A couple of months ago,
Supply
House Times invited various industry leaders to contribute some “bold predictions”
for the future of the PHCP distribution industry. Here are some of the ideas
contributed by these men and women.
1. Buying Groups Rule (no. 1) — “Within the next five or six years, independent wholesalers who are not
members of a buying group will most likely cease to exist due to the increasing
competitiveness of the marketplace.” — Mike Babrowski, VP/Sales &
Marketing, Zoeller Pump Co.
2. Buying Groups Rule (no. 2) — “Buying groups will become more attractive to the independent
wholesaler. It gives them buying power equal to the major chain wholesalers and
more clout with manufacturers.” — Charles White, Vice President Marketing, J.R.
Smith Mfg. Co.
3. Builders Pour It On — “Large builders will continue to apply pressure on manufacturers to buy
direct and/or provide builder programs, such as rebates.” — Mike
Babrowski.
4. Squeeze Plays — “Manufacturers will be
caught in a squeeze between the buying groups and large national wholesalers
wanting more lucrative programs, and the large home builders demanding builder
programs … All plumbing wholesalers will experience increased pressure on
profit margins in the future to a more moderate growth rate and increased
competition from the national wholesalers seeking to increase market share.” —
Mike Babrowski.
5. Consolidation Continues — “Ferguson, Winnelson [WinWholesale] and Hajoca will continue to acquire
independent plumbing wholesalers, though not at the pace of recent years, as
consolidation within the industry continues.” — Mike Babrowski.
6. New Age Marketing — “Methods for providing
information and interacting with customers and distributors are changing
rapidly. Social networking is changing from traditional methods of socializing
(i.e., face-to-face, telephone, direct mail, etc.) to new forms of communication
such as MySpace, YouTube, blogging, forums — all of which didn’t exist as early
as 10 years ago. Thus, marketers must learn new skills and techniques for
reaching consumers and professionals. New generations expect more
sophisticated, interactive communications tools, and business models must be
developed with this in mind.” — Wayne Denlinger, Director of E-Business,
RIDGID.
7. Universal User Interfaces — “Manufacturers must address the needs of new customers and new
needs. Companies are facing more sophisticated tools and less sophisticated
workers. Training non-native language speakers will be a challenge throughout
the world in industries from health care to construction to manufacturing.
Intuitive, universally accessible user interfaces will win over the
language-specific, complicated and cumbersome. Making complex devices easy and
quick to learn, and simple to use will speed adoption.” — Wayne
Denlinger.
8. Multiple Purchasing
Influences — “As
the purchasing decision gets moved further away from the end user, as in the
case of many industrial settings where purchasing departments are making
decisions, end users are having less input on which tools are purchased. In
addition, with a trend towards untrained workers who do not speak fluent
English, these end users have less influence about purchasing decisions. The
consequence is that less attention is paid to total value and more weight given
to simple cost comparisons. Brand managers and marketers will need to work
against this disassociation by reaching all levels in purchase decisions —
buyers, influencers and users — to explain their value proposition.” — Wayne
Denlinger.
9. Difficult Logistics — “Overcrowding and urbanization of large cities
such as Mexico City, New York City, Sao Paulo, Brazil, and Shanghai, China,
creates problems in getting building materials and supplies to jobsites. Sales
representatives have difficulties demonstrating tools to customers, who are
often very tactile and wish to try products before making purchase decisions.
Energy use is also a factor in the delivery problems, and in certain areas fuel
surcharges are being applied to freight bills. Ongoing overcrowding and
urbanization will make logistics more tedious and difficult and will add costs
in the future.” — Wayne Denlinger.
10. Speed Matters — “The
entity that moves fastest will win. In business, the company that is able to
move information up and down the supply chain most quickly and efficiently
outperforms competitors in cost and market responsiveness. Transaction speed
can be increased with techniques such as lean manufacturing processes, visual
triggers, automated work flows, and real-time communications. The enterprise
that is both proactive and can also react more quickly than competitors has the
advantage of addressing changing customer needs first, and generally takes a
lead position in the market.” — Wayne Denlinger.
11. Direct Selling From China — “Chinese suppliers of commodity products will
begin selling to contractors and distributors directly. Of course distributors
are already sold direct, but contractors will be able to purchase products at
the same price as the wholesaler. It’s painfully obvious that the Chinese
suppliers have no understanding of channel of sale and therefore will market
their products throughout our North American channel at the same sale price. So
a manufacturer that has the quality and workmanship knowledge will be sold at
the same price as the wholesaler and eventually the larger contractors. As
Chinese suppliers take root in North America on a direct basis, they will have
local inventory to market to the contractors. This is not a knock on the
Chinese, simply an observation on their inability to understand channel of
sale.” — Jerry Priest, Vice President of Sales, Red-White Valve Corp.
12. North American Manufacturing To Rebound — “With
the rising cost of freight due to fuel and landing fees, I predict that some
manufacturing will begin to build in the various markets now seeking to import
products. It will become cost effective to produce some commodity products in
North America and Europe rather than lower cost items out of Asia. As Asia
costs increase and fuel costs increase, this will help level the cost of
manufacturing in areas now seeking imports. No idea on timing of this, but I
predict this will (probably) occur over the next 10 years. This change has
already been seen in the automotive industry where manufacturers have located
into the markets they sell into in order to save transportation costs and
develop an integration of design requirements that fit the market they are
targeting.” — Jerry Priest.
13. Less Wholesaler Consolidation — “I predict less wholesaler consolidation will
occur over the next 10 years. The expense
of managing the individual units, the capital outlay vs. the return on the investment
and the differences within marketing areas will stave off significant
consolidation in the future. Also, we are seeing that the local wholesaler has
an ability to serve his market with quality brand products at a competitive
price. He does not have the significant overhead issues of the larger
wholesalers.” — Jerry Priest.
14. More Wholesaler Consolidation — “There will be a further consolidation of the
major chain wholesalers. They will continue to purchase profitable,
strategically located, independent, single and small branch wholesalers to
improve distribution, profitability, and market share.” — Charles
White.
15. But Fewer Locations — “Major chain wholesalers will close
many unprofitable acquisitions and other branches due to a
duplication of services in the market. That is, their recent acquisitions may
give them a location in a market where they already have operations.” — Charles
White.
16. Opportunity For Independents — “The independent single and
small branch wholesalers will find new opportunities as the
major wholesalers grow better. They will be able to compete on
service, product knowledge and market awareness.” — Charles White.
17. Electronic Catalogs/Price Guides —
“Manufacturers’
Web sites will play a larger role in gaining product knowledge and will
begin to replace printed catalogs and price guides.” — Charles White.
18. The Future Of Tankless — “The market share of tankless on the residential gas water heater side will
exceed 50% of the market in 10 years.
The market share of tankless on the residential electric water heater side will
exceed 10% of the market in 10 years.” — Frank Stiebel, President, Stiebel
Eltron USA.
19. Globalization’s Influence On Radiant
— “The globalization effort will be advanced through innovation in both
the radiant floor heating industry as well as the PEX plumbing industry. We
must elevate these systems and increase their value in the eyes of the North
American consumer, as well as move faster in bringing over and accepting the
technologies they are already using in other parts of the world.” — Joel Culp,
Vice President,
Offerings/Marketing, Uponor.
20. Accelerating Supply
Chain — “The
current supply chain will get shorter and more efficient as market demands
require we get product in the hands of different customers as quickly and
effortlessly as
possible.” — Joel Culp.
21. Green Unification — “It will be the green and sustainable movement
that forces manufacturers to work together and share best practices for the
benefit of all. It takes an outside force to unify competing entities. In this
case, it’s Planet Earth.” — Joel Culp.
22. Smarter Consumers — “Consumers will become more educated and
informed about which plumbing systems provide the most efficiency and quality
when specifying their new homes or remodeling existing homes.” — Joel
Culp.
23. A Sunny Future — “Solar is going to come on strong. Walking the
aisles of the AHR Expo and Builders Show, one couldn’t help but notice the
increased number of solar thermal displays over previous years. Higher energy
prices are making alternative energy projects more cost effective; and if
federal tax credits once again get signed into law the interest in solar will
be even greater.” — George Zebrowski, Plumbing Group Publisher, BNP Media
Co.
24. Global Branding — “Global branding will become critical. With Chinese
exports growing at staggering rates and the Internet simplifying international
purchases, brands will need stronger global recognition to compete. Major
Chinese brands will gain acceptance in North America, especially once
manufacturing moves here.” — Tim Fausch, Construction Division Publishing
Director, BNP Media Co.
25. Smaller Homes — “Home sizes will retreat.
Debt-ridden consumers and stressed-out lenders will shy away from
‘mini-mansion’ loans in favor of buying right-sized homes. But consumers will
continue to insist on luxury items, particularly in bathrooms and kitchens.” —
Tim Fausch.
26. The Canadian
Perspective — “The
Canadian marketplace is part of a global picture with many offshore players
and, along with the rapid growth of the big box stores, may see increased
consolidation of plumbing and heating wholesalers. Increased globalization and
international competition is causing an influx of imported, non-standardized
products into the marketplace, which will encourage stronger industry and
government collaboration — more importantly, with plumbing inspectors to ensure
that public health and safety is upheld.” — Ralph Suppa, President & General Manager, Canadian
Institute of Plumbing & Heating.
27. Technology Replacing
People — “The aging of our industry
and the shortage of skilled personnel to replace them may point the way toward
more sophisticated technologies in the future, which industry may have to use
to make up for the shortfall in personnel.” — Ralph Suppa.
28. TOTO To Move Up — “TOTO will continue to grow and expand and
become a nose-to-nose competitor to Kohler, as opposed to the distant second
spot they hold now.” — Hank Darlington, Darlington Consulting.
29. Big Boxes Get Fancy — “The big boxes will figure
out how to market higher end, luxury-type bathrooms and kitchens (products,
design and installation). They’ve stubbed their toes so far, but it’s too
big for them to ignore.” — Hank Darlington.
30. Wholesalers Go Turnkey — “Wholesalers will expand
their showroom offerings to include design and possibly even installation,
allowing for turn-key projects. They also will diversify their products to
include tile/granite, lighting fixtures, door hardware, kitchen cabinets, appliances
and more. Plumbing wholesalers also will learn ‘retail’ and become much
stronger in their marketing efforts.” — Hank Darlington.
31. PVF’s Bright Future — “The ups and downs in the home construction
cycle do not diminish the continuous demand for industrial piping products in
mandatory maintenance and repair programs. Additionally, advances in technology
and automation will stimulate upgrades. I am encouraged by the continuous
expansion of refining and petrochem projects worldwide, since U.S.
manufacturers, suppliers and engineering know-how will continue to share in a
portion of exports.” — Alvin Markus, PVF Engineering.
32. More Small Branches — “Large supply houses and others will be more
willing to open small branch outlets, bringing their products closer to the end
user. The high cost of transportation will impact the distance our customers
will be willing to travel to secure their materials. There is also an
increasing recognition of better margins and no customer delivery cost with
in-store pickup.” — Larry Fanella, May Supply Co.
33. Supplier/Customer Relationships — “They will develop in new
ways that strengthen the ties between them. This will be particularly true
for the smaller wholesaler. This is how they will work to stay ahead of
the larger supply houses.” — Larry Fanella.
34. New Faucet Materials — “The continuing escalation of brass commodity
pricing will result in the use of alternate materials in making faucets and
shower valves, beginning with hybrid constructions of brass and
high-performance resins.” — Don Arnold, INTER/SOURCE (and author of Supply
House Times’ “College of Product Knowledge” series, now
available on CD.)
35. Drip Drop — “Even more restrictive water-saving regulations
will be mandated, requiring new means of delivery from faucets and
showerheads. Examples will include ‘two-stage’ devices with ultra low-flow
default modes of operation.” — Don Arnold.
36. Go Green With Comfort — “Contractors who are savvy
marketers will do well with new niche businesses (DBAs?) that involve
‘greening’ existing heating systems, particularly older steam- and hot-water
heating systems. ‘Green’ is the hook (we’re being bombarded by it nowadays),
but energy savings with the promise of increased comfort will close the sale.”
— Dan Holohan, www.heatinghelp.com.
37. More Flushing Mandates — “Federal legislation will
mandate 1.0 gallon-per-flush water closets within five to eight years. This
will contribute significantly to a resurgence of pressure-flush technology’s
market share to over 50%. The 4-inch gravity flush valve will be introduced but
will have performance problems. PF will essentially be the only flush
activation used with one-piece WC designs.” — R.B. (“Bruce”) Martin, Intertech
Corp.
38. Bye-Bye ANSI — “Out of frustration with water closet field
performance problems and voter complaints, the federal government will
establish minimum national performance requirements — thus effectively
eliminating ANSI from that market segment. Canadian Standards Institute will
replicate the new U.S. Federal standards.” — Bruce Martin.
39. More Fixture Consolidation — “Assuming the American
Standard/Eljer/Crane (ASEC) merger is allowed by the Justice Department, domestic
fixture manufacturer consolidation will continue with Mansfield being merged
with ASEC creating AS-MEC. As a result, the North American market will be
controlled by only three fixture manufacturers — Kohler, AS-MEC, and Toto. Several foreign fixture
manufacturers will seriously enter the North American market.” — Bruce
Martin.
40. Efficiency Over Conservation — “We will see increasing
awareness of water shortage issues around the globe and, in turn, added focus
on products that use water efficiently. The members of the Plumbing
Manufacturers Institute (PMI) embrace the challenge of ‘doing more with less.’
But, reducing water use without maintaining or enhancing product performance is
no solution to problems. It is important for consumers and legislators to
recognize the important distinction between conserving water and using water
efficiently, and to include manufacturers in strategic discussions about our
natural resources. Efficiency, not conservation, is the key.” — Barbara
Higgens, Executive Director, PMI.
41. Leadership Over Management — “One of the challenges is
the erosion of the base business by the trend of home builders to edge toward
buying directly from manufacturers. If this trend continues it will have
obvious impacts on the wholesaling business. For this and other reasons,
industry consolidation at the distributor and manufacturer level will continue.
The strongest companies — those with long-term survivability — will be those
with the strongest leadership, not necessarily those with the smartest
management.” — Richard Schwartz, President and CEO, WinWholesale.
42. Private Labels — “Private label brands will
be a continuing way to compete and will expand, as will offshore sourcing.
Related to this, the influx of import products will continue to grow. For
example, importers are not just focusing on commodities, but have moved into
all aspects of the plumbing industry.” — Richard Schwartz.
43. E-Commerce &
Relationships — “As the industry and
organizations move to be more competitive, technology will be leveraged to
bring more efficiencies, such as e-commerce, to customers as well as to
distributors. Along the same line, companies will need to provide more
sophisticated Web sites to enhance retail and consumer customer experiences
with distributors. However, even as technology is used more and more, customer
relationships and relationship selling will be more important than ever.” —
Richard Schwartz.
44. The People Problem — “Experts predict a shortage of people for the
distribution industry. In managing distribution organizations day to day and
for the long term, recruiting and retaining talented people will be a key
strategy as companies learn how to hire, motivate and compensate “Millennials” —
the next generation in the workforce. Different skill sets are needed to manage
these individuals and keep them satisfied. Research indicates that most
Millennials have high expectations for a workplace where they are challenged
and paid well, that is fun and collaborative and where they can be creative.
Once new people are hired, training will be a high priority so they can be
experts to customers and provide a competitive advantage for their distribution
employers.” — Richard Schwartz.
45. Rep’s Role To Grow — “The need for strong reps
to defend brand loyalty and recognition will only grow over the coming years.
The last 5-10 years has seen the role of the rep grow well beyond that of a
local sales force, and now include the following services: educator and
trainer, specification, engineering and design, troubleshooter and field
service, marketing, business consultant, distribution and warehousing, and
professional salesman.
“The modern strong reps are expected to be familiar with each channel member
that influences the final demand and sale for their vendors’ products, from
plumbers, mechanicals, builders, developers, management companies, fabricators,
high-end showrooms, small kitchen and bath dealers, tile stores, lumberyards,
engineers, designers, marketing companies, builders, code officials and
inspectors, inside and outside salespeople, estimators, counter people,
purchasing and management personnel and on and on. Strong reps pride
themselves on being closer to their customers’ customers than their customers
are.
“Private labeling by national plumbing supply chains has been growing, as has
the trend for domestic manufacturers to diversify their offerings into new
product lines that they simply globally source and slap their label on. The
industry-leading manufacturers for those product lines will need to rely more
and more on strong reps who can defend their brand name and turf — and make
sure that brand loyalty remains in the market. No one is better suited to the
task than strong reps that live and breathe the industry and have long and
well-deserved relationships with the key market influencers.” — Scott Dellon,
Dellon & Associates.
46. Less Reliance On
Foreign Sources — “Over the last three
years, many manufacturers have shifted most or all of their production
overseas. I believe that you will see many soon regret that trend. As Chinese
goods continue to increase in price, and China and other foreign economies
continue to absorb more and more resources, commodities and finished goods, I
believe that pricing disparity will almost disappear and those American
manufacturers that keep domestic manufacturing capabilities will prosper.” —
Scott Dellon.
47. Prove Yourself Green — “It’s no secret that the building industry, like
so many others, is going green in a big way. Building professionals are
working hard to identify products and technologies that position them as
eco-friendly in the marketplace. We expect that trend to continue, and
even grow, in the next 5-10 years based on consumer demand, media scrutiny and
stricter EPA regulations. The most successful products will most likely be
those that not only deliver value from a cost and performance standpoint, but
also that can prove their eco-worthiness.
“Recent consumer backlash against companies and products that have falsely
claimed to be green, however, will undoubtedly put more pressure on
manufacturers and marketers to establish credibility by proving their eco
claims. It will no longer be enough to say that a product is good for the
environment. Rather, such environmental product claims will have to be
supported by third-party certification and/or testing.” — Judy Makowski,
FlowGuard Plumbing Systems (part of The Lubrizol Corp.)
48. Virtual Supply Houses — “Virtual supply houses will arise, providing Internet-connected customers and manufacturers logistic and
marketing fullfillment solutions. Markets will be expanded beyond today’s brick
and mortar restrictions based on information management, innovative
predictability, less reactive knee jerk relevancy with global opportunity. Many
traditional supply houses will miss this train.” — Ernie Coutermarsh, Vice
President/Industrial Sales, F.W. Webb Co.
49. More Niche Supply Houses — “I predict that consolidation in the PHCP distribution will continue;
however, we will see many new start-ups of small ‘niche’ players. The
principals of these new companies will be former employees of the nationals,
who have become disenchanted with the large corporate structure and decide to
try it on their own. With their attention to personal service, and the
help of buying groups, they have a good chance of success.” — Jeffrey New,
President, Mid-City Supply and the American Supply Association.
50. Distribution To Become Trendy — “Logistics will become more
complex than ever thanks to globalization and the increasing expense of moving
goods worldwide and within our continent. This will enhance the value of the
distribution channel and lead to distribution becoming a favorite specialty
within business schools and MBA programs. Watch for more distribution curricula
to arise in our nation’s business schools, with larger compensation and
prestige for distribution professionals.” — Jim Olsztynski, Editor, Supply House
Times.
