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As I have attended user group meetings and other industry meetings there has been some discussion about competing with the “big guys.” It seems that every month another independent wholesaler is acquired, merged, absorbed or gobbled up by a large regional or national wholesaler. These large wholesalers are always bragging about their multi-million-dollar initiatives relating to infrastructure or technology. Some small and medium-size wholesalers are wondering about the future of the industry, but more specifically about their future. The lot of the owner of a small or medium-size wholesale operation is often riddled with two kinds of guilt: hindsight guilt where they are second-guessing their previous decisions and proactive guilt where they are wondering if they should be doing something that they are not doing. In the end they take their best shot hoping for a good outcome.
I do not have a crystal ball so I won’t hazard a guess as to how this will all play out. I wish I could offer a magic answer to this complex and evolving situation but I can offer some suggestions to improve your odds of a good outcome. There are no sure-things but these activities have withstood the test of time in our industry.
1. Good news, your strategy is the same for most scenarios — Whether the industry goes up or down; whether you are looking to be acquired or want to retain ownership; whether you want to harvest the business or grow it, your objective is the same: to create a solid, well-run, profitable business. To be sure a solid profitable business does not protect you from all risks, acts of God, natural disasters, the Ebola virus or that wacky uncle who sits on your Board of Directors. I do believe, even in these situations it probably gives you the best odds of survival. Profits position you to receive optimum value if you are acquired. Profits allow you to weather economic downturns and to thrive in prosperity. Profits may even pacify that wacky uncle. (With respect to the Ebola scare, I guess profits would allow you to buy the very best hazmat suit.)
2. Build a team of the best and brightest — If I could offer of the single most important recommendation for fending off the big guys it would be to build the very best team you can afford. This can serve as a significant differentiator as you take on larger competitors. As a small or medium-size wholesaler you might be thinking, “The big guys might be reading this column too so they could use this same strategy and they can probably pay more than I can.” That is an accurate observation, but the good news is that the big guys often view wholesaling as a game of stock prices, systems and fixed assets. They look at people more like warm bodies that are the necessary evil to running their theoretical operation. Many do very little to bring quality people into their team which, based on statistics, often results in the typical bell-shaped work force…some great, some duds and a lot in the middle.
View every opening as an opportunity to best your competition. Like any pro team, you want a hall-of-famer at every position. Whether you’re hiring a senior executive or a junior warehouse person, take the time to find the right person for that position. Notice that I didn’t say “best person” for that position because that often devolves to “the best we could find on the spur of the moment. I often hear, “yeah I know the guy is as dumb as the post but he was the best that we could find.” That tells me that they have “settled.” They have given up and filled the position with a “convenient” individual not a great player. The first rule of good hiring is that you do not settle and that every position is filled with an individual who meets certain minimum standards for the position and thus has the best odds of succeeding. Most large companies fail to insist on this basic objective and settle for a warm body to fill the position.
3. Don’t cede online commerce to your larger competitors — The big guys view the Internet as a huge competitive advantage/opportunity. Their investment in e-commerce can be leveraged across all of their “brick and mortar” locations with very little involvement or resistance by the field team. It’s a dream come true for the corporate gamers since they control all the moving parts from HQ.
Some small/medium wholesalers are still in denial thinking that their customers are not and will not be interested in electronic commerce. Hopefully you acknowledge that online commerce is and will be a significant part of our industry going forward. I won’t provide a full discussion of the topic here but want to suggest a couple ideas:
First and foremost, you must have a horse in the race. When your loyal, long-time customers are ready to buy material online, your larger competitors are hoping that you will be a no-show or that your “horse” will be a broken-down loser. They will win the race by your default.
You might be thinking, a broken-down, loser web-store is better than nothing. Statistically-speaking that might be true but practically-speaking a crappy store is about the same as a no-show. You need to offer a great web-store, ideally a best-in-market web-store.
There are two parts to every web store: 1. Product information that is offered to the customer; 2. Software that operates the search, shopping cart and customer service while communicating with your main computer system. You will need great product information to launch a great store: I can almost guarantee that the product information in your computer system is not adequate for providing a best-in-market web store. (Most computer systems contain all-uppercase, heavily abbreviated, inconsistently formatted descriptions, few, if any, pictures and no product specifications.) Great content is available through third parties like our company, Schmitt ProfiTools, Inc. and others. You can also build it yourself if you are into reinventing wheels. (One caution: Some wholesalers and some content providers gather content by obtaining/stealing copyrighted materials from other websites. Before you consider this path talk to your attorney about the ethical and legal issues of this practice.)
You probably have lots of options for your webstore software: Your software provider may offer a web store product. I can almost assure you, that you have other options even if your software provider’s sales person tells you that they are the only game in town. Before you accept that option it is critical that you look at the other options available and make sure that you get the best-in-market web store that you will need to compete with the big guys.
4. Make sure you are buying right — When it comes to buying power, size does matter. The big guys are often able to bully suppliers. Small and medium sized wholesalers can improve their buying power through buying groups, yet I still encounter some that are not a member or are not leveraging the programs available through their buying group. It is also critical to avoid a complacent relationship with your suppliers. Every supplier meeting should include the reminder to the supplier’s sales person that you expect him to provide the best possible costs so you always have parity with the other wholesalers in your market. It is your responsibility to continuously ask for the best price which then reminds the sales person to provide it. (If you don’t ask, he might forget.)
5. Manage your inventory better — To a certain extent, it is the old saying, “You cannot sell product that is not in your warehouse.” I was talking to a salesperson who works for a “big guy” and he was laughing/crying about his disagreement with an MBA-holding, corporate purchasing agent, “I told him I needed to stock repair couplings. He told me that the demand statistics indicate that I don’t need to stock them and that we can get them next-day from our distribution center. I explained to him that there was an obvious difference between a hole in the ground and the place where he could shove his demand statistics. He eventually got the point and I now have repair couplings in stock.” The best inventory managers run lots of numbers and then apply their knowledge and experience to the situation. Managing inventory is a tough balance between too lean and too fat but being known as the wholesaler who “has it” is always better than being known as the “out-house.”
6. Outsmart them, don’t outdumb them — Don’t assume that any competitor’s approach is the right approach for you. Being big doesn’t always mean they are smart too. Big wholesalers may be doing dumb things that you absolutely don’t want to copy. Before you copy them, make sure you understand what they are doing and that it is right for your company.
I was talking to a wholesaler recently who was telling me about having to match a larger competitor’s rampant, low-ball pricing. I did not disclose this to him but I am aware that the competitor manages pricing very carefully. He sells a handful of items at low margins but sells many items at pretty high margins. His overall margins are very, very good. The first wholesaler was going to copy the low margin part on a lot of SKUs but he was missing the part about raising the prices on other items.
In uncertain times it seems the easiest thing to do is nothing. Don’t sit back and wait for your competitors to eat your lunch, start making improvements today.
Rich Schmitt is president of Schmitt Consulting Group Inc., a management consulting firm focused on distribution and manufacturing clients for pricing, consulting seminars and profit improvement. He is also the co-owner of Schmitt ProfiTools Inc. (SPI), which provides web storefronts and handheld tools, print catalog software, content creation and services, and pricing management and analysis. Visit his company websites at www.go-scg.com and www.go-spi.com. Schmitt can be reached directly at firstname.lastname@example.org