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Short Line Distribution: Redefining the Strategy to Serve

Situation: A leading building products company was under-performing in properly serving its short-line distributors. The company had lost ten share points over a three-year period.

Approach: Principia helped define the needs of the company’s distributors and trade customers and then developed a new strategy to better serve the channel.

Outcome: Recommendations included expanding value-added services to the portfolio and reorganizing resources to more effectively serve distributors in multiple regions in the U.S. The client gained a better understanding of serving the market, including demand patterns and customer requirements. Ultimately, the client recovered over seven share points and improved profitability within 18 months in this important market channel.

Two-Step Distribution: Redefining the Strategy

Situation: A leading building products company was underperforming in serving its two-step distributors. The company had lost five share points over a three-year period.

Approach: Principia helped define channel needs within the decking category, by conducting 500 interviews with the company’s distributors and trade customers. Points of need and specific areas of improvement were identified. An improved service point model was developed to better serve the channel.

Outcome: Principia recommended expanding value-added services to the portfolio and reorganizing resources to more effectively serve two-step distributors in multiple regions in the U.S. The client gained a better understanding of serving the market, including demand patterns and customer requirements. Ultimately, the client recovered three share points and improved EBIT by 10% within 18 months in this important market channel.

Learn More About The Benefits Of Evaulatuing Your Distribution Strategy

Want to Grow Roofing and Wallboard Sales? Think and Act Like a Specialized Distributor.

Lumberyards need to learn what the one-steppers do well, then strive to beat them at their own game

Lou Rossi, Managing Partner, Principia Consulting

Traditional lumberyards have expressed strong interest in greater participation in roofing and wallboard and ceiling markets, according to our recent research. However, there’s a major obstacle facing lumberyards: Channel supply, which is dominated by specialized one-step distribution in both categories

Lumberyards accounted for only 10% of the $21 billion worth of roofing sold through wholesale and retail channels in North America in 2015. Similarly, lumberyards account for 11% of the $5 billion wallboard and ceilings channel revenue in North America last year.

Distributors largely serving these categories are narrowly focused, providing the ability to carry a deeper product line within the category. Roofing distributors tend to be bit broader, typically extending into siding and windows to serve overlapping contractor and installer customers. Wallboard and ceilings distributors are almost exclusively focused on these two products. Some companies sell related products like steel framing and installation tools but generally have not diversified into other product categories.

Read Full Article at ProSales Magazine HERE.

Business Platform Buildout in Pro Dealer Channel

Challenge: A national building products pro dealer sought to scale its business by strategically purchasing regional dealers in several geographies.

Approach: Principia was engaged to assist in the corporate growth strategy planning to achieve this goal. Several targets in each region were identified, leading to in-depth assessments of each company, initial approach by Principia, and support of each deal. Principia was further engaged to provide commercial diligence in each deal to evaluate underlying market fundamentals, assess each target’s image and position in the marketplace, and confirm input assumptions for each seller’s revenue and margin projections.

Outcome: Client initiated a series of preemptive negotiations to acquire 5 pro dealers, representing over $200 million in annual revenues.

Channel Strategy Optimization in Residential HVAC Distribution

Situation: A distributor of HVAC systems sought to reevaluate its entire go-to-market strategy as part restructuring its sales organization and resource allocation.

Approach: Internal and external assessments were conducted with company personnel and through channel checks and field research. Principia also mapped how distributors targeted and reached customers, channels to market, and then recommended changes to the client’s sales coverage model, as well as its sales structure and management.

Outcome: The Client initiated the sales transformation actions, which resulted in year-over-year sales increases of 22% and 14% over the past two years and a more streamlined approach to serving its national and regional customer base.

Go-to-Market Strategy in Lumber

Situation: A leading supplier of sheathing and engineered lumber including I-joists and LVL was interested in pursuing a strategy to shift its overall revenue mix and increase sales in commercial mid-rise type 3A construction.

Approach: Principia quantified the addressable market opportunity for the client’s current products to determine the share of market size before developing a customer-driven needs assessment with the A&D and developer community. Insights from the voice of the customer provided an understanding of the specification and selection process and how the client could earn the right to win its share of this spec-bid-sale business. A business strategy centered around a focused go-to-market approach with a restructured commercial and technical organization was developed to support improved market coverage and customer intimacy with target accounts at each stage of the decision-making process.

Outcome: The client implemented the new commercial market-facing strategy which has led to six points of increased share above organic growth from market recovery as well as an improved vitality index from sales of new products innovated through customer feedback.

Multi-Channel Distribution Is The Norm In Windows

Windows Channel to Market, 2014

Windows Utilize Multi-Channel Distribution

The distribution of windows is one of the more complex networks among building products.  Part of this is due to the complexity of the windows product line based on an unlimited number of sizes, types (e.g. single hung, double hung), frame materials, glass types, hardware etc. This large number of product combinations results in the majority of windows being custom ordered rather than delivered from in-stock inventory. This complexity also drives the channel options for purchases as shown above.

Overall, window retailers accounted for the nearly 1/3 of the volume of window sales to end users in 2014 according to Principia’s latest window and patio door report. This includes sales of windows from factory-owned stores such as Renewal by Andersen and Pella Stores.  Lumberyards accounted for nearly as many window unit sales as retailers and serve both the home builder, professional installers and homeowners.

Big Box Window Growing DUE TO THE  the DIY and BIFM Sector

Despite window replacement being a fairly complex project and the wide range of window options available, big box retail is a large and growing path to market for both DIY and professional installers.  In addition there is an emerging segment of “Build it for me” (BIFM) buyers who purchase windows themselves but hire professional contractors or remodelers to do the installation. Each window value chain participant needs to understand the best path to growth for their particular product line, region and target customer groups.

Windows and patio doors 2015

LBM Distribution Industry Reached $147 Billion in 2014

LBM Channel Revenue Increase, 2014-2017

LBM Channel Revenue Forecast to Increase by $26 Billion

LBM distribution channel revenue is forecast to increase from $147 billion in 2014 to $173 billion by 2017, which represents a net $26 billion increase.  The total gross margin pool is projected to grow from $34.5 billion to over $40 billion over the same time period, a $6 billion increase and an average annual growth rate of 5%.  Two-step distribution and lumberyards will grow closer to 6% annually due to greater participation in new construction, which is projected to experience faster growth than repair and remodeling throughout the forecast period.

Lumberyards Will Be See Biggest Increase

The lumberyard channel is projected to increase its category lead in total revenue growing from $45 billion to $54 billion, and from $9 billion in total margin up $11 billion, a 6% annual growth rate due to the high increase in new housing starts.  Overall, specialty retailers will grow less quickly due to a greater reliance on repair and remodeling but will retain the largest overall share of the margin pool and account for $11 billion in margin by 2017.

Lumber will have the largest overall change in channel revenue with $6.6 billion predicated on continued growth in housing starts while it is projected that cabinets and countertops will have the greatest growth in the total margin pool with $1.5 billion. In the figure above the greatest margin growth opportunities by product category and channel is shown above indicated by the size of the circle.

LBM Distribution

Best Opportunities For LBM Dealer Growth And Expansion Are In The West and South Regions

Average LBM Dealer Revenue by Region, 2014

Regional Channel Revenue for Lumber and Building Materials

Principia recently published Lumber and Building Materials Distribution 2015, its third comprehensive analysis of the $147 billion industry. Through examination of revenue by region and number of dealer outlets, regional differences in the average revenue per outlet were identified.   Channel revenue is split between two major dealer categories, lumberyards and specialty 1-steppers. The national average revenue per location is $6.8 million which is the outcome of dividing $69 billion by the approximately 10,000 locations in these categories.

The historical development of the lumber and building materials distribution industry shows that branch locations were typically built in the major population centers in the post war era and there was a preponderance of locations in the Midwest and Northeast.  However, as the housing expansion took place in the 1970s to the South and West, the industry did not keep pace in terms of shifting the distribution base. In fact, during the housing downturn, much of the industry focused on closing underperforming locations without consideration of how to position when the recovery took hold.

Best Opportunities for LBM Dealers are in West and South

As shown in the figure the highest average revenue per location is in the West and Southwest.  Virtually everyone’s forecast projects the West and Southwest to continue to be the growth engine for new housing starts.  A key takeaway for LBM dealers looking to expand regionally should be to carefully examine their strategy and consider not only what is easiest to accomplish but which opportunities represent the greatest potential for revenue and margin growth.

LBM Distribution

Market Entry Strategy in HVAC Equipment

Situation: A well-established Japanese producer of electronic control devices was in the early stages of commercializing a new line of energy efficient control modules focused on the HVAC industry.

Approach: Principia helped develop a market-entry strategy in North America with a thorough overview of key market segments and potential OEM customers. Key trends in usage and types of HVAC equipment were developed, along with insights into the future use of high energy efficient devices. Principia aided pre-marketing efforts by establishing point-of-sale and point-of-marketing contacts at the OEMs with an interest in advanced control products.

Outcome: The client initiated several product development programs that were integrated into full systems by a major OEM. In two years, sales exceeded three-year revenue targets and totaled more than $100 million after five years.

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