Born to help independent distributors compete against the giant and still-growing national chains, the industry's buying/marketing groups have grown, too. With an estimated $23.2 billion in annual sales, buying groups' distributor members account for more than 30 percent of the electrical industry pie.
Independent distributors have been battling with the big guys for years. As the big guys grew bigger, independent electrical distributors recognized that by joining forces and pooling purchasing power they had a better shot at competing against the national and regional electrical distributors. More than three decades after the formation of the industry's first buying group, when times get tough, the rebates from distributors' pooled group purchases are the only profit some see.
Although the original focus of buying/marketing groups was the combined purchasing power of distributor members, over the years the groups expanded their role to include marketing support, electronic communications and training.
“As a little guy, to compete with the big guys out there, we have to take advantage of all those kinds of things,” said Steve Peterson, president of Minnesota Electric Supply, Willmar, Minn. “Marketing groups help us compete.”
As consolidation continues and the giants expand still further, more than a quarter of independent U.S. electrical distributors are members of a marketing group. But, consolidation today may also help the business of independent electrical distributors.
“In markets where there's been a lot of acquisitions activity, our members have really thrived,” said Ted Havel, marketing director for Electrical Distributors Network (EDN), Concord, Ohio. “A local contractor likes to deal with local decision makers who are able to quickly react to market conditions. When the larger nationals lose focus, our members have been able to flourish.”
“We're very bullish on long-term prospects for independent distributors,” said Bill Weisberg, chairman and chief executive officer of Affiliated Distributors (A-D), King of Prussia, Pa. Weisberg said independent distributors are closer to the customer than chains. “Their biggest advantage is that they have the ultimate motivation and accountability of a business owner.”
Although marketing groups share a common goal of helping the independent distributor compete against the chains, each has its own unique structure and target audience. Here's a look at the marketing groups that serve the electrical industry.
AFFILIATED DISTRIBUTORS (A-D)
King of Prussia, Pa.
Type of Group: Private corporation
Electrical Distributor Members: With members that include electrical, plumbing, PVF and industrial MRO distributors, A-D has 360 members. Its electrical distributor members total 144, with 125 in United States and 19 in Canada.
Annual Sales of Members: $9 billion electrical, $18 billion total
Founded in 1981, Affiliated-Distributor (A-D) is the electrical industry's largest buying group in terms of annual sales. With $9 billion in electrical sales and a membership of electrical distributors that typically hold top spots within their market areas, A-D carries big clout with manufacturers.
“Suppliers are as much of a stakeholder in groups as the distributors,” said Bill Weisberg, A-D chairman and chief executive officer. “The distributors are looking for enhanced earnings. The suppliers are looking for increased market share; and they are both looking for reduced operating costs.”
In an effort to increase earnings for its distributor members and increase market share for A-D suppliers, the buying group created a conversion program as part of its Sales Stimulator Program. The conversion program provides additional monetary incentives to affiliates that convert customers from products not manufactured by A-D suppliers to products of manufacturers aligned with A-D.
Weisberg said a significant amount of the group's marketing dollars is earmarked to help affiliates, the term A-D uses for its distributor members, make the conversion from manufacturers not aligned with A-D to A-D suppliers. In the last year, A-D's affiliates made more than $60 million worth of product conversions.
“About 82 percent of our affiliates are doing more business with A-D suppliers,” said Weisberg. “So even if an affiliate's business is down, it's down less with A-D suppliers.” As a result, Weisberg said A-D suppliers see increased market share. And, with the conversion activity targeted toward more profitable product categories, affiliates see enhanced rebate earnings.
As evidenced by its conversion program, in this down economy A-D has found ways to increase its members' earnings, but it has also focused on cost-savings and improved productivity. “It costs us now about 20 percent less to generate a dollar of earnings for our members than it did two years ago,” said Weisberg. “That's through our own economies of scale and focusing on operation efficiency.”
Supply-chain costs are also being scrutinized. At the beginning of the 2002, A-D launched an initiative to automate transactions between its affiliates and suppliers using both EDI and Web-based transactions.
This year, the group went from zero percent to 30 percent of its transactions going through EDI or the Web. Next year, Weisberg believes the number will grow to 70 percent.
“That's a hot button,” said Weisberg. “Many suppliers are frustrated that so little is done today through EDI or the Web.”
In November 1999, A-D unveiled SupplyForce.com, its online integrated supply portal for distributors serving national accounts, but Weisberg stressed that A-D and SupplyForce are separate entities. “National accounts were spun off into a separate company, with a separate structure and separate members so that it could focus on what it does and we could focus on what we do,” he said.
This November, Affiliated Distributors formed a separate health insurance company, A-D Services Group Inc., in response to its members' concerns over rising health insurance costs, which cut deeply into operating costs and profitability.
The newly formed subsidiary offers both A-D affiliates and suppliers self-funded or partially self-funded health insurance, dental and vision insurance, life and accidental death and dismemberment, long- and short-term disability and flexible spending accounts.
According to Weisberg, the growing health-care problem has been a difficult one to solve, and it took A-D a while to come up with what it hopes will be a winning strategy.
Looking to other enterprises successful with group health care, A-D mirrored its health-care package after those of franchises. “We were able to follow what companies like McDonald's franchises did to be successful at reducing their health-care costs,” said Weisberg. “We were able to develop a solution that mirrors it.”
Based on test quotes, A-D Services Group Inc. has the potential to deliver big savings. The insurance products and programs have been shown to save companies more than 20 percent in annual health-care costs, said Mark Wilson, A-D director of service provider relations.
Oxon Hill, Md.
Phone: (301) 567-8888
Type of Group: Cooperative
Electrical Distributor Members: 180
Annual Sales of Members: more than $6 billion
Some of IMARK Group's distributor members are trailblazers of a sort — like Roden Electrical Supply Co., Knoxville, Tenn., whose leaders recognized early on that pooling resources with other independent electrical distributors would be necessary to compete against the giants.
As one of the original members of Southern Independent Electrical Distributors (SIED), the industry's first buying group and an ancestor of IMARK, Roden has pooled its power and talent with other distributors for more than three decades.
Although IMARK, which is a cooperative, did not take its current name until 1996, the group traces its roots back to 1968 when SIED was founded. SIED merged with Mid-Atlantic Electrical Distributors Inc. (MAED) in 1987 to form The Independent Electrical Distributors Inc. (TIED). In 1996, TIED merged with Western Independent Electrical Distributors Inc. (WIED) to form IMARK.
“We still have quite a few companies that were founding members of all three original cooperatives, including some that go back to 1968,” said Steven Cunningham, IMARK president and chief executive officer.
Thirty-four years ago, the emphasis was on pooling purchasing power and getting financial benefits. “Although we still do that, we are doing much more in the way of providing marketing services, marketing tools and networking opportunities,” he said.
With business down for many of IMARK Group's distributor members, marketing is one weapon its distributors use to fight back. “The marketing skills that our people have learned from each other and through the group have put them in a better position to go for market share when times get tough,” Cunningham said.
Governed by an elected board of 15 distributor directors, IMARK's members are very active in the co-op. More than one-third of its distributor members are actively involved in the direction of IMARK through its various committees and offices. Additionally, the group of 180 electrical-distributor members, with more than $6 billion in combined annual sales, meets twice a year to exchange ideas on major issues facing the electrical industry.
Certainly, consolidation is one issue the industry continues to face, and it had a major impact on IMARK this year. The group lost its largest distributor member, Rexel-Branch, in July when consolidator Rexel Inc. pulled out of the group. Although not all Rexel entities were IMARK members, many were.
Rexel Inc.'s association with IMARK began in 2000 with its acquisitions of the Branch Group, Upper Marlboro, Md.; and Westburne Inc., St. Laurent, Quebec. The Branch Group and many other independent distributors acquired by Westburne and Rexel had long associations with IMARK and its predecessor groups.
Despite the forces of consolidation, IMARK continues to hold the electrical industry's No. 2 spot in terms of marketing-group buying power.
It's inevitable, though, that IMARK and A-D will continue to lose members as a result of consolidation. “The acquirers are targeting distributors on the top 150 list,” said Cunningham. “Every time they do, they hit a member of A-D or IMARK.”
Of the distributors on Electrical Wholesaling's list of the 250 Biggest electrical distributors, if you exclude the national chains, large regional distributors and specialty distributors, the majority of the remainder are members of either Affiliated Distributors or IMARK Group.
“There are still hundreds of financially sound independent distributors that are not members of A-D or IMARK Group,” said Cunningham. “We focus on recruiting the best athletes available. We'd be doing the same thing even if there were no consolidation.” Cunningham said the major concern among IMARK Group's members is that “the economy is in the trash bin. Everybody is fighting for every order they can get.”
As a result, distributors are more loyal to the suppliers on IMARK's supplier list, said Cunningham. “The distributors put as much product through IMARK suppliers as possible because of the obvious economic benefits.”
EQUITY ELECTRICAL ASSOCIATES
East Walpole, Mass.
Phone: (781) 784-9234
Type of Group: Private corporation
Electrical Distributor Members: 267
Annual Sales of Members: $3.4 billion
Years in the Industry: 13 years
When Equity Electrical Associates got its start in 1989, the marketing group targeted medium-sized distributors with an industrial/MRO customer base for its membership. Back then, manufacturers required more assistance in training those distributors because of the higher degree of “specification” effort needed, said Dick Noel, Equity founder and current president. According to Noel, the existing marketing groups weren't paying enough attention to that group of distributors. Equity found a niche.
Over time, as industrial/MRO increasingly contracted out its electrical maintenance and with residential contractors doing “upscale” work, Equity's membership has swung to about 60-percent contractor/40-percent industrial.
Thirteen years after its inception, Equity still views its mission much the same. “The day-in and day-out function of a marketing group is to assist in the total movement of products from the distributors' shelves to the end user. In this effort, the professional marketing group has greatly improved the distributor's bottom line in the process of providing marketing, purchasing and all operational smarts to its members,” said Noel.
To aid that mission, Equity tries to provide the support that its distributor members need. New this year, Equity's Associates Incentive Marketing (AIM) program rewards members for marketing and sales activities. Distributor members earn points for joint sales calls, sales meetings, customer events, and advertising promotions in concert with participating manufacturers. The points are later redeemed for prizes or trips.
Equity is also currently responding to members' needs for help with health care. “We are in the middle of negotiating to put together a health-care package for our members,” said Noel. “One of the problems is it is difficult to find underwriters who will write in every state, but we were able to get one that appears to be a universal underwriter.”
Equity is also responding to members' electronic needs. Noel said Equity has earmarked a large block of money for updating the group's Web site and providing e-commerce opportunities and research capabilities via the Web.
When it comes to the effects of consolidation on the independent distributor Noel also said he doesn't believe consolidation has changed the landscape for Equity's distributor members too much. “The big are not invincible. Mid-sized and smaller distributors have battled with the giants for years. Just because there's more acquisition activity by the bigger fish, don't think their daily life will change to a great degree.
“How can these smaller distributors survive and be profitable and multigenerational? Why aren't they wiped out? They aren't wiped out because there will always be big, and there will always be medium and small. The smaller guy is more nimble, more alert and closer to the customer.
“And survival is where the professional marketing group…becomes the great equalizer between the giants and the small players.”
ELECTRICAL DISTRIBUTORS NETWORK (EDN)
Phone: (800) 338-8308
Type of Group: Cooperative
Electrical Distributor Members: 627
Annual Sales of Members: $3.8 billion
Years in the Industry: Nine
With not yet a decade behind it, Electrical Distributors Network (EDN) has grown to its current 627 members by primarily targeting small- to mid-sized electrical distributors. Although the typical EDN distributor sells about $6 million worth of electrical products annually from a single branch location, together EDN members account for about $3.8 billion of the electrical-industry pie.
Back in 1993, founders Matt Roos and Steve Perencevich recognized there were many wholesalers that didn't meet the size requirements of the existing marketing/buying groups but needed help competing against the chains and home centers. Thus, EDN was born.
Approximately 60 percent of EDN's distributors' volume is sold to residential contractors with the remainder a combination of commercial, industrial and showroom business. With residential construction work one of the only bright spots on the construction horizon, some manufacturers previously uninterested in being an EDN supplier are now showing interest, according to Ted Havel, EDN director of marketing.
“We represent a big opportunity in a market that manufacturers may have not approached or focused on before,” said Havel.
Manufacturers have traditionally focused on the national chains and the large independents, but with consolidation the number of distributors manufacturers sell to dramatically decreased.
Just as consolidation has opened some vendor doors for EDN, it has also opened customer doors for some of EDN's distributor members.
“In markets where there's been a lot of acquisitions activity, our members have really thrived,” said Havel. “A local contractor likes to deal with local decision makers who are able to quickly react to market conditions. When the larger nationals lose focus, our members have been able to flourish.”
Last year, EDN held two regional member meetings. In addition to providing networking opportunities with fellow distributors, the meeting gave its members valuable face time with manufacturers.
“Our members don't normally get the opportunity to sit down and meet with the manufacturers' upper management,” said Havel. “If vendors are traveling in any given market, they've got to go where the volume is. They are tied up with some of the larger distributors and they may not necessarily get the time to filter down to our guys. It's a tremendous opportunity for both of them to either develop a new relationship or try to do some more business together.”
According to Havel, manufacturers also like the fact that EDN helps reduce their transaction costs by providing a system whereby they can electronically invoice the group's 627 members. Manufacturers send daily EDI invoice transmissions to EDN, which in turn sends these invoices via e-mail to its distributor members. Members can access their supplier invoices at anytime through EDN's Web site.
“EDN collects the money and then forwards payment to the manufacturers,” said Havel. “From the standpoint of credit, EDN offers a guarantee pay on any of the dollars flowing through the organization, so we also give some credit reassurance to the manufacturers when they are dealing with us.”
As with other marketing groups, EDN has enacted programs enticing distributors to convert business from non-EDN vendors to EDN suppliers. EDN's Power Programs consist of four initiatives to increase the overall participation among EDN members and suppliers.
UPA - THE INTEGRITY GROUP
Phone: (407) 323-6250
Type of Group: Private corporation
Electrical Distributor Members: 72
Annual Sales of Members: $500 million (estimate)
Years in the Industry: 24
With its distributor members concentrated in the Northeast United States where the international giants hit hard with acquisitions, 24-year-old UPA's electrical distributor membership stands at 72, with more than 700 total distributor members. The group caters to distributors of plumbing and HVAC products as well as electrical. It entered the electrical arena about seven years ago as a natural evolution; the products the group was bringing into UPA began overlapping many of the products that electrical distributors used, said Bill Corp, UPA president.
Today, the average UPA electrical distributor brings in between $4 million and $7 million in annual sales. “They're smaller guys who join UPA to gain a financial advantage within the marketplace based on the rebate programs we structure with the manufacturers,” said Corp.
UPA usually holds four regional meetings each year. “By sharing across the forum of noncompeting distributors, it adds value,” said Corp.
As with the other groups, marketing services and training are key components of what UPA offers its members. In addition to producing catalogs and fliers for members in-house, UPA offers Web development and site hosting on the menu of its services.
ELECTRICAL DISTRIBUTOR ANNUAL SALES
Looking at total sales through electrical distribution, 32.2 percent of sales go through members of buying/marketing groups. About 20 percent go through chains. More than a quarter of independent U.S. electrical distributors are members of marketing groups.
CO-OP TARGETS RESIDENTIAL LIGHTING SHOWROOMS
After years of intense competition from Home Depot and other big-box retailers, residential lighting showrooms are banding together in an innovative co-op to pool their purchasing power and learn how to run their businesses more profitably.
The three-year-old Lighting One, Atlanta, now has 80 members and about $200 million in annual retail sales. Along with volume-based discounts from manufacturers, the organization provides lighting showrooms with assistance in advertising and marketing; private branding of lighting products; a comprehensive schedule of training programs; and national contracts covering workmen's compensation, health insurance, waste management and credit cards.
Lighting One is a sister company to Carpet One, an organization that provides similar products and services to more than 1,000 flooring stores nationwide.
“We exist for the independent lighting showroom,” said Jeff Carmichael, president and founder of the co-op. “Our goal is to create a level playing field so our members can succeed in the face of competition from ‘big box’ stores. Our products and services are geared to provide our members with a complete package that meets their needs.”
Carmichael said while Lighting One is aggressively looking for new members, the co-op does not take start-ups. It screens potential members with certain criteria, including sales volume and credit worthiness.
“If we decide it's a good fit, they're invited to become a members,” he said. “Our potential members may be the largest or they may be the No. 2 lighting showroom in their market. “We're looking for members who have vision and a desire to grow and improve their profits.”
For more information, call (800) 886-9998.
Largest Group: In terms of its member's annual sales, Affiliated Distributors is the largest group with $9 billion in annual sales. But, in number of distributor members, Electrical Distributors Network (EDN) is the largest with 627 members.
250 Biggests' Allegiances: Of the distributors on Electrical Wholesaling's list of the 250 Biggest electrical distributors, when you exclude the national chains, large regionals and specialty distributors, the majority of the rest are members of either Affiliated Distributors or IMARK Group.
A-D Myth: Although many of Affiliated Distributors' members carry the Rockwell Automation/Allen-Bradley line, A-D Chairman and Chief Executive Officer Bill Weisberg said that to think of A-D affiliates as just industrial distributors is a misperception. Industrial-based business and contractor-based business is about equal, Weisberg said.
Youngest Group: Now just nine years old, Electrical Distributors Network (EDN) has grown to its current 627 members and $3.6 billion in annual sales by serving small- to mid-sized electrical distributors in rural or secondary markets.
Oldest Group: Although it did not take its current name until 1996, IMARK can trace its roots back to 1968 when Southern Independent Electrical Distributors (SIED), the industry's first buying group, was founded. SIED merged with Mid-Atlantic Electrical Distributors Inc. (MAED) in 1987 to form The Independent Electrical Distributors Inc. (TIED). In 1996, TIED merged with Western Independent Electrical Distributors Inc. (WIED) to form IMARK.