Distributor Consolidation And Where Buying Groups Fit In

Zachary T. Haines
CEO
DPA Buying Group

Kim Allison-Foster
President
National Independent Sanitary Supply Companies (NISSCO), LLC

Ty Huffer
President
The United Group

Kevin Chow
Vice President Of Member Development
Triple S

In a 2017 roundtable, buying group experts predicted consolidation among distributors and suppliers, more large-regional and national distributors, an increase in online purchases, more vendors selling direct to end users, and an increased Amazon threat. Could you comment on these predictions and share where you think the jan/san industry will be in five years?

Chow – Consolidation is a reality that has not gone away. As we all know, Imperial Dade has acquired a number of companies over the last couple of years and FEMSA’s purchase of both Waxie Sanitary Supply and the North American Corporation is the latest example of activity that has changed the landscape of the industry. National corporations are also accelerating their involvement in the industry with Amazon, Staples, Grainger and others leading the way. Yet, there are still 2,500 to 3,000 independent distributors and roughly half of them have $5 million or less in annual sales. The key for them is to leverage their expertise, improve their e-commerce capability, and respond to the resurgence of end users needing product knowledge, flexibility, training, and other value added services that only a true “jan/san” distributor can truly provide.
It is clear that consolidation will continue and the national corporations will accelerate their efforts to penetrate the market. Yet, the opportunity will continue to exist for independent distributors to provide true consultative services and help customers improve business outcomes. Ultimately, independent distributors need to re-establish their capabilities and demonstrate the value they provide.

Allison-Foster – I believe we will see these trends continue.

Haines – I think we were spot on with our 2017 predictions. In five years, I believe there will be even more consolidation. I also predict that the Chinese manufacturers will become more aggressive in trying to set up operations in the U.S. for certain product categories. They’ll also try to cut out the importer, or what I will refer to as the "branded wholesaler," and start selling to customers on their own.
I believe that redistribution will become more important as manufacturers raise buying minimums to implement cost saving measures by no longer having to service their smaller distributors.
I also think we will begin to see a transformation of the "sales team." As a result of e-commerce and business-to-business taking on a business-to-consumer feel, there will be fewer, but more specialized and value-oriented salespeople in the marketplace. These sellers will be focused on business solutions as opposed to pushing product catalogs. They will be consultative sellers.

Huffer – I believe the consolidation will only continue as we now have seen it on our side with recent mergers of Network and SMA. A recent poll showed 30 percent of a distributors sales territory was regional, meaning it covered more than one state, and 21 percent of all orders were placed online. I believe that those numbers will only continue to grow in the upcoming years. That’s why it’s imperative our members invest in the future of their company with technology, personnel and so forth, if they want to survive.

Is the increase in activity of mergers and acquisitions affecting your membership levels?

Haines – It is not affecting our membership numbers, but the mergers and acquisitions can definitely be tough to keep track of on the manufacturer side of things. Many of our suppliers who merge or get acquired change their names and have a turnover of personnel. We might be working with one vendor one day, and what feels like a whole new company the next day. Distributors like consistency in their business dealings.

Chow – Of course, but the impact goes both ways. While some members have been acquired, others have merged with similar companies or been the entity doing the purchasing. Overall, the impact has been either neutral or slightly positive for Triple S as an organization.

Huffer – Yes, which is why it is imperative that those aging owners have a succession plan in place. A strong plan will assist the next generation as they continue to compete if not thrive in the future.

Do you help your members identify acquisition opportunities? What about those looking for exit strategies?

Chow – Triple S is positioned to help its members who are looking for acquisition opportunities, as well as those who are looking to exit the industry. We see it as our goal and responsibility to assist them regardless of what their plans are in terms of business growth, continuation or exit.  To the latter point, we work closely with members to develop a sensible succession plan that helps define their future. 
For example, we recently introduced an Executive Development Program which works with individuals who recently took ownership of the company or are preparing to do so in the future.  And this includes 2nd, 3rd and even 4th generation owners who will be taking over the family business.  The program seeks to help them develop their strategic plans and teaches the necessary financial skills, among other things.  It has proven immensely popular.

Haines – Yes, if any of our distributors want to sell or acquire another distributor, we ask three questions: Where? What industry? What size? We pair folks together and let them do the negotiating.
The reason we ask what industry is because DPA has distributors in multiple industries – Jan/San, Safety, Packaging, and Industrial Products.