In an exceptionally challenging marketplace, a few distributors are outperforming others by wide margins. Here’s what they do differently.
Disruption is accelerating in distribution.
For years, distributors have faced the threats of disintermediation, ever-rising customer expectations, and pressure from e-commerce and omnichannel competitors. Then came a global pandemic and unprecedented supply chain challenges, labor shortages, and geopolitical tensions, as well as sharply higher interest rates and the specter of recession.
The industry as a whole has always been resilient, but these and other challenges have truly tested its resolve. Some distributors have faltered in the face of declining revenues and narrowing margins; others have weathered the storms and held their ground. A few—roughly one in ten—have thrived, improving their ROIC by almost 30 percent and increasing their revenues by an average of almost 9 percent CAGR, their profits by around five percentage points, and their EBITDA margins by nearly seven percentage points in the past few years (Exhibit 1).
In this article, we not only review the distribution industry’s long-standing and new challenges but also explain how some companies beat the odds.
The business is tough, and getting tougher
In 2019, McKinsey published a report on the coming shakeout in distribution, outlining the industry-disrupting trends, such as OEM disintermediation, rising customer expectations, and powerful new entrants. That shakeout is still under way. Since then, our experience and updated research have helped us identify a combination of old and new threats to growth and profitability across the distribution industry.
Read more: McKinsey
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