Ferguson estimates market share at less than 10%, leaving plenty of room to grow.

Ferguson President and CEO John Stegeman.

It was June 2005 when Supply House Times published my interview with Chip Hornsby in which we discussed Ferguson’s strategic outlook. Now two years later, we revisited that topic and others with his successor, John Stegeman.

Q: Who does Ferguson view as its main competitors?
John Stegeman: While large regional and national competitors garner the most attention, our strongest competitors typically are the smaller localized competitors that stay very close to their customers. 

Q: Please share your assessment of the strength of the wholesale channel as opposed to home builder and retail channels.
Stegeman: We believe the wholesale distribution channel today is very strong. Since the channel is highly fragmented, market share for even the largest distributors is relatively small. We believe we will continue to see substantial consolidation and even the newest channels - like e-commerce - will continue to evolve and create additional competition.
Regardless of scale and size, wholesale distributors must continue to focus on providing logistical and process convenience for their customers and must invest in people and technology to remain relevant.

Q: In a nutshell, what is Ferguson’s long-term strategy? How big will it grow?
Stegeman: Our strategy over the terms of David Peebles, Charlie Banks, Chip Hornsby and now myself has remained pretty consistent. Today, our core strategies are profitable double-digit annual growth, investing in talented associates and developing their skills, capital and process efficiency, and driving customer loyalty. Our consistent investment in these areas has allowed us to grow extensively and has allowed for a diversified business model.
As competitive pressure builds, it is critical for us to invest in our future and understand the dynamics of relationships between our associates, our vendors, our customers and our shareholders.
Today, Ferguson’s focus is within four business groups:  Residential plumbing and builder sales; HVAC; Waterworks; and Commercial/industrial. Each one of these business groups is managed strategically by an executive owner responsible for profitable growth. We leverage best practices between the groups, allowing synergies to create efficiency.
With the exception of our Waterworks group, our market share is estimated to be less than 10%. There is significant opportunity to grow well into the future without a need for further diversification.

Q: Ferguson has been very active on the acquisition front lately. Will that continue indefinitely, or will there be a slowdown in the near term?
Stegeman: Acquisitions have historically represented 50% of our annual growth. Today we seek profitable, well-managed companies that fit into our core businesses and have capabilities for sustained growth. Acquisitions will continue to be a significant component of our annual growth. We have a great track record of keeping associates once acquisitions are completed, and most importantly, providing these associates with growth opportunities for their benefit and the benefit of our corporation.

Q: What does Ferguson see as the biggest challenge facing PHCP distributors today?
Stegeman: There are many challenges today, regardless of whether your business is large or small. The most obvious to Ferguson is the continued competition for future talent.  This will only get worse as family size dictates a smaller future workforce. 
Our customer base is also more diverse, and as an employer, we must diversify to speak multiple languages and provide more flexible working conditions. 
We all are challenged to understand how globalization impacts the labor force and procurement. Consolidation continues at a rapid rate - and channels that impact our customers may change strategies in the future.
Distributors that do not respond quickly or invest in their future face the challenge of becoming irrelevant, particularly with an IT world that evolves much quicker today.  Change is critical to future success.

Q: When I interviewed Chip Hornsby about Ferguson’s strategic outlook in 2005, one thing that came up was the word “synergy,” which referred to leveraging the strengths of Ferguson, Stock and Wolseley Canada. From your perspective at Ferguson, does that still apply today, or has the focus or strategy evolved into something else since then?
Stegeman: Chip Hornsby is now responsible for all of Wolseley, with operations in 28 countries, and Frank Roach is CEO of Wolseley’s North American Division, representing about 40,000 associates. Frank’s focus is on looking for synergistic opportunities. He is working to eliminate redundancies and provide capital efficiencies for the three North American companies. At Ferguson we are trying to understand how we can interact more closely with Wolseley Canada and Stock. We have very successful pilot programs in place and are continually looking for opportunities to better meet the needs of our customers.

Q: How are partnership opportunities between Ferguson and Stock working out? Are more planned?
Stegeman: We have pilot locations to better understand customer dynamics and how our companies can better serve our customers. We are focused on capital efficiencies that provide a significant opportunity for cost savings. It is important for our operating companies to better understand the service and relationships provided between professional contractors and the builder.

Q: In 2005 Wolseley’s goal was for its companies to double in size every five to seven years. Is that still a goal today?
Stegeman: Wolseley continues to focus on doubling revenues every five to seven years.     

Q: What do you hope to accomplish as president/CEO at Ferguson?
Stegeman: Having grown up in Ferguson for the last 22 years, there is a great legacy to build from. I have learned a lot from other leaders and am focused on leading Ferguson from being good to being great. Our goal is to be the employer of choice serving industry professionals in a superior manner - giving customers no reason to shop elsewhere. 

Q: What do you see as some of the biggest challenges you will face going forward?
Stegeman: Whether large or small, challenges include: investing in talent and training, technology investment, cash management, diversity and demographics, consolidation and associated supply chain relevance. We always have to think about fine-tuning strategy to remain relevant in the supply chain.

Q: Is Ferguson still offering its ProFlo private label? Can you provide an update on how that is doing?
Stegeman: Our relationships with branded manufacturers continue to be a critical aspect of our success. ProFlo or other private-label sourcing and marketing opportunities, although a very small aspect of our total business today, will be an important aspect of our future.

Q: How are the destination showrooms working out? Are they meeting expectations? What have you learned about operating showrooms since introducing this concept?
Stegeman: Ferguson opened 18 new destination showrooms in the first six months of our fiscal year. These showrooms, which focus on marketing appliances, lighting and plumbing fixtures, provide more of a bundle of product to our customers. We are pleased with the progress of these locations and the associated investment in our future.

Q: Will there always be business opportunities for independent wholesalers at the local and regional levels or will they someday be almost completely phased out of existence?
Stegeman: We believe there is a direct correlation between investment in your business and long-term success. Because the forces of change continue to challenge us, distributors must understand their value proposition and not try to be all things to multiple consumer groups. We believe we will be winners as long as our focus and associated service is easy for our associates, customers and vendors to understand.