A couple of months ago,Supply House Timesinvited 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.
Predictions Not To Be Taken Too SeriouslyThe following came from the mischievous pen of product design maven Don Arnold.
- California’s Proposition 1065 will ban the use of water
containing hydrogen or oxygen.
- After fully saturating the home improvement channel, plumbing
manufacturers will reach a distribution agreement with Starbucks.
- China will be troubled by reports of plumbing product manufacturing
being outsourced to the U.S.
- The U.S. Treasury will abandon the gold standard in favor of more
- A new bankruptcy protection for plumbing wholesalers will be
introduced, dubbed Chapter 16 (Chapter 11 with an extra five).
- Finally, the wackiest forecast of all - The Chicago Cubs will win the World Series in 2008.