Distributors’ Value-Added Services are a Critical Part of the CASE Supply Chain
Historically, distributors that supply raw materials to coatings, adhesives, sealants and elastomers (CASE) formulators, including manufacturers of paints and coatings, could be distinguished by the average volumes of their shipments. “Large” distributors were accustomed to serving large customers that required tank cars or truck loads of raw materials, and they competed on pricing, logistical efficiency (cost and delivery) and warehousing. “Small” distributors offered the same products and services as the large distributors, but on a smaller scale, either regionally or by market focus. In the past, a small distributor’s primary asset was its customer relationships, which often were held by the owner. Because relationships can be difficult to transfer to a new owner in the sale of a business, valuations for small distributors were generally low. That dynamic has changed dramatically, as we will discuss in this article.
As the paint and coatings industry consolidated, many of the large end markets became extremely concentrated, with perhaps four or five national or multinational companies holding the majority of the market share. In architectural coatings for example, fewer than 10 players have come to control about 90% of the North American market, and in many other markets the level of concentration is at least 75%. The minority shares of the coatings markets were divided between many – sometimes hundreds – of niche players or regional firms. They competed by focusing on specific applications and/or markets, but they had a disadvantage relative to the majors in purchasing, because they didn’t have the clout that comes from purchasing huge volumes.