The Value of Independence
Independent Merchants in the UK
Contents
1 Consolidation
I've been working in the building trade since 1996, and all of that time has been spent with an independent merchant in the Midlands. It can sometimes seem like a classic case of David against Goliath. The small humble independent competing against the voracious and powerful nationals - sometimes backed by multinational corporations.
The last nine or ten years in the UK construction industry has been a time of consolidation. Barely a week goes passed without the announcement of a merger between two big names. This is particularly true on the supply side. We've observed the relentless growth of TP to a state of near-ubiquity. The other nationals haven't been backward either - with both Wolsey and Jewsons operating more branches than ever before.
It's not just the merchants that have grown by buying the competition. Anyone who works in heavyside supply will be familiar with trying to find a particular brick for a customer - only to discover that the brickworks that made it was bought out by Ibstock or Hanson, who have since discontinued that brick.
The modus operandi of expansion, for the national merchants, seems to be buying the local independent merchants. So as well as the omnipresent margin squeeze, the inexorable increase in regulation, and the gloomy clouds of market slowdown, is there any hope for the traders who won't sell out?
Well, I believe that there is great value in the independent builders merchants. True to the original story - the Davids can often beat goliath. In this article I hope to explore a few of the advantages we can leverage in the daily struggle for survival.
2 Economy of Scale
Of course a large chain of merchants have an obvious advantage on their side - size. The economic term for this is economy of scale. It's not just increased power on the negotiating table to get better prices, but a range of advantages that include :
- The ability to buy in larger quantities to obtain discounts
- Reduced administration costs through central acounts offices
- Economies of scale in larger expenses - like purchasing vehicles
- Pooled expertise and knowledge (opportunity for specialisation)
- Availability of staff from other depots to cover emergencies
- Central handling of health and safety policies and meeting other regulations
- Central training programmes
Groups with many branches are also more likely to be able to supply a customers demands through an inter-branch transfer. It is almost always quicker and cheaper to supply a product that one of your branches carries in stock, than have to purchase it in as a non stocked item. This is especially true if it saves carriage costs!
So on the surface of it, the large groups have several seemingly unassailable advantages. What then is the hope for the humble independent?
3 Not so Little
There are still an awful lot of independent merchants out there. It might be easy to forget but it's less than twenty years since Travis & Arnold and Sandell Perkins merged to become Travis Perkins. It seems that with the right business acumen, any of you little nuts could become a giant oak tree!
So you're not alone - in fact the buying power of the indies is far greater than any of the nationals. This is where the buying societies come in.
3.1 Buying Societies
Independent merchants have long realised the power of working together. This was the genesis of the buying society - merchants co-operatives. NMBS has existed since 1963, UNIMER has been around since 1935.
Organisations like UNIMER and NMBS continue to go from strength to strength. Their very raison d'être is to present a united front on behalf of independent merchants. Through effective negotiating they are managing to secure generous rebates and better deals for their members. These are often deals that give the nationals a run for their money.
It's not just through buying societies that independent merchants can some of the economies of scale we normally associate with the multinationals. Organisations like the BMF run training programs specially targetted for us. This means your staff can receive a professional standard of training - and benefit from experience that might not be readily available within your company. As we will see in a moment, investing in your staff in this way has other benefits too.
4 Small is Beautiful
Through buying societies and external training programs, merchants can gain some of the advantages of size that they wouldn't normally accrue. Particularly advantageous is the wealth of experience in our industry that exists within these organisations.
However, it's my contention that smaller merchants can compete effectively with the larger ones without having to imitate them. There are various advantages to being a small local company. You're probably aware of many of them - these are your competitive advantages, so guard them wisely.
- A knowledge of the locality
- A loyal customer base
- Loyal staff - some of whom may have been with you for years
- Flexibility - especially in key areas, like which suppliers you use
- Suppliers who prefer to deal with independents
- The ability to respond quickly to problems
- The nationals prefer the bigger customers
4.1 Local Knowledge
The first three of these are advantages that come from having grown organically within the market you serve. You're likely to have a good knowledge of the local market and it's needs. Many of your customers will have grown to know you (personally and as a company) over many years. It would only be with great reluctance that they go elsewhere. (Although market reality will be quick to rear it's head if you're consistently out on price).
4.2 Loyal Staff
What may be more important is that you're much more likely to be able to retain a core of staff. High staff turnover is the bane of everyone in the construction supply industry. This is largely due to the low pay - but also to the failure of our industry to value it's people. National companies are more likely to be rule and policy driven at the low end, with career minded individuals at the middle and higher levels.
There's no two ways about it - customers like consistency of staff. If you can retain a core of employees who get to know your customers - this alone will win you some business.
Investing in your employess through training programs is one way that you can help to retain staff. Use annual appraisal (or more regular if possibe) as an opportunity to find those who are dissatisfied and maybe ready for more responsibility - or need a sideways job shift if you are to keep them.
4.3 Flexibility - Especially of Supply
Big companies can't resist the rule book. Perhaps this is unkind - but if a large firm has negotiated a special deal on blocks from one supplier, their sales office may be unable to purchase elsewhere. We know of at least one national merchant that operates like this.
Not only this - but there are a whole host of companies out there who prefer to deal with independents. The larger firms tend to pay later and demand higher rebates. You might think this would give them a financial advantage - but there are many firms who pride themselves on supporting independent merchants. They are often relative newcomers to their markets - and cheaper than the more staid market leaders.
In recent years we've seen several markets with strong brand names swiftly upset by young interlopers. They have come in with lower prices, better service, and often driven by sales to independent merchants.
Examples include :
- Knauf and lafarge coming into the plasterboard market and upsetting the dominance of British Gypsum
- Keystone Lintels rapid rise at the expense of heavyweights Catnic and IG
- Brett Martin with drainage and rainwater goods
- Newer (and imported) brands threatening the market lead of cardale garage doors
The current question is can Fakro and Keylite threaten the near ubiquity of Velux in the roof light market? My money is on the newcomers.
If an established market leader loses the independents - then it's a good sign that they're losing badly.
4.4 Go for the Jobbing Builders
We all like a big sale - but what percentage of your profit comes from really big orders? Probably not a huge proportion.
The nationals need to compete with each other for the larger customers - the house developers. They care a lot less about the jobbing builders and the smaller house builders. What is traditionally known as the RMI market - Renovation Maintenance and Improvement.
These folk often feel let down and ripped off by the larger merchants - look after them and you may find you've tapped into a market less susceptible to the boom and bust cycle of house building. After all, if people can't afford to buy a bigger house they look to extend or renovate the one they're in.
5 Flexibility
Flexibility is such an important factor in the success of independent merchants that I'll devote a whole section of this article to it.
National chains gain some of their competitive advantage by setting policies centrally. Deals are negotiated and strategies decided at the national level.
An independent merchant gets it's competitive advantage because these factors can (and must) be decided at a local level.
A local merchant can respond quickly to changes in the market. Things you have power to change are :
- stock profile - bringing in new products
- pricing and marketing strategy
- opening hours
- staff levels
These are all things that (in theory) you can adjust in consultation with only one or two layers of management. If this isn't true in your organisation - and you are unable to respond quickly to new ideas - you need to assess whether you are choking off your natural advantages.
5.1 Problem Solving
To my mind one of the greatest advantage that smaller firms have is the ability to respond imaginatevly to problems.
Read my article From Problems to Profit to see how difficult situations can sometimes prove to be an opportunity to win your customer.
There is always a balance to be struck between holding your team leaders properly accountable and giving them the freedom they need. However it's important that your sales/counter/transport managers have the authority to sort out problems without needing permission from six layers of management. This means authority to give discounts and refunds, or just get someone on site in a hurry when it's needed.
6 In Conclusion
There is no doubt about it, the national merchants want to eat your lunch. That's not necessarily a reason to get scared though, it's a reason to get more efficient and make sure you're making the most of your business model.
You need to investigate outside resources that can help you - from taking part in buying societies to joining your local chamber of commerce. Use these places for networking and the training programs they offer.
Check your internal processes - can you make changes quickly in response to the local market, and do your managers have the authority they need?
Invest wisely in your key members of staff - make sure they feel valued.
The same goes for your customers of course. Target the right sort of customers and look after them. Service will be the key to your success.
Keep an eye out for new products and manufacturers - you can probably find several niche areas where you can be the cheapest in the area.
With these advantages on our side, perhaps it's the national chains we should start feeling sorry for.
Also see: Blinds, Partner Directory.
