Creating opportunities in the 21st Century - Part 1

Published:  27 July, 2012

Winning share in a shrinking market is difficult, but there is a way to get ahead of the pack. At the Builders’ Merchants News Round Table Debate, sponsored by Acheson & Glover, some leading independent merchants discussed the industry’s problems and how to move business forward with greater confidence.

Panel

Stuart Cook Commercial director Acheson & Glover
Peter Buttle  Joint managing director Buttle plc
Howard Grant Managing director Unimer
Mark Mallinder 

Group marketing manager 

EH Smith
Shanker Patel  Managing director

Lords Builders’ Merchants

Mike Rigby  Managing director MRA Marketing
Nick Sims Commercial director

Ridgeons

Tim Rowbottom  Joint managing director

Collier & Catchpole

Lisa Arcangeli  Managing editor Builders’ Merchants News

Stuart Cook: A&G is a small familyowned Northern Ireland-based concrete products manufacturer that has worked extensively in Ireland for many years. It’s not just about being known; it’s about becoming part of the market. The key for us to get further into the market is through partners, the distributors who can help build the bridge between us and the end-user customer. That is why it is important that we engage with the merchant industry. This Round Table is an opportunity to engage with the industry and allows us to put forward the issues I see every day when trying to convince merchants to take our products. People like us – the smaller independent manufacturers I feel have a big role to play to help independent merchants. A&G believes we can help the industry more forward in some of these areas. We’re here, we have a lot to say – and so do you – and this Round Table is our opportunity to talk.

Lisa Arcangeli: Winning market share in a shrinking market - at Builders’ Merchants News we keep being told that domestic RMI is forecast to grow while newbuild will be flat. Everybody is scrambling around for a bigger share of the market. What, in your opinion, is the way in which merchants can sell more successfully and retain or regain market share?

Shanker Patel: The current downturn is a great opportunity for independents to win market share. From mid 2008 to 2011, big groups were rationalising issues at corporate level with pleasing shareholders and focusing on trading was sometimes not high on their agenda. All the nationals have had to react to a changing marketplace and that was an ideal opportunity for independents to gain market share. The route, for a lot of merchants is competing on price, because it is a commoditised product in many respects. The way we look at it, ultimately, is that we are selling space on a vehicle. We’ve got ‘X’ amount of capacity and we have to sell that space to get the product out to the customer as efficiently as possible. Our proposition is then built around customer service and in ensuring that we are targeting the right customers who have the work and take credit risks. But you have to do the financial modelling that goes with it, ie how much bad debt can you take on against a drop in sales. We did a mathematical model of a 10% drop in sales versus £10 000 of bad debt and which one would yield us a greater retention or an increase in profits. Then, we invested in customer service. It’s effective and it’s do-able. That is the core essence of independent businesses. It’s all based around the needs of the customer and you change as your customers’ needs change. There are difficulties in changing the corporate mindset. Your sales people say it is very competitive. They hear one price from, say Selco, where that company has a model that is almost like a cash and carry; you walk in, it’s very cheap, but you have to load it yourself. It takes the customer twoand- a-half hours to purchase £200 of materials. And, by the way, you have to put it on a trolley and take it off the trolley and put it onto your vehicle. We take that information and ask ourselves: ‘What is it that a customer really wants? Surely, that two-and-ahalf hours is worth something to them. If your customers value their time, then the extra 10p or 20p a bag pales in comparison. It’s changing the mindset of your sales people to have that kind of conversation rather than immediately going on the defensive because the customer has turned around and said you’re not competitive or cheap enough. What is cheap for one person is expensive for another. It’s about understanding how to overcome that particular issue. It’s about being committed to customer service, which is easier said than done.

Nick Sims: Have you seen growth over the last two-and-a-half years?

Shanker Patel: We have seen tremendous growth. London is also very different. It is almost a country in itself and one that is doing very well despite the economic issues. The growth, from our point of view, has come from taking market share. We have seen a lot of independents locally where sales didn’t drop off a cliff.

Peter Buttle: Business is certainly stronger in London than it is in the outlying areas. Branches that are outside the capital have more trouble getting people through the door. It’s a harder job because it is more people-intensive when you’ve got to do the deliveries, so that kind of sale is much more difficult to achieve. It’s more rewarding when you are capturing more of your existing customers actual spend and not giving them any excuse to go somewhere else. There are different qualities about the same service you have to offer. Merchants are about fulfilment. But, when we have examples of virtual brass-plate companies who put up a market front and then we are expected to offer fulfilment at an even lower reduced margin, we ought to be better at putting our own message cross and keeping the whole slice of the business.

Mark Mallinder: As an industry we have been bad at selling the benefit. We just slash prices to keep up with cheaper competitors. EH Smith is chiefly based in the Midlands and it is a fiercely competitive market up there. We have seen a lot of our customers migrate off to the likes of Selco or cheaper wholesale-style operations. You can see why they have done this. Our customers are under a lot of pressure as well. Sometimes merchants bang out an offer in an attempt to stop people exiting the building. We have got to get used to selling the benefit and the reason why we, as independents, can compete far better than these other people and that we can add value. That is a key issue.

Tim Rowbottom: Fundamentally, nothing has changed about what we do, we just need to do it better. It’s about understanding what the customer wants and then giving them what they need. Often, the two are quite different. What they want are cheap prices. What they need is good service and on-time delivery. We need to distinguish between the two.

Shanker Patel: Something independents are very good at is destroying value, because on a given day it’s raining and you get a customer who comes in with a £2000 order but at a ridiculously low margin. We say, ‘take it’ and at a stroke you have lowered the expectation of prices from the customer and possibly destroyed the price of that product for yourself for a while. There are better ways of managing than just employing reactive selling just because you have to hit the sales number for the day – and it happens to be a poor day.

Tim Rowbottom: Independents don’t know just how good they are. We also often don’t understand what good service we give, compared to the nationals. You can see this when you employ someone from a national to work in your organisation.

Stuart Cook: When I talk to independents there’s not one I speak to that isn’t totally focused on providing really good service. Everyone is trying to aspire to do it. But then they all say ‘the best place for our branches is around the corner from a national, because we can out-manoeuvre them’, but then you look at the end of the year and whose turnover is growing? It’s the nationals’.

Peter Buttle: Their branches are under every bit as much pressure as ours are. They are not as efficient because they do not have someone there who has direct input.

Stuart Cook: If all independents are giving fabulous service, is that enough to win market share from competitors?

Peter Buttle: No. Because the perceptions that are given to the customers are not the facts. We traditionally have some serious faults in the way we do things.

Shanker Patel: Some of that comes from the way builders’ merchants are structured financially. A lot of independent merchants historically own properties and are not under pressure to pay rent. Stock control? You are cash rich. You’re over-stocked? Who cares? That’s the fine edge on which the nationals excel. While we are very good at the customer service side of the business, the nationals are good at financial and operational management. Unfortunately we, as a businesses, need both.

Nick Sims: I come from a PLC background and the basics are absolutely critical in this sector. Where I came from, all the customers buy off a set of trading terms. They come to the counter and all their terms are set up. That way, you can control your margins far better. Here, it’s a trading culture. Everyone perceives that we’re making 75% margins and we feel guilty. There are some really basic things which we can do. What are the key things a customer wants from a merchant? First of all price. Then it’s knowledge, which we have loads of. Then it’s ‘can you deliver it on the day you said you can?’ Is your stock accurate? Relationships are also a major issue within this industry. We have very good customers and we’ve got hang on to them. Other problems are that we compare ourselves to Jewson and Travis Perkins. What we should be doing is comparing ourselves to John Lewis or Tesco. What we need to do is to benchmark ourselves against other industries, not the merchant down the road. Expectations for customer service are much higher now than they ever used to be.

Mike Rigby: You mentioned Tesco and John Lewis. The more worrying development is that both these organisations are actually coming into our sector. They will make loads of mistakes, but they are determined to enter the market. I recently saw a list of things which these organisations are planning to get on the back of the Green Deal. It is looking very broad. I know from speaking to people that these companies are setting up the infrastructure to support all of these businesses. If everybody is to have a bite out of this market, where does the volume go? It won’t affect the people who are growing fast, but collectively it will have an effect. And, people will make the comparison in terms of punctuality, service, delivery and so on. They may cock up, but once effort, money and resources are thrown at something, it will start to have an effect.

Nick Sims: I know we’re independents and we’re not too worried about the amount of stock we hold. But it is important that it’s accurate or you can lose sales. You have a customer who wants £2000 worth of goods but they have this price down the road. Have they got it? No they haven’t, but we have. Then we have to say ‘this is our price’ and we have to get tougher at doing that even if it means letting customers walk out a couple of times. We have trained people over the years to be customer-orientated, not sales-orientated at trade counter level. We’re now engaged in a sales programme, telling our people not to be embarrassed to make a profit. That’s what we’re here for. Other areas of concern to me are shelf-edge pricing, which TP has taken off. I went into their branch as a customer and there was no pricing on the shelves. I went to the counter and they told me they would zap it for me. It came to £13. I asked if there were any discounts. I was told it was already included. That was it. Are you telling me that as a layman I can’t come in here? I can, they said.

Peter Buttle: The legislation that came in that said we have to shelf-edge prices, didn’t apply, then? Local trading standards must come into play here.

Tim Rowbottom: If you have a price list for the customer to look at that is the loophole.

Mark Mallinder: It’s not all branches that have gone down that route. At one of our local branches, there was not a price to be seen, while at another branch in the Birmingham area there was shelf-edge pricing. There appears to be an element of regionality.

Tim Rowbottom: Do we see a role for being merchants? TP is a shop. ‘That’s our price, take it, that’s our offer’. We are merchants and trading is part of what we do, but it’s getting harder and harder to do.

Stuart Cook: This is one of the issues to be resolved. If you’re starting to benchmark yourself against John Lewis and such like. When I go around, the old traditional model of ‘we’re a merchant, we stack stuff up and sell it cheap and wait around for somebody to come in and say what they want’ is no longer what the more enlightened merchants are doing. As we go forward, more people will accept the level of service they get from John Lewis. So, what will differentiate the merchant in the future will be having a kind of ‘wow factor’ to get people to come in. I’ve visited a site in Cambridge and the display and ambiance makes you feel comfortable in that environment, you don’t feel threatened, you see products displayed and think ‘I really want some of this’. You aren’t just selling products, you are selling how I want my house space or my garden to be.

Nick Sims: Is that important to the tradesman? It’s important to the retailer.

Tim Rowbottom: For the customer, the tradesman puts a different hat on.

Shanker Patel: Having a clean floor at the trade counter in a builders’ merchant was seen as strange. It’s meant to be mucky and dusty. I think the wow factor is to be efficient. That means simple things. We had an account with a major national and I can assure you, that over the five years we had that account, not a single month was reconciled without us waiting for credit notes. It’s incredible that an organisation of that size could not get its invoicing correct. We win business on the fact that we say to our customers that 99% of their invoices will be correct. If somebody has quoted you a price, that is what you are going to be charged. If we have short-delivered, we’re not going to send you a credit note, we’ll make sure the invoice is right, reflecting how much we sent you.

Shanker Patel: Organisations like Tesco will never get that right. They don’t do it in their stores because they are not trained to get 100% efficiency on every transaction. Some of our customers have said they have left other merchants because one time something went wrong. One time. But it was so critical to them that they didn’t value the relationship strongly enough to say ‘everybody makes a mistake’. There are other things which merchants ought to be getting right: it’s in our control. We don’t have layers of management we don’t have directives and committees running our businesses. We have real people. And, if they can be trained to ensure that these things are done right they can be great drivers for sales. They are the people who see our customers. When they go in they have to have the right attitude.

Lisa Arcangeli: Is training a vital issue? Where can merchants get this type of training, if not from organisations like BMF? Would you consider looking outside of our industry for sales training?

Nick Sims: It’s changing our culture, not to be scared to stand our ground and say ‘that’s the price’. We’ve got the product, we’ll pick it, pack it and load it for you’. We need to get more of a sales head on and all the leads that go with it. ‘What contracts are you working on? What else is on that job? Can I send a rep in to see you’. We don’t do any of that naturally. And, the big boys don’t either.

Stuart Cook: As a manufacturer, we try to trade on differentiation. When we get in with a stockist, we go to every branch and try to put everybody through a training programme about our products and their benefits compared to competing ones. The feedback we get from the branch managers is that this is fabulous because their guys need to put forward the benefits of selling these products and know that they can upsell to get higher margins and start to generate some cash, rather than ‘I have five products and that one over there is the cheapest’. That training helps merchants see the benefits immediately.

Peter Buttle: But it’s not an inherent skill for most of branch staff, because most of the people they address are not the decision-makers or the consumers, but somebody brought in to do today’s tasks, they are third-hand from the person who would be able to influence those decisions. I think Nick’s right. We still have to take those models that set the best examples, or how else are we going to change the existing culture? After all, it comes from old sandy yards, coal merchants and who knows what.

Shanker Patel: It’s perceived value. You have to charge as high as possible a value that your customer perceives. If they want a product and it’s vital to them, but you’re 10p more expensive for a bag of cement and a national takes three days to deliver, what is the value for your customer for your ability to be able to deliver the next day? Chances are, it will be pretty high.

Mark Mallinder: The irony is that we don’t communicate that. It comes down to staff training and which members of staff we place on our counters who come in for the sharpest end of the business. We have had a tendency when we have found a great salesman on the trade counter to promote them to the sales office, rather than leaving them in their position on the trade counter where they can make a difference. Training is vital. We have got to sell the benefits and the difference between us and others. Our counter staff have to be encouraged by whatever means not just to discount, but to show the value of the service that we offer There are huge benefits in being an independent merchant, yet we keep it hidden away. We have to get better at it with 21st Century marketing. The Tesco’s of this world are the ones out there telling us how great they are and what they can do for us. We also have a different generation of tradesmen springing up. Some of the older generation of tradesmen, who have been used to and liked to barter and haggle at the trade counter have been replaced with a newer generation that is more John Lewis and Amazonsavvy and are used to knowing the price, not prepared to haggle but are prepared to go elsewhere.

Peter Buttle: Maybe we should offer them an ‘elsewhere’. Tell them about another website – which is actually ours and we’ve had it re-branded - so they can’t make the connection that it is actually setting our branch price.

Mark Mallinder: That’s another training issue. Some of it comes down to processes. Where we say ‘efficiency’, we are looking at the buying process and the customer journey. How slick is it? Time is money. These guys have got to get back on site quickly. That’s probably why they don’t want to spend time arguing over the last penny on a screw. They just want to get in and out quickly.

Nick Sims: We did some research in our branches where we had someone stand and monitor customers as they came in; how much time they spent, was any link selling done, did they pick anything up on the way, did they put anything into a ‘shopping basket’. The average time they spent in the branch was three minutes. They want to get in and out but we have got to try and keep them there a bit longer. In those three minutes we have to find better ways of selling the range. There are two special offer boxes on either side of the counter and people just stood between them. We have to get better at merchandising.

Peter Buttle: What is the most frequently sold product we sell? Rubble bags. Where do we put them? Straight in front of the counter. They grab them as they walk out.

Shanker Patel: Three minutes. That doesn’t give them little time to sieve through your materials and thousands of pounds worth of shelving where your products are placed so that they are really eye-catching. We find that the main thing counter staff miss out on is talking. It’s the most effective way, if you have three minutes, just having a chat. The first thing we use in our training is a builder’s bag. That way, you know the customer is demolishing something or building. The first things we ask them is ‘where are you working and what are you doing?’ From there, you can start a conversation where we can ask them where they usually but their materials from. Customers enjoy that. You have to becareful when engaging the customer, but it is an excellent opportunity to start a conversation that will lead to a sale.

Tim Rowbottom: We look at the big companies and see how they are making more money by commoditising and all the techniques that go into that. We look at the supermarkets, who know more about the psychology of selling than anybody. True independent businesses are based around people. The reason we are successful is because we give the customer what they need; we look after them. Every one of our customers needs something different. People go into Waitrose because they are hungry. Our customers may be a roofer, a groundworker, a plasterer. They may be a small customer – a one-man band, a big contractor or just someone sent off-site to get something. All have different requirements. The danger of looking at TP or Waitrose is that we just become a clone. They can’t do what we do and will never be able to because they are so firmly focused on how often they turn over the stock in their branch and how much their staff cost them. We don’t. It’s about how to interact better with our customers.

Mark Mallinder: It’s about being proud of what we are and not trying to be someone else to achieve it – especially when you look at how many branches they have, their budgets and buying power. For me, it’s about pulling out some things from their business models which they do very well and not being afraid to say ‘they are doing really well with this and I should be getting a little more of that’. Even if we can pick up one or two items, it builds our business, especially in the communication side of things, you have got to be out there. If you remain silent, you remain invisible.

Tim Rowbottom: As a relatively small merchant, the problem we have is a new customer will turn up and tell us we won’t be able to compete with the nationals because customers have the perception that because they are big companies and they have all these offers, they must be cheaper. It’s perception, not truth. We know we can compete with them.

Nick Sims: TP has got its merchanting focused on the trade, Wickes is focused on retail. We get confused by trying to be all things to all people when we are 80% trade and worrying about retail. We are a trade organisation and we have to go after our core customer base. TP spent £26m on its media campaign for Wickes. They spent £200 000 on their media campaign for TP. They know it is much easier to hit the trade than it is to hit retail. They’ve worked that out. If they’re offering 50% off a kitchen, we can’t do it. So, we have to focus on what we can do.

Mark Mallinder: Five or even 10 years ago when we were in a boom period, trade was walking through the door and you couldn’t help but make money off the back of it. We were looking for other avenues and areas like DIY, landscaping and retail niches. But, we have had to scale that back and ask ourselves what is our core business? What is the service we are providing? How can we serve our customers better? How can we communicate this better to make sure we get the value absolutely clear that as an independent merchant we are every bit as good – if not better – than people making their business out of discounts.

Nick Sims: If you’re a retail customer, that’s the price. If you are a trade customer, we’ll give you a set of terms.

Stuart Cook: One of our difficulties we have as a manufacturer is that we have all kinds of customers in the market segments we work in – trade, enduser and the small builder. What we don’t do is communicate with all of them using the same message. We have different teams building relationships with different parts of the market. That is something where to gain more share in the future as a merchant, you need to look at developing your market sectors or to influence those who are influencing the people coming through the door and developing those relationships with them.

Nick Sims: Independent merchants still make up 50% of the market. The big nationals keep getting bigger. With four buying groups do we do enough together in terms of volume? We all work separately.

Peter Buttle: There ought to be more getting together for our joint aims.

Tim Rowbottom: It has been mooted before and there have been ‘quiet conversations’ about this, which haven’t taken off..

Peter Buttle: Too many personalities...

Tim Rowbottom: And politics...

Lisa Arcangeli: Bigger buying groups?

Peter Buttle: Not necessarily. I’m thinking about the same groups, but working together when it makes sense. We need different menus of suppliers and suppliers need a choice of merchants, but that doesn’t mean we should see other buying groups as a threat to each other.

Stuart Cook: As a non-merchant, some merchants don’t realise that they should compete with other merchants. They’re all buddies together, especially if the others are independents, when they actually need to be stuffing the bloke around the corner and trying to take share away from them. In a buying group, everyone becomes very pally and that stops the tension between them which would be good in order to tin market share...

Tim Rowbottom: If market share is what’s important. You know who your competitors are and you know the customers who are loyal to you and they have their loyal customers, too. Going after each other’s customer only ends up driving down the market price because that will be the only thing you can compete on. Is there any point in doing that? Having said that, the nationals don’t have any compunction about doing that at all.

Howard Grant: Nearly all of you said you want to get the basics of customer service right and you also talked about the John Lewis model. I think that is an example where as consumers, you have to expect the basics to be right and therefore targeting the basics is not enough. You need to go beyond that...

Nick Sims: It’s very difficult to deal in ‘blue sky’ until you get the foundations right.

Howard Grant: Absolutely, Nick. I’m not suggesting that getting the basics right at all times is easy, but you have to have a way of looking for those unique aspects of your customer service to make the difference. I sit on the judging panel for the Builders’ Merchants Awards for Excellence as does Lisa and Peter did once as the last ever BMF president. You see some wonderful examples of proactive merchants who are really pushing the boundaries. One concept that really sticks in my mind was from a small merchant who had the idea of introducing a secure container in his yard whereby his customers could call in after hours knowing that their products had been put in this container and they could collect them securely before the yard was open or after it had closed. It was a brilliant bit of innovation. That kind of example is starting to change the business model. When we’re talking about market share and getting more customers it’s all about what makes you different and building on that. Knowledge is fundamental and is something that is underplayed. The other big thing for merchants is to have one or a few areas of expertise that makes you different from the runof- the-mill merchant. We have great examples here with EH Smith, which is recognised as the brick experts. They have massive stock, availability and their own website. Off the back of that they’ll sell bricks, but they’ll also sell blocks and everything else that goes with it. They pull the customer in based on their expertise and this spills out into selling other products.

Part 2

Part 3

This article first appeared in the May edition of Builders' Merchants News.

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