This story begins before our survey was even drawn up. First we sought help from several vendor marketing personnel to gain an understanding of the issues from their point of view, along with input on designing our survey questions. Our inquiries went along the lines of: "What do you expect of your wholesalers in going after commercial-institutional business, and how well do they perform?"
For the most part, manufacturers we contacted were not very complimentary about their wholesalers. "Often the wholesaler is not in this end of the business," said one manufacturer in a typical statement. "Most of the time the manufacturer's rep works with the specifier to develop the spec, and the stronger rep gets more of his brands included. The wholesaler then is forced to live with whatever it is and respond by providing a quote. They are selling, not marketing."
Another commercial product manufacturer observed that consolidation has made it more of a challenge to market through wholesalers. "We still call on the branches and talk to their people about local jobs, but a lot of purchasing decisions are being made at the corporate level, whereas in the past these decisions were up to the branch manager.
"In pursuing bid and spec jobs, most of the work is done by the manufacturer's rep," he continued. "The wholesaler selects the bid based on the prices submitted by the rep, who also works with the contractor to get the job. I don't ever recall a wholesaler doing takeoffs to produce a quote, or calling on an engineer to spec a product. This is the domain of the professional spec rep."
Generalizations are always unfair to someone. In casual conversation you hear a lot of "wholesalers don't do this ?wholesalers don't do that." But if you probe a bit, you'll find exceptions to the rule. Case in point was one vendor who was critical of wholesalers in general, but went out of his way to single out a handful of companies as having "good business practices' in the commercial-institutional (C-I) marketplace. (See box on page xx.)
Wholesalers, of course, have their own perspective - and their own gripes. The most prevalent complaint about the C-I market was tight margins. "Other wholesalers in our area refuse to make a profit. They market for 2-3% markup," said one. Another complained of a growing tendency in the market for contractors to "ask for help on either re-quoting or cheaper products to reduce the bottom line."
Another recurring complaint was manufacturers or their reps selling direct to contractors or end users for C-I projects. Hard to say whether this is a chicken or egg phenomenon - that is, are manufacturers and reps selling direct because their wholesalers aren't doing the job, or are wholesalers taking a lackadaisical approach to C-I business because they are being marginalized by their vendors and reps?
Now we'll take a look at our survey results, in which wholesalers speak for themselves. It was a fairly complex e-mail survey that ended up generating some 200 responses from PHCP wholesalers pre-qualified as serving the C-I market, or a 13% response rate. We won't claim scientific precision, but it's a big enough sampling to get a feel for what's going on out there in the trenches.
1. Which of the following volume categories does your company fall in?
Under $20 million 51.2%
$20-49 million 13.4%
$50-99 million 16.9%
$100-249 million 7.5%
$250-499 million 3.0%
$500 million + 8.-0%
The breakdown basically follows industry norms. It serves as a useful reminder that for all the consolidation that's taken place in the industry, there are still plenty of small independent wholesalers out there pursuing various industry niches. More than half the respondents to our survey do under $20 million a year in volume.
2. Approximately what percentage of your business comes from commercial-institutional (C-I) construction and/or renovation?
Less than 10% 27.3%
More than 75% 8.8%
Strictly a housekeeping question. As the chart shows, respondents were fairly evenly split among those who participate a little to a lot in this market.
3. Who generally performs material takeoffs on the C-I jobs you do?
Manufacturer reps or other vendor personnel 6.0%
My company's personnel 37.5%
Wholesaler personnel do these 37.5% of the time, compared with 59% by contractors or reps. This is an opportunity for wholesalers to provide a value-added service, and to get a leg up getting their products specified or substituted for a job.
4. Do you maintain a distinct quotations department or individual to develop C-I business?
Just about a 50/50% split here. We suspect most smaller wholesalers do not, larger ones do.
5. If yes, how many individuals spend all or most of their time developing job quotations?
1 or 2 53.2%
3 to 5 33.0%
5 to 10 10.1%
More than 10 3.7%
Here, too, we strongly suspect the breakdown parallels volume categories.
6. Do you subscribe to Dodge Reports or any similar service to gain information about upcoming projects for bidding purposes?
We're surprised to find only 44% of respondents saying yes to this question. Basically, this means more than half of the wholesalers involved in the C-I market take a passive approach to that business by relying on customers or other word-of-mouth to inform them of upcoming jobs, rather than pursuing the business on behalf of their customers.
7. Does your company have at least one salesperson calling on specifiers to persuade them to specify product brands carried by your company, or at least make sure they are accepted as "or equals"?
Yes, on a regular basis 22.0%
Yes, for certain jobs 27.0%
This can be taken as a companion to the previous question, with similar results. Slightly more than half our respondents do not call on specifiers. This is a sign of order-taking rather than marketing.
Of course, there are two sides to every story. It's often a rational decision for firms to turn their backs on low-profit business. "Typically, this is very low margin business that we do not aggressively pursue," is the explanation given by one wholesaler.
"We do not actively pursue plan-spec business, and are only bidding on request. We prefer design-build," echoed another wholesaler.
Another wholesaler heaped scorn on the "influx of cheap import products used in commercial (projects)." He also complained of "out-of-date specs" and "manufacturers reps shop prices on jobs."
8. When your bid gets accepted for a C-I project, how often do you have any programs in place to capture after-market service sales?
This question was suggested to us by a prominent commercial products marketing executive, and reveals a major shortcoming in the industry. It shows that once they supply a C-I project, the vast majority of wholesalers tend to regard it as yesterday's news. This is definitely a missed opportunity, and too bad, especially since aftermarket sales generally come with higher profit margins than bare-bones C-I bidding.
9. Does your company belong to, or participate in, activities of the American Society of Plumbing Engineers or any other group composed of plumbing specifiers?
Don't know/not sure 22.5%
Here's another query intended to separate companies pursuing C-I business in a serious way from those that dabble in it. Responses suggest that fewer than one out of five C-I wholesalers go all the way.
10. Which of the following do you consider to be your main competitor for C-I business?
Big box mass merchandisers 3.6%
Manufacturers or reps selling direct 20.1%
Other PHCP wholesalers 72.7%
This question generated some of the most spirited comments from respondents.
"One trend I am starting to see that worries me is manufacturers representatives making deals with mechanical contractors, which in turn dictates the pricing on products," said one wholesaler.
"Manufacturers selling direct are also a big factor in this market," said another.
"The largest growth in competition these past five years has been manufacturers reps selling direct to my contractor base."
Profiles in ExcellenceOne of the vendors we sought assistance from in developing this survey singled out a number of wholesalers for "good business practices" in pursuing C-I business. He asked to remain anonymous, understandably so, because wholesalers not on his list would no doubt get their noses bent out of joint.
Wholesalers singled out for excellence were:
Lawson-Yeates Supply, Salt Lake City, UT
Smardan Supply Co., Gardena, CA
Todd Pipe & Supply, Hawthorne, CA
Familian Northwest, Portland, OR
Consolidated Supply Co., Portland, OR
Keller Supply Co, Portland, OR
Moore Supply Co., Houston, TX
Davis & Warshow, Maspeth, NY
Bruce Supply, Brooklyn, NY
We chatted with a few people from these companies to get a feel for what they do right that most competitors don't.
"Inventory is the key," said Mark Bembria of Davis & Warshow. "Most commercial-institutional materials have long lead times, so it's important to make certain you have enough regular material on the shelves. Or, if the material isn't available, we'll suggest changes."
Inventory was mentioned by most of the wholesalers we spoke with. "Sometimes we go days at a time without back ordering anything," boasted Sam Benton, president of Smardan Supply. He also spoke of being aggressive in the aftermarket. "Our company can service hotels at any time of day or night," Benton said. "That's important with hotels."
Another good insight was contributed by Moore Supply's Marty Kamerbeek. He told us one of the keys to his branch's system is that all jobs are quoted by a single gentleman. "I don't know that we do much different than most supply houses," he said. "One thing I do think important is that the fewer people there are handling commercial quotations, the more control you have and the fewer things go wrong."