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The US view18th of September 2012
The USA is home to one of the most mature distributor markets in the world, with an estimated 7,000 businesses operating in the FM sector alone. ECJ takes a closer look at the characteristics of this sector, with the help of Alan Sadler, president of Triple S.
Triple S is a nationwide network of sanitary supply distributors with over 175 locations throughout the USA.With an estimated 7,000 businesses operating in distribution for the FM sector alone, the USA is undoubtedly one of the world's largest and most mature markets. Sales totalled $23.6 billion (19.2 billion euros) in 2010 according to a survey carried out by Sanitary Maintenance magazine in conjunction with the distributor trade association ISSA.
ECJ spoke to Alan Sadler, president of nationwide distributor network Triple S, about current trends and challenges facing the country's businesses. Sadler has worked in the professional cleaning industry for 34 years, in the USA, Europe and Asia.
"Distribution has been faced with growing pressures that result in increased costs - energy, health care, technology and wages - while at the same time experiencing an erosion in trading margins," Sadler says. "This comes from internet retailers that have lower operating cost, big box stores that offer product with little or no training and support as well as large national/multi-location users and GPOs (Group Purchasing Organisations) that are leveraging their size and collective purchasing power to gain lower pricing."
Sadler also feels there are issues with manufacturers. "The manufacturing community appears to be uncertain with respect to where their loyalties lie. Manufacturers that wish to sell through all available channels, without giving much thought to the ‘cost to serve' the end use customer, at times put distribution in a poor light with respect to the end use customers' view of monies paid and value received.
He continues: "This is further compounded by distribution's struggle with respect to communicating its value proposition in a clear and concise manner.
"Many US distributors have also been hurt by the intentional destruction of brand equity at the manufacturing level. When a distributor has invested 20 or 30 years in building a brand presence on behalf of a manufacturer and then witness the cancelling of the brand it has the potential to turn its world a bit upside down."
Is the market dominated by large companies or are there still many small- and medium-sized businesses in the country. Sadler replies: "The full gamut of distribution firms are still in play in the US marketplace, while the numbers have decreased significantly, according to ISSA. Approximately 7000 entities remain active in the facilities maintenance sector.
Non traditional players
"The most significant change has been the widening presence of the non-traditional distribution players that are more or less dominant in other channels companies like Grainger-MRO, Sysco-Food Service and Staples Office Supplies. These are the ‘box on a dock' players that have limited ability to provide after sale support, training and or education with respect to systems and procedures. We have also seen an increased presence of ‘virtual distributors', an outcome of the overall growing presence of the internet."
Sadler adds that his company, Triple S, focuses on the full range of independent distributors - small, medium and large. "We believe our ability to provide them with a national proprietary brand, a national logistics programme, consultative sales training, a shared national/multi-location account platform and a national e-commerce platform are central to their longterm ability to not just survive but prosper.
"In my view a number of the independent distributors that choose to ‘go it alone' will fall away altogether or shrink to a ‘boutique' status: they simply can't muster the critical mass required to meet future demands. I also think some of the big box players will lose interest in the market space as they discover the challenges inherent to building market share are greater than they expected."
The vast majority of cleaning products sold in the USA are handled via distributors. Sadler estimates somewhere between 75 and 80 per cent although this varies according to manufacturer. "Of course a significant level of business has moved from traditional to non traditional forms of distribution. Manufacturers are not in a position, and never have been, to put thousands of salespeople on the street or hundreds of warehouses across a country the size of the US. Bear in mind the distance from Boston to Brussels is approximately the same as the distance from Boston to Los Angeles.
"Our recent research has confirmed that manufacturers still place a high value on the sales and post sales support roles that distribution plays. The problem is many manufacturers want to play in multiple, if not all channels, without giving proper thought to the services provided by one channel versus another channel."
Sadler continues: "For example if an internet retailer takes an order and then asks the manufacturer to drop ship the order, what is that internet retailer's ‘cost to serve' compared to the full service distributor? A full service distributor that is holding stock, maintaining a fleet of trucks, supporting a salesforce (that in many instances introduced the customer to the product in the first place), that provides the after-sales service and support.
"It is obvious, to me anyway, which entity is providing a higher level of service and thus has a higher cost to serve yet the manufacturing community appears to be oblivious to this reality when putting together their channel pricing policies."
As has happened in Europe, expectations from US manufacturers and end user customers have dictated that distributors do much more than shift boxes in order to justify their existence. "The box movers don't have the expertise and thus can only focus on product cost (10 per cent of the budget) versus the labour costs (90 per cent of budget)," explains Sadler. "The ability to play a consultative solutions provider role versus a traditional vendor role is key to survival.
"The development of computer analysis and work-loading programmes are an example of the tools that have been developed in response to the need for distribution to shift the conversation from ‘product at a price' to delivering ‘lowest total cost' solutions."
Some US distributors have enjoyed success expanding into other product categories, such as safety and food service. "However the majority understand the need to hone and build on their core competencies in an effort to make them a competitive advantage," concludes Sadler.