By Jeffrey Scholtens (Manager) and Erwin Wilbrink (Consultant)
As a mergers and acquisitions consultant, Marktlink assists entrepreneurs from a wide range of sectors. Of the businesses Marktlink has guided through successful transactions over the past few years, several have been in the wholesale sector — including amid the turbulence of 2020 and during the first few months of 2021. During this period, wholesalers have been faced with supply problems from Asia, uncertainty due to COVID-19, a container crisis and continued scarcity in raw materials and production capacity. Aside from these immediate challenges, the sector has also had to deal with fundamental developments, challenges and opportunities, and that has inevitably produced winners and losers. In this edition of ‘Sector vision’, Jeffrey Scholtens and Erwin Wilbrink tell us more about these fundamental developments, challenges and opportunities for wholesalers of consumer products.
Wholesalers often have a wide and deep product assortment directly available in stock, supported by their own logistics function. In doing so, they live up to their ‘middleman’ name within the chain: wholesalers have always been the principal link between demand and supply. In a digitising world with changing customer requirements, the existing business models and value propositions are no longer necessarily able to offer the same long-lasting competitive advantages they did in the past. The traditional role played by wholesalers is under pressure: it has become much easier for their customers to largely bypass the traditional wholesale sector. On top of that, it has become much easier for manufacturers to sell directly to their end markets.
These changes to not mean that the value provided by the wholesale sector is shrinking. On the contrary, its value is changing, and most likely rising. One thing wholesalers are being forced to do as a result is think about their competitive positioning and value proposition. This requires an approach in which wholesale is no longer just a link in the chain, but creates value in the chain over the long term.
The impact of consumerisation — the reorientation of (product) offers to end users — is becoming ever more crucial, including in a B2B context. E-commerce customers are expecting a simple ordering platform, the right product assortment, detailed product descriptions, advanced options to compare products or find comparable products, easy access to complementary products and a variety or fulfilment options. The same increasingly applies to B2B customers.
The consumerisation trend within the B2B context demands that wholesalers look anew at their role in the chain and the adoption of technology. The leading players in the market are aware of their position in the chain and know where their added value lies. Product and/or concept development usually play a central role in this. The wholesale business is no longer merely about being able to offer all products you can think of to the market; instead, it is about a (unique) data-driven offer that takes care of the customer’s every need and that allows both wholesalers and their customers to realise decent profit margins.
In its experience of wholesalers focusing on consumer products, Marktlink is seeing lots of businesses who are responding to the changing landscape in different ways, ranging from wholesalers who are expressly marketing their own brands and concepts for physical and online retail to wholesalers who are pioneering direct delivery to consumers (openly or under the radar, and via marketplaces or other methods). From the traditional perspective of the chain, physical and online retailers aren’t always welcoming these developments with open arms, given the fact that they ostensibly turn wholesalers into direct competitors. In practice, we are seeing that direct feedback from consumers better enables wholesalers to create the right product offer, which actually contributes to the success of physical and online retailers. Ultimately, wholesalers are not presenting a competitive threat to retailers; they are actually contributing to the success of the retail sector instead.
Physical and online retail rely on a distinctive product offer, data insights and quick and easy availability of products. Integral B2B e-commerce is a step that is both logical and essential at the same time, not least because the lion’s share of B2B buyers are millennials these days (the generation born between 1981 and 1996). Based on its studies, the research and consultancy firm Gartner expects that 80% of B2B transactions will take place digitally by 2025. Even today, the B2B e-commerce market is already multiple times bigger than the B2C e-commerce market around the world — and that makes the need for traditional wholesalers to innovate even more pressing.
Consolidation and opportunities for entrepreneurs
The future is in the hands of wholesalers with a distinctive product, brand or concept offer, integration between e-commerce platforms and ERP systems and flexible logistical options. Over the past few years, Marktlink has guided several dozen wholesalers through successful transactions (see box). Those who are ahead of the pack in terms of digitisation can count on plenty of interest from both strategic partners and private equity. Often, the specific capacities and scalability of a business are the main reasons for an acquisition — and that’s reflected in attractive valuations too.
Aside from these leaders in their fields, other wholesalers are in a more or less advanced stage of their transition. This group is always interesting to strategic partners, as well as to private equity. These are businesses that immediately stand to gain from a platform organisation or the experience and know-how they need in order to digitise. In addition, this group offers countless opportunities to create synergies, whether or not combined with a successful buy-and-build strategy.
In our experience, lots of entrepreneurs are recognising that the sector is changing. Their businesses are anticipating these changes to some extent or other, and that means they need to be prepared to invest and bring capacities into the wholesale sector other than those to which they are used as entrepreneurs. This often goes hand in hand with the question of whether their businesses plan to make the most of their untapped potential by themselves, or whether they prefer to do so with an experienced partner on board.
Among the group of entrepreneurs who want to continue contributing to their businesses in particular, the decision on whether to invest plays a major role in their future success. In these types of situations, entrepreneurs have the option to cash in right now on a significant part of the value their businesses have built up, before continuing to build their businesses towards even higher ambitions together with a partner. In our experience, we often see that this type of decision provides renewed energy and focus. At the same time, these transactions create extra shareholder value, which offers the financial peace of mind and mental space required to embark on a more ambitious and scalable growth strategy and transform into the market leaders of the future.