The future of dealer groups is something I have contemplated for some time. Recently I received the Office Power Dealer Group Survey and it made for insightful and interesting reading.
Office Power is a pretty cool tech company based in London, UK that helps small to medium office products dealers consolidate and leverage their purchasing under one umbrella as well as giving them an industry leading technology platform (amongst other things).
I mention this not as an advertisement for their business but rather to put some of their opinions into context. Whilst they are not like-for-like competitors to dealer groups they do compete. That said, many of their conclusions resonated with me and are as relevant for markets outside the UK as they are within.
Increasingly we are seeing margin pressure within the office channel especially in more traditional categories. This trend is unlikely to reverse. Manufacturers are forced into making choices about where they share their love. Even partners they have successfully worked with for years will be under scrutiny. These choices may be easy to make where ROI is not apparent but more challenging when cuts are made where value is being delivered.
A key question is whether manufacturer rebates paid to dealer groups, whether directly or through wholesalers, are sustainable? If so, the current dealer group model has longevity. If not, it is unlikely that wholesalers will financially support the activities of dealer groups themselves on an ongoing basis putting the current model under threat.
What happens to the dealer groups when this funding stops? Will dealer group members be prepared to pay the full cost for the services provided? I suspect many will not and the knock-on effect will be three-fold:
- There will be fewer dealer groups.
- Dealers will need to invest directly in key business areas to stay relevant and survive.
- Opportunities open up for consolidators, be they acquirers or service / technology platforms.
This is the link to the Office Power report. You do need to fill in your details in order to download but it’s worth a read