Backed by the resources of a $12 billion parent corporation, Sonepar USA's Tony Burr is gunning for big-time growth in the United States.
Maybe it's being part of one of the largest family-owned businesses in the world, where quarter-to-quarter sales increases aren't the full measure of success. Perhaps it's the combination of a hands-off management style and centralized resources that attracts so many former company owners to stay on after they sell their family businesses to Sonepar.
Sonepar certainly seems to have hit on the right combination of operating strategies to fuel its rapid growth in the United States. With $2.4 billion in 2006 U.S. sales, more than 200 locations and 4,200 employees, the company is now the fifth largest full-line electrical distributor in the United States. Through organic growth and acquisitions, the company grew its U.S. sales by 56 percent in 2006. Its 2007 acquisitions of Crawford Electric Supply, Dallas, Fairview Electrical Supply Corp., Fairview, N.J., and Ralph Pill Electric Supply, Boston, coupled with some healthy organic growth will help the company top $3 billion in sales this year.
Sonepar USA adapted quickly to the 2004 departure of Richard Worthy (now CEO of US Electrical Services, Exton, Pa.), who managed the company's initial development in North America and its march to the billion-dollar sales plateau. Since the Worthy era, the company has added almost $2 billion dollars in sales through organic growth, branch expansion and several key acquisitions, including Boggis-Johnson Electric Co., Milwaukee; Crawford Electric Supply; Fairview Electrical Supply; Friedman Electric Supply Co., Exeter, Pa.; Priester Supply, Arlington, Texas; Ralph Pill Electric Supply; and Stuart C. Irby, Jackson,. Miss. The company also purchased several smaller utility distributors during the past two years.
It's a busy time indeed for Tony Burr, president of Sonepar USA since January 2005. His 25 years of experience in the European distribution market, including a stint as CEO of Hagemeyer's United Kingdom business, give him a unique vantage point on the U.S. market. Europe's distribution market differs from the U.S. market in many ways. Some of the differences have to do with geographic scale. Because the United States is such a vast market geographically, manufacturers need electrical distributors to provide local warehousing. The European market is more consolidated too. Sonepar, Rexel and Hagemeyer are the three largest distributors, and they have a commanding market share in many countries (see sidebar “A more global perspective,” page 29).
Burr is also quite familiar with online purchasing by customers, and says that practice is much further along in Europe than in the United States. He has also had to compete against private labelers in Europe for many years. Although private labeling has just taken center stage in the United States in the last year or two, it has been a market reality in Europe for quite some time. Sonepar has made it clear on several public occasions that it will not support private-label activities.
Burr says there's a good reason Sonepar has invested so much in its U.S. operations: growth opportunities. While Europe still has some opportunities for acquisitions, he says many of the regional markets are fairly consolidated. The U.S. market is still relatively fragmented and has been growing at a faster pace (particularly in the Sunbelt) than Europe in recent years. Then there is the sheer size of the market for electrical supplies in the United States. U.S. sales through electrical distributors are expected to top $90 billion this year, and that's a big chunk of a global distribution market that Burr estimates at $210 billion.
During an exclusive interview with Electrical Wholesaling at the Sonepar U.S. headquarters office overlooking Philadelphia's Independence Square, Burr was confident that Sonepar's U.S. business unit could hit the parent corporation's annual growth target of 5 percent organic growth and 5 percent growth through acquisition, but said that as Sonepar gets larger, it gets tougher to grow at that pace. The company worldwide has had 20 consecutive years of annual sales growth of at least 10 percent.
“It gets tougher to grow as you get bigger,” he says. “When you have a $12 billion business worldwide, it gets tougher every year. It might take $600 million in acquisitions. Where is it going to come from? When you look around in many countries, it is difficult to achieve. But there still remains many growth opportunities on the horizon arising in the USA.”.
“In the United States overall we are No. 5, but we are more concerned that we become No. 1 or No. 2 in each of our geographic markets. For example, we are not in California, which is an extremely large market. If we were able to acquire a business there, that would move us up the scale rather quickly. We have the East Coast pretty well covered, but we have a gap in the Carolinas. The purchase of Irby in the South in 2005 gave us a good platform across nine states and in different market segments. And the recent acquisition of Crawford provides us with the base we were looking for in Texas. The challenge is always to find the right business which fits our culture.”
Burr says Sonepar will top $3 billion in U.S. sales by the end of this year, and that while the company may never get as large as WESCO Distribution Inc., Pittsburgh, or Graybar Electric Co., St. Louis, eventually hitting $5 billion in U.S. sales is a realistic goal. “It could take us three years or it could take us six years,” he says. “It's all about balancing the risk in geographic markets and customer segments.”
While acquisitions are always top of mind at Sonepar, Burr expects quite a bit of organic growth over the next two to three years. He and his management team believe Sonepar will need 300 branches to cover the United States, but believe the company can hit 260 locations by organic growth alone.
Engines of Growth
To accomplish this mission, the company will continue to selectively use regional distribution centers to feed clusters of branches in certain geographic markets. Capital Lighting & Supply plans to use a CDC to grow on a grand scale in the metropolitan Washington, D.C. market. Its soon-to-be-opened 220,000-square-foot distribution center will feed the existing and new branches. John Hardy, chief executive officer, Capital Light & Supply, says the CDC will help the company grow from 20 locations to 40 locations in that market. The company will move its headquarters and existing distribution center to the new facility in Forestville, Md. Now under construction, the CDC is set to open early in 2008 and will house more than $18 million in inventory and include a training center.
Further south, Irby is using its Irby Electric Express self-service concept to move quickly into new markets with new locations and to supplement the coverage of existing markets. These locations tend to be smaller branches of 2,500 square feet to 4,000 square feet that focus on serving electrical contractors working on residential and commercial construction projects. Earlier this year, Irby opened a 100,000-square-foot distribution center in Nashville, Tenn., that will feed six Irby Express locations and its utility, commercial and industrial businesses in that area.
In the past few months, Sonepar USA has opened a number of other branches at Eoff Electric, Viking Electric Supply and World Electric, Irby and Crawford Electric Supply. World has also moved into a new region by opening in Charlotte, N.C. These new branches will help support the organic growth of the company's businesses.
Under the guidance of Kathy Rusko, Sonepar USA's CFO, and supported by a team of employees, Sonepar USA has embarked on a major IT implementation. The company has invested heavily in ERP and an information management infrastructure to gain efficiencies and provide an engine for growth through the Web and decrease costs through the supply chain. In 2006, Sonepar USA converted World Electric to Eclipse ERP business software. Earlier this year, Cooper Electric's conversion to Eclipse was the largest IT rollout in Sonepar and the single largest implementation over a weekend in Eclipse's history.
The Power of Many
Several other strategies loom large in Sonepar's mission to meet its aggressive U.S. growth goals:
Utilizing its in-house experts in different operational areas.
Being ready for customers when they want to purchase more products online.
Driving counter sales with professional merchandising techniques.
Offering employees an online training resource.
Maximizing the sales opportunities that exist in the energy market.
Burr and his management team can draw from many resources in the 29 countries in which the company does business. The parent company operates committees focusing on different aspects of the distribution business, such as information technology, product management, purchasing, finance, national accounts, human resources and the Sonepar Junior Committee (SJC), where younger executives can network.
These committees help the operating companies share their core competencies with each other. For instance, Cooper Electric Supply can share what it learned from its mammoth conversion; Viking Electric Supply and Northeast/Eagle can offer advice on re-merchandising counter areas; Irby can teach other Sonepar companies how to expand into new markets with smaller branches of 2,500 square feet to 4,000 square feet; Capital Lighting & Supply and Irby can instruct other managers on employee-training initiatives; and Eoff Electric can show other operating companies how to run profitable annual product expos.
While less than 10 percent of sales at Sonepar USA come online, online ordering is much more common in Europe. Says Burr, “Thirty percent of business in Europe is done via e-commerce. It's only a couple of percent in the United States. In some European countries, up to 40 percent of business is done via e-commerce. I think that the U.S. market is much lower because of its fragmented nature. There is limited investment in business-to-business e-commerce sites and most electrical contractors are not expressing a strong interest in placing their orders this way.”
One European contractor said of Sonepar's e-business efforts, “I only stop by the branch when it's really necessary.”
The company has launched a program to improve merchandising and to offer its customers a good shopping experience when they visit the branches. It also provide supports for new product introductions and special promotions. When NorthEast/Eagle recently opened up a new counter area in Fall River, Mass., it utilized the latest in merchandising and promotional strategies.
As Sonepar USA continues to acquire companies, it has become more important to develop a centralized training resource so employees in different job functions are all on the same page. Launched in March, Son@academy provides online courses on soft skills such as listening, selling skills and managing priorities, as well as more industry-specific coursework such as those classes provided by the National Association of Electrical Distributors (NAED), St. Louis. Hundreds of employees have already taken classes.
Burr says the company's customers around the globe have a different concern in the human-resources arena: finding qualified talent. “The education system has let us down badly,” he says. “It's not as bad in the States as it is in Europe. There is probably a 30 percent shortage of electricians in Europe. It really is quite significant. What's going to happen over time is that the distributor is going to have to add other skill sets into his portfolio to try to support contractors more.”
Blue Way energy-efficiency initiatives
Sonepar recently launched “Blue Way,” a company-wide crusade to inform employees, customers and buying influences about the need for more environmentally friendly business practices, products and electrical systems.
Michael Leroux, the company's vice president for sustainable development, says as part of the Blue Way initiative during the past two years, Sonepar has taught its employees to advocate innovative energy-saving solutions; to be pioneers in bringing new energy-efficient products to market; and to help suppliers develop energy-efficient packaging and, where possible, use more efficient shipping and transport systems.
Jay Bricker, senior vice president of Sonepar USA, spends a large part of his time with suppliers and identifying new market developments and opportunities. One such development is the recent support of the introduction of a tools and fasteners initiative into World Electric, complementing the existing tool services offered in other operations.
As Sonepar strives to fulfill these growth initiatives, expect the company to move much as is has done over the past eight years in building its U.S. operations: carefully and methodically, while empowering local operations managers to grow their businesses without the quarter-to-quarter sales pressures so common in many publicly held companies.
Indeed, the business philosophy that Tony Burr and his U.S. management team are using to grow the business to attain their goal of $5 billion in sales seems to be an extension of the popular saying in the offices of the Sonepar's worldwide headquarters in Paris: “What counts is what lasts and what lasts is that which knows how to adapt.”
2006: A Record Year for Many Sonepar Businesses
Several of Sonepar USA's individual businesses had some impressive sales increases in 2006. Check out these numbers:
Brook Electric Supply. +25 percent overall, and 48-percent growth in lighting sales.
Cooper Electric Supply. +18 percent.
Crawford Electric Supply. +41 percent.
Eoff Electric Supply. +15 percent.
Friedman Electric Supply. +20 percent organic growth.
Stuart C. Irby. +40 percent.
Viking Electric Supply. +30 percent.
A More Global Perspective
Sonepar now has more than $12.4 billion in international sales, processes 160,000 orders daily and has 22,650 employees working in 1,330 branches in 29 countries. While these are huge numbers, the 38-year-old company moved slowly and methodically to build its global portfolio. Founded in 1969 by the Coisne family, Sonepar didn't have operations outside of France until 1982, when it expanded into Germany and the Netherlands.
The company first ventured into North America in 1984 with its acquisition of Lumen in Quebec, but didn't move into the United States until 1998. It set up operations in Asia and Latin America in 2000 and stepped into China in 2005.
Sonepar is now a top player in many key markets around the world. It's the fifth-largest full-line electrical distributor in the United States, the largest distributor in Europe and Brazil, and the second-largest distributor in Canada, according to Tony Burr, president of Sonepar USA.
Burr says Hagemeyer, Rexel and Edmundson Electrical Ltd. (owned by Consolidated Electrical Distributors of the U.S), dominate the United Kingdom, and that Rexel and Hagemeyer are key players in other European countries but don't have has as much market share as they do in the U.K. “In the Nordics, Hagemeyer has a large share and Sonepar has a reasonable share,” he says. “Spain is a little more fragmented. Germany is a very solid market dominated by Sonepar, Rexel and Hagemeyer.
“When you move into Eastern Europe, it's a bit of a free-for-all. Take East Berlin. I was there 10 years ago and it was like a building site. If you look at it now, it is a very modern, well-designed city. It's an amazing transformation in 10 years. The Eastern European market is huge, and lots of labor is transferring from these Eastern Bloc countries into Western Europe to take up the missing skill base — electrical contractors, plumbers and carpenters.”
Burrs says that long-term, China may offer plenty of market growth, but that it will take time to develop that region. The company currently has seven locations in China.
“The United States is still likely to offer the main growth opportunities in the immediate future, he says. “In China, there are really not large players that you can buy into. You really have to create your own market. It's a real challenge. You have to segment the market and segment the product and see where you want to go in that marketplace.”
Asia currently accounts for approximately two percent of Sonepar global sales. France and now the United States each account for roughly 25 percent of sales; the rest of Europe accounts for 48 percent of sales; and Latin America accounts for approximately 1.5 percent of sales.