2021 Modern Distribution Management Survey Signals Positive Outlook for Wholesalers & Distributors

Published on May 13, 2021 by Tony Lane in Consulting, COVID-19, Wholesale / Distribution

In Modern Distribution Management’s 2021 Industry Outlook, a survey that MDM conducted in conjunction with Robert W. Baird & Co., finds that the distribution sector appears to have solid footing. This comes as a relief to many of our wholesaler and distributor contacts, given the recent industry and supply chain upheaval as a result of the 2020 COVID-19 pandemic, and we are pleased to report that valuation multiples are up across the board. Based on survey responses, the industry as a whole is expected to see overall average increase in volume by approximately 4%.

We’ve summarized some of the additional positive indicators below.  When measuring results for the year, it was recommended that distributors use 2019 as the benchmark for measuring 2021 results, due to the volatility of 2020.

Financial Outlook & Industry Specific Analysis

From a financial perspective, MDM has an optimistic outlook for 2021. Key indicators such as low-interest rates and a subdued level of inflation help bolster the outlook. In addition, distributor stock is trading above its 200 day moving average, which points to a healthy market outlook and strengthening investor confidence. Additionally, 2020 Ended with a Surge in M&A activity, which is expected to continue into 2021, as business valuations remain strong.

Much of the MDM survey results appeared focused on three distinct markets:

1. Industrial Manufacturing – Business owners in this industry can expect to see a strong rebound in 2021.
2. Non-residential Construction – The outlook here not as promising, as it has been tough to get onto job sites. The impact of more individuals working from home also casts some shadow on the recovery effort. Don’t expect to see a full recovery until 2022.
3. Residential Construction – Business owners in this industry can expect to continue to see strong results as the housing market continues to be strong and supply remains tight.

The MDM report also listed the following industries among the winners coming out of 2020. These industries are expected to see continued growth in 2021 and beyond:

1. Roofing – 6.1% Growth. Roofing supplies shortage caused by supply chain disruptions in 2020 mean rising prices for 2021, fueling growth in this industry.
2. Pool and Spa – 5.7% Growth. Demand continues to be stronger than supply, which has been favorable for pricing.
3. HVAC – 5.5% Growth. The growth here is also due to strong residential growth, while industrial demand is still lagging. Still the industry as a whole has benefited from recent trends
4. Lumber and Building Materials – 5.4% Growth. Continuing the trend listed above, a strong demand for residential housing, as people move out of expensive urban centers in favor of more affordable markets in the south and west, combined with supply chain disruptions and supply shortage has fueled growth in this industry.

Other Industries that were highlighted in the MDM report include the following:

1. Gases and Welding – This industry receives a mostly positive outlook, with anticipated growth of 5.3% for the year. Welding supplies are anticipated to grow 4.8%, however, there is strong indication of pricing pressure from both tariffs and increased taxes.
2. Pipes, Valves and Fittings – Business owners can expect to see positive increases between 2% and 3% for the sector. The industry will see the effects of margin pressure, as prices continue to creep upwards.

Technology Changes & Disruption

The MDM survey also included questions about what technological changes wholesalers and distributors anticipate adopting during the year, which are noted below. As expected, E-Commerce continues to be the most anticipated change, as companies react to shutdowns in 2020 and shifting consumer demands. Companies that continue to adopt digital business models will emerge in a stronger and more competitive position as the recovery continues into 2021.

Technological shifts and changes to be mindful of in 2021 and beyond:

1. E-Commerce – Establishing a digital store front allows the business to reach customers where they want to buy and can also provide an opportunity to meet new customers. E-Commerce also helps to reduce the amount of redundant processes and the amount of paper transactions.
2. Pricing – This may be the most difficult shift to implement, as building a pricing matrix that serves all clients can be complex. However, providing customers with the ability to see real time pricing will help customers to provide real time quotes.  Also, as many industries have seen multiple price increases as a result of raw material prices increasing and supply chain disruption, pricing changes can be made in real time and be made available for customers.
3. Client Relationship Management (CRM) – Implementing a CRM system will help to ensure that customer information is shared amount the sales staff and can help to ensure that there are multiple people touching important customers and developing relationships. CRM software allows the company to collect more, and more useful information about customers which can help with developing trends to determine customer needs and also to send more targeted communications.
4. Cloud Computing – Implementation provides a great deal of flexibility to the organization, allowing employees to work offsite, while having access to relevant information and programs. Moving to the cloud also helps with team collaboration and can also be instrumental from a disaster recovery standpoint, as the information is not store onsite.
5. Electronic Data Interchange (EDI) – Allows companies to speed up one of the most important transaction processes, which will potentially lead to quicker collections. Switching over to EDI invoicing provides efficiencies and reduces potential human error, as invoicing is done automatically and there is no paper.

Additional Resources

Have questions about the MDM survey and 2021 outlook?  Talk to one of our Barnes Dennig wholesale distribution industry experts, or call us at 513-241-8313 to ensure your business is successfully transforming in the wholesale distribution landscape. We’re here to help.

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