customer orientation of smaller enterprises,” says ceo Thomas Fastenrath. “We also target all customers - irrespective of size or sales volume - in our strategic market segments. For the requirements of regional or national potential customers our network has allocated 50 key account managers in Europe while our global accounts are serviced by a specialised international corporate account team from our headquarters in Berlin.
“Meanwhile out smaller customers are handled by our local distribution members.”
He says INPACS customers value the company’s service model which comprises good logistics, quality products, ongoing process support and technical support. “We combine the strengths of our industrial partners with our own to completely satisfy the customer,” claims Fastenrath.
He feels that the advantages of larger distributors include logistics and technical support plus a wide assortment of brands and IT support. Smaller distributors, on the other hand, offer flexibility and a personal relationship with their key customers.
Sharpen their profile
However the market is becoming increasingly concentrated according to Fastenrath. “Independent small distributors urgently need to sharpen their profile to create a robust business model and find a competitive niche if they want to stay in this market in future,” he said.
“Alternatively they will be required to enter into a distribution network such as INPACS as long as they provide added value for the network in their specific region. Otherwise they will need to sell their business or halt their activities.”
Fastenrath believes the independent classical janitorial distributors will gradually disappear unless they radically change their business model.
“I am convinced that only medium and large, financially sound and well organised distributors will survive as part of a network such as INPACS,” he said. “In fact the existing distribution networks in Europe will only survive when they convert themselves from a pure purchasing or ‘friends’ group to a real sales and strategic network.
“This step is not easy, as we experienced ourselves - but it is the only logical step to increase competition and protect associated members in local market positions.”