Wholesale Distribution: Four Key Trends Threatening Distributor Growth

By: Andrew Horvath Distribution, Sales Growth

150 MDA3NS0wOEpVTkUuanBnFor years, the sales growth playbook for wholesale distributors was relatively simple: build a large infrastructure to quickly deliver a wide selection of products to end customers, master lean operations, and provide service and issue resolution. However, recent macroeconomic, industry and technological shifts have disrupted this tried-and-true model.

Alexander Group has identified four trends across all distribution markets that potentially threaten distributor growth. To reverse these trends and reinvigorate sales growth, savvy distributors need to reevaluate and preemptively adjust their go-to-customer models.

Four Key Threats to Distributor Growth

  1. The ‘D’ Word, Redefined: The threat of disintermediation (removing intermediaries from the supply chain) has existed for years. Distributors fought off disintermediation by excelling in parts of the sales process that were too costly or operationally demanding for suppliers to handle. However, with margins under pressure, many suppliers have begun investing in the people, processes and tools to move to a direct sales model for all customer types. While full disintermediation remains a real threat, the growing risk is partial disintermediation. Smart suppliers target specific customer segments (read: the most profitable segments) and sales process steps to handle in house and abdicate lower-value customers and steps to partners. Partial disintermediation can quickly force distributors into a role of fulfillment to a low potential slice of the market and severely limit growth.
  2. Omni-channel Moves Beyond Retail: Major retailers have contended with the move toward an omni-channel or multi-channel model with mixed results. Successful retailers have met demands from customers who want to shop in a variety of ways: by strategically placing brick and mortar locations, investing in interactive websites, developing mobile apps, and maintaining phone sales capabilities to offer the customer the ability to shop wherever and whenever they please. Demand for an omni-channel model is quickly moving into the B2B world for the same reasons (speed, ease, convenience) that caused it to spread in retail. Distributors can no longer rely on the legacy sales model based on territory reps and storefronts – they must adapt channel coverage models to include inside sales, web-based self-service, and apps that feature secure virtual storefronts. Leaders will figure out ways to cover customer segments with the right blend of people and tools, thus optimizing cost to serve and strengthening relationships with buyers.
  3. Failing to Differentiate by Demonstrating Unique Value: Value propositions in the wholesale distribution world used to be simple: price, variety and availability were enough to win the day. Distributors focused on operational excellence to drive these differentiators and maximize volume in businesses with thin margins. However, operational improvements have a natural plateau and former levers for differentiation have become table stakes. Leading distributors have begun to crack the code on creating value propositions – the messages that marketing, sales and service articulate to suppliers and partners to demonstrate a particular value. Value propositions are built upon voice-of-the-customer research and a revenue segmentation model that identifies the most critical needs (e.g., risk mitigation, large project experience, vertical expertise) for each segment. Enabling customer-facing resources to deliver the right messages at the right time demonstrates knowledge of the needs of both suppliers and customers and helps cement the place of the distributor in the value chain.
  4. Not Investing in the Right Places: Since the recession, distributor sales organizations have learned to squeeze maximum productivity out of existing people and infrastructure. As measured growth continues, organizations must determine where to invest to grow existing markets and expand into new ones. Revenue leaders with limited resources often have to choose between hiring more sales or support resources, building additional branches, adding productivity tools, or increasing pay to attract a higher level of talent. The right answer is rarely moving “student body left” to any one of these areas, but rather understanding supplier and customer needs to be able to adjust levers in a measured way that maximizes ROI. Understanding growth opportunities at the most granular level can help organizations structure investments to create world-class sales organizations.

The New Plan for Growth

The role of distributors is changing at an increasing rate. The trends mentioned above, while not all new to the industry, are coalescing to create an uncertain path to growth. Organizations that can build on existing strengths and create optimized go-to-customer models will have a distinct advantage to define the role of the distributor and control their own fates. Those who wait and pursue “business as usual” as a plan may find themselves relegated to ever-shrinking pockets of opportunity by smart suppliers, nimble competitors and demanding customers.

Read other parts in this blog series: Part 2, Part 3, Part 4, Part 5.

To learn more about our point of view and experience solving revenue growth challenges for clients, please visit Alexander Group’s Distribution practice.

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Andrew Horvath

Andrew Horvath is a principal in the Chicago office. He co-leads the Distribution practice, monitoring trends and creating strategies to help growth-focused organizations stay on top of a rapidly changing market. He also supports the firm’s Private Equity practice, working with portfolio companies of growth-focused private equity firms to grow revenue organically. Andrew applies his expertise in customer segmentation and go-to-customer coverage to help clients optimize complex sales models. He also works with Fortune 500 companies across other industries, including manufacturing and high tech.

Prior to joining the Alexander Group, Andrew was a consultant at Stax, Inc., where he managed market due diligence, competitive intelligence, go-to-market strategy, new product testing and marketing strategy engagements for corporate and private equity clients. He designed and executed voice-of-the-customer studies for clients in multiple industries and across several geographies. Andrew has also worked in commercial banking as an internal strategy consultant.

Andrew has an MBA from The University of Chicago Booth School of Business and a B.A. in economics from the College of the Holy Cross.