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AM52000 AMA BUILDERS MERCHANT MARKET JANUARY 2000

This report covers:

Companies covered include: Wolseley Centers, Plumb Centers, Builders Centers, Jewsons, Harcros, Graham, Travis Perkins, Keyline, Wickes, Hall, BSS,

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Key Areas

Executive Summary

Table of Contents

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KEY AREAS

THE MERCHANTS

• Major Merchants, their turnovers, number of outlets, major characteristics, regional and product strengths, etc.
• Market shares of major Merchants and the increasing industry concentration.
• Analysis of consolidation across the decade.
• The larger regional Merchants - who they are, turnover, key products and characteristics.
• Structure of the local Merchants - numbers, trends, general characteristics.
• Buying Groups - their role and presence in the industry.
• Merchants profitability, indications of net & gross margins, debtor levels, stock coverage by product group, overall stock levels, etc.
• Buying processes of major/regional merchants and for Buying Groups.
• Implications of buying process for new suppliers - barriers to entry.
• Strengths, Weaknesses, Opportunities & Threats to Merchants.
• Competitive channels and their changing emphasis (DIY Outlets, Specialist Distributors, High Street etc.).
• Overall Merchant product mix.

THE MARKET

• The infra-structure of the building products market - suppliers, distributors, contractors, architects and users.
• The market size in value terms, 1992-1999 and forecast through to 2003.
• Market trends through the 1990’s. Opportunities and threats, trends for the future. Major factors influencing development.
• Regional variations in construction and merchant performance.

PRODUCTS/SUPPLIERS

• Market size per major product group - see page 3 for list.
• Product mix within major product groups.
• Product sectors, definition, Merchants’ strengths and weaknesses by product, key competitive channels per product.
• Key suppliers per product sector.
• Product trends by product group and by major product sector.
• Sales through Merchants by main product group.
• Purchasing criteria of Merchants - what they look for in their suppliers.

CUSTOMERS

• Merchants key customers. Nature and operation of the house-building market.
• Role of Housing Associations. Buying criteria of the small builders and plumbers.

FUTURE PROSPECTS / HOUSING / CONSTRUCTION

• New build, renovation, RMI, housing trends, population shifts, building and construction output and orders, and their implications for Merchants.
• Future developments, implications for suppliers.
• Economic influences, growth prospects etc.

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EXECUTIVE SUMMARY

The UK Builders and Plumbers Merchant market was worth over £8.25 billion at merchant selling prices in 1999, reflecting good growth in the market during 1997 followed by more modest growth over the last 2 years.

Although some growth in market size has been achieved, the 1990’s have generally been difficult for the builders merchants. Consumer confidence and both new build and RMI (Repair, Maintenance & Improvement) work were low throughout 1992, though 1993 and 1994 showed some signs of improvement. This improvement was, however, relatively minor, with new build showing only marginal gains. Increasing interest rates in late 1994 led to a deterioration in consumer confidence and a resultant reduction in new housing starts, with a negative effect on the building and construction products markets and as a result, the Builders Merchants market remained difficult over 1995 and 1996. However, there was some improvement in activity levels towards the end of 1996, as new housing starts showed signs of increasing.

The market’ growth was hindered by raw material price increases, in particular plastic products and certain timber products, leading to pressure on merchants’ margins, as not all price increases were easily passed on. In addition, the growth of the speciality distribution companies, such as SIG and the growth of the DIY Multiples made the building materials market highly competitive.

The market improved somewhat in 1997. Consumer confidence in particular received a boost from the various "windfall gains" during the year, and this was supported by lower unemployment levels and a low level of interest rates. The repair, maintenance and improvement sector was given a boost from the windfall gains, and though new house building levels increased, the changes were not substantial. The levels of non-domestic construction output also increased during the course of 1997, with the private commercial sector (offices, shops etc) in particular, performing positively. In addition, the commissioning of various Millennium projects also contributed to the construction markets growth at this time.

Several successive interest rate rises were implemented towards the end of the year, in order to constrain consumer spending, GDP growth and inflationary growth. Nevertheless, consumer confidence remained high and retail spending continued to rise during this period.

The effects of the increased levels of interest rates were felt early in 1998, which was a difficult time for the building and construction industry. Consumer confidence had been eroded by the higher interest rates and retail spending had subsided, alongside home improvement expenditure. Reducing levels of interest rates in the mid to later parts of the year succeeded in improving the level of consumer confidence and the levels of construction and building, though the more substantial benefits came through into the market in early 1999.

The benefits included higher levels of consumer confidence, levels of RMI and retail spending and an upturn in business confidence. Nevertheless, the overall building products market remained highly competitive with prices constantly under pressure, from cheaper imported goods and because of the low prices of certain raw materials, such as copper tube, where prices dropped substantially over 1998/99.

The level of housing completions remained similar to 1998, though the housing market in general has been far more buoyant, with house price inflation starting to grow and the number of house moves also increasing. As a result, the level of demand for building products from the new housing sector has remained relatively steady. The level of domestic RMI has been improving, with increased house values beginning to fund home improvement projects in some cases.

The pressure on prices has been caused by a number of factors, in particular a higher level of imports in many product sectors, leading to lower selling prices. In addition, many of the larger distribution companies, merchants, DIY Multiples and others, are increasingly own-labelling their product, and often positioning these products in the lower price spectrum. The level of prices of many raw material products has also been under pressure, leading to further pressure on the merchants’ margins.

To add to this, competition remains intense from the DIY multiples, particularly on RMI work. In particular Wickes and B&Q, through their strengthening Warehouse operation, continue to market themselves toward the ‘building’ end of the home improvement spectrum. In addition, there remain threats from specialist distributors such as those in the insulation, roofing or bricks market. While many of these companies will frequently market their services and products to merchants, some may also be prepared to sell direct to contractors.

The industry has consolidated at a rapid rate over the last two years, with some very large acquisitions complemented in many cases by smaller acquisitions. This has led to the larger merchants taking a relatively larger share and increasing their buying power. Indeed, the three largest merchants now account for around 43 percent, compared to some 22 percent in 1997.

The major competitors in this market include Jewsons (incorporating Grahams, Harcros), Wolseley Centers (who operate Plumb Centers, Builder Centers etc), and Travis Perkins. Many have made acquisitions over the last two years, with Jewson acquiring Graham the largest transaction. Wickes and BSS are also major merchant operations.

The top five companies account for 54 percent of industry sales with a group of regional merchants accounting for 17-19 percent. The balance is held by local companies, reflecting the key service offered by merchants - a local supply of a wide range of commodities to a large number of small and medium sized builders and plumbers.

The major products sold by the merchants include plumbing products, timber and timber products, roofing & insulation products, bricks/blocks & plasterboard along with plaster & cement, heating, kitchens, decorating materials and a wide range of miscellaneous products.

The key groups are plumbing products with 20 percent of merchants turnover, timber & timber products with some 14 percent, bricks/blocks and concrete with 16 percent, space and water heating with 14 percent, roofing & insulation with 9 percent and cement & plaster with 10 percent.

One of the key growth areas in recent years has been tool hire, with many of the major merchants now offering tool hire facilities from a large number of existing branches, and in some cases stand-alone branches. Tool hire now accounts for around 1.5-2 percent of the merchants overall market.

Merchants are of most significance in the plumbing market where they account for a share of almost 60 percent, compared to their share of the timber products market at 20-25 percent. They are also of significance in the roofing & insulation market and the bricks, blocks & concrete market where they account for around 40 percent. They are least strong in the kitchens market and the decorating products market, which reflects the high level of competition from alternative channels in each of those markets.

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TABLE OF CONTENTS

TABLES & CHARTS

Text © 2000AMA Research

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Last updated by Jacob van Eldik 26th February 2000