More Competition Coming

Recently we were conducting some research on non-traditional competitors and unearthed some information that could represent opportunity (through insights) from a couple of companies:

Grainger

• While many have heard the news of Grainger closing 25 locations and inquisitive minds have only been able to identify 1 location (Redding, CA) – and there are 5 closing in California – we’ve learned that most, if not all, of these locations are either old, in close proximity to another Grainger location, there are multiple in the same marketplace or are in areas where the customer base has left the marketplace (i.e. manufacturing was moved).
• Grainger is distribution’s marketing maven. They are using radio advertising extensively focusing on ESPN, sporting events, country western music and rural areas. Seems like they’ve done a pretty good job of profiling their customer base. We’ve also seen Grainger billboards!
• Grainger has launched at least 16 print and online catalogs targeted at market niches such as ranching, paper, farming, wine producing, etc. While most full-line electrical distributors may not look at this as competition, Grainger looks at what the total customer spend could be. If they only sell a little electrical, that is a little less for the traditional distributor who is not tailoring their message to customer segments.
• A recent radio ad focused on how Grainger can help companies of all sizes manage their supply storerooms. They are emphasizing the value-addeds they provide. None of their ads mention manufacturers.
• We’ve also heard that they’ll offer discounts to various groups, with minority-owned businesses also being a targeted market.

Fastenal

• Reportedly Fastenal is looking to expand its business into complementary product categories. They “feel” that they have the fastener business in a facility, why not pursue the electrical, or HVAC, or tool, etc business within a customer. They are seeking “share of overall spend.” Don’t be surprised if they become an acquirer of companies that have high-turn products that can easily be taken nationally.

WESCO

While they are not an “outsider”, WESCO recently announced that they have acquired RS Electronics, a $60 million electronics and electrical distributor in Michigan.  This is a diversification move. RS focuses on serving  companies in the industrial, medical equipment, automotive and contract manufacturing markets.  The company has a commerce-enabled website that could provide WESCO with other opportunities to expand in niche environments … possibly replicating come of Grainger’s concepts but more focused on electrical and electronics.

This leads to some questions:

• With an increased level of acquisitions coming, could more “outsiders” come in? Other distributors (Motion, Kaman, AIT, Ferguson, Anixter, etc) or could private equity return?
• How should manufacturers handle these supply chain-oriented companies vs supporting traditional full-line electrical distributors?
• Should manufacturers consider them as transactionally-oriented distributors and let them have access to their products or should they insist on distributors providing more than delivery services?

And maybe the biggest questions are:

• What do customers want?
• Where do customers want to buy from?
• Are you thinking the proverbial “outside the box” on how to market and grow your business?