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‘We Are Not Doomed to Low Profit’ – Dr. Al Bates
In a session for distributors only, Dr. Albert Bates, founder of the Profit Planning Group, pointed out that convenience distributors, with a typical gross margin of 6.5% and profit before taxes of just .3%, rank dead last among 100 distribution industries that he analyzes every year.
"We are not doomed to low profit," Bates said, urging distributors to develop new business strategies and operational efficiencies. He cautioned that companies that focus on low prices and barebones operations, as well as those that focus on high end service at higher prices typically are more successful than those in the middle.
"You can’t put it together," he said. "You are trying to fight a war on two fronts. You need to move to the right or left, but do it slowly."
Bates also urged distributors to "expand the service profile," adding fee-based services such as training, service and repair, rental, consultation. "We need to rethink the strategic nature of our business," he said.
The typical convenience distributor with $100 million in annual sales has $3.9 million in payroll and fringe benefit costs, he said, the highest single expense category on their income statement. If that figure could be cut to $3.4 million, and the "other expenses" category cut from $2.3 million to $2 million, return on assets would increase from the current 2.5% to 10%.
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