Strength In Numbers
This is big news for C-2000 members, and a message for the industry-at-large. It points to an industry in transition from an era of onesy-twosy trade purchasing to a volume-driven business in which independent contractors may end up at a significant disadvantage unless they seek purchasing affiliations of one sort or another.
According to executive director Jack Tester, two things kept C-2000 away from group purchasing until now. First was simply a matter of priorities. Organizing a buying group is a complicated undertaking, and their staff had too much else on their platter. That they’ve been compelled to add another salary to administrative overhead gives an inkling of the commitment required.
Second and most significant, until a couple of years ago, vendors were disinterested in C-2000’s tentative proposals. Buying groups cut into margins, and alienate other customers. Venders don’t get too excited about an invitation to cut their prices unless the tradeoff involves humongous volume, such as that represented by the big box retailers.
Winds Of Change: Then came the consolidators, along with large utility service subsidiaries. These national and regional entities have used their buying clout to cut eye-opening deals with HVAC manufacturers and various providers of business services. Preferred vendors have reason to celebrate, but some of those left out took a sizable hit in losing sales from former customers now owned by a consolidator. To replace that business they have a powerful incentive to look for group-buying partners of their own.
Keep in mind that manufacturing is a capital-intensive business. To cover their huge investment, vendors need to keep production lines humming even at the sacrifice of profit margins. In mature industries such as plumbing, economic cycles tend to be the main determinant of year-to-year fortunes. Market share tended to change in small increments. But in today’s consolidating marketplace, large chunks of market share can come or go with a single central account.
With over 250 members and aggregate sales of around $500 million, C-2000 is comparable in size to the consolidators and thus an alternative partner. Tester says there are five vendors “ready to go” with a C-2000 purchasing program, and he expects many others to follow — not only PHC companies, but also providers of tools, equipment, vehicles, insurance, business supplies and virtually every other product or service used by service contractors.
What About The Rest Of You? Where does this leave the independent PHC contractor? The bad news is that the profit margins vendors are shaving on behalf of their group-buying customers have to be made up somewhere. People in the know say there’s not a lot of fat in vendor prices and not much to be gained by economies of scale. So look for the pricing spread to become even greater between the volume buyers, be they retail or trade, and those who buy their goods LTL (“less than truckload”).
Any good news in this scenario from the little guy’s point of view? Only that our free enterprise system has a way of stirring entrepreneurial juices. When mom-’n-pop hardware stores looked to be on the verge of extinction, along came that industry’s co-ops to give them a chance to compete. Buying co-ops already have sprung up in the HVAC sector, and I’ve gotten wind of at least one that is getting under way on the plumbing side of the industry as well. Expect a lot more action on this front in the months and years to come.
As purchase prices widen between large and small PHC firms, the sacred “trade discount” traditionally granted by plumbing suppliers to anyone with a license may virtually disappear at the single-unit level of buying. This, of course, would pretty much erase the distinction between trade and consumer customers, which is already the case with many of the home centers chasing contractor business.
I’ve said it before and I’ll say it again — the independent contractor is by no means doomed. But he better look for allies.