I recently had the pleasure of giving a talk to the Luxury Products Group at the buying group’s annual meeting in Scottsdale, Ariz.
LPG is an affiliate of Omni, a large buying group for plumbing/HVAC wholesalers. What makes LPG unique is that the group is for showroom businesses. After spending two days with the almost 300 people in attendance I started to wonder if belonging to a decorative plumbing and hardware buying group would be a good thing for many of you showroom operators. I concluded the answer to that is yes!
Buying groups, also known as group purchasing organizations, have been around for almost 100 years. Many different industries have them. Suburban Dallas-based WIT and Co.was the first buying group developed for our industry and was started in 1975.
The concept of a buying group is pretty simple. Small- to medium-sized independently owned and operated businesses can combine their purchasing power to negotiate better discounts that traditionally are available to major enterprises. It is no secret companies such as Ferguson, Hajoca, WinWholesale, Home Depot and Lowes are able to leverage their size to negotiate better deals than their smaller competitors can. Buying groups are designed to help level the playing field.
By participating in a buying group, businesses theoretically can save on purchasing costs by “outsourcing” their purchasing capabilities to a buying group.
Group purchasing organizations bring advantages to both buyers and vendors. Vendors generally prefer to do business with large companies, but at the same time recognize the value of reaching a large number of smaller customers through one cohesive network. Vendors are willing to extend discounts and additional service levels to the buying group to gain access to the larger network of buyers. This allows vendors to reduce their sales cycle and have a good forward view into demand, thus greatly impacting successful production and supply-chain management.
As a whole, buying groups benefit the smaller owner/operators more than the larger firms. Larger firms traditionally have sophisticated purchasing departments and greater buying power, and therefore have the ability to negotiate very good arrangements on their own with the vendors of their choice. Additionally, since buying groups are structured to give all members (large and small) a common price, larger owner/operators are offered the same pricing as smaller companies, thus negating the normal competitive advantages larger entities have in a free market.
The buying group management negotiates discounts, terms, promotions and services for its member companies. Then, based on the dollar amount of each member’s purchases, a quarterly or annual rebate is paid to that member company. The more they purchase, the larger the rebate.
Adding up the pluses
Some of the main benefits of belonging to a buying group would be:
· Improve the bottom line;
· Increase cash flow;
· Gain exclusive member-only access to vendor buying specials;
· Access to additional buying services;
· Networking opportunities;
· Help independents compete with the national chains;
· Help manufacturers build their brands;
· Data collection and reporting;
· Rebate negotiations and administration;
· Negotiations on terms, conditions and services;
· Market planning support;
· Product training support; and
· Product promotion support.
That is a pretty broad and general description of what buying groups do and what the advantages of being a member might be.
I believe a majority of plumbing/HVAC wholesalers in America do belong to one of the following industry buying groups: WIT, Omni, Embassy, Distributors, Equity and Forte (More on Forte a little later).
The size of these buying groups varies, but the principles described above are all very similar. Traditionally, the above referenced buying groups have concentrated on the wholesale side of the business.
Omni represents some 240 wholesalers with 400 locations and 130 plumbing/HVAC vendors. This group was started in 1980. LPG started five years ago and has grown to 108 wholesale and independently owned showroom members representing 244 locations and 55 vendors of decorative plumbing and hardware products. The fact this group was started and has grown to these numbers during our recent “big recession” is a true tribute to the folks who run the organization.
LPG’s recent meeting attracted almost 300 attendees of which 180 were from the showroom side and 110 represented vendors. The conference kicked off by doing a tour of the Phoenix Central Arizona Supply showroom (aka The Studio). This was a 9,000-sq.-ft. beautifully built-out and appointed facility showing and selling decorative plumbing and hardware products, plus a nice selection of lighting and even some higher-end appliances. The showroom gave me the feeling of being in an art gallery. It was not the typical plumbing wholesaler showroom. A nice selection of beverages and appetizers were served and it was a perfect environment for networking.
The main thrust of the LPG conference was showroom members touring the many vendor booths and talking with the principals of the manufacturers. There were specific times for scheduled meetings as well as open times to move around and visit the various vendors. Combine this with a very well-done New Orleans theme party/reception and the opportunity for more, great networking with showroom peers and vendors alike and you have a terrific format for developing and enhancing relationships. I was impressed!
In addition the LPG buying group, which is primarily made up of members of Omni that also operate showrooms, there is the Forte buying group which is almost exclusively comprised of independently (non-wholesale) owned showrooms.
Forte was started in 2002 and comprises many members of the Decorative Plumbing and Hardware Association. Forte was started with the same purpose and mission of all the other buying groups; that is for the group to negotiate discounts, terms, services and more to help smaller businesses compete with the “big boys.”
Forte currently has 92 showroom company members representing some 250 locations. It also has 68 vendors of decorative plumbing and hardware products. Having been very involved with DPHA and knowing what I do about Forte and LPG I can tell you that I would be a member of one or the other if I still owned my business.
Forte offers a similar format to LPG at its annual conferences. There are vendor booths and opportunities to either casually meet with the various manufacturers or to have set appointment times. In addition to this, peer-to-peer roundtable discussions (8-12 noncompeting companies per table) on various topics are held with reports on the discussions being shared with all.
Forte has come out with its own private label faucet line (available to members only) and is looking to expand this to include a full complement of bathroom fixtures and products. Plus, it is inviting lighting fixture vendors to become members and is encouraging its members to include lighting in their merchandising mix.
Forte also is planning to offer a selling skills training program for showroom sales consultants. I think you know how passionate I am about this subject and I commend them for this very important action.
I know many of the folks in both Forte and LPG and they are very pleased with the monetary return on investment they receive from being members of these fine organizations. They share with me that they believe the networking opportunities are almost as important as the rebates they receive.
If your company does not belong to one of these DPH buying groups I would strongly encourage you to Google them, contact them, learn more and if it makes good business sense, join them!