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AM52003

AMA BUILDERS MERCHANT MARKET : October 2003

Overview

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Table of Contents
Executive Summary
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TABLE OF CONTENTS

2	1	INTRODUCTION	7
3	2	SUMMARY	8
4	3	ECONOMIC ENVIRONMENT	11
5	3.1	GDP	11
6	3.2	INFLATION & INTEREST RATES	11
7	3.3	UNEMPLOYMENT	12
8	3.4	HOUSEHOLD CONSUMPTION	12
9	3.5	HOUSING & CONSTRUCTION	13
10	3.6	STERLING	14
11	3.7	POPULATION PROFILE	14
12	3.8	CONCLUSIONS	15
13	4	THE BUILDERS AND PLUMBERS MERCHANTS MARKET	16
14	4.1	DEFINITION	16
15	4.1.1	Builders Merchants Market	16
16	4.1.2.	Product Range	17
17	4.2	MARKET STRUCTURE	18
18	4.2.1	Lightside	18
19	4.2.2	Heavyside Products	20
20	4.3	MARKET SIZE	21
21	4.3.1	Market Background	21
22	4.3.2	Current Situation	23
23	4.3.3	Regional Performance	26
24	4.3.4	Market at Constant Prices	27
25	4.3.5	Future Prospects	27
26	4.4.	KEY MARKET INFLUENCES	30
27	4.4.1	The Housing Market	30
28	4.4.2	Construction	35
29	4.4.3	Legislation and Standards	37
30	5	THE BUILDERS & PLUMBERS MERCHANTS	38
31	5.1	MARKET SHARES	38
32	5.2	MERCHANT COMPANIES	43
33	5.2.1	National Merchants	43
34	5.2.2	Larger Regional Merchants	50
35	5.2.3	Medium Size Regionals	54
36	5.2.4	Smaller Regional Merchants	56
37	5.2.5	Local Merchants	57
38	5.2.6	Buying Groups	59
39	5.3.	CHARACTERISTICS OF BUILDERS & PLUMBERS MERCHANTS	60
40	5.3.1	Product Range	60
41	5.3.2	Stock Levels	63
42	5.3.3	Profitability	65
43	5.3.4	Turnover Per Employee	67
44	5.3.5	Pricing	68
45	5.4	BUYING PROCESSES	69
46	5.4.1	Major Merchants	69
47	5.4.2	Medium Size & Smaller Merchants	71
48	5.4.3	Buying Groups	71
49	5.5	MERCHANTS MARKET - STRENGTHS, WEAKNESSES, OPPORTUNITIES & THREATS	71
50	5.5.1	Strengths	71
51	5.5.2	Weaknesses	73
52	5.5.3	Opportunities	74
53	5.5.4	Threats	77
54	6	PRODUCTS	80
55	6.1	PRODUCT MIX	80
56	6.2	MERCHANT SHARES BY PRODUCT	81
57	6.3	PRODUCT TRENDS	82
58	6.3.1	Roofing & Insulation Materials	82
59	6.3.2	Bricks, Blocks and Concrete Materials	87
60	6.3.3	Cement & Plaster Materials	92
61	6.3.4	Timber Products	97
62	6.3.5	Plumbing and Drainage Materials	100
63	6.3.6	Decorating Materials	106
64	6.3.7	Heating & Ventilating	111
65	6.3.8	Kitchens	119
66	6.3.9	Ironmongery & Miscellaneous Products	122
67	7	MERCHANTS' CUSTOMERS	129
68	7.1	BACKGROUND	129
69	7.2	BUILDERS	130
70	7.2.1	Civil Engineering	131
71	7.2.2	Commercial Construction	131
72	7.3.3	Housebuilders/General Builders	131
73	7.3	PLUMBING AND HEATING CONTRACTORS	133
74	7.4	MECHANICAL AND ELECTRICAL CONTRACTORS (M&E)	135
75	7.5	OTHER CONTRACTORS	135
76	7.6	CONSUMERS	137
77	7.7	LOCAL AUTHORITIES AND PUBLIC BODIES	138
78	7.8	OTHER	138
79	7.9	GENERAL	138
80	8	FUTURE PROSPECTS	139

TABLES & CHARTS
CHART 1	MERCHANTS MARKET 1996-2006 - £ MILLION AT MERCHANTS SELLING PRICES	8
CHART 2	INTEREST RATES AND INFLATION (RPI) FROM 1990-2005	12
CHART 3	PDI & SAVINGS RATIO 1980-2005	13
CHART 4	AGE DISTRIBUTION OF THE RESIDENT UK POPULATION 2001 ('000)	15
CHART 5	DISTRIBUTION STRUCTURE - LIGHTSIDE	18
TABLE 6	UK BUILDING & PLUMBING MERCHANTS MARKET 1996 TO 2006 - BY VALUE (£ MILLION AT MERCHANT SELLING PRICES)	21
TABLE 7	REGIONAL VARIATIONS OF CONTRACTORS OUTPUT	26
CHART 8	UK MERCHANTS MARKET AT CONSTANT (1995) PRICES 1996 TO 2006 - £ MILLION AT MERCHANT SELLING PRICES	27
TABLE 9	HOUSING COMPLETIONS 1996-2006 GREAT BRITAIN ('000)	31
TABLE 10	HOUSING STARTS 1996-2006 GREAT BRITAIN ('000)	32
TABLE 11	VALUE OF NEW UK HOUSING OUTPUT AND RMI OUTPUT (£ MILLION)	33
TABLE 12	NUMBER OF PROPERTY TRANSACTIONS IN ENGLAND AND WALES 1996-2002	34
TABLE 13	CONTRACTORS OUTPUT - NEW WORK AND RMI NON HOUSING - CURRENT PRICES (£ BILLION)	35
TABLE 14	NEW ORDERS OBTAINED BY CONTRACTORS 1996-2002 CURRENT PRICES	36
CHART 15	MERCHANTS MARKET SHARES 2002	39
CHART 16	SHARE percentAGE TAKEN BY THE TOP FIVE MERCHANTS 1990, 1995, 1999, 2001 & 2002	40
CHART 17	MIX OF MERCHANTS BY TYPE 2002	42
TABLE 18	KEY INDICATORS UK BUILDERS MERCHANTS MARKET - SAINT GOBAIN (JEWSON AND GRAHAM)	43
TABLE 19	KEY INDICATORS UK BUILDERS MERCHANTS MARKET - WOLSELEY CENTERS PLC - UK BUILDING PRODUCTS DISTRIBUTION	46
TABLE 20	KEY INDICATORS UK BUILDERS MERCHANTS MARKET - TRAVIS PERKINS PLC	47
TABLE 21	KEY INDICATORS UK BUILDERS MERCHANTS MARKET - BSS GROUP PLC	48
TABLE 22	KEY INDICATORS UK BUILDERS MERCHANTS MARKET - GRAFTON UK BUILDING PRODUCTS DISTRIBUTION	49
CHART 23	MERCHANTS BY TURNOVER 1996,1999, 2002 AND 2003	57
CHART 24	percentAGE OF MERCHANTS STOCKING BY PRODUCT GROUP	62
TABLE 25	MERCHANTS STOCK IN WEEKS 1996-2002	64
TABLE 26	MERCHANTS PROFITABILITY 1996-2002	65
TABLE 27	MERCHANTS DEBTORS LEVELS 1996 TO 2002	66
TABLE 28	MERCHANTS TURNOVER PER EMPLOYEE 1996 TO 2002	67
TABLE 29	BUILDERS & PLUMBERS MERCHANTS PRODUCT MIX 2002 AT MERCHANT SELLING PRICES	80
TABLE 30	BUILDERS & PLUMBERS MERCHANTS SHARE OF THE MARKET SECTORS 2002 AT MERCHANT SELLING PRICES	81
TABLE 31	THE UK ROOFING AND INSULATION MARKET	83
TABLE 32	PRODUCT MIX - ROOFING & INSULATION MARKET 2002 (£ M AT MERCHANT SELLING PRICES)	84
TABLE 33	THE UK MARKET FOR BRICKS, BLOCKS AND CONCRETE GOODS - 1996 - 2002 (£M AT MERCHANT SELLING PRICES)	88
CHART 34	MIX OF BRICKS, BLOCKS & CONCRETE PRODUCTS BY VALUE 2002 AT MERCHANT SELLING PRICES	89
TABLE 35	PRODUCTION, STOCKS & DELIVERIES OF ALL BRICK TYPES (M) 1996 TO 2002	90
TABLE 36	PRODUCTION, STOCKS & DELIVERIES OF ALL CONCRETE BUILDING BLOCKS (000 SQ. METRES) 1996-2001	91
TABLE 37	THE UK MARKET FOR CEMENT AND PLASTER MATERIALS 1996-2002 (£ MILLION AT MERCHANT SELLING PRICES)	93
TABLE 38	PRODUCT MIX OF CEMENT & PLASTER PRODUCTS 2002	93
TABLE 39	CEMENT AND READY MIXED CONCRETE PRODUCTION 1996-2002 ('000 TONNES)	94
TABLE 40	SALES OF AGGREGATES IN GREAT BRITAIN 1996-2002 ('000) TONNES	95
TABLE 41	UK TIMBER PRODUCTS - 1996 TO 2002 (£ MILLION AT MERCHANT SELLING PRICES)	97
CHART 42	TIMBER SALES BY MAJOR PRODUCT GROUPS 2002 BY VALUE	98
TABLE 43	THE PLUMBING MATERIALS MARKET 1996-2002 (£ MILLION AT MERCHANTS SELLING PRICES)	101
TABLE 44	PRODUCT MIX - TOTAL PLUMBING AND DRAINAGE MATERIALS MARKET 2002 - (£ MILLION AT MERCHANTS SELLING PRICES)	102
TABLE 45	THE UK DECORATING MATERIALS MARKET 1996-2002 - BY VALUE (£M)	107
TABLE 46	PRODUCT MIX WITHIN THE DECORATING MATERIALS MARKET 2002 - VALUE (£M)	107
TABLE 47	THE UK SPACE & WATER HEATING MARKET 1996-2002 - BY VALUE (£M)	111
TABLE 48	PRODUCT MIX WITHIN THE HEATING AND VENTILATION PRODUCTS MARKET 2002 BY VALUE (£ MILLION AT MERCHANTS SELLING PRICES)	112
TABLE 49	PRODUCT MIX - SPACE HEATERS 2002 BY VALUE - (£ MILLION)	115
TABLE 50	THE UK KITCHEN FURNITURE MARKET BY VALUE 1996 TO 2002 - ( £ MILLION AT MERCHANT SELLING PRICE)	119
TABLE 51	DISTRIBUTION OF KITCHEN FURNITURE - 2002 BY VALUE	121
TABLE 52	MARKET FOR IRONMONGERY AND MISCELLANEOUS PRODUCTS 2002 BY VALUE - (£ MILLION AT MERCHANT SELLING PRICES)	123
CHART 53	UK VAT-REGISTERED BUILDERS 2003	130
CHART 54	UK VAT REGISTERED PLUMBING AND HEATING CONTRACTORS 1998 AND 2003	134

INTRODUCTION and OVERVIEW

AMA Research have published the 7th edition of the "Builders & Plumbers Merchants Market - UK 2003" - incorporating original input and primary research, it represents an informed and up to date review of the market and with over 140 pages is excellent value for money.

This market remains a significant distribution channel for a wide range of products and is fundamental to the building industry, yet has been under pressure from other competitive channels and the cyclical nature of the building market.

The report contains:-

A DETAILED ASSESSMENT OF THIS £10+ BILLION MARKET - with a review of recent trends, current and future developments - with long term forecasts.

CRITICAL SUCCESS FACTORS - Merchants buying practices, key characteristics. Opportunities and threats - key competitive issues.

SPECIFIC AND RELEVANT INFORMATION - collated using a wide range of sources - not simply a broad collection of government statistics.

ANALYSIS BY PRODUCT GROUP-

Roofing & Insulation Space & Water Heating

Bricks, Blocks, Concrete Decorating Materials

Cement & Plaster Kitchen Equipment & Tiles

Timber - Boards & Products Ironmongery, Adhesives, Fixings

Plumbing Materials Tool Hire, Doors/Windows etc

This report has been compiled by marketing professionals with a background in building products and answers the need for QUALITATIVE AND QUANTITATIVE ASSESSMENT - it is invaluable to any company currently interested in the Merchants market or considering entry into the sector.

Of particular interest:-

Review of competitive channels of distribution and strengths and weaknesses of the Merchants.

Analysis of the rate of consolidation within the industry over the decade.

Assessment of Merchants share of each product sector.

Buying process and the implications for new suppliers.

Key areas of coverage in the report include:-

THE MERCHANTS

Major merchants, their turnovers, 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 eg barriers to entry, centralised and local buying systems.

Strengths, Weaknesses, Opportunities and Threats to merchants.

Competitive channels and their changing emphasis - DIY multiples, specialist distributors, high street channels etc.

Overall merchant product mix.

THE MARKET

The building products market infra-structure - suppliers, distributors, contractors, architects and users.

The market size in value terms, 1996 to 2003 and forecast through to 2006.

Market trends through the 1990's and trends in 2002/3. 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.

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 housebuilding market.

Role of Housing Associations/Registered Social Landlords. 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.

Roofing & Insulation	Timber Boards & Products	Decorating Materials
Roofing Tiles & Slates	Flooring/Fencing/Mouldings	Paints
Bitumen Products	Planed/Sawn	Wall Coverings
Insulation - Wall & Roof	Blockboard/Hardboard etc.	Fillers etc.
Fibre Cement Products	Doors/Frames/Windows
Bricks, Blocks & Concrete	Plumbing Products	Heating Products
Bricks - all kinds	Baths/Sanitaryware/Brassware	Boilers
Blocks - Building/Garden Wall	Showers & Enclosures	Room Heaters/Radiators
Pre-cast concrete products	Bathroom Accessories	Gas/Electric Space Heaters
Lintels/Paving/etc	Rainwater & Soil Goods	Water Heaters
Drainage & Domestic Waste	Pumps etc.
Cement & Plaster Materials	Kitchen Equipment	Ironmongery & Misc.
Sand & Aggregates	Kitchen Appliances	Adhesives, Power/Hand Tools
Cement/Mortar & Lime	Kitchen Furniture	Metal/Plastic Doors/Windows
Plaster & Plasterboard	Sinks	Ironmongery/Hardware
Ready Mixed Concrete	Wall/Floor Tiles	Fixings/Door Gear etc
Fitted Bedroom Furniture	Tool Hire, Electrical Products, Misc

SUMMARY

The UK Builders and Plumbers Merchant market was worth an estimated £9.5 billion at merchants selling prices in 2002, an increase of 5 percent in value terms on the previous year. Initial indication show that market has recorded similar rates of growth for 2002 and is expected to reach approximately £10 billion in value terms by the year-end.

The late 1990's were a difficult time for builders merchants, the early years of the 21st Century have reflected improved levels of value growth. The main impetus for the relative buoyancy of the market in the past 2-3 years has been the level of consumer confidence and the level of activity in the construction sector - particularly the domestic RMI market.

The overall value of the builders and plumbers merchants market has been affected by the rate of growth in new housebuilding market in terms of completion numbers in recent years. Recessions within new housebuilding have usually been followed by significant booms in new housebuilding. However, the pattern has not been repeated in the 1990's with housebuilding completions remaining relatively static in the mid 1990's before falling to a post-war low in 2001. Although housebuilding completions again achieved the 170,000 mark in 2002, the annual rate of completions remains well below expectations given the residual demand for new housing and the relatively positive house moving market. Although consolidation of the leading housebuilders in 200/3 may have affected the completions rates in the last 2-3 years other factors influencing the new housebuilding market also include the onerous planning approvals procedures and the change in emphasis from developments of large estates, to smaller projects and urban renewal and regeneration.

The growth of the market has also been affected by increases in raw materials prices during the 1990's particularly in the case of some plastic products and certain timber products, leading to pressure on merchants' margins. This situation arose since the merchants were not able to pass on price increases for all building products. Pressure on raw materials prices have remained throughout 2002/3 with plastic based products having been affected by the continuing high price of oil. The timber and timber derived products have also been affected in the last 2-3 years by depressed demand in the home markets of large producers - USA and Canada - which has resulted in excess supply for certain products, consequently resulting in downward pressures on average prices. In addition, the adoption of the Aggregates Tax since April 2002 has also increased the average prices of quarried products.

The level of competition within the building products distribution sector has also increased in recent years, adding further pressures to the Merchants market. Specialist distribution companies - such as those involved in roofing, insulation, etc - have continued to take share of their particular market sectors in recent years, placing additional pressures on Merchants also operating in these sectors. The growth of the DIY multiples and the extension of the range of building products offered has also assisted in making the building products distribution market very competitive. These latter sectors have increased their presence in the market in recent years, adding to the level of services that they offer. However, some of the larger Merchant organisations are now added specialist divisions to their product offering in order to combat the effects of the specialists and DIY multiples. Organisations such as Grafton and Travis Perkins have made major acquisitions of leading specialists in the heating & plumbing, drylining and ceiling/partition sectors.

Another major threat to the merchants is that of "direct supply" whereby manufacturers of building products negotiate agreements for supply of materials direct to site, effectively cutting out the merchants.

The merchants market is currently continue to benefit from a buoyant level of consumer confidence and the continued willingness of householders to spend money on home improvement products and schemes. The current low rates of interest have made borrowing cheaper and consumers are more willing to commit to large ticket purchases, such as extensions, additional bathrooms and en-suite facilities in order to add value to existing homes rather than save disposable income at only marginal rates of interest. Consumers are currently taking advantage of lower interest rates to finance significant home improvements through re-mortgaging facilities. In addition, the "buy to let" market has also helped boost the Merchant market as these new landlords make improvements to properties in order to boost potential rental incomes.

The market consolidation has continued throughout the last 2 years with both leading national and regional Merchant groups acquiring organisations that will boost both market coverage and product ranges. The process has been extended during 2002/3 with the concentration focused on acquiring particular specialisms that will expand the areas of operation, although the rate of consolidation has slowed consideraby since the late 1990's mainly due to the increasing concentration at the upper end of the Merchants market. The Merchants market is now dominated by a leading group of 5 organisations Saint Gobain (Jewson), Wolseley, Travis Perkins, BSS and Grafton.

The leading group of merchants, together were estimated to account for 61 percent share of the builders and plumbers merchants market in 2002, and these companies have shown consistent growth in both turnover and number of outlets over the last 3-4 years. The balance of market share is held by regional and local companies, reflecting the key service offered by merchants, ie 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 19 percent of merchants turnover, bricks/blocks and concrete with some 17 percent share, timber & timber products with 14 percent, space and water heating with 14 percent, cement & plaster with 10 percent and roofing & insulation with 9 percent share. Key growth areas in recent years have included plumbing and drainage products, space & water heating products and tool hire facilities. The Merchants have also taken advantage of the current trend for garden design and landscaping activities with extension of product ranges within this sector, with some merchants also developing dedicated areas within outlets. The decorating materials sector has been affected by the decline of the wallcoverings industry, but Merchants have also benefited from the positive demand for other materials such as ceramic tiles and wood/laminate floorcoverings.

The most significant products sector for the merchants is the plumbing and drainage materials where the merchants are estimated to for 58-60 percent of the total market. This compares to their share of the timber & timber products market which is an estimated 20-25 percent share, and where the merchants are in direct competition to more specialist distributors. Merchants also hold significant share of the market for roofing and insulation products (38-40 percent), bricks, blocks & concrete (38-40 percent) and cement & plaster (29-32 percent). The merchants have least strength in the kitchens market where share is estimated at approximately 9-10 percent of the overall market, although the development of specialist kitchen and bathroom sales rooms within Merchants outlets in the last 2-3 years is beginning to reap benefits. The decorating products market is also an area where Merchant perform less well with an estimated 8 percent share of the total market. The weaker position of the merchants in these sectors reflects the high level of competition from alternative channels in each of those markets.

The merchants main customer base remains builders and plumbers with the majority of merchants estimating that 90 percent of their custom derives from tradesmen. However, the merchants sector is also becoming a target for the "Buy It Yourself" consumer market, whereby experienced DIYer's are themselves acquiring materials for installation into their homes, or are buying materials which will be installed by professional tradesmen. Another niche sector is that of the self-builder with some merchants having set up specialist divisions to offer advice and information to these customers.

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Last updated by Amanda Porteous December 2003