The paint jobber industry is undergoing significant change. Increasing customer concentration in the collision industry is putting pricing pressure on the entire refinish materials supply chain.
A second round of jobber consolidation is now underway adding competitive pressure within the industry. Adding to these pressures, paint manufacturers are placing ever more start up, technical and back office requirements on jobbers in an attempt to drive efficiency and lower costs. Combined, the result is a jobber industry that is undergoing and will continue to undergo significant change.
Consolidation in the collision repair industry is hot news. Backed by billions of dollars of private equity investments, the collision repair industry is witnessing what may be a once in a lifetime transformation. In 2014 alone more than $800 million dollars in revenues were acquired by the four largest collision repair companies in the country. In a few short years these same nationwide collision repair operators have doubled their market share. The pace of consolidation in the collision industry is projected to increase exponentially.
As the collision market becomes more concentrated, the impact on companies that sell into the industry becomes more apparent. The jobber industry in particular has seen a shift in the way business is conducted. As larger collision repair companies have taken more market share they have become more demanding on both price and operational integration, creating a fear in the industry that paint distribution is becoming a commoditized business.
Selling to a large multi shop operator (MSO) is different than selling to a traditional single or dual location business. Large MSO’s are focused on price first and value added services second. Many of the largest MSO’s are able to buy direct and negotiate nationwide sales agreements at steep discounts. In conjunction with an increased focus on price, there are also increasing demands that the jobber deeply integrate their business operations with the MSO. There is a particular focus on KPI’s and ensuring the jobber is performing as agreed. In return, jobbers servicing the largest collision repair operators in the industry earn gross margin on delivered product in the 5 percent to 8 percent range.
Selling high volumes at low margins alters the way business has traditionally been conducted in the market. For large distribution companies with already existing investments in inventory, sales and distribution staff, equipment and facilities, selling to a large regional account can prove to be a lucrative opportunity. In exchange for selling at low margins, many MSO’s demand less in the way of costly value added services that smaller customers require.
Large MSO’s tend to have their own technical experts on staff and demand substantially less support. Jobbers serving this market engage in traditional distribution, essentially becoming drop shippers that add value by closely integrating operations with large MSO’s as opposed to providing technical and operational support.