It‘s About ‘Local’ and ‘Details’
Asking ‘How Did We Get Here?
By Bill Wade
Wade & Partners
Consolidation is about to ‘claim’ another really smart independent distributor… a real prize (it will probably have been announced by the time you see this). Multiple stores, group leader, local market monster, extremely profitable, a believer in brands who never voluntarily cuts a price.
It was interesting to talk with him about the process behind his decision to sell. Sure, the purchase money is good, but I couldn’t help but feel that his perspective on the independent side of heavy truck parts and service as an industry wasn’t just as important.
It revolved around five ‘NOs’ that he identified as corrupting the growth prospects for operators like him:
There are no unserved product, service or geographical markets;
There is no trust between suppliers and distributors;
There is no discipline in suppliers’ market channel decisions;
There are no secrets, therefore…
There is no bottom to rebates or pricing.
We talked about the corrosive forces of private labels, over-distribution and the ‘race to the bottom’ caused by overseas product being accepted and pushed by many other independents. Two possibilities arose as the roots of this ‘how did we get here’ scenario:
A national marketing focus used in a business that is inherently local in nature… both by suppliers and marketing groups.
A lack of understanding by all employees that margin percentage does not equal margin dollars... evidenced by the growing pressure to downsell and get the business on price.
Everyone Must Know This: % ≠ $
It is true that most businesses in mature industries have a strategic sameness that is causing them to compete on price and erode profitability. Most lines have multiple outlets and extremely inconsistent price/rebate/special deal policies… or flat out no policy at all!
More than ever, the independent HD parts and service provider needs to reinvent its total, local value-offering for its best customers within each product category – one line at a time.
Why sell a little bit of something to everyone. Sell everything that is necessary for a best value-bundle to only the customers that are, or can be, profitable…and who preferably have an above average growth future.
To reinvent a distributor or service shop value-offering, a company will have to expand its collective, top of mind understanding of what it has been doing historically and what it might do differently in the future.
Distribution guru Bruce Merrifield summarized the challenge best. “Big gains in value, growth and profitability in a mature industry must start with big collective change in the mental models that are currently gripping the management team”.
Instead of trying harder to beat last year’s numbers, we have to ask ourselves basic questions like:
If we are doing the best that we know how, what don’t we know?... Are we answering phantom price pressures due to incomplete competitive knowledge?
Where is our organization’s comfort frontier?... Exactly what is the depth of understanding of all employees?
What are successful, new models from other industries that we can use as lenses for re-examining our business and creating “new frontier question maps”? What (like Grainger’s new mobile ap program) is being pioneered in similar businesses?
How should we gently identify, unpack and overhaul our old mental models to then blend their best, still viable parts with new thinking?... Too bad we can’t stop everything for a total marketing overhaul.
If we don’t address the questions above, then won’t our existing culture continue to rule? Won’t we then become increasingly outdated and be destined to continue asking ‘how did our business get this way?’