Key Areas

Executive Summary

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THIS REPORT HAS BEEN UPDATED - PLEASE REFER TO THE 2000 VERSION

KEY AREAS

THE MARKET

• The infra-structure of the electrical products market – suppliers, distributors, panel builders, contractors, designers and users.
• The electrical wholesale market size in value terms, from 1990 and forecast through to 2003.
• Market trends through the 1990’s to date. Opportunities and threats, trends for the future.
• Major factors influencing growth, competitors, construction & building prospects, product sectors etc.

THE WHOLESALERS

• Major Electrical Wholesalers, their turnovers, number of outlets, key characteristics, regional strength, market positioning etc.
• Market shares of major wholesalers.
• .Large regional Wholesalers, selected local companies.
• Wholesalers strengths and weaknesses, key competitive elements, opportunities and threats – alternative channels of distribution (Electrical Component Distributors, DIY etc).
• The purchasing criteria of the Electrical Wholesalers – what they look for in their suppliers.
• Factors influencing Wholesalers to change suppliers.
• Customer mix of the Wholesalers – Contractors, Panel Builders, Retailers etc.
• Nature and operation of the electrical contracting market.
• Buying criteria of the electrical contractors.
• Review of panel building market and buying criteria.
• Wholesalers discount and margin structure – profitability levels.
• Role of the ‘Super Distributors’.
• Role of Buying Groups in the industry.

PRODUCTS

• Market size per major product area – cables, lighting, wiring accessories, circuit protection and switchgear, heating and ventilation, security systems, test meters, tools, appliances etc.
• Sales through electrical wholesalers by major product areas.
• Product sectors, definition, electrical wholesalers strengths and weaknesses by product, key competitive channels per product. Trends by product group.
• Proportion of wholesalers stocking – by product group.
• Major suppliers by product area. Key characteristics.

FUTURE PROSPECTS/HOUSING/CONSTRUCTION

• New build, renovation, housing trends, new construction orders, and their implications. Industrial and Commercial construction prospects.
• Future developments, implications for suppliers and distributors of growing replacement purchase.
• Economic influences, growth prospects etc.

The report contains over 100 pages of original research and comment on the UK Electrical Wholesale industry and provides incisive and thought-provoking views on its future development.

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EXECUTIVE SUMMARY

Market Size

In 1998 the Electrical Wholesale Market was worth some £2.5 billion at wholesaler selling prices.

Following good growth to a peak in 1990, the market exhibited a significant decline in the early part of the decade due to reduced levels of new build and RMI throughout the domestic and non-domestic sectors, during the recession. This resulted in a reduced requirement for the majority of electrical products, although some product areas, such as security, continued to show some underlying growth.

An improvement in the economic situation contributed to modest growth after 1993 with an upturn in the housing market in 1996 and 1997, and continued growth in non-domestic construction, particularly in the commercial sector and an upturn in public sector investment. More recently in 1998, the electrical wholesale market has been adversely affected by the decline in industrial output and the impact of the strong pound sterling, stimulating import substitution in the UK market and reducing export demand for products incorporating electrical accessories supplied by electrical wholesalers. Weakening commodity prices also accompanied these trends, driving down average prices for some products and overall market values. While volumes have risen in 1998 and 1999, eroding prices have limited market growth opportunities.

The outlook for the electrical wholesale market, is, in overall terms, limited in the short-term, although it should be emphasised that certain sectors will perform better than others. In the medium to long term a low level of growth is forecast, as industrial output slowly improves. It is also forecast that construction output will become more positive, dependent upon the timing of commissioning and completion schedules. The domestic building sector is also likely to give some medium term impetus to the market, reflecting a higher level of confidence amongst housebuilders and consumers and wider use of electrical products in the home.

In general terms, the following factors are expected to positively influence the electrical wholesaling market:

• Expansion of computerisation, including back-up electrical supplies, and the requirement for associated cabling systems and accessories.
• Influence of legislative requirements stimulating product development, widening the product range and thereby producing more opportunities for electrical wholesalers.
• Expansion of electronic appliances needed in 'Home Working' offices, with introduction of computers, faxes, scanners, photocopiers, etc.
• Greater awareness of hazards from fire, smoke and lack of security, etc, leading to niche market developments.

However, there are also a number of threats including the shift to electronic actuation and control, which could negatively impact on the volume of electrical component demand in the longer term future.

Electrical Wholesalers

The key Wholesaler groups are Edmundson, Newey & Eyre, CEF, Senate, WF Electrical, Wiltshire Wholesalers, Denmans and J & N Wade. These groups have progressively increased their market dominance, largely through acquisition, and now account for some 70 percent of the industry.

The balance, accounted for by a number of regional and local wholesalers, has been reduced by acquisitions by the national groups, and to a lesser extent by business failures.

Marlowe/Edmundson are now the largest Wholesaler group, followed by market leading companies including Newey & Eyre, CEF, Senate, WF Electrical, Denmans and others.

The larger wholesaling groups continue to take share from the smaller companies due to their greater ability to negotiate bulk purchasing discounts from manufacturers, operation of central stock warehouses (which enable reduced stock holding and greater resources to invest in services including sophisticated IT systems), product catalogues, telesales facilities etc. This has driven a number of wholesalers to specialise in niche product sectors in order to maintain their market share.

The Electrical Wholesalers remain the dominant distribution channel for the majority of electrical products and have a well established and loyal customer base. Their key strengths include the wide product range offered, the service offered to their customers in terms of credit, payment facilities, delivery, product knowledge etc.

The majority of wholesalers have reduced their stockholding during the 1990’s and whilst this represents a financial advantage in terms of reduced costs, it has led to some dissatisfaction amongst customers due to longer product delivery lead times. This has enabled competitive channels for example, electronic component distributors who sell electrical and electronic products - to gain a foothold in the market.

Many of the larger wholesaling groups have responded by investing in sophisticated computerised stock control systems and central/regional stock warehouses, enabling them to offer a same day/next day delivery service. Indications are that the smaller wholesalers may remain at a disadvantage in this respect being forced, either to increase stock levels, to source from the ‘Super’ distributors at a price disadvantage or to lose business to other distributors.

The general industry shift towards electronic and telecommunications - based products may result in further share gain by the Component Distributors. However these product areas, in which the Electrical Wholesalers are not well established, also represent growth opportunities to the wholesalers.

Pricing and profitability continues to be eroded by low priced imports and the low level of industrial demand. Profitability also continues to be adversely affected by the competitive nature of the electrical contracting market.

It is estimated that small wholesalers are in general terms unable to negotiate the bulk purchasing discounts available to the larger groups and in an effort to increase their profitability an increasing number have joined buying groups, such as AED, ANEW, EMMA, AWEBB, MIDA and REWARD, over the last few years.

Although Electrical Wholesalers face competition in some areas of their business, particularly from the Electronic Component Distributors, DIY Outlets, and 'Direct' sales, their dominant position in the distribution of electrical products is likely to be maintained due to their unequalled product range, the loyalty of their customer base and continuing emphasis on 'keen' pricing.

Product Groups

The major product groups marketed by the Wholesalers are cables, lighting and switchgear/circuit protection. These categories account for some 48 percent of Wholesalers turnover, with the remainder being accounted for by trunking and accessories, wiring accessories, test equipment, fire and security products, electric space heating, ventilation, water heating and a broad category of ‘other products’.

The market for cables and accessories is expected to exhibit some growth over the short to medium term, reflecting growth in domestic and non-domestic construction, as well as increasing penetration and use of electrical appliances both in the home and commercial applications. Cable accessories in particular are likely to benefit from this trend, with increasingly complex wiring arrangements. Growth in the market for circuit breakers and switchgear is likely, reflecting factors including increasing safety consciousness and a trend towards added-value circuit breaking equipment.

Lighting is expected to show future growth reflecting emergency lighting requirements etc, and an upturn in construction, as well as use of added value products including energy saving, low voltage and customised products. However, in the longer term growth may be constrained by sales of long-life lamps and market maturity.

The security and fire systems markets are expected to continue to exhibit growth over the next few years due to increasing emphasis on safety and security issues, and security particularly represents an area of opportunity for the Electrical Wholesalers.

The electric space heating sector is likely to show only modest growth due to the increasing penetration of gas central heating.

In general, the products which constitute the bulk of the Wholesalers business are expected to perform positively in the medium and long term contributing to growth in the overall Electrical Wholesaler market. In addition, wholesalers have the opportunity to capitalise on the increasing use of electronics within the electrical industry by stocking a wider range of products including Programmable Logic Controllers, Data and Telecommunications Cables etc.

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Text © 1999 AMA Research

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Last updated by Jacob van Eldik 29th January 2000