Have buying groups done for distributors?

Nothing is more fairly distributed than common sense: no one thinks he needs more of it than he already has

Has the growth in strength and importance of the merchant buying groups dealt a fatal blow to larger distributors?

What do builders and plumber’s merchants do? They buy in stock in bulk, store it and sell it on to their customers in smaller quantities, adding a profit margin to pay for their place in the supply chain.

What do distributors do? The buy stock in bulk, store it and sell it onto plumbers and builders merchant customers in smaller quality, adding a profit margin to pay for their place in the supply chain.

Oh.

The news that Wolseley is proposing to pull the plug, not only its on bathroom kitchen and heating distribution arm BCG, but also on the 350,00sq ft. National Distribution Centre in Leamington Spa, will have come as a massive shock to lots and lots of people.  Less of a shock, probably, though still a bit of a surprise, for anyone who has been closely following the financial pages.

In September 2016, the group announced it was to shed 800 jobs and close 80 branches, plus the Worcester distribution centre, leaving it with four DCs across the country – three regional and one national. Well, presumably, the working goes that if you can operate with four DCs, you can probably do more or less as well with three, especially if they happen to be somewhere like Melmerby, Measham and Milton Keynes – based more or less along a line running down the middle of the country.

When an interim management statement reads: “Revenue growth was 3.2%, principally as a result of price inflation. Gross margins were lower in competitive markets as customers resisted supplier price rises. RMI markets remained weak. Trading profit of $21 million was 3.8% lower than last year. The transformation programme continues to be on track and we are working to increase the pace of execution to lower the cost base of the business,” as Ferguson’s did (Ferguson plc, the new name for Wolseley’s plc entity, the better to reflect its strength in the US markets) last week, you know you are in trouble.

Distributors like BCG grew up as merchants-to-smaller-merchants. In the same way that Bookers sells caseloads of beer and loo roll by the case to the corner shop who doesn’t have the clout or the delivery access to go direct to the manufacturers and get the bigger discounts, so big and others like them exist to sell on bathroom, heating and kitchen products to smaller merchants who don’t have to stock capacity or the purchasing power to deal direct. The ‘second-line’ merchants we used to call them.

However, the independent buying groups have sprung up to ensure that those smaller merchants do have the purchasing power and the buying clout to compete on a more level playing field with the larger merchants and merchant chains.

I was with a merchant the other day and the md told me that the deals that have been negotiated through their buying group (in this case it was NBG, but it is no less true of the others) allow them to hold their own and compete in the marketplace with national chains and businesses.

BCG sits in the same Wolseley stable as Plumb Center, which means that a great deal of its customers are Plumb’s direct competitors. As a member of the buying groups, BCG is effectively negotiating deals to allow its customers to compete with its own sister company.  No wonder the money men felt twitchy about it.