Seven key trends driving building products distribution
With the benefit of hindsight and sales data, we can now assess the impact of the pandemic with greater clarity. While some trends that emerged during and immediately after—such as the surge in DIY activity—have proven more temporary, the pandemic ultimately acted as a catalyst for lasting transformation. And the market continues to evolve.
In the wake of Covid-19, the building products distribution sector experienced several abnormal years, marked by periods of both inflated demand and restricted supply—and, at times, the reverse. A series of black swan events disrupted normal patterns, impacting both supply and demand in unpredictable ways. The market is only now beginning to stabilise.
These are the key factors currently driving change in the building products distribution market.
1. Digital Transformation
Distributors are increasingly adopting digital tools to streamline ordering processes, manage inventories, and enhance customer interactions. Though the share of online in the merchants’ space remains relatively modest, there is a growing preference for online transactions and customers’ expectations are increasing. Though introduced for the benefit of the customer, digital tools bring efficiency benefits for suppliers and distributors as well.
Robust e-commerce platforms, offering online catalogues and mobile applications that allow contractors and builders to browse products, check availability and prices as well as place orders in real time are being introduced. Most distributors are enhancing their general online presence and implementing digital marketing strategies to reach customers in the digital space.
2. Market Consolidation
Market consolidation, with larger distributors acquiring smaller regional players to expand their market presence or achieve operational efficiency, is continuing. It helps larger merchants streamline operations and improve competitive positioning. The recent injection of private equity investment in the merchant sector has meant more pressure, with high returns expected within short timescales, and acquisition is a way to grow more quickly.
However, indications are that smaller merchants and independent merchant groups are doing better, both financially and in terms of customer satisfaction, than the larger groups. Some of the national chains have rationalised and got rid of branches or sold off parts of their business, and the churn created by private equity investors can be disruptive.
Though market concentration is increasing, there are more small independent merchants starting up. The online marketplace and availability of digital tools have eased the barriers of entry somewhat. However, merchants are facing increasing competition from outside the building industry, with online retailers in particular targeting contractors and builders.
3. Supply Chain Resilience
The recent global disruptions have highlighted the importance of a resilient supply chain. Distributors are diversifying their supplier networks, investing in logistics technology to monitor stocks and optimising their distribution strategies to mitigate risk and ensure consistent product availability.
Logistics systems are being redesigning to reduce delays and address vulnerabilities highlighted by recent events. This might include the setting up of regional distribution centres or nominating a branch as such, that also serves as a base for online orders.
It is not just about technology and logistics though. To get it right, distributors need to work with likeminded suppliers and build strong relationships with the right businesses. In some cases, it is necessary to source as locally as possible, in other cases resilience may mean working with companies that can be trusted to deliver no matter what or have multiple delivery routes or operations in several geographic locations, offering flexibility.
4. Customer Experience Enhancement
As competition to supply builders and contractors increases, from both traditional and non-traditional channels, builders’ merchants are having to focus on what makes them special. In many cases this is their consultative sales approach and in-person customer service. Many are also developing their offer of value-added services such as more specialist technical support, training and personalised solutions.
Post-pandemic customer expectations are different. It is important to have a strong presence online to meet the evolving needs of contractors, builders and end clients – some of whom just want a good price and fast delivery. Building relationships is important, even where customers shop online. While loyalty programs or incentives to retain customers can help, smooth stock checking, ordering and delivery services make customers come back for more.
5. A Focus on Sustainability
Up until quite recently, a sustainability focus appears to have applied mostly to some pockets of the industry and certain product areas, but specifiers and end-clients are now specifying sustainable and eco-friendly products to a greater extent. As a result, there is an increasing demand for these products, partly driven by regulatory pressure and market incentives, that distributors must respond to.
Distributors are expanding their product lines to include sustainable building products, and this is also influencing their product selection and distribution strategies. Aside from building materials with green credentials and energy efficient products, the focus also extends to sustainable packaging solutions and the use of electric construction vehicles. There is an emphasis on reducing carbon footprint across the supply chain and within the regional or local distribution process.
6. Technology Integration
The integration of e-commerce, CRM and ERP systems is increasingly important. It allows a customer to have one account but order in a multitude of ways and has many advantages for the distributor. The data and customer behaviour can be analysed and responded to without the merchant compromising on customer privacy.
Another area where change is happening is within product data. Industry-wide systems are being created to allow distributors, as well as specifiers, to access up to date product safety information, including recommended use of the product, in a centralised and integrated way.
The integration of technologies like IoT, AI and advanced data analytics in operational systems will enhance efficiency in future. Though real-time tracking and demand forecasting is already available, these tools increase efficiency, reduce costs and improve service quality. Robotics and drone technology in delivery processes is also available, though not widely used.
7. Changing Market Dynamics
Finally, certain construction market factors are having a big impact on the distribution market for building products. Not least the issue of current and future skills shortages within the sector. Who is going to build all the houses and the infrastructure we need?
Another key issue is affordability. How can we build houses and flats that people can afford to buy? Demand remains high, but the increasing problem of affordability is creating a greater gap, or mismatch, between supply and demand.
The high volatility in material prices that we have seen – and may continue to see given the political and economic situation we are faced with – presents a challenge. Contractors’ needs are changing and there is an increased demand on speciality products, which requires merchants to stock more product lines.
The inflation, material costs and the higher cost of employing staff also affects the affordability of major infrastructure and other public sector projects. With many large-scale projects already over budget or running several years late, this will not help matters.
In times of challenging or changing market conditions it is especially important to keep a close eye on both opportunities and threats and to check in with your customers to ensure there is alignment between customers’ (potentially changing) needs and the products and service level that is being provided.
These are some of the changes that are shaping the building products distribution market right now. The article is part of the blog series ‘The Changing Face of Distribution’. To read the next instalment, follow MRA Research on social media.
