Beyond the Rebate

As the saying goes, there’s strength in numbers, and the jan/san industry officially recognized that fact 40 years ago when “buying groups” began to emerge. The early buying groups were dedicated almost solely to negotiating better product pricing and passing on rebates to members.

Not much changed over the years. Even though there was a concerted effort by some groups to redefine the concept, a study as recent as 1995, published by industry analyst Kline & Company, indicated that the main reason janitorial supply distributors belonged to buying groups was still because of the rebates, extra discounts and pricing the groups secured.

That was seven years ago. “The rebate is not the key to the group,” said one distributor of the revised 21st century model of a buying group.

The contemporary buying group boasts a lineup of value-added services, including technology and sales assistance, branded products and extensive networking opportunities, among others.

Wearing Many Hats
Changing market dynamics made the buying group metamorphosis inevitable.

This evolution of support is reflected in the way the groups now choose to refer to themselves: in many cases the tag has changed from “buying” to “marketing” groups.

Distributor buying groups have been forced to evolve to survive, says Dick McGann, executive vice president of AFFLINK, a marketing organization for distributors headquartered in Tuscaloosa, Ala.

“What’s happened as the group model has evolved is that those that have fallen by the wayside are those buying groups that have relied solely on distributing rebates to the distributor,” McGann says. “The manufacturer and the end user are now looking to do business with partners that are more adept at reducing the overall cost of transacting business.”

The role buying groups play has now become expansive. Today’s buying groups offer a multi-faceted array of business support compared to the ’60s model.

With some exceptions, today’s groups offer the following resources: marketing and positioning of branded products; technology procurement and connectivity; available national sales representation; national accounts; networking opportunities; and catalogs and marketing materials, among others.

Pressures Are Mounting
The impetus for change comes from suppliers, in addition to distributor members — and even, to an extent, from end users.

Manufacturers, traditionally content with trading rebates for volume purchases from buying groups, are now looking for more for their money, say industry experts.

“Manufacturers are taking a harder look at who they’re going to align themselves with in the future,” says Alan Sadler, executive vice president of Triple S, a marketing group based in Billerica, Mass. In other words, they’re looking to determine who can bring what to the table.

McGann agrees. Today, he says, manufacturers are asking, “What am I getting for these rebates?”

Dr. Bill McCleave, president of W.R. McCleave & Associates, Cornelius, N.C., says suppliers have become more discriminating for the same reasons the distributors have — a wobbly economy wreaking havoc on profits.

“The manufacturer is constantly asking the question, do these buying groups give them more market share and more advantage than they could create on their own. If the answer is yes,” he says, “they’ll support them. But they’re under scrutiny. They realize that there’s a cost to the buying groups.”

Consolidation also has given the supply side greater leverage to put more pressure on marketing groups to deliver, says Jim Alexy, president and CEO of Network Services Co., a marketing group based in Mount Prospect, Ill.

“Consolidation has resulted in fewer but larger suppliers who now need to look at the value derived by their relationships across the industry. Suppliers need to know that their investments in these relationships pay dividends. If a group can favorably affect the suppliers’ economics by delivering consistent sales growth, access to national account customers and a platform for future growth, they are an attractive partner for any supplier,” he says.

Distributor must also find them valuable for more reasons than just rebates.

“A lot of [distributors] join initially because they see the financial benefit,” says Linda Silverman, vice president of sales and marketing for Maintex, a distributor company headquartered in City of Industry, Calif. “But there are a lot of other benefits,” she adds. Catalogs, marketing programs and networking meetings are just a few of those benefits, she says.

National Exposure
Another way marketing groups are hoping to court distributors, and ultimately suppliers, is by securing national account business.

“Independent distributors today cannot cost-effectively service national accounts,” says McGann. “National, multi-unit customers need a wide geographic coverage, e-commerce systems, standardized product and dedicated customer service. AFFLINK has been successful by delivering systems and dedicated personnel to call on and service national, multi-unit customers.”

“These groups can help you when you’re bidding for national accounts,” says Bruce Boynick, a senior associate with consulting firm Kline & Company Inc., based in Little Falls, N.J. “Let’s say you’re going to sell in the health care market. If you’re going to be in on that contract, you have to at least lead those guys to believe you can execute. If you have a buying group, you may be able to have a team together so that you can execute,” he adds.

But while all the marketing groups Sanitary Maintenance interviewed for this article recognize the increasing importance of national account business — and say they hope to become more involved in it with time — only a couple have been active and successful in securing and servicing it to date.

AFFLINK has undergone significant growth in its national accounts business for the past four years, says McGann. The group’s approach is to bring a value proposition to the end user, he adds. It’s about more than the products. It’s about reducing total procurement costs, he says.

Joseph P. Weil, CEO and president of Joseph Weil & Sons Inc., a distributor based in Chicago, serves as the chair of AFFLINK’s advisory board, and has been successful with national account business due to AFFLINK’s involvement.

“A group gives an independent size and scale beyond its local market and can give a distributor the ability to compete against corporate chains as part of a larger organization,” he says.

“We do a lot of business in the national account arena. [The marketing group] allows an independent distributor — that would normally be locked into shipping borders — to approach national accounts.”

Network has been involved in the national accounts business since 1968, says Alexy, who notes that the compound annual growth in this area has been more than 20 percent for the past few years.

“Our distributors are, at most, regional companies. As such, it is virtually impossible for them to participate in the vast national accounts marketplace. The opportunity, then, is how do they access this market, yet retain their independence?” he asks. “By joining with other independent distribution companies across the country, they can compete with the huge corporate distribution organizations on a national level while maintaining their autonomy and strength in their individual ‘home’ markets.”

Branching Out
Other marketing organizations are finding other ways to leverage their numbers. Randy Moss is president of Distributor Partners of America (DPA), a relatively new group headquartered in Naples, Fla.

“We just formed some committees to look at other services,” Moss says. The committees are looking at peripheral suppliers — business-related providers that extend beyond janitorial product lines.

“Every distributor buys and leases trucks — but we’ve never looked into a national program of truck leasing.” DPA is also trying to negotiate fee reductions for credit cards, and also looking at ways to reduce the cost associated with wireless communication.

Other ways distributors can improve their businesses are by tapping into member expertise and exchanging business ideas. Networking opportunities were one of the most often-mentioned attractions for distributors to marketing groups. Some communicate via newsletters, website forums, or group conferences.

“One of the benefits of the buying group is the ability to ‘talk’ to people from outside of your geographical area that you can share ideas with,” says Silverman.

The Right Fit
Michael Tanner, CEO of Bell Janitorial Supply LLC, a $3-million distributor headquartered in Salt Lake City, carefully researched a number of groups.

Tanner’s company was a member of IDS, a marketing organization that was purchased by AFFLINK about a year ago. When the organization was purchased, Tanner made the decision to “shop around a little bit.”

For Tanner, his requirements were pretty simple.

“We were looking first and foremost to find a group that represented the vendors that we needed,” he explains. The rebates are a given, he says. After he found groups that could give him the products he was looking for, he analyzed them in other ways.

“I ran a spreadsheet with percentages and what would earn the best rebates — but I didn’t choose the one with the best rebates,” he adds. PRO-LINK was his group of choice. Besides having the field sales reps he coveted, the common catalogs and products, he had the benefit of unfulfilled market demand in the region in question.

“A former competitor had at one time been a PRO-LINK member and they established product recognition,” he explains. The competitor in question had been rolled up into Unisource, leaving the marketing group, as well as a market demand for its products.

Exclusivity in his market was a big factor in Tanner’s final decision. He wanted a group that could guarantee he would be that particular group’s only product provider in that market.

Product exclusivity was also a big determinant for Silverman and Maintex. About five years ago, after leaving the United Group in search of new product lines, Maintex found Triple S. Last year, however, Triple S’s affiliation with AmSan (AmSan is a member) caused Silverman to reassess whether she still had the market exclusivity she desired.

“We wanted a group where we felt we wouldn’t be one of many in our market,” she explains. “The direction Triple S was going and the direction Maintex were going were different.”
Silverman’s confidence in the buying group was shaken. Buying groups are designed to help local or regional distributors compete with national companies, she says. Instead, one national company became a dominant force in the buying group. “We were, in some cases, competing in this marketplace.” Silverman’s company has since joined another group.

Membership Has Its Price
It doesn’t make sense for every distributor to consider joining a marketing group. Similarly, many circa 2002 marketing groups are more discriminating regarding who they allow to join. Some groups, for example, require that members reflect annual sales of $2 million to $3 million. Other groups cherry-pick their members based on product niche or geographic reach or location.

So, while you find yourself painstakingly evaluating the right marketing group match for you, don’t be surprised to run into some pointed questions regarding what, exactly, you and your company bring to the table.

Marketing groups can afford to be more discriminating and pricey because they offer the small — and larger — distributor what today’s marketplace best responds to: strength in numbers, competitive pricing, marketing savvy and specialization.