Creating opportunities in the 21st Century - Part 2

Published:  15 August, 2012

In part two of the Builders’ Merchants News Round Table Debate, sponsored by Acheson & Glover, leading independent merchants discuss the industry’s problems and how to move the sector’s business forward with greater confidence and better sales.

Lisa Arcangeli: What always surprises about our industry is just how little margin merchants survive on. What should merchants be doing to increase these margins, particularly in this depressed market?

Mark Mallinder: One way is to reduce ranges right down for the benefit of rebates. But in the end, we strangle the choice for the end customer. If you give them that choice on the good, better, best principle, it’s amazing how many people will go for
the high margin products because they have the choice. Builders are consumers too and some merchants may have forgotten
that they need to be addressed as such.

Nick Sims: Suppliers should be prepared to provide us with products that they won’t supply to nationals, the internet, the Screwfixes, B&Qs and the sheds to help independents keep their margins up.

Stuart Cook: As a manufacturer, we have a very clear view. We don’t deal with nationals. We’re not trying to set up competition on our differentiated products. So, if someone is stocking our products in a town, we don’t want someone else stocking our products in the same town.

Peter Buttle: It’s unbelievably difficult to get merchants in a group to agree to deal with issues like supplier standards and whether we need to look at the nature of the behaviour of our suppliers before we make the choice on our deals.

Howard Grant: Some customers only want Lafarge plasterboard or a Worcester Bosch boiler. That brand may be the only one that installer may fit in his life. It was the one he was trained on and the one brand he will keep on fitting.

Mike Rigby: It’s a matter of shifting the balance so that you are selling more of a mix of higher margin products. One of the aims is to sell other things at the same time in your threeminute window. You have to be good and slick in order to be able to do that. I went into B&Q and, wandering around, I hadn’t really noticed just how cleverly things were positioned. Almost everything was within field of vision for a particular project and within reach.

If you went in for a commodity product, thinking about how much you will need, you find yourself almost instinctively reaching for the other things which actually recapture the margin. Think about the journey.It doesn’t take much time. Once you are clued into a particular project, you are bound to buy other things. If you just go in with the ‘give me this’ attitude, chances are
you won’t buy other things. 

Tim Rowbottom: Do you think tradesmen operate that way? I can see how a consumer could walk into a B&Q for a
packet of screws and come out with a kitchen, but does that happen with trade?

Mike Rigby: When I was at Dulux, we did a study, watching people. Not only how long they stayed in-branch, but what they did while they were there. We tracked them - everything they looked at, what they bought, everywhere they went and then we interviewed them to find out what they went in for. It was amazing just how many people had gone in with a vague idea of the project. They wanted ‘X’ and ‘Y’ and they didn’t see it, so they went out. I think that collectively, as an industry, we have a lot to learn as to how to move sales along. It’s about learning from what some other companies do particularly well.

Tim Rowbottom: If you’ve got it, they will be more likely to buy it. But, it’s also about asking the right questions. If a chap plunks whatever he has come in for on the counter, ask him ‘where are you working?’, ‘what else do you need to go with these products?’

Shanker Patel: If you listen to all the modern psychologically-based techniques of selling, parts of all of those should be incorporated into a builders’ merchants’ dialogue. There are scientific ways of selling which we currently don’t take on board in our industry. But, we have communication with our customers.

Going back to my early training at Homebase, I was told ‘do not talk to customers’, just keep the aisles clean, stack up the shelves, etc. I was very excited about doing all these things. The point was, the company had invested so much in point-of-sale, the staff was only there to stack the shelves, or whatever menial task they had to do, but not to sell. At a builders’ merchant you go in and talk to somebody. It’s the guy you speak to who has the best opportunity for cross-selling, getting higher margins or whatever else you require.

Stuart Cook: If you are communicating with people you have the opportunity to talk about a lot of things and you are building a relationship. In this industry you get the feeling that everybody’s frightened about everybody else nibbling around the edges and taking business away and that the general size of the pot is getting smaller. What about going the other way around, selling your customers the landscape architect’s design service or soft landscaping or other things that can go with the core products? That way, rather than other people nibbling away at your margin, you can increase it by selling more products and services which are traditionally not thought of as being builders’ merchants’ territory.

Mark Mallinder: We tried that on a number of products. It does work in a number of little niches for great sales with good margins that we wouldn’t normally have had. There is a danger, however, of taking your eye off your core market, which is trade. We have pulled in some of these products and it’s not about how much turf we can sell. Will selling turf make a difference to our bottom line? Not really. A word of warning - have it there in moderation as an add-on but not so that it detracts from your main ranges.

Shanker Patel: As an industry, we have access to thousands of products across so many different categories but we only stock a very small proportion of the products that we can access. From my point of view, the best cross-sell/upsell are the catalogues in my sales office cupboards. I say to my guys: ‘if you get an enquiry, don’t say we don’t stock it or we can’t get it. Go into that cupboard or search the internet and get back to the customer’.

Doing that, however, gives the game away. The minute you figure out what the customer wants, they go on the internet and buy it for a cheaper price. But, 50% of customers will be enamoured by the fact that you have done this for them. Then, you go for the kill. That is the simplest way to earn 40-50% margin. Expect the other 50% of customers to use and abuse you.

Mark Mallinder: It pays for a lot of cement.

Shanker Patel:We looked at whether we should be selling turf or added value items or services like insulation, but that’s not going to bust your figures nearly as quickly or as effectively as selling all the other products you can get for your customers.

Tim Rowbottom: Often, it’s the products that nobody stocks and no-one really knows anything about. We use this tactic to tie customers into us. That’s merchanting.

Shanker Patel: In the h&b Buying Group, how many suppliers are there who we have never heard of or deal with because we don’t stock their products? If we get an enquiry, the last thing we should do is revert to type and say ‘sorry, we don’t stock it’. We should say ‘we’ll get it for you!’

Peter Buttle: It’s very difficult to get consistent, simple information from suppliers about all their products in one format. If we did we wouldn’t have to trawl the internet. With the amount of suppliers we have, we can search our own system and we won’t have to give the customer the product code so he can go and get it at a cheaper price on the internet. It’s not just merchants that have areas they have to work on. The suppliers do, too.

Mark Mallinder: We have always been shy of putting literature out. We have almost kept it hidden for fear of someone seeing it, mainly because the brochures don’t have our logo on it or aren’t branded with our details. We need to be more confident about our services and our loyalties. We should show all the suppliers’brochures we can get hold of because
50% of our customers will pick them up and ask for a quote. OK, 50% may abuse us, but if the customer doesn’t know
you have those extended lines, you’ll never know.

Stuart Cook: This comes back to the partnership between suppliers and merchants. If you have confidence in us, knowing that the only person stocking the product in the area will be you, you will be prepared to put our brochure on the desk. If you think every national will have the same product, you won’t. You will try to sell the customer something where you are confident you will make the sale.

Nick Sims: Do you produce your own literature?

Mark Mallinder: Traditionally, we did our own, thinking that we wanted to be ‘brand’ precious. Now, we have reverted to letting the brands come to the fore. The tradesman doesn’t really care. What they want to see are big brands.

Stuart Cook: If you read our literature, you won’t find any contact details about A&G. It talks about the merchant, ‘your local expert’, deliberately. 

Tim Rowbottom: We solve our customers’ problems. Often, it is a difficult problem. It is this service that wins us business, particularly new business.

Howard Grant: It all goes back to the merchant being a knowledge base...

Tim Rowbottom: ...and projecting the fact that we know better.

Shanker Patel: Whether you know the ins and outs it doesn’t matter, so long as you can get your customer’s confidence that you know, or that you can find somebody who does know. Having good suppliers really works. Your salesman will have some vague idea of the suppliers he is going to call and the one who is the most helpful will win the work. It doesn’t get much more complicated than that. It is simply about meeting somebody’s material requirements. We’re heavily focused on delivery and our biggest problem is logistics. It’s about getting the materials where the customer wants them, when they want them. That is all we do. But we have to work hard and smart at it. Then there will be plenty of opportunity to attack the nationals who are growing by taking position in every single industrial and retail park. It’s a Tesco formula: obliterate the physical space that is available and you will get fantastic market share. Independents don’t have that fire power but we do have the opportunity to have greater conversations and we have far more knowledge than the nationals do.

Tim Rowbottom: What we need are suppliers who recognise that and who can help us. It is hard work placing an order with them, never mind giving them something else to do! Taking landscaping suppliers as an example, who do they view their customers to be? All of their products are geared towards the end-user, yet we are the ones who pay the invoice. How much
help can they give us to sell their products?

Stuart Cook: In our defence, our literature is designed as a tool for you to use as a selling-on tool. We have other literature which is designed to convince you to buy from us. Moving on from that, the only way to increase margin is to get your costs
down. One way to do that is by introducing IT systems which take all the hassle out of placing orders through
e-commerce. You should be supporting suppliers who have gone down that route and invested in that kind of technology.

Howard Grant: One of the biggest problems we have with manufacturers’ pitch to merchants is that they have glossy brochures which are consumer and end-user-driven. I remember seeing a fancy flyer from a tool distributor for its new product. It was all about the product and the company said ‘you have to help us get this to the merchant’. I said ‘you have just talked to me for an hour about your customer service to merchants and given me a brand new product brochure. There’s not a word in it about what you are going to do for the merchant. They are your customers. They have to be persuaded that one product is better for stocking and working with than another’.

A lot of that is about service propositions from a manufacturer and a distributor. They produce a widget they know the customer wants, so the merchant must stock it. Actually, no. Tomorrow there will be another widget that is exactly the same and that is why they have they do something different in terms of how they support their route to market. That is a good challenge for the manufacturing and distribution side of the business.

Peter Buttle: We talked about the buying groups addressing the manufacturers. 

Stuart Cook:We are selling to you, so the last thing we want you to do is to get together in a big group! We have tried everything to break it all down and differentiate everything. You are trying to make it all the same commodity in order to get bigger buying power.

Peter Buttle: We recognise that it is in our interests at times to get together. The insulation market in the current climate is a case in point. It is potty for all of us to battle against much better players that are now entering that market with offers that make it not worth dealing with.

Stuart Cook: Is this something which the BMF should be addressing?

Howard Grant: They would have to be very careful about restrictive practices.

Part 1

Part 3

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

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