Welcome to Salt & Pepper! Salt & Pepper is basically the PromoKitchen equivalent of debate team. The purpose of this monthly article is to open up discussion and conversation on different challenges facing the Promotional Products Industry. In this edition of Salt & Pepper, Chef Kirby Hasseman and industry veteran Bill Petrie discuss the logistics around the when and how of major industry suppliers going direct.
What are your opinions? We welcome your comments!
NOTE: Salt & Pepper is intended to foster intelligent dialogue between professionals. This is not a dagger throwing contest. Be honest and authentic, but please also be kind and keep it classy.
Salt - Kirby Hasseman:
When asked “Will a large supplier in our industry ever decide to “go direct” and bypass the supply chain?” I hear the voice of Tom Cruise in the movie Jerry McGuire. Do you hear him? He is yelling.
“Show Me The Money! Show Me The Money!”
I just don’t see it. I am not saying they couldn’t do it. There are some super-smart companies in our industry. They are led by very smart leaders. Some of them might be able to, but here is why I don’t think they will.
It’s A Big Switch To Flip: The fact is, with any of these large supplier companies, they have a huge investment in sales team, infrastructure and customer base. These customers are also a giant sales force for their product (I know you know this.) Let me use Polyconcept, only because they have a diverse product line, for example. A quick google search says they did around $45 Million in sales last year. Maybe they could replicate that in direct to consumer, but that’s a big number to get to overnight if they get rid of their entire sales force.
It’s a Different Business Model: The direct sales model is a vastly different model. There are some awesome companies in our industry that do a lot really well, but going direct to consumer requires new procedures, new staff, and new expertise. And by the way, none of these are things these companies need to have in house today.
(Side note: The same is true for Distributors. If you are a successful distributor, it does not necessarily mean you can run a manufacturing company. Can I get an Amen?).
It’s Bad Business: Most of us know that our industry is built on relationships. If you are a large player in the promotional products world, you have gotten there by creating a great product line, but it’s also been built on the foundation of industry relationships. You can step on those…but if you do, you can’t go back.
I don’t think it’s going to happen. Don’t get me wrong, I know some suppliers that walk a VERY fine line on this, but that was not the question. The question was “Will a major player” do it? I don’t see it, but maybe someone will “Show me the Money."
Pepper - Bill Petrie:
Industry consolidation on the supplier side has led to speculation about what the future might look like for promotional products distributors. Specifically, many hypothesize that some suppliers might get big or bold enough to publicly begin selling to directly to end users. It’s already happening on a small scale with Bel Promo and their end-user targeted website, discountmugs.com. To think it will stop there is akin to sticking one’s head in the sand.
It’s not a question of if a large supplier will begin to sell direct, it’s more likely a question of when, and I say this for the following three reasons:
- Increased profits– As with most things, to understand why things happen one merely needs to “follow the money.” By eliminating a layer between products and consumers there is additional profit to be had. As margins continue to fall, the lure of that additional revenue will be far too tempting for some suppliers.
- Direct Access– Take a hard look at our industry model: suppliers either buy blank goods, or create products, and imprint them. They then sell these products to distributors and distributors then sell them to the end buyer. Anyone over the age of 30 will recall this model is very similar to the travel industry of long ago when travel agents freely roamed the earth. Compare that to today where consumers have direct access to airline tickets, car rentals, and hotel reservations and it’s not difficult to see why the average travel agent was squeezed out of existence. Consumers want direct access and distributors who offer nothing but a simple gateway to decorated product will spur suppliers to begin giving consumers what they want.
- Control– For the most part, suppliers use distributors as their sales force. In that sense, they rely on distributors to not only understand their products, but to have the skills to share and apply that product knowledge to an increasingly informed consumer. In this sense, suppliers have very little control over IF their merchandise is presented to end-users, let alone HOW it is presented. At some point, it may make sense for a larger supplier to focus their salespeople on selling product as opposed to training distributors to do it on their behalf and hope their items are actually included as a part of the distributor's presentation to the end-buyer.
I’m not suggesting that all suppliers will decide to sell directly to end buyers. I am, however, of the belief that larger and more dynamic suppliers will continue to dip their respective toes in the water of B2C sales. Whether it will either disruptive to the industry – or even successful – is anyone's guess.
Will suppliers go direct, namely large industry suppliers? If so, how will that impact the supply chain? How will it impact the distributor/supplier relationship? What will change?