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Volume Speaks Volumes, Especially When Economies Slow Down
Here are three key ways dealership OES programs, national ‘chains’ (FleetPride or NAPA in a local market) or Internet parts sales sites are impacting independent distributors’ financial results:
Margins are squashed: Even when the independent distributor wins bids against ‘national’ competitors, it still feels the larger entity’s influence. Locals are bidding against un-quantified purchasing power, so prices are decreasing and consequently, gross margin is being squeezed.
Distributors lose suppliers’ leverage: Selling through the independent distribution channel provides certain advantages from the manufacturers’ perspective, but when it comes to supplier leverage, the benefits of selling through local distributors must be weighed against the high volumes generated by dealer and distributor consolidations.
Lost sales due to price shopping: The increased cost cutting focus from truck operators in a slow business cycle has affected any commodity products the distributor sells, highlighting price, not the total cost of procurement, as the most important operating metric. Logical, because …
Buyers Are Consumers First
Fleet purchasing managers don’t become a different species when they show up for work. So it seems logical that fewer of them are staying loyal to their favorite truck parts’ brands.
A new survey shows brand loyalty in general has dropped for the third year in a row.
Deloitte’s annual American Pantry Study (released April 9, 2013) shows nearly nine in 10 consumers are substituting private-label, or store brands for national brands they’ve regularly bought in the past. Sound familiar?
The survey finds 94 percent of Americans indicate they will remain cautious and keep their spending for food and household goods at its current level despite the ‘stronger’ economy and climbing stock market. Sound familiar?
The last recession left a deep scar, and many consumers are harboring a tremendous amount of remorse over prior careless spending habits, says Pat Conroy, vice chairman and U.S. consumer producers leader at Deloitte. He believes there has been a permanent shift in the way people shop.
“The recession was so severe that people across all income levels had to go out and experiment with ways to save. They tried various lower cost options and the vast majority of them found there was little noticeable difference in quality,” says Conroy. “This was an epiphany for the consumer.”
The consumer staples business is facing the steepest uphill battle to get back customers who have wandered.
“Every manufacturer has been affected by this,” Conroy adds. “None of the manufacturers had as many must-have brands as they thought they did.”
“The playing field has fundamentally changed,” he adds. “It will not go back to the way it was right before the recession. Manufacturers must find a way to differentiate the product and find a better way to get the product into the consumer’s pantry.”
Los Angeles-based branding expert Rob Frankel says he expects the penetration into private brands in the U.S. is only getting deeper.
“Conditions are ripe for that because the major brands aren’t articulating their brand strategies,” Frankel says. “That makes them vulnerable to private labels, which yield higher margins — and easier relationships, terms and conditions — to retailers.”