The supply house business is more complicated than ever. Social media, the next generation of employees, and new technology that either helps or hinders communication present challenges to owners and managers.
For the third consecutive year, Supply House Times and American Supply Association brought together a panel of leading distributors at ASA’s annual convention to discuss these and other industry issues. We should note upfront that the discussion took place before the national election and Hurricane Sandy. The group that gathered Oct. 17 in Orlando, Fla., consisted of:
- Dottie Ramsey, Modern Supply, Knoxville, Tenn.;
- Barry Portnoy, Aaron & Co., Piscataway, N.J.;
- Steve Cook, Northeastern Supply, Baltimore;
- Chris Fasano, TORRCO: (the new trade name of Torrington Supply), Waterbury, Conn.;
- Jay Hults, Progressive Plumbing Supply, Warren, Mich.;
- Ryan Tracy, Dakota Supply Group, Aberdeen, S.D.
The topics discussed ranged from the panelists’ views of the 2013 economy to the much more personal question of what keeps them awake at night. As we did a year ago, we’ll run this article as a two-part series, this month and in the February issue of Supply House Times.
Topic: In a confidence survey ASA conducted in late 2012, 73% of distributors said the economy in 2013 will be flat or in recession. Do you agree? What business decisions will you make to navigate that kind of economy?
Distributors addressed this topic based on their region. If their business is located in the Southeast, Northeast or the Middle Atlantic states, they are still struggling with the economy. The two distributors in the upper Midwest enjoyed a good 2012 and see another prosperous year in 2013.
“I don’t agree with the survey just because of the markets we’re in,” Tracy said. “We don’t get the big peaks and valleys; we have more of a steady flow of business. Obviously, being in North Dakota, South Dakota, Minnesota, Wisconsin and Montana, we have some oilfield-related opportunities happening, too. People are going there looking for jobs, but I have a lot of competitors there as well.”
Hults added: “The metropolitan Detroit area was in the toilet before the rest of the economy, and we’ve come out a lot faster. In our case, there was pent-up demand for automobiles and our auto industry has gone well. We’ve had a lot of commercial construction both public and private. Probably 80% of our business is commercial, so I’m looking forward to another good year.”
For the most part, other distributors on the panel still are facing economic conditions that are more recession than recovery. Northeastern Supply is seeing both sides of the coin with government-funded growth in the D.C. area and spotty business in its other markets, Cook said. All the panelists said they’re making business decisions to improve sales, profits or both.
“We are focusing a lot on making sure that we do business with the right customers in our market,” Fasano said. “That spans credit, cost-to-serve, how many product lines the customer buys and margin, among other factors. Customer selection is a big thing.”
So is product selection. Aaron & Co. is changing its HVAC line. It also had just signed a letter of intent to acquire another company. Portnoy said he had talked to his people about the importance of strong leadership when making these kinds of changes.
“All year we’ve been talking about being aggressive,” he said. “I didn’t want to interpret aggressiveness, as some of our competitors are, as selling cheaply. That’s not aggressiveness to me. As services expand and we take risks on new lines, that’s what I consider being aggressive, and we’re doing that.”
Ramsey says she is getting more personally involved at Modern Supply in decisions on hiring, inventory, credit and investments in new products.
“I used to rely on managers and individuals for these things, but now I’m sticking my nose into everything,” she said.
Topic: In the same survey, 60% said their sales will be up from 1% to 10% in 2013. If the economy is flat or in recession, where will distributors find those sales?
Some of the growth will come at the expense of other supply houses that will lose sales or drop out of the market, the panelists agreed. Diversification, and perhaps the effects of consolidation, will provide other avenues to rising sales this year.
“We’re going to experience some growth because of others’ misfortune. That’s what we see,” Portnoy said. “It will be increasingly difficult for smaller businesses to sustain themselves because of the increasing intrusion of government and the erosion of their capital from the sustained downturn in the economy. So, a lot of our growth will be market-share driven. It won’t necessarily be the market overall.”
Hults added: “That’s going to be the case for everyone. We’re all going to be taking business from someone else.”
Tracy said he sees opportunities not only in taking market share from less capitalized competitors but also from those that had been acquired through consolidation.
“When these companies come together with ours, they’re usually not as diversified as we are,” he said. “That offers some opportunities for us to expand and provide leadership there.”
Dakota Supply Group expects further growth through its diversification efforts that have been driven by the sparse population in its markets, Tracy said.
“You guys have more population in a block than we’ve got in our whole state,” he told the other panelists. “We have 770,000 people in South Dakota, so we have to be diversified. We got into the waterworks division, doing underground piping and hydrants, and we have an electrical division. Meter reading has been huge with government funding.”
Modern Supply is reaching beyond its traditional customer base, too.
“New construction is down in our area,” Ramsey said. “So we’re getting more into retail and remodeling. We’re going after the consumer because the consumer is the one with the money right now.”
Topic: What one new concept, strategy or technology have you added over the last 12 months that has helped your company?
Wholesalers on the panel said marketing and training have helped them the most. In a few cases, the marketing comes with a heavy dose of social media as supply houses incorporate these new platforms into their business plans.
“We hired a full-time marketing manager,” Ramsey said. “She does our website blog, our billboards and lots of promotions. If you’re not doing all that, consumers are not interested and they’re out the door. She handles our social media as well. We value her as much as if we had an HR director.”
TORRCO has found tremendous value in its full-time marketing person.
“The value is twofold: The marketing person not only touches our customer, the plumbing-heating contractor, but also serves as an interface with our vendors,” Fasano said. “One reason we started with a marketing person is we thought it would be a way we could help contractors market their own businesses.”
Dakota Supply Group’s marketing person gets involved in social media. The company added a full-time training director within the last two years.
“We feel like having a training director in a company with several divisions is a big benefit to our staff and makes us of more value to the contractors,” Tracy said.
Aaron & Co. added an experienced training director to emphasize its efforts in that area, Portnoy said. The company is on Facebook and Twitter.
Northeastern Supply is taking a back-to-basics strategy to capture business, Cook said.
“We went back to the core things we do as a distributor, and that’s provide product,” he explained. “We’ve invested heavily in demand forecasting software, and we’ve targeted fill rates. We really have heavied up on inventory because all our competitors have gone the other way. They’re watching their dollars so closely that their fill rates are suffering.”
Topic: How do you balance the wireless age of iPads, iPhones and texting with face-to-face interaction? Can this new technology be harmful to your business?
The panelists agreed that communications technology can bring wonderful benefits to their companies. It should not, however, replace face-to-face – or ear-to-ear – communication.
“The first thing I encourage people to do is to pick up the phone, whether it is with a vendor or a customer,” Fasano said. “We are constantly suggesting to people that the best way to solve a problem is just to talk. There needs to be a balance between the electronic age and the old-school way of just talking with one another.”
“Those who can talk and communicate will rule the world,” Portnoy observed.
Cook added: “There are some things that technology does better than the old-fashioned pick-up-the-phone way, but there are certain things that just don’t work. I have to be careful because I have a 21-year-old son. I can call him six times and he won’t pick up. But I can text him and he’s right back to me.”
Another consequence of new communications technology, Cook noted, is that it has extended the workday and the expectations of his customer. “If he emails me tonight at 10 o’clock, he’s expecting an answer at 10:05, not tomorrow,” he said.
Fasano responded: “Unfortunately, that’s the ante into the game because the fear is that if I don’t respond at 10 o’clock at night but my competitor does, the internal message to the contractor is that I don’t care as much as the other guy. And that’s not necessarily good for TORRCO.”
Given the earlier conversation about selecting the right customers to work with, Portnoy asked Fasano whether he really wants that customer.
“This year, yes,” he replied. “I answer the phone at all hours.”
Portnoy agreed: “We are hungry for any sale that we can get paid for! We just initiated 24/7 availability of commercial water heaters, and our sales folks take late-night calls also.”
Topic: What are the biggest business issues that cause you to lose sleep at night?
The responsibility of making sound business decisions in an increasingly complex world surfaced as a common theme.
“I don’t know if anything keeps me awake at night except that we are a small company and we have people who rely on me to make good decisions. Employees, customers, vendors,” Hults said. “That probably makes me think more than anything else.”
Fasano added: “In every decision, you have to worry about the impact of your decision with customers, employees and vendors; it is just incredibly complicated. You wake up in the middle of the night saying to yourself, ‘I didn’t think of that one!’ Or, ‘There’s one customer I know that’s not going to like this, and how do I deal with this?’”
Defining Dakota Supply Group’s plumbing division’s value proposition and differentiating his plumbing division from competitors keeps Tracy awake at night.
“I want our guys to make as much money as they can, and I feel I can give them that leadership,” he said. “I think about that all the time. I’m waking up in the middle of the night to write down ideas and to read those sales articles in Supply House Times.”
When Ramsey said it can be scary to make big decisions and possibly make the wrong one, Portnoy had a quick response.
“If it was easy, anybody could do it,” he said. “I think it’s good that it’s scary.”
Cook joined in: “I’m ready for it not to be scary. I lay awake at night thinking about our people and our team. I often think of their families as well. It’s not just the couple hundred employees but each of them has a family. It’s a big weight.”
Next month, panelists will identify what issues need to be fixed in Washington after the election, the pros and cons of consolidation and how to attract the next generation to the distribution industry.