Wholesale distribution navigates an inflection point
Disruptive forces—enabled and accelerated by digital—are rapidly reshaping wholesale distribution. These forces are shifting the basis of competition, upending traditional value propositions, enabling new business models, and creating high growth opportunities for those nimble and innovative enough to capitalize on them.
Embracing industry change
The wholesale distribution industry faces a true inflection point similar to decisive moments that other industries—such as retail, health care, and automotive—have faced. A wave of disruptive forces—amplified and accelerated by digital technologies—are poised to transform an industry unaccustomed to rapid, unpredictable changes.
After years of being insulated from the disruptive forces reshaping other industries, wholesale distribution is now feeling the seismic impact. As a case in point, until Amazon bought Whole Foods in June 2017, many food and food-service distributors felt relatively secure in the belief that factors such as stringent customer and regulatory requirements for the storage and shipment of perishable items created a barrier to outside competition. However, that acquisition and Amazon’s subsequent moves in pharmaceuticals and grocery have increased the sense of threat across distributor C-suites.
Wholesale distributors may need to think more broadly about their competitive positioning and develop strategies to navigate the increasingly dynamic landscape. Winning at the inflection point will likely require distributors to make choices about where to play and how to win, with an emphasis on sharpening value propositions and business models, embracing innovation, and gaining scale in targeted segments.
The traditional forces impacting wholesale distribution are primarily macroeconomic and include consumer and wholesale inflation, individual commodity price trends, labor costs, interest rates, and changes in the regulatory environment. Other traditional forces, such as residential construction activity, are also critical but exert greater influence over some lines of trade than others.
What these diverse forces share is that they’re familiar to wholesale distributors: There are numerous existing sources of information, data, and forecasts for these forces, and their impact on individual lines of trade and companies is reasonably well understood.
In contrast to traditional forces, disruptive forces are, by definition, unpredictable and not well understood—and consequently more likely to be underappreciated. The primary disruptive forces impacting wholesale distribution are grouped under five broad categories (see below). Some of the forces are not new, but digital is helping amplify their effect and accelerating their impact.
Three strategies for navigating disruption
The magnitude and pace of change impacting the industry—and the expectation that it will increase—heightens the importance of distributors developing and executing a robust strategy.
Depending on their objectives and the realities of their business, a distributor can align their corporate strategy against just one of these options or apply the individual options to discrete segments of their business.
Here are three strategies to help distributors exploit opportunities, leverage strengths, and focus scarce resources:
- Innovate to thrive: Develop the capabilities to effectively manage and grow innovation, including a portfolio of differentiating and valuable product and service offerings.
- Retrench and focus: Narrow the focus of the business to truly defensible segments and invest to reinforce competitive moats.
- Drive cost advantage: Change the game by leveraging transformational M&A to grow the size of the organization and then relentlessly drive available efficiencies and scale economies.
To learn more about shifts in wholesale distribution and how your organization can respond,