RELATIONSHIPS IN DANGER?

It has been prophesied before: the industry is on the eve of another round of consolidation.

Until now it was the league of the big players that dominated the acquisition-scene, but I am convinced that the time has come for the 2nd league to enter a consolidation-phase; because companies in this league, the incorporation of which traces back to the late 60s and early 70s of the last century have reached their peak and find it increasingly difficult to outgrow the market and find their ways in an increasingly brutal business-environment..

A consequence of consolidation.

In general, one of the key reasons for consolidation is cost-savings through synergies. One often sees sales and distribution set-ups overlapping after the acquired company gets integrated into the parent. Or brands become obsolete (or for sale) because they do not have any further strategic relevance in the combined portfolios of the acquiror and the acquired.

In those instances where sales and distribution of these products and brands are largely dependent upon the traditional route through the (national) distributors – in my point of view still a significant slice of the total pet industry – the latters' positions are threatened, in it that the acquiror will start to consolidate the distribution-network as well; or decides to integrate the acquired products and brands into his own portfolio and have his own – sometimes well-established – salesforce deal with these products and brands in the future.

The consequence of such is not only that the distributor stands to lose sales and margin by the discontinuation of representation(s), but also because the remaining portfolio of the distributor is weakened and thus less attractive for the retail-clients. And also the distributor will find it difficult to take important cost-cutting measures, because most of his cost will to a great extent be fixed. His cost per call are stable, whereas the average order-size is likely to diminish.

React or pro-act?

Is the distributor in a position to take fate into his own hands or does he just have to accept the status quo? Reaction is in my point of view not only a possibility, but from a business standpoint often also a necessity. But how to react? And, can the distributor only take a reactive position or also a pro-active one? And, equally important, can one distributor act just by himself?

It's all about which initiatives are taken when! Why would a distributor have to wait to take initiatives until he gets the boot by the manufacturer? If he wants to develop and implement his own way forward, pro-activity is a pre-requisite!

In most cases initiatives can only be taken by a group of like-minded distributors, facing the same challenges, because more often than not just one national market does not justify and can not absorb the investment in new initiatives, whether defensive or offensive.

How to go about it?

Whichever the options are, it is critical that the distributors are prepared to act as marketeers (which is more than just cutting corners in copying the products "lost" and sell them under a fancy name) and that the classic prejudices such as "my market is different from yours " are eliminated; because nationalistic thinking limits the options and in reality does not or at least should not exist from a business point of view.

Together with colleague-distributors (beware of possible territorial conflicts) one can and should develop products and brands. A joint approach is essential to provide the venture with strong enough a basis for a powerful international distribution and with that an acceptable pay-back period for the joint investment.

Is there a worthwhile opportunity?

Would the distributors have reasons to be afraid to play second fiddle in an orchestra that is dominated by manufacturers in the industry? Certainly not; the key asset of a distributor is his numerical and weighted distribution , which can be fully exploited, whereas the establishment (read manufacturers) needs the distributors to have access to this key asset.

There is an interesting terrain lying open for the distributors who want to become less or not at all dependent upon the strategy of their principals and who have the guts to take - in an international setting - product- and brand-initiatives that contribute to the sustainability of their businesses.

Additional information