Over the past five years, Graybar Electric has added 45 locations, 2,500 employees and 350 salespeople. Company president Carl Hall plans to grow even faster in the near future.
When EW recently had the opportunity to sit down with several top Graybar execs at the company's St. Louis headquarters to get a sneak preview of some of the growth plans that they will use to carry Graybar into the next millennium, we jumped at the chance.
EW last did a feature article on Graybar Electric in June 1995 ("A New Era Unfolds," page 35). At that time, Ed McGrath, then president, and Tommy Thompson, then senior vice president of marketing and sales, were retiring, and Carl Hall, a 35-year company veteran was moving into the top spot.
Today, Hall (center in above photo), Richard Haney (left), senior vice president of the company's electrical business and a 37-year company veteran, and Robert Reynolds (right), senior vice president of the company's comm/data business and a 27-year-company veteran are guiding the company with some aggressive growth strategies. During their tenure, Graybar has grown at an annual compounded rate of over 12%, and they have driven the company to 1998 sales of $3.74 billion (a 12.2% increase over 1997). Over the next five years, they plan to grow the company even faster with a mix of internal growth and acquisitions.
While historically Graybar execs have preferred to keep a low profile, few industry observers would disagree that the company is very much on the minds of its competitors because of its buying power and its success in areas such as merchandising, electronic commerce and integrated supply. As you will see in the following Q&A, Graybar's top execs see all that the company has accomplished with these and other strategies as a foundation for its future. Chuck Udell, the company's vice president-electrical marketing, also joined the conversation.
EW: How big a part have acquisitions played in Graybar's growth and what role will they play in its future?
Carl Hall: We are definitely interested in strategic acquisitions. We are not interested in acquisitions just to build revenue. We've made a couple of small acquisitions recently--an All-Phase Electric Supply branch in Eugene, Oregon, and Monroe Contractors Electrical Supply in Monroe, N.C.
EW: What was it about Monroe Electric that interested you?
Richard Haney: We had been covering the Monroe territory out of our Charlotte branch and had planned to open a location in Monroe. Monroe Electric had good people with a good customer following in that market.
EW: What role has internal growth played for the company?
Carl Hall: For the last five-to-six years, our focus has been to grow more aggressively in existing markets. This is a very fragmented industry, and our market share isn't that outstanding in any single geographic territory. So we have looked at areas where we have the opportunity for growth and we have invested considerable resources to grow in those areas.
It has been paying off. Over the last five years, we have had compounded growth in excess of 12%. I don't know that any other company in the industry is growing at that pace internally. During that time, we have added about 2,500 employees, including over 350 sales representatives, and are getting very close to 8,000 employees. That was by design. We recognized that the industry is consolidating and that we needed to grow at an accelerated pace. Obviously, there are benefits to growing internally without the assimilation problems associated with acquisitions.
"That doesn't mean we are anti-acquisition. When your market share isn't all that strong in a major metropolitan market, you put in the resources to gain your share. That's what we have done.
EW: Could you tell us more about the distribution centers you are opening up?
Carl Hall: We are putting together a logistics program that will eventually entail 17 regional zones around the country, in addition to existing facilities. These regional zones will replenish branches in the local areas and ship direct to our customers.
The focus of the regional zones is to improve the service to our customers, as defined by percentage of first-time, one-pass orders. We are going to maintain the local branches with a basic inventory plus the fastest-moving items, which will still give us the ability to provide will-call or delivery the same day on our trucks. Next-day deliveries, for the most part, will come out of the regional zones direct to the customers. The goal is a dramatic improvement in the percentage of first-time, one-pass orders, which will reduce the number of transactions for us and our customers.
EW: How will GraybarNet change or feed your logistics strategy?
Carl Hall: I don't see a direct correlation between that and logistics, but we are able to accept orders online with GraybarNet utilizing the Internet, and we believe there's going to be an increase in electronic commerce.
Richard Haney: Online purchasing with GraybarNet has been active since February 1. GraybarNet offers our customers online order entry as well as the ability to check availability and customer-specific pricing.
EW: Have you seen a lot of activity on GraybarNet?
Carl Hall: Surprisingly yes. I don't know offhand the number of hits, but we have already received significant business over the Internet.
EW: How do you see Internet purchasing shaking out a few years down the road?
Carl Hall: It has to become more user-friendly than it is today. It's still difficult even with the best electronic catalog to scroll through the screens to locate an item. It works best when you already know the specific catalog number. There will always be some customers that prefer the personal touch. Today it's still a lot easier to pick up the phone and call your customer-service representative to order something by description. However, you are going to see a steady increase in business through the Internet. No doubt about it. As to precisely when that is going to happen and how that will be enabled, I can't tell you. But it is going to happen.
EW: Graybar has been active with IDW. What is the company's perception of what the IDW can do for the electrical business?
Chuck Udell: It's important to us, but it's also important to the industry. We could have done most of what is there on our own, but in doing it through IDW we are helping the manufacturers that we are partnered with. We are helping the industry.
EW: What responsibilities does Graybar have as the largest distributor in the industry?
Carl Hall: We think it's in our best interest to support the channel and to make this the channel of choice.
Richard Haney: We spend a lot of time working with our manufacturers to ensure from an electronic commerce standpoint that what they can do for us they can do for everyone, that there is an industry standard, and that there is no added cost to us or to the manufacturer.
EW: When you try to recruit people, how do you promote yourself?
Carl Hall: Employee ownership is a selling tool, and we still advocate the practice of promotion from within. That's what initially attracted me to Graybar. In addition, we offer a stable organization, competitive fringe benefits and salaries, along with the best training in the industry.
EW: How have you changed your training program to accommodate your growth?
Carl Hall: We added 2,500 people in five years, and we had to get them up to speed faster. Last year we had 3,500 people attend instructor-led classes, and employees registered for over 60,000 hours of online training on our own virtual campus. We appointed a director of training four years ago, and we continue to invest significant resources in training. That will increase.
EW: How are things going on the merchandising front?
Chuck Udell: We are learning as we go. We don't have all the answers. We have a number of self-serve locations and we support those and monitor their performance. There seems to be certain benefits with self-serve. We predominately have the traditional counter. We have some newer counters we are redefining that have a different feel and is more upsell. We haven't found a real definitive advantage of one over the other.
The counter is a very complex business, especially for the percentage of business that it represents. You are competing in a sense, from a look-and-feel standpoint, with another channel that dedicates its life to merchandising, and it really only represents a small percentage of our business. It's difficult to meet all of customers' expectations from a merchandising standpoint.
EW: Who do you benchmark yourself against in merchandising?
Chuck Udell: I don't see anyone in our industry--including ourselves--who is a quantum leap ahead of everyone else. We can learn more from looking outside the industry than from looking inside the industry. Most merchandising plays to the consumer/retail market, as opposed to the professional installer market. The key is to find and develop something that fits the professional installer.
EW: What would you like to tell readers about your experiences in the datacom market?
Richard Haney: The market continues to evolve and change as more manufacturers get into it. Some of them clearly add good value while others are replicating other products.
Carl Hall: The comm/data market is getting a lot of publicity. It's not as mature as the electrical market and it's growing at a faster pace. But I think the potential is a bit overstated. It's a different market, and that is why we elected to specialize our businesses.
Chuck Udell: The analogy that I would draw for comm/data is the automation market. It requires specialization and a lot of technical expertise. I would say that they markets are not dissimilar in size. I would expect that after most distributors dabbled in data, they would find themselves in the same dilemma as they did with automation. It requires an investment in training and inventory that may surpass the returns they can get.
EW: How do you see the economy in 1999?
Carl Hall: I think 1999 is going to be a healthy year. The economy is still pretty robust. I don't think at this point that 1999 is going to have quite the potential of 1998. Even so, everything is in place to have a very good year.
EW: You have some exposure in the global market. How have the current uncertain economic conditions in many parts of the world affected your business?
Carl Hall: We have a subsidiary in Singapore that had a difficult year in 1998. Mexico had an acceptable year and our Canadian locations are doing well.
EW: What do you see as your biggest challenges in the next five years?
Chuck Udell: People, technology and facilities.
Carl Hall: Growing at an even faster pace in the future. Finding the right people and getting them trained.
Richard Haney: Completing our regional zone program by the end of next year is a major undertaking. We also expect to add more people in the next five years than we did in the last five years.
Whether they respect, fear or despise the largest distributor in North America, not many of Graybar's competitors or suppliers can boast the same rate of growth in sales and profits over the past few years. Supporting this surge has been Graybar's focus on several key strategies in operations, marketing, promotions, training, electronic commerce and MIS. Let's take a quick look at these areas of emphasis:
Acquisitions and internal growth. Unlike some of the other players active in the acquisition game such as WESCO, Rexel, Sonepar and CED, Graybar doesn't court attention for the acquisitions it makes and in the past didn't always announce them to the trade press. However, company execs insist it's a growth strategy that has always been a big part of its strategic plans. Indeed, in the last few months, Graybar acquired Monroe Contractors Electrical Supply, Monroe, N.C., and the All-Phase Electric Supply location in Eugene, Ore. Graybar's top managers say their company's recent track record for sales and profit is fueled primarily by steady internal growth and is second to none in the electrical wholesaling industry.
MIS and electronic commerce strategies. Graybar has taken center stage on a number of key industry issues in the world of electronic commerce. In the early 1990s, the company used its clout to move manufacturers, and with them the industry, to standards in bar coding. Since that time, Graybar employees have had seats on the industry committees working on standards for electronic data interchange (EDI), vendor-managed inventory (VMI) and the Industry Data Warehouse (IDW). The company also offers online purchasing via its Web site GraybarNet at www.graybarnet.com. Graybar helps customers create product profiles that include the catalog numbers they have ordered most in the past, so they can save some keystrokes when placing orders.
Merchandising and promotions. Graybar is respected throughout the industry as one of the most aggressive merchandisers in the land, and as a "motivating factor" in getting many manufacturers to develop packaging for the counter area. Chuck Udell, Graybar's vice president-electrical marketing, prefers to downplay the company's expertise in this area. But Graybar is light years ahead of many electrical distributors in merchandising, and any manufacturer who has negotiated with the company for shelf space knows Graybar is dead serious about getting the maximum return on its investment for every square inch of space that itcontrols. Indeed, in the marketing department at Graybar headquarters, staffers have computerized floor plans and plan-o-grams of all branches, and they can quickly find whose products are on which shelf in every branch in the land.
Integrated supply and national accounts. The company is also a leader in national accounts and integrated-supply contracts, a business it has cultivated for years. The national-account contract that it shares with Square D to supply electrical distribution equipment at all of IBM's U.S. facilities was featured in the March issue of Electrical Wholesaling ("New View of IBM," page 30).
Warehousing and logistics. Over the past few years, the company has embarked on a massive logistics campaign to upgrade its warehousing and delivery system, and is now building massive zone distribution centers that each top 200,000 sq ft. These facilities will feed products to local branches, which will continue to service customers' day-to-day supply needs.
Employee training. To drive all of these initiatives in the future, Carl Hall, president, says Graybar will need to step up its employee-training program and its ability to attract new employees in the future. The company has a "virtual campus" on its corporate Intranet where employees complete the training classes that the company requires for each job position, in addition to instructor-led classes on products, procedures and sales techniques.