Like most electrical distributors catering to the industrial market, at the beginning of this millennium OneSource Distributors Inc., Oceanside, Calif., was looking for ways to diversify as more of its business went to Mexico and China. With a solid footprint in San Diego, Los Angeles and Orange County, OneSource looked to Southern California's growing utility market for expansion. Entering the utility market proved to a bit of a challenge, though.
“If you don't get into the big utilities, you're just nibbling at the outskirts, and you're not in the game,” said Robert Zamarripa, president, OneSource Distributors. “We really couldn't get our foot in the door.”
OneSource propped that door open with an acquisition early in 2002 when OneSource purchased Orange Coast Electric Supply Inc. (OCES), Irvine, Calif. The acquisition fulfilled two objectives: It allowed OneSource to further grow geographically in Southern California, and it presented an opportunity to enter the utility market via a contract Orange Coast had with a large publicly owned utility. That contract allowed OneSource to get inside and learn the utility business, which is vastly different from the other core market segments for full-line electrical distributors.
Although the average full-line electrical distributor sells 4.4 percent of its total annual revenues to power utilities, according to Electrical Wholesaling's Market Planning Guide, for a distributor to gain significant utility market share, there must be a big commitment in terms of resources. The investment of millions of dollars in inventory and the IT requirements of large utilities can be a financial barrier to entering the market even if an electrical distributor can get the acceptance of both a utility and utility-products vendors.
“Frankly, even for a distributor of our size, that investment will get you wobbly in the knees,” said Zamarripa.
For 2002, when OneSource was entering the utility market, the distributor reported annual revenues of $114 million for Electrical Wholesaling's annual survey of the industry's largest electrical distributors. On last year's survey, OneSource projected 2005 sales of $170-plus million. With 11 locations and 280 employees, OneSource ranked No. 40 on EW's most recent Top 200.
“If you want to get in, it's going to take a lot of resources in terms of people, technology and inventory to be in a position to be able to service some of these publicly owned utilities and the large municipal utilities,” said Zamarripa.
With the help of the Orange Coast utility group, OneSource dedicated a utility team to servicing utility customers in 2002 as OneSource better learned the utility business. In its second year of courting utility customers, OneSource launched its utility division, which it runs as a subsidiary with separate offices, staff, inventory, distribution center and income statements.
Zamarripa said it was important to treat OneSource's utility division as a separate business because of the vast differences in serving the utility customer — with different terminology and only a few crossover parts. OneSource brought in experienced utility people and trained those that transferred from its more traditional electrical distribution fold.
In 2003, the utility division represented less than 5 percent of OneSource's sales, but with the help of a multi-year contract the utility division earned in February 2004 from San Diego Gas & Electric (SDG&E), the division accounted for 12 percent of total sales in 2004. Last year, 24 percent of OneSource's overall volume of business was through its utility division.
Today, $5 million of OneSource's $17 million in total inventory is in utility products that include pole-line hardware, high-voltage wire and cable, transformers, fuses, cutouts, panel board equipment, tools and replacement high-voltage equipment for use at generating plants and substations.
Approximately 70 percent of the utility division's sales are to investor-owned utilities; 20 percent are to municipal-owned and co-op utilities; and 10 percent are to electrical contractors that do utility service work.
In addition to the utility division's office and distribution center in Oceanside, the division has an office in Los Angeles and was in the process of opening a distribution center and office in San Francisco scheduled to open the end of February.
In a few short years, OneSource has grown its utility division to the point that the division's sales make up the largest chunk of the five primary markets OneSource measures: industrial MRO, institutional and commercial MRO, electrical contractors, OEMs and utilities.
The division has implemented value-added services such as kitting and sub-assembly of utility related materials as well as offering its Web order entry system, which gives customers the ability to purchase materials online, providing them with a real-time electronic window into the inventory system and helping utility customers guarantee uninterruptible service to their customer base. “These are big customers. They buy a lot of material, and if we don't have the products, people go without their power. That's not an acceptable alternative,” said Zamarripa. “If you're going to deal with the investor-owned utilities, the inventory requirements are significant.”
The utility division's biggest challenge going forward is the reorganization of large utilities, said Zamarripa. “They're seeking ways to improve their processes, improve their supply chain and optimize the distribution network. We've got to constantly improve and constantly change to meet the needs that they're looking for.
“It's a challenging business and it's exciting for us because we've been very fortunate and managed to grow very significantly. We're in it now, and it's a big part of our future.”
Meters are the Measure
When the first power distribution systems were built out in the United States in the early 1900s as power companies were beginning to provide service, many markets had only one or two distributors. Graybar set up many of its first branch locations in those markets to supply companies doing construction and maintenance of the new power grids.
As power distribution systems grew in the United States, many markets continued to have only a few distributors that served utilities. This trend holds true today; in many metro areas, just a handful of players compete in the utility market.
“It's a very small fraternity of suppliers and distributors servicing the big market,” said Robert Zamarripa, president, OneSource Distributors.
In areas where the population still continues to grow, like the Southwest, utility business grows, too. Every new apartment, house and business needs a meter — and the subsequent products to bring power to that meter. What's your share of the utility market?