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Monday, January 14, 2008

When is Too Much?

In recent market research we heard that many feel that the overall size of their current market has, and is, shrinking, thus leading to price wars and hence margin deterioration. While much of this can be attributed to the economy, with the resi slowdown trending towards a light commercial slowdown in many markets, some also referred to as “too much capacity in the market place”.

This excess is frequently caused by some “growth” oriented distributors opening locations where significant distribution already exists; national acquirers who decide to operate multiple brands and other acquirers who decide not to prune consolidated locations. There is the belief that the more locations, the more market share and revenue (or does this represent lack of confidence in a sales organization to capture business without a local presence and an inability to deliver frequently enough to the market? Is the “right” local inventory the key to success?)

Part of the challenge is the belief (or fallacy) that a “deeper” footprint generates more business (vs. cannibalizes the business). Another component is that manufacturers are willing to support all of their “major” distributors in all of their locations, which begs the question of “what is the value of an authorized location?”

Does your market have too much capacity? Have “bid project margins declined (vs. realized margins)?

Thinking about your market, with the prospects of slow growth, are there too many distribution outlets? Is price deterioration at a point where you feel we’re all headed to the bottom as far as acceptable margin is concerned?

Or do you think that the competitive market place will take care of too much capacity? Will national chains close under-performing branches, or even consider selling some branches? Or is there another solution that could be considered? Share your thoughts by posting your comment.

1 comment:

  1. When chains hit major markets margins seem to always take a hit, they have nothing to sell other that price. They dont have the competent sales force, service is not up to speed. Often times they drive pricing down, either the exisiting distribution takes the orders or sits by and allows new distribution to possibly get a foothold in a new market. Normally the existing distribution takes the business but it does impact margins in a negatitive way.


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