Research: Dealer groups

What is the value of UK dealer groups in these times of declining margins and increasing pressure to reduce cost? Office Power sought to find out in its recent research report...

Dealer and buying groups remain a popular model in our industry. But as margins, funding and marketing support available in our industry’s supply chain continue to contract, dealer groups’ value has come under increasing scrutiny. Do they need to adapt their approach to better match the changing market?

As part of a series of reports that explores the dynamics of a changing industry and the impact on traditional dealers, UK-based independent dealer platform Office Power, part of reseller EO Group, at the end of last year surveyed over 100 dealers from across the UK that are currently in or are using dealer group services to gauge their views. The key objectives of the research were:

  • To understand what services provided by groups dealers currently use and value the most.
  • To evaluate dealer perceptions of how good their groups are at providing those services and why.
  • To identify key motivations behind dealer tenancy and loyalty towards their groups.
  • To uncover the key motivations for dealers to switch dealer groups.
  • To understand dealer expectations and their future needs.
  • To identify how dealer groups need to change to meet their member expectations in the future.

The survey consisted of three sections. The first section focused on understanding the current relationships dealers have with their dealer groups while the second explored dealers’ current experiences with their groups in order to understand what the industry landscape looks like at present. The third part includes a bit of future-gazing and a look at where the industry might be moving in the years ahead.

The results show some interesting dynamics that may impact the future of dealer group organisations.The data demonstrates, for example, that there is an overwhelming focus by dealers on the cost of goods (COGS) benefits of being in a group. It also highlighted the complexity of measuring how competitive these costs are. Dealers consider the COGS, or a supplier cost price, to be the most important benefit/service provided by dealer groups.

A sizeable 61% of dealers think that the COGS from dealer groups are extremely important and a significant 84% believe they are either extremely or very important.

It is interesting, however, that even with the importance they attribute to their cost price file they don’t necessarily believe that the prices they get are competitive. Only 24% think that they receive extremely competitive prices while 51% believe they get extremely or very competitive prices. It is concerning that 32% think their dealer group prices are OK to extremely uncompetitive. This should definitely worry dealers given how critically important they think cost pricing is.

It is perhaps not surprising that there is a disconnect between the importance associated by dealers to cost prices and how competitive a deal they think they are getting. This will have been escalated by some of the significant increases in cost prices on goods not purchased in the British pound currency since Brexit due to significant foreign exchange fluctuations. It also ‘muddies the water’ as it has become increasingly difficult
 to validate what is true price inflation caused by a
 weakening pound and what is an opportunist move by the supply chain to build some margin.

Effective marketing?

Dealers consider the provision of marketing services to be another key service//benefit of their groups. 74% of dealers think that marketing services are between important and extremely important. Dealers further believe that their groups do a good job of providing these services, with 69% giving their group a high to extremely high importance rating.

Office Power is not as assured as dealers about the proficiency of dealer groups to provide marketing services. It says that while it knows groups are very active in meeting the demands of dealers for marketing, it’s not convinced about the effectiveness of the services provided. Neither are dealers, Office Power claims. It says: “There is no doubt that marketing activities have an effect and increase the brand awareness of the dealers’ brands. We are more concerned with the ROI of these activities.”

The catalogue remains an important part of a dealer group’s offering to its members. In fact, dealers consider catalogues to be the most important marketing channel, with 57% rating them as important to extremely important.

Office Power agrees that catalogues are important and that most dealer groups offer decent publications. However, it points out, while a printed catalogue is a useful tool as part of a full marketing mix, it is important to consider which customers want and need a catalogue and which customers would be better suited to ordering online. “We think that greater recognition should be given to how the buyer is changing and that a broader approach is required, particularly to digital channels,” the dealer platform says.

Due to the annual nature of the print run of most catalogues and the significant fluctuations of pricing, Office Power also points out how problematic having a priced catalogue can be, but similarly how ‘toothless’ an unpriced catalogue is. This further highlights the importance of having a dynamic online catalogue, currently priced, to support any offline material that has long print runs/shelf lives.

Divided e-commerce opinions

The issue of e-commerce continues to divide opinion and is the service that creates the most polarised viewpoints. The majority of dealers agree with end consumers’ buying trends and think that e-commerce is of key importance, with 60% rating it between important and extremely important. However, a staggering 22% of dealers believe that it is extremely unimportant which, given industry trends and research, is bemusing to say the least.

On the whole, dealers think that their groups are proficient at providing e-commerce solutions, with 56% assessing these between good and extremely good.

It’s worth noting, of course, that there is no longer such a thing as a single channel purchasing journey. Customers might have a preference, but they no longer interact exclusively through one channel and have often researched their purchasing options across many channels before choosing their supplier.

The section in the report on the future of dealer groups raises more questions than answers, but it’s interesting that only 38% of dealers which are currently in a group are convinced that they will still be in their current group in five years’ time while 22% said they definitely wouldn’t.

It is clear from this report that the dealer group model is one that is going to come under closer scrutiny in the future. It is perhaps surprising that dealers expressed fairly low levels of engagement and in some cases apathy towards their relationships with their groups.

Only 30% of dealers think that dealer groups represent value for money, for example, and a meagre 8% believe that they could not get a comparable range of services elsewhere.

The need for change

At the end of the survey Office Power asked dealers how they believed their business would perform if they were not in a group. Only 13% of dealers thought they would perform poorly if they were not in a group. It is perhaps this statistic that might put the spotlight on the current dealer group model the most.

Overall, it is abundantly clear that dealer groups in the UK need to change. As Office Power says: “As the margins through the full supply chain continue to contract there are less vendor and wholesaler rebates available to support and fund the head office costs or dealer group profits that have traditionally been enjoyed in this model. This will either mean a contraction in the range of services provided or a decline in the quality.”

It’s clear from the data in the report that only dynamic and proactive groups which provide their dealers with services that add real measurable value will be the ones to succeed in the future. There is a clear indication that dealers want their groups to invest more in e-commerce and digital channels, so it seems that technology is the way forward.

It’s still unclear how things will play out in the end, but it’s likely that the winner will be the one that focuses on what dealers need rather than what they want – and hopefully this will start with the customer.

The whole report can be downloaded from Office Power. As this is a highly topical issue, with Office Power being one of many players ultimately having an interest in the dealer channel, OPI will be offering a broader assessment of the future of dealer groups globally – not just the UK – in the May issue of OPI.