Diversifying

Like many small-sized jan/san distributors, Pittsburgh-based Christman Chemical Co., Inc., is dabbling with diversification.So much so, that the company recently expanded its product catalog to include a wide variety of maintenance, repair and operations (MRO) items, as well as office supplies, on top of its already established jan/san product line.

The decision to go beyond the traditional jan/san model was made after examining its existing jan/san customers’ purchasing habits, says Dave Detweiler, the company’s operations manager.

“We found that our customers purchase in a pattern,” he says. “They go to Office Max to buy their office paper, Grainger when they need tools, and they come to us when housekeeping needs disinfectants.”

By understanding what its existing customers have a high interest in, Christman Chemical is looking to capitalize on its customers’ purchasing habits and get them to consolidate those purchases into one purchase order — from them.

Intense pressure from competition, customers and economic issues, has forced many jan/san distributors like Christman Chemical, to shed their “strictly jan/san” product shells and venture into new product categories to not only stay competitive, but also to survive in what has become a tough jan/san marketplace.

Pushed by customers to become the desired “one-stop shop,” jan/san distributors are finding that taking on more product lines helps generate additional revenue for their companies as well as strengthen their relationships with customers.

Items that were once bought from several different suppliers and involved countless purchase orders are now being consolidated and packaged into one. And, customers are finding that their jan/san distributor, who once only supplied housekeeping supplies, can now be tapped into for more specialty items such as foodservice, maintenance supplies, packaging, hand tools, safety equipment, office supplies and more.

That means customers can now combine items such as foodservice disposables, with pens, staples and ink cartridges, a disinfectant, carpet cleaner, as well as a hand saw and safety glasses all onto a single purchase order — from their jan/san distributor.

Market Demand

Distributors are recognizing that there is not only a large enough demand from their current jan/san customers to invest in new sectors, but by doing so they are opening new avenues for revenue.

Customers nowadays have a desire to reduce their vendors and purchase everything they can for their facility from one vendor — especially if it means that distributor can help save them a buck.

Customers are looking for distributors that offer a wide variety of lines that help reduce purchase orders, checks, salesman calls, as well as the time it takes to search for products.

“Processing an invoice costs a substantial amount of money,” says Detweiler. “So when customers can take two or three invoices and convert it to one, right there they’re saving a couple hundred dollars in the total process.”

Many customers are also trying to avoid the rising costs of fuel surcharges due to the high price of gasoline. This has been exceptionally tough, as most distributors, trying to save their own companies’ money, have placed restrictions on deliveries to make the delivery feasible. But customers who are purchasing a broad range of items from a diverse supplier are finding it beneficial because drop sizes will always be large enough, thus eliminating the need for otherwise additional charges, says Steve Rathbun, environmental solutions manager for Martin Bros. Distributing Co., Inc., Cedar Falls, Iowa.

Before a jan/san distributor takes the initiative of expanding its product line it must draw on its market and its current customers’ purchasing patterns. Going into a line without significant knowledge of how a particular product or sector may sell to current customers can set a supplier up for failure.

“The best approach a distributor can take when going into other product sectors is understanding their market and truly understanding their customer base,” says Carmen Casabielle, corporate director of sales for Miami-based Dade Paper Co. “If you do not have those two it will not equate to a successful outcome.”

From foodservice to MRO, to office supplies, distributors say once they’ve built a solid and reputable relationship with their current customers, the customers are more willing to show an eagerness to piggybacking on these other product sectors if made available to them.

Caution Signs

Jan/san distributors today are looking for the extra piece of business, especially with the possibility of a recession, which is causing a lot of distributors to grab whatever they can in the marketplace. But before distributors dive in to new product lines, they should be cautious. The biggest mistake a jan/san distributor can make is going after a segment or a piece of a segment that they’re not an expert in.

“It’s best not to offer something that you cannot offer solutions to your customers,” says Casabielle. “You’re better off sticking to what you know best and being an expert on what you currently have in stock, rather than have a ton of items that you don’t really know anything about.”

Unless a distributor is a high performer in the industry and new, incremental products can be sold to some existing customers that are requesting them, it is a mistake for distributors to add new commodity lines of products, says D. Bruce Merrifield Jr., president of Merrifield Consulting Group Inc., Chapel Hill, N.C.

“If they are only mediocre at the competitive game they are in, why should they be better at a new game in which there are more competitors, that are more entrenched and more intimately on top of that new game than they have the ability to perceive,” he asks. “Shouldn’t they figure out how to be a high-performer within the game they are in first, before going off on new adjacencies? Then, they would have the free resource flow to invest in new ventures.”

But for some distributors, sitting back and watching their competition both grow and lure their customers away is forcing them to move quickly. And when distributors first decide on expanding, they find that product diversification has its significant short-term, negative cash flow costs.

“Distributors have to write real checks for new inventory investment that will only start to turn after the distributor underwrites a lot of new product training and selling efforts aimed at both old and new customer training,” Merrifield says. “The first orders tend to be small, money-losing ones for samples, fill-ins, etc.”

Inventory expansion, especially when it involves other sectors, also involves money.

“It takes money,” says Louie Davis Jr., sales representative for Central Paper Co., Inc., Birmingham, Ala. “You have to commit inventory dollars to these new categories and sometimes you don’t have the product right away to do that. It takes a lot of money to increase your inventory.”

Although expansion into other sectors may be tempting for many distributors, it may also backfire if a company is not well-suited to handle the new load. The more product lines a distributor takes on, the more burden it faces in terms of inventory costs, training, literature upkeep and overall customer support, says Dr. William R. McCleave Jr., president of W.R. McCleave & Associates, Cornelius, N.C.

“The more products you have, the more complicated it is to run the business,” he says. “You’re balancing that all the time with the decision to add more products or just add more customers for the products that you already know very well. It’s an internal question distributors have to ask themselves.”

Product line expansion also means that distributors have to consider other costly expenditures — something that not all small-sized distributors have the means to take on. Small distributors may have a problem expanding product lines or sectors due to necessary capital expenditures such as more and larger delivery trucks, hiring more sales staff experienced in the new areas, and expanding facilities to handle the different types of products, says Martin Bros.’ Rathbun.

It’s no surprise that as a distributor expands its product offerings, it must also expand its warehouse and truck fleet to accommodate the new inventory. However, distributors are finding ways to offset the pricey warehouse and fleet expansion costs by partnering with wholesalers.

With wholesalers, products for the most part are not physically being stored in a distributor’s warehouse, as they are being drop-shipped to their customers’ locations. And an added incentive for working with wholesalers is that small-size distributors can expand their product offerings without the hassle of finding a place to stock the new items, says Rathbun.

In this case, all the distributor is left to do then is promote and sell.

Selling

Like any successful business expenditure, product diversification involves strategy.

“When you move into somebody else’s product category, you better be sure you can do it better than they can,” says McCleave.

The first move for a distributor who is selling new lines is training its sales staff on promoting the new categories and letting the customers know that the company now offers more than just typical jan/san supplies. For some distributors, this stage is most difficult to get past.

A distributor can announce the expansion of its product line through its monthly newsletter, its Web site, by calling current customers and having salesmen push the new line.

Whether the distributor chooses to specialize on certain products or offers a broad line of categories, it has to figure out what its competitive advantage is. Then, the distributor has a decision to either sell strictly to its existing customers or try to expand on its customer base by testing the market.

If selling strictly to its current clientele, distributors must ask themselves how they are going to sell these new products and steer existing customers away from other suppliers and do business with them. Generally, distributors have made the move because they are responding to their current customers’ needs. But going out into a new market and attracting new customers is a move that’s difficult.

The bottom line is, distributors must demonstrate to potential customers that their company is unique and valuable. That alone might lure in new customers.

“Distributors really have to peel back the onion a little bit and ask what it is that customers really do want,” McCleave says. “They have to pause and just think about what the game is that they’re trying to play. Is it somebody else’s game? And, can they win at somebody else’s game?”

Only time will tell.