2007: History Repeating Itself?
A noted science fiction writer once reflected: “To try to foretell the future without studying history is like trying to learn to read without bothering to learn the alphabet.” That said, 2007 is looking a lot like 2006. Not great, but generally “good” from a business standpoint. Many of the issues that drove 2006 are expected to carry over to 2007 as critical, top-of-mind concerns among distributors.
Can the small entrepreneur survive in an era of continuing business consolidation that has marked the last decade? Will there be any surprises regarding product cost — such as the fluctuation in petroleum prices?
Certainly, tight margins will continue to be a challenge. “Green” products will continue to garner the attention of end users. Healthy environments will be a continuing customer mantra — and challenge.
Distribution experts will continue to urge the jan/san industry to think outside the box when it comes to justifying cost and defining service value.
“None of these issues are new, but all are front-of-mind in one form or another,” says Grant Watkinson, president of Coastwide Laboratories in Wilsonville, Ore. “I do not see much change in 2007, but it should be a good year. Things are good and there is not sufficient momentum to create any lasting change.”
Consolidate Or Crumble?
While 2007 is unlikely to be dramatic (barring an unforeseen event such as Hurricane Katrina), it will probably bring continued consolidation. Mergers and acquisitions have picked up pace in recent years and show no signs of slowing in the coming year.
“I get letters and phone calls monthly, sometimes more than monthly, about buying my company or merging my company,” says Jim Clayton, president of Clayton Paper & Distribution Inc., St. Joseph, Mo. “Some leaders out there are very aggressive about buying up distributors. I think that’s going to continue.”
Clayton isn’t selling his company anytime soon. There will always be room for small or medium independent distributorships, he says, because they offer flexibility and service above and beyond their larger counterparts.
Other distributors disagree. To compete in today’s global marketplace, they say, a distributor must be large enough to warehouse ample inventory, respond quickly to customer needs, utilize the latest technology, and provide products for multiple markets.
“Corporations want to do business with larger suppliers who have larger product offerings,” says Don Kellermeyer, president of Kellermeyer Co. in Bowling Green, Ohio. “I see manufacturers reducing the number of small distributors they are selling to on a direct basis because of the cost of a small customer.”
As long as customers and suppliers demand economy of scale, distributors will continue to consolidate. Dade Paper Co., Miami, has made 10 acquisitions in just six years and plans to continue its growth in 2007.
“We see growth as a must for staying healthy,” says Laura Craven, Dade’s director of marketing. “There will be more consolidation of distributors, manufacturers and even of customers. The bigger companies are getting bigger and the smaller companies are getting smaller or falling to the wayside. We’re not going to be left behind.”
Although consolidation will eliminate some sources of competition, other businesses may enhance their jan/san presence. Big box retailers and Internet-based businesses could siphon off smaller clients interested only in convenience or price and manufacturers may become competitors as more of them begin selling directly to larger, multi-unit customers. Group purchasing organizations, which have long served the heath care field, are moving into every market from nursing homes to auto dealerships.
Be An Essential Link
As the supply chain continues to grow and change, it will become more important that distributors prove their worth, particularly if they expect to earn decent margins.
“Adding more links to the supply chain adds cost so we need to show the value we are adding in the way of service, delivery, training and consulting,” Craven says. “And we need to demonstrate to the manufacturer that we are adding value for them and not just moving a box from ‘point A to point B.’”
How can distributors prove their worth to customers in 2007? One continuing trend is to use bundling.
Dade Paper recently won the business of a high-end hotel when it attended a sales call with a prepared janitor’s cart. The salesperson was able to demonstrate how each of the products worked and how they addressed the hotel’s specific needs.
“Instead of saying here’s the catalog, choose what you want, we rolled the janitor’s cart right into the hotel and it made their lives a little easier,” Craven says.
Another way distributors justify themselves to customers is by becoming advocates for green cleaning. As this trend continues to gain steam, distributors can be proactive by educating their customers, and through providing a substantial lineup of Earth-friendly products.
“Some folks believe that green is a fad and will slip away,” Watkinson says. “Nothing could be further from the truth.”
The trend is not limited to government buildings responding to legislation. In many areas, the private sector is actually leading the charge for green, which has become a marketable point for hotels, arenas and office buildings.
“We’ve seen that trend ramp up this year and we’re looking forward to a lot of new business with that next year,” Craven says.
Distributors can prepare for the green-cleaning demand of 2007 by aligning themselves with manufacturers of environmentally sound products and then conducting on- and off-site training for employees with those manufacturers.
Attention To Health
The coming year will also likely see increased interest in cleaning for health. Indoor air quality, ergonomics, cross-contamination and other safety issues continue to receive buzz thanks to news-making cleaning challenges, such as e-coli outbreaks, nosocomial infections and pandemic planning.
“The need for best practices in cleaning for health will receive a great deal more press in 2007,” Watkinson says. “Will we come to a consensus as to what the best practices should be? No, but we will begin to see and understand some of the science that will eventually drive some best practices.”
Distributors expect that the concern about healthy cleaning will boost sales in 2007 across the board, but specifically for such items as disposable uniforms, mats, disinfectants, hand sanitizers and touchless dispensing systems.
Despite the unknowns, distributors remain cautiously optimistic that the new year will be no worse than 2006 and perhaps a bit more profitable.
“Barring any economic shocks I would expect a slower economic pace in 2007, particularly for distribution,” Watkinson says. “The growth will be small, but growth it will be.”
After several years of dramatic price increases, distributors are hoping for relief in that area next year. “I think it is going to be an average price-increase year,” Clayton says.
While Kellermeyer agrees that price increases will level off in 2007, he’s quick to hedge his bets and offer a caveat. “I don’t think we’ll ever have smooth sailing in the distribution business ever,” Kellermeyer says. “There’s changes happening daily, weekly, monthly that affect how we do business, from local and federal legislation to how our customers want to do business.”
Craven says the sheer need for cleaning supplies portends a healthy future for the jan/san industry. “It seems that no matter what the economy, there is always a demand for good jan/san products and service and training,” Craven says. “Fortunately, it’s a must-have, not a want-to-have line. If we were selling luxury cars I’d be a little more nervous.”
Becky Mollenkamp is a Des-Moines-based freelance writer and a frequent contributor to SM.
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