Executive Summary

The wholesaling industry is very large. Total turnover in 1993 of £217.6bn was 69.9% greater than that of total retailing sales. These sales were generated by 144,000 businesses. However, in spite of an 8.1% increase in the number of businesses between 1989 and 1993, sales have been declining, with 1993 sales 2% down on their 1989 level.

The severe economic recession is the prime reason for this decline in sales. It has impacted upon sectors within the wholesaling industry, especially those of its customers in the construction industry such as builders' merchants. Sectors which depend upon a buoyant housing market such as household goods, furniture and floorcoverings, hardware and DIY have suffered more than others.

Economic indicators in early 1994 appear positive, in spite of high levels of unemployment and the sharp downturn in the construction industry between 1989 and 1993.

The great majority of wholesalers are small businesses: only 4% have turnovers of £5m per annum or more and only 2% are in the £10m-plus category. In terms of numbers, the main specific categories of wholesalers are food and drink (12.4%), household goods (10.3%) and clothing and footwear (8.1%). Wholesalers selling to retail customers account for 73.5% of the total. Industrial and transport wholesalers account for the remaining 26.5%.

The potential total number of wholesalers' customers is 234,520 retail businesses, although the major retail multiplies have to be excluded since they deal direct with their suppliers. In addition, there are over 1.1 million legal units (usually the tax units for VAT purposes) in the commercial and industrial sector.

In the grocery sector, the major retail multiplies account for 81.5% of retail sales. The independent retailers, which are the wholesalers' customers, accounted for only 8.7% of sales in 1993 and their sales have been declining steadily. Grocery wholesaling is dominated by a small number of giants. These are Booker Belmont wholesaler with a £2bn turnover, Nurdin & Peacock (£1.45bn), Makro (£749.5m) and the buying groups NISA-Today's (589 outlets) and Landmark (77 outlets).

Cash and carry dominates wholesale grocery. Delivered trade is a minor sector and there is also a tiny mixed business sector. In 1993, grocery wholesalers sales totalled £12.3bn. Sales grew by 27.5% between 1989 and 1993. Grocery wholesalers also sell to the catering trade and this business was worth £18bn in 1993. Major developments in this sector were moves by Nurdin & Peacock in 1993 into US-style discount warehouses and the changing of 44 of its cash and carry sites into `Trade & Business' warehouses which also offer office supplies and business machines. Grocery wholesalers sales are forecast to grow by 22% between 1993 and 1997 to £15bn and to reach £17.5bn by the year 2000.

There are around 11,300 legal units involved in the wholesaling of clothing and footwear, most of which are very small. Only 4% have sales exceeding £5m per annum. Several manufacturers and leading retailers also act as wholesalers. In 1993, total sales were worth an estimated £11bn. Between 1989 and 1993 sales grew by 20% at current prices. Sales are forecast to grow by 16.9% to £12.9bn between 1993 and 1997, reaching £14.3bn by the year 2000.

In the households goods sector, most wholesalers are small businesses. Only 4.5% have sales over £5m per annum. In electrical wholesaling there are a few large nationals including Newey & Eyre (£405m), City Electrical Factors (£347.5m) and Senate Electrical Wholesalers (£164m). The only sizeable specialist furniture wholesalers is PJH Group (£69.7m). DIY, hardware, housewares and garden tools is dominated by Nurdin & Peacock with 12.1% of the market, Makro (6.5%), Toolbank (6.5%), McDougal Rose (6.3%) and Decco (6.2%). Sector sales totalled £10.9bn in 1993, but had risen by only 8.9% between 1989 and 1993. The forecast is a 15.2% rise to £12.5bn by 1997, reaching £13.8bn by the year 2000.

The pharmaceutical and chemists' sector is dominated by the giants AAH Pharmaceuticals (£1.1bn sales) and Unichem (£1bn). There is a second division of companies with turnovers between £21m and £70m led by Kabi Pharmacia, Philip Harris and Mawdsley-Brookes. In total, there were 1,387 legal units in 1993, generating sales worth £6.5bn. Sales rose only 6.1% between 1989 and 1993. They are forecast to rise by 4% to £9.1bn by 1997 and to £12bn by the year 2000.

Builders' merchants and suppliers of timber and building materials comprised 4,522 legal units in 1993, which generated sales worth £7.5bn. Since 65% of sales are to the construction industry, it is not surprising that sales fell by 17.3% between 1989 and 1993. By 1997, they are forecast to rise by 22.7% to £9.15bn and reach £11.2bn by the year 2000, given sustained economic recovery.

Other wholesaling activities comprise a variety of wholesalers selling miscellaneous products, whose combined sales totalled £63.4bn in 1993. In addition, there are some 29,038 wholesalers servicing the industrial and transport sector with combined sales worth £32bn in 1993. Sales by miscellaneous goods wholesalers rose only 7.9% between 1989 and 1993. They are forecast to grown by only 6.7% to £67.7bn by 1997 and reach £75.8bn by the year2000. Sales in the industrial and transport sector rose 8.5% over between 1989 and 1993. They are projected to grow by 23% to £39.4bn by 1997 and to reach £49.6bn by the year 2000.

Various senior managers from leading wholesalers were interviewed by Key Note and expressed their views on several key issues. This revealed:

• A general belief in the vital role of wholesalers in the supply chain.

. Concern over the shrinking independent retail customer basis and the damaging competition from the retail multiple giants and newly arrived distant warehouses.

• A view that there are too many wholesalers and further rationalisation will occur.
• The customer base can be expanded by wholesalers diversifying into other sectors and by improved customer services.
• Customer care is vital for retaining customers.
• Packaging is a supplier not a wholesaler problem.
• There is a trend towards central warehousing.
• The dismantling of EC trade barriers has impacted little upon UK wholesalers.
• Wholesalers are suspicious of new product launches. They believe that most fail.
• Some wholesalers believe that there will always be a hard core of independent retailers.
• Others see the industry polarising between a handful of giant generalists and a large number of small specialist wholesalers with nothing in between.
• Some wholesalers see the growth of petrol station shops and shopping as a future threat to their business.

Total sales by the wholesaling industry are forecast to grow by 10.3% between 1993 and 1997 to £240bn and to reach £320bn by the year 2000. The factors influencing this forecast are mainly positive in terms of stimulating sales, i.e. improvement in the economy, polarisation, diversification, increased customer care and the blurring of the distinction between wholesaling and retailing. The two main negative influences are the declining retail independents and the threat to the corner shop from the growing numbers of petrol station outlets.

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