Traditional lumberyards have expressed strong interest in greater participation in roofing and wallboard and ceiling markets, according to our recent research. However, there’s a major obstacle facing lumberyards: Channel supply, which is dominated by specialized one-step distribution in both categories
Lumberyards accounted for only 10% of the $21 billion worth of roofing sold through wholesale and retail channels in North America in 2015. Similarly, lumberyards account for 11% of the $5 billion wallboard and ceilings channel revenue in North America last year.
Distributors largely serving these categories are narrowly focused, providing the ability to carry a deeper product line within the category. Roofing distributors tend to be bit broader, typically extending into siding and windows to serve overlapping contractor and installer customers. Wallboard and ceilings distributors are almost exclusively focused on these two products. Some companies sell related products like steel framing and installation tools but generally have not diversified into other product categories.
Both product categories are characterized by a highly concentrated base of specialized one-step distributors that hold large inventories to meet short-term delivery expectations on any product.
The Big Get Bigger
Industry consolidation in these categories has continued, with large national distributors seeking to expand their location footprint through acquisition of independent distributors. These distributors are billion-dollar companies with the capital resources, buying power and market reach to make it difficult for smaller independents and lumberyards to compete.
These well-capitalized one-step distributors can fund both initial and ongoing investments to carry deep inventory and support delivery expectations. For example, the capital expenditures required for a fleet of boom trucks is steep—prices range from $100,000 to $200,000 for a single truck. But those trucks are needed for residential and commercial jobsite delivery.
Specialized distributors buy direct from product manufacturers with no middleman margins generally involved. Large-volume purchases create buying power, enabling negotiation for competitive pricing contracts and preferential supply positions—critical factors when specific markets are hot and supply is tight.
Roofing and wallboard distributors provide specialized staffing with strong product, application and installation knowledge to educate and support customers. This focus on service creates loyalty among contractors and installers as well as effective builder programs given their national or large regional market reach. Most lumberyards are generally not seen as a viable source for these products by roofing contractors and drywall installers.
What to Do?
So, how can lumberyards participate more broadly in these categories and what’s needed to compete successfully? The answer begins with modeling after a specialized distributor with the following considerations.
- Develop an acquisitive growth strategy vs. growing organically.
- Purchase an existing viable distributor and promote as a separate division.
- Build tie-in sales programs with existing builder and contractor customers from a core lumberyard business.
Otherwise, you’re more likely to engage in incremental sales—increasing the occasional job ticket but not building a sizeable and sustainable business position in the category.
It’s important that the right product and brand is carried and properly supported from the manufacturer down to the sales counter. Customer loyalty—not only repeat purchases but recommending to others—is the aspiration for all companies, but few actually achieve it. The right product offering and service support will ensure that this goal can be reached, and make the customer think twice about going somewhere else with their business.
