European distributors continue to experience moderate growth following a strong performance in 2000, but most are preparing for less profitable times ahead. Troubles loom. The impact of economic problems in the United States and Japan, continuing high oil prices affecting both transportation and production, ongoing consolidation within industry ranks, and an increase of potentially inhibiting regulatory and legislative measures within the European Union itself are all concerns.
Many expect that 2002 will witness a decrease in business and sales volume, perhaps a decline in pricing, and certainly a fall-off in profits.
“Also, manufacturers and distributors have to contend with two levels of jurisdictional authority now in Europe,” noted Yves de Coorebyter, executive director of the European Union of Electrical Wholesalers (EUEW), at the organization's 46th General Assembly held in Barcelona, Spain, this summer. “There are regulations coming from the European Commission (EC) in Brussels, and there is legislation emanating from all of our own national parliaments.”
On the EC level, business groups must constantly monitor modifications of directives from Brussels, warned Michel Nicolas, executive secretary of FGMEE, the French electrical wholesalers' federation. As an example he cited a recent ruling that distributors must be able to give customers the name and address of any manufacturer who supplied faulty products. If they are unable to do so (as is often the case with Third World imports), then distributors become the legally responsible parties.
But in this current period of relative stability, delegates attending the EUEW meeting focused on two matters of internal affairs: the organization's revised statistics gathering and analysis program and an initiative launched last fall by seven major multinational and European manufacturers to create an e-portal for the industry.
The first edition of the new EUEW statistics will be published in the fall, according to Dr. Horst Beckers and Jorg Reimer, executive directors of the German and Swiss federations, respectively. They've worked the past two years with statistical analysts at the Institute for Business Research, Cologne, Germany, regarding this project.
At this point, the following preliminary profile of the European industry has been developed:
Member companies of the 14 national federations belonging to EUEW have an annual sales volume of 28 billion Euros (one euro currently equaling $0.90 U.S.), representing 80 percent of the European electrical wholesaling market.
Over all, 44.4 percent of European electrical distributors are independents, 42.8 percent belong to buying groups, and 12.8 percent belong to multinational concerns such as Sonepar, Rexel and Hagemeyer.
Currently, EUEW comprises 880 companies with 4,300 locations and 68,000 employees.
Sales by major product category are: 20 percent wire and cable; 17 percent lighting; 40 percent installation materials; 23 percent all others.
Sales by customer group are: 64 percent contractors and retailers; 17 percent industrial; 10 percent commercial; 9 percent all others.
The average gross margin within EUEW is 21 percent with average earnings before taxes of 2.4 percent.
By country, here are some of the market developments reported by national executive directors:
Housing starts are expected to be down in 2001 from 414,000 to 353,000. Costs continue to rise and net margins to decrease, and the efforts and expertise required to market new products are often too expensive for the average wholesaler.
Wholesalers showed a strong 5.7 percent increase in sales volume in 2000, but a slowdown has set in. All forecasting is being revised downward.
After a remarkably robust fourth quarter last year with sales up 12 percent, demand for electrical materials has fluctuated during the first half of the year, still averaging a respectable 5 percent, said Luigi D'Alo.
Consolidation continues, with the formation of Hagemeyer UK, combining the capabilities of Newey & Eyre and WF Electrical acquired a year ago, according to Nigel Ellis. Additionally, two buying groups — ANEW and EMMA — have merged to form a consortium with an estimated annual sales volume of $753 million.
Industry sales in 2000 were up 12 percent, reported Pedro Torres. Building starts were down somewhat from 8.7 percent to 6.3 percent, but expectations remain positive for the rest of the year.
The electrical wholesaling sector saw growth of approximately 7 percent last year, said Jose Valverde, but major concerns have developed since the residential construction market, the bellwether of the industry, reported decreasing figures each month since the fall of 2000.
During the last half of 2000 and the early months of this year, construction activity increased about 3 percent. However, Martin Weigend noted that Austrian distributors are still disadvantaged by the emergence of the Euro. Price levels are now about 20 percent higher in Austria than in Germany, and suppliers have been considering whether to adapt prices to the level of the German market.
Sales volume increased 7.3 percent in 2000, the best in 10 years. While residential construction is slow, government requirements for renovation of both public and private structures has represented a considerable opportunity for electrical contractors and distributors.
Gerry Kelly reported growth at the turn of the year was expected to be in the range of 9 percent, but this has been revised to 6 percent or lower due to the impact of foot-and-mouth disease on the agricultural market, and the postponement of major U.S. industrial projects at their locations in the Republic of Ireland.
Sweden: There has been significant investment in the telecommunications infrastructure, helping distributors in this marketplace, said Björn Högborn. The most significant development here is not national, but regional, as a “Nordic integration” continues involving the economies of Norway, Sweden, Denmark and Finland.
Norway: 2000 was the year of mergers and acquisitions in Norway, according to Jens-Dag Vatndal. Danish firm Nordisk Solar acquired Siemens Elektroengros for openers and five other mergers followed, leaving the industry in need of a score card. Nevertheless, sales volume of distributors was up 2.9 percent largely due to a 14 percent increase in residential construction.
Enter the E-Portal
The major preoccupation of distributors at the meeting was the newly unveiled e-business product for the contractor market called Voltimum.
Last fall, a prestigious group of European-based electrical manufacturers held an exploratory meeting with the EUEW Manufacturers' Committee and suggested that the group and EUEW cooperate to develop an e-business portal.
Within 10 days of the meeting, however, manufacturers announced that they had invested some 20 million Euros into launching the e-portal. The immediate questions raised by the leadership of EUEW at that time: Why hadn't the manufacturers told distributors how far along this project was? What was its actual purpose? How would this ultimately impact wholesalers?
These questions were discussed in an open forum and subsequent workshops at the EUEW meeting. Basically, Voltimum is a cooperative effort of seven manufacturers: ABB, Legrand, Nexans, Osram, Philips, Pirelli and Schneider.
The company is based in Geneva, Switzerland, and is currently establishing subsidiary offices in France, then Italy, the U.K., Germany, Sweden, Belgium, the Netherlands and Spain. The target is to have representation in 14 European countries within two years.
Bruno Hammon, chief executive officer of Voltimum, described the organization as “a one-stop shopping information and services platform.” Initially, it will offer catalogs of the founding companies and add more information from other suppliers throughout Europe. Distributors are invited to participate as partners in this venture, and the subscriber base will be contractors in the countries involved.
Although distributors recognized the potential value of the venture, there was skepticism. When asked what the criteria for partnering with Voltimum would be, one founding manufacturer responded that it would depend on what a particular wholesaler would bring to the party.
The Voltimum spokesperson stressed that although this may be a new marketing model, there is no intention to supersede existing business relationships.
John Paul Quinn is a free-lance writer and international communications consultant based in Stamford, Conn. He can be reached at (203) 323-9850 or via e-mail: [email protected]