The State of the Distribution Industry

The relationship between distributor and PMP historically has been a close one. Distributors have risen to the challenge of keeping PMPs apprised of the latest products, sharing their insights into the most effective application methods, and providing training programs that equip PMPs and their technicians to go into the field with confidence and expertise. In return, PMPs have demonstrated fierce loyalty to their primary distributors.

But in recent years, distributors find themselves challenged on several fronts as they strive to establish and maintain close ties to PMPs. Consolidation on the part of pest management companies — as well as distributors and manufacturers — continues to alter the playing field, technology is bringing new competitors into the marketplace, and it’s getting tougher to get onto the schedules of time-pressed PMPs for a lunch meeting or a round of golf.

Meanwhile, PMPs sometimes must navigate a new distribution network and wonder if the rep who services their account today will be the rep who services their account tomorrow.

But wait. Maybe things aren’t so challenging. Maybe they’re evolving slowly enough so everyone is keeping pace. PCT decided to find out. We talked with PMPs and distributors to find out their thoughts. The following pages reveal results of our scientific and anecdotal research.

The PMP Perspective

Hank Hirsch has been in pest management for 20 years, the past 15 as president of RK Environmental Services. He says that every distributor sales representative he’s ever worked with has been a good one and has been committed to his success. On a scale of 1 to 5, with 5 being excellent, Hirsch rates the overall quality of distributors a 5.

“Our distributors offer flexibility in pricing, terms and payment, and give us outstanding personal attention. Training support and other intangibles add even more value. I appreciate that they take the time to get to know our business and needs,” he says.

PMPs across the nation echo Hirsch’s satisfaction, as nearly 81 percent of PCT readers polled in a recent survey gave distributors high marks (4 or 5 out of a possible 5) for overall quality. That number rises to 86 percent when they’re talking about their primary distributor. Fewer than 7 percent assigned poor ratings (a 1 or a 2).

Distributors rate highly in their responsiveness to PMP needs, too, as 79 percent of respondents assigned a 4 or 5 in this area. Again, fewer than 7 percent rated distributors poorly.

Is Consolidation a Concern?

So far, so good. Now let’s get into a touchier area: consolidation. How are PMPs feeling about the number of distributors serving the industry and about additional consolidation?

“We are left with fewer options when distributors consolidate,” says Mel Rich Jr. of NuTech Pest Control in Stamford, Conn. “When a great distribution company gets purchased, the first question in my mind is, ‘Will I get the same level of service?’ I also wonder if price points will change. We try to remain open-minded, but it’s natural to have some concern as to whether the new company will be up to the same standard we enjoyed with the previous company.”

Right now, nearly two-thirds of PMPs say the number of distributors in the market is just right. But about a quarter believe there are too few. And most expect additional consolidation.

“As a company that provides services in 16 states, we have limited options; only a handful of distributors are large enough to meet our needs,” says Hirsch. “The industry could likely benefit from having a few more.”

Let’s Talk Loyalty

The universe of primary suppliers includes about 30 distributors, with the top 10 doing about 90 percent of the business, reports Gary Curl of Specialty Consultants. Curl’s most recent research into PMP-distributor relationships aligns with PCT’s in that it reveals a high degree of PMP loyalty to their primary distributors.

“We’ve found that PMPs purchase 85 percent or more of the products they order through their primary distributors,” says Curl. “When they buy outside of their primary distributors, it’s likely because they’re looking for a product those distributors don’t carry.”

PCT’s research found that most PMPs (72 percent) buy from two or three distributors, and 85 percent say they are very loyal to their primary distribution partner.

So when people talk about the growing threat of online sellers to distributors’ share of market, how much of a threat are these supply sources? Not much, says Curl. “We’ve found that not much — less than 7 percent — is being purchased online,” he says.

In the PCT study, only 17 percent of respondents said that they usually use an online ordering system, and that likely includes a significant amount of purchasing from their primary distributors. Most respondents say that they usually order either by phone (57 percent) or in person (20 percent) with their customer service representative.

The Importance of One-on-One Relationships

The actions and integrity of the distributor sales rep are pivotal to the quality and longevity of the pest management company’s relationship with their distributor, says Ronnie Whitaker of State Pest Control, which serves North Carolina. “We look to our distributor sales rep for prompt service, along with technical advice when we need it,” he says. “When the salesperson backs his or her word with reliable service, that goes a long way toward strengthening the relationship.”

Fred Willey of Invader Pest Management in Glendale, Ariz., agrees, adding, “I enjoy getting to know our sales representatives, and I think they enjoy getting to know us. I prefer talking with the people I buy from, even though I do my own research and generally know what I want before we talk.”

Overwhelmingly, PMPs say that they know their primary distributor sales reps. In fact, half of respondents to the PCT study said they consider that person a good friend.

“When you have a personal connection, your representative becomes proactive,” explains Rich. “It’s good to know that someone in the distributorship is familiar with my habits and has a sense for what I might like. I love getting new information and trying things out. My reps keep me in the know and get back to me fast when I have a question or need support.”

What do PMPs value most highly in their distributor contacts? Responsiveness, understanding their needs and product knowledge top the list, followed by courtesy and problem-solving abilities.

The Distributor Perspective

3 Key Issues Affecting How Business is Done Today

Of course, distributors face many challenges as they strive to establish and maintain long-standing relationships with their PMP customers. We asked a few of them which issues are changing the way they operate on a day-to-day basis, and they shared some insights into three areas: technology, consolidation and time constraints.

#1 TECHNOLOGY

Technology continues to change the way Americans live, work, communicate, shop, learn — you name it. So of course we should expect it to have an influence on the way pest management companies and distributors do business. Distributors shared some of the ways they feel technology is changing the landscape:

Communication. “Electronic communication channels are a great way for us to share information, touch customers and service their needs,” says Martyn Hafley, sales director PCO at WinField. “Many customers now text or email orders and questions, and generally communicate with us this way. Social media is also playing a part in the applicators’ advertising and marketing; as distributors, we need to follow suit.”

Brent Bunch of BWI Companies in Nash, Texas, says that BWI is beginning to use social media as well, to promote the company and its products. “We are also providing customers with instant access to information about our products and inventory not only through our website but also our electronic ordering system in the hands of our sales staff,” he adds.

Training. Where there’s communication, there’s the opportunity for sharing information. Cardinal Professional Products is one distributor taking full advantage of online education and training opportunities.

Target Specialty Products offers customers a variety of state-approved in-person classes. “We ensure that all of our customers have the opportunity to earn Continuing Education Credits, safety and regulatory compliance, and product training. This ensures that pest control operators can provide their customers with the highly trained employees they need to compete in our highly competitive and highly regulated industry,” shares Target Specialty Products Vice President Todd Ferguson.

Competition & Margins. Although research points to a high level of customer loyalty, distributors feel competitive pressure as technology opens access for manufacturers and resellers to sell directly to PMPs. Many distributors are concerned that products are being devalued and reduced to commodity status when, in fact, distributors add real value to the equation through service, training and education, and support of issues and associations.

“Our challenge is to provide a high level of service and offer distinctive services or products that encourage customers to continue doing business with us in a market that is becoming very crowded,” Hafley explains. “And as technology increases the number of players reselling professional products, it puts increasing pressure on our margins.”

“The Internet and product commoditization really can put pressure on distributor margins,” agrees Ferguson. “While there may be a temptation to follow a low price to a faceless purchasing source, distribution partners need to work hard to earn the trust of each customer by providing value-added services such as training and professional product advice. A great distribution partner can add real value to the relationships between a pest control operator, their employees and their customers.”

Rick Leece, sales manager at Pest Management Supply, adds, “Many pest control companies believe that distributors make exceptionally high profit margins. That’s simply not true. Over the years, our margins have continued to shrink, in part due to the influx of online providers, and in part due to manufacturers’ dealing with generic/post-patent products.”

#2 CONSOLIDATION Some PMPs would, as a general rule, like to see a few more distributors in the mix. The consolidation trend has reduced the number of distributors, leaving some PMPs feeling like they have too few options. Still, they are are not overly concerned. When PCT asked PMPs whether they are concerned, the split was fairly even: 55 percent said they are concerned, 45 percent said they are not.

But consolidation isn’t limited to distribution companies and, in fact, the consolidation trend might be hardest on distribution companies. That’s because, as PMPs and manufacturers consolidate, distributors feel the pinch from both sides.

Hafley says that manufacturer consolidation has left the industry with fewer partners for value-added endeavors. Leece has been challenged by shrinking numbers of potential customers due to pest management company consolidation. And Bunch shares, “Consolidation has affected our entire market, from the manufacturing segment, through the distribution community, and especially down to the independent customer base of PMPs. There are fewer sources of supply and fewer decision-makers. As the market has become increasingly concentrated, distributors can unfortunately find themselves chasing volume versus growing the marketplace.”

#3 TIME CONSTRAINTS Remember when life was just a little bit slower? When there was actually time enough to get everything done in a day, and distributors and PMPs could shoot the breeze and really get to know one another?

Hosoda does. “It used to be we would make good old-fashioned sales calls and take our customers golfing or to lunch, but today these professionals are understaffed and time-pressed; they can ill afford time away from the office. Unfortunately, that means that customer support often becomes reactive instead of proactive.”

Worse, Hosoda says that time and geographical constraints are placing increasing limits on distributors as they strive to provide important training. “One of our biggest challenges is how to provide high-quality product stewardship training for the industry,” he explains. “With recent issues, such as the Virgin Islands and Florida fumigant exposures, it has become vital for manufacturers and distributors to provide and document the required training. But given the vast geographical ranges many distributors now cover, it is difficult to provide on-site, face-to-face training.”

When sales reps do spend time training, it’s at the cost of developing new business and making sales calls. What’s the answer?

Hosoda shares Cardinal’s strategy: “We are picking and choosing meetings and conferences to attend where we can get the most value for the cost. We are focusing sales calls to provide valuable information in the limited amount of time we get to spend with our customers. And we are speaking at various meetings and conventions, and our own seminars, where we can provide information to many people at once to make more efficient use of everyone’s time.”

Editor’s note: The research reported here was gleaned from an online survey distributed to 2,806 of PCT’s subscribers who identify themselves as pest management firm owners/operators/presidents. The Survey Monkey survey was fielded on Jan. 27, 2016, by PCT’s marketing department.

The author is a frequent contributor to PCT magazine. Email her at ddefranco@gie.net.