Issue link: https://www.e-digitaleditions.com/i/143040
10 Years Ago We Asked Our FEDA Past Presidents to Weigh in on Some of the Most Pressing Issues of the Day, So…. Where Are We Now? Ken Gill, Gill Group 1989-1991 What trends do you see developing in the industry that may have an effect on the role of the dealer in the next five years? Not often do we have an opportunity to look back 10 years and see how our predictions turn out. I'm going to reprint each paragraph from my original responses in 2003 and then comment on each of my forecasts. Q: Let me first say that I believe that most trends in our industry do not have a large impact on the distribution community. We have continually heard forecasts during the past 20 years about the shrinkage of dealers. In reality, the number of dealers has remained about the same. Sure, we have a number of dealers discontinue business every year. However, because ours is such an "easy entry" business, we also experience approximately the same number of new businesses opening. This one was easy and right on.Today, according to"Chain Store Guide Directory of Food Service Distributors,"we have almost the exact number of dealers as we had in 2002. Trend No. 1: There is a trend by certain large manufacturers to limit the number of authorized dealers. This allows the manufacturer to concentrate their marketing and service on a more manageable number of dealers and affords an efficient and more prof24 FEDA News & Views itable way to the marketplace.There is also a trend by certain manufacturers to identify their dealers by a classification system (i.e.: groups I, II, & III) and provide better discounting and support for the "I" dealer category. In addition, certain manufacturers are paying their manufacturers' representatives different commission percentages predicated on which dealer category generates an order. Again, pretty much hit the target on this one. Trend No. 2: The most dynamic dealer trend our industry has ever experienced was the creation of buying groups. By now, most dealers who want to participate in a buying group have joined one, and the purchasing/backside economics have now releveled the playing field.There are dealers who believe that a new paradigm must and will be created.The constant battle for margin advantage will always be with us. If anything, the consolidation of very large dealers into a "Mega Buyer Group" continues to emphasize the importance of purchasing leverage. Trends No. 3: We have experienced consolidation in both manufacturing and distribution.The economics of consolidation work more successfully in manufacturing because the purchase/consolidation includes equipment, inventories, work-in-process, intellectual properties and, most importantly, a catalog product line that has market acceptance, value and proper margins. Unfortunately, most dealership values are comprised of their personnel and customer lists. Recent history has demonstrated that these resources can be very unstable if the existing top management departs. The savings on just G & A does not justify consolidation. It is open for discussion whether a proper ROI for dealer consolidation can be achieved. I will give myself an"A"for my forecast of manufacturing industry consolidation. I think I missed somewhat on my dealer consolidation forecast. Of the three attempts to roll up dealers into one entity, the results were mixed. Jerry Hyman, CEO of TriMark, has led an extremely successful consolidation. Importantly, all of the executives of the acquired firms are still at their desks. One roll-up effort really struggled, though it remains in business in limited form. The third one, Strategic, had a rough start but managed to work through their start-up problems and became a well-run company, doing a great job for its customers. As most know, Strategic was recently acquired by TriMark. Trend No. 4: The manufacturers that have aggressively acquired and consolidated have built broad product lines, and are using that advantage to increase sales and profitability by wrap-around strategies at both the dealer and multiunit segments. They gain pricing differentials, channel control and restriction. The larger dealers benefit here, as they are usually the ones awarded the larger jobs where continued on page 26