As the industry channel grows, consolidation naturally follows, affecting wholesale distributors and the relationship between manufacturers and their representative agencies. Manufacturers’ representatives are extensions of the manufacturers they serve, so conflicts can arise when a rep firm faces a line card conflict due to consolidation. Manufacturers must navigate their long-term goals with reps, and conflict may arise when a rep firm’s future growth plans might be uncertain.

These issues can no longer be ignored. What happens when there is a line card conflict, or an agency lacks a succession plan? The Association of Industry Manufacturers’ Representatives (AIM/R) will address these questions at its annual convention in Nashville this September with a seminar titled, “Navigating Industry Evolution — Unraveling Conflict Dynamics.” 

This event will feature a discussion between Ryan Davenport, principal at Davenport Associates, and Andrew Windsor, senior vice president of sales at Watts Water Technologies. They will delve into the complexities of conflicting representation lines and the broader implications for manufacturers and reps in a consolidating market.

I sat down with the gentlemen to get a jump start on their conversation and to hear what the hot buttons are for both sectors of the channel. It was a conversation that could have gone on for longer than our one-hour phone call. What it shows is that both sides want to work together to understand pain points and help solve the issues.

Read on to catch a glimpse of what will surely be a conversation to a packed and standing-room-only crowd at the upcoming AIM/R convention. 

The Wholesaler: Andrew, what concerns/conflicts do you see on the manufacturer side of the industry for the relationship between manufacturers and the reps?

Andrew Windsor: Consolidation will be a driving factor in the industry. We believe, it’s driven by three macro issues, the first of which is for the cost to remain relevant continues to increase. The capital required to support digital commerce, develop connected products and effective digital marketing are significant.  If you’re not investing aggressively in innovation as a manufacturer, you are falling behind and becoming less relevant to customers.

Second is that larger manufacturing companies are sitting on a significant amount of cash reserve. Their investors, whether public companies or private equity, are asking manufacturers to put that capital to work. That means investing heavily in growth initiatives, new product development and acquisitions. 

Third, we want more access to the channel. The more product categories, technology and services you’re able to bring to the end customer, the more important and relevant you are in the channel. Scale matters, and how big you are matters.

Consolidation ultimately leads to a conflict of line cards. More importantly, bigger companies will ask more of their rep networks, whether it is investing in service capabilities, the ability to do startups or managing issues in the marketplace. Service will be important in digital marketing, so competent digital marketing allows them to communicate well with local markets and evolve what could be a national campaign into a local one. 

Today, we ask for specific people within our rep agencies to focus on waterworks, fire, irrigation and plumbing, and people who are focused on facility maintenance people, architects, engineers, contractor and owners. The days of just calling on wholesalers are over, we require coverage of all key decision makers in the market.  We are asking for tremendous investment from our rep network and that won’t slow down. 

In addition, we are interested in them investing in a customer resource management (CMS) system. That’s a big investment for our reps in terms of technology: CRM, quoting and tracking systems. So, it’s a complicated answer. However, that’s the conversation I’m trying to help drive with AIM/R.

TW: Ryan, as a manufacturers’ representative, how do you see consolidation impacting the industry and the challenges it might create for reps?

Ryan Davenport: I would approach it from a few different angles. The first one is that consolidation of the wholesale channel is leading to (large) wholesalers becoming both a manufacturer’s biggest customer and their biggest competitor because they’re seeking to import their own private label products, thus circumnavigating the supply chain. What happens then? The value of the rep is in us protecting the manufacturer’s brand within our marketplace. 

The second part of consolidation is that manufacturers are consolidating. Not long ago, I would meet with a manufacturer and be asked what number it would be on my line card. Some manufacturers would say that if it were not going to be in the top three, they might not hire our agency. I’ve watched many times when my peers were forced out of business or sold because they had major conflicts or didn’t have enough lines to see them through a storm. 

The most important thing for a manufacturer is continuity in a marketplace. So, I would argue that manufacturers want to align themselves with bigger and stronger reps capable of providing all the services that Andrew listed. And the only way you’ll have that is by having a rep with a significantly strong line card. 

However, as consolidation continues, you’re going to start having these second-tier line issues, and how manufacturers choose to navigate that will be really telling over the next couple of years. Manufacturers aren’t going to allow competition on a primary line, but  they might have secondary lines that compete on a rep’s line card. Manufacturers are going to have to allow come of these conflicts if they want to partner with the best rep in that marketplace.

TW: That’s a very interesting turn of events. Andrew, how can manufacturers navigate potential conflicts?

AW: How we think about it at Watts is probably different from that of our major competitors. We have traditionally been a house of brands, not a branded house. We made many acquisitions over the last 20 years, and like with the acquisition of Powers Process Controls, many of the companies we’ve bought had their own unique rep network. We were okay with maintaining a separate rep network for Powers because  we wanted the best rep for them in that marketplace to drive the business and grow sales.

In many markets today, we may have six distinct reps between Aerco, PVI, Powers, Watts, Josam and Bradley. However, you can’t have six reps in a marketplace without having line card issues for the whole brand portfolio.

We have taken the strategy that if you’re going to be the Bradley rep in the market (and Ryan’s a great example of the importance of being an awesome Bradley rep) yet they represent some lines that compete directly with  other Watts brands, we are OK with that. 

We believe the most important thing is that legacy reps for our brands have been reps for, in many cases, generations, building that brand and building those relationships in the marketplace. So, making wholesale changes to our rep network because it looks good on a piece of paper doesn’t make much sense to us. We would rather have the rep who has built that relationship, built that brand and understands the market, understands the end customers to continue to do that. 

When we try to make decisions in our corporate headquarters in North Andover on a piece of paper of what a rep network should look like uniformly across the country, we usually make huge mistakes. And we’d rather stay very focused on the local market and pick the best rep in that local market with a brand  they represent — giving them the resources and tools to drive it. 

TW: Ryan, hearing what Andrew has just stated, do you have anything to add?

RD: I agree with everything Andrew said. The last thing I would add from a consolidation standpoint is that territories are now consolidating. When I started in the industry, we were a Connecticut-only rep agency and probably one of 30. I don’t think there are any more than one or two Connecticut-only rep agencies anymore. 

So, as a Connecticut-only rep agency, you either expanded into New England and upstate New York, get acquired or left the business. And because territory consolidation is continuing, the commoditized product pricing across multiple territories is tough to navigate unless you have a presence in all those different marketplaces.

AW: Ryan, wouldn’t you argue, though, that it is the reality of scale? You had to get bigger, cover more territory and be more meaningful across a larger territory and line card and in services to remain meaningful to your largest customer.

RD: And the net result, which will be controversial, but the net result is larger rep agencies have more revenue and thus can make bigger investments. I can run a fleet of trucks, hire a social media marketing manager, and invest in multiple job tracking services. However, if you were a smaller rep agency in a smaller territory, simply by scale, you’re never going to have the income to do all those things. And those are the things manufacturers require us to do now.

AW: Yep. And I think that’s the gist of where this conversation started, the controversial part. If you’re a smaller rep agency today, a smaller manufacturer today or a smaller wholesaler, what’s your path? The world’s getting bigger, and the costs are getting higher. The cost of entry and to be relevant to the customer are getting higher. How are you thinking strategically about what your business looks like in five years? 10 years, 15 years? That’s the conversation we were trying to get going.

TW: What should  manufacturers’ rep companies do now to align their agency strategy plan with the long-term goals of their manufacturing partners?

RD:  Everyone has been saying this for the last 20 years, and I’ve very rarely seen it executed upon: you must have a clear succession plan. And have it early on, so that the manufacturer is on board.

There are two parts to this. For Andrew, his reps have to have a concession to have a succession plan in place that he’s okay with. They are going to be part of the next generation and able to manage and continue the plan they have in the marketplace. 

Disruption is a painful process for a manufacturer; that’s the second part. I’ve bought many rep agencies, and many were under duress: they didn’t have a succession plan, they lost the income from a primary manufacturer, or their primary manufacturer was pressuring them to get out. In these cases, though, we have to step in and buy the agency. The deal gets structured and constructed over a short period, five to 10 years. All that extra revenue that’s generated for the manufacturer doesn’t get reinvested in the agency, it goes to the seller . 

An early succession plan allows for long-term planning for the manufacturer. If you’ve got your next generation in, and you’ve got a long-term horizon, you can continue to make the investments in real estate, technology and people. This shows the continuity for the manufacturer without, all of a sudden, having to take all this money out for the existing ownership.

TW: Andrew, do you have anything to add to that?

AW: I couldn’t agree more — disruption for a manufacturer is a huge risk. Succession planning or a lack of a succession plan is the most common disruption we experience. Candidly, when we see it coming, we would rather get way ahead of it and control our destiny in a marketplace than let it happen to us and then have to react to it. 

As a manufacturer’s rep, the most important work you do for your business is not your line card — it’s succession planning. And it’s effective succession planning, which is well communicated and doesn’t drain unnecessary capital outside of the business. I agree with Ryan —  it’s the most critical work that needs to be done.