Fastenal Industry Situation Analysis

Only available on StudyMode
  • Download(s) : 201
  • Published : April 29, 2008
Open Document
Text Preview

1.1 Dominant Economic Characteristics of the Industry Environment

Market size: The Industrial Distribution industry was estimated to be $400 billion in 2001, but the industry has many sub-industries within it (16). To name a few, Home Improvement revenues were $73 billion in 2003, $5.1 billion for the Building Materials Wholesale industry, $61 billion for the Electronic Wholesale industry, $10.4 billion for the Industrial Equipment Wholesale industry, and $211 billion for the Basic Materials Wholesale Industry (14). •Scope of competitive rivalry: All of the top ten companies in the industry have a national impact with their companies, although some have expanded into small international ventures in countries like Canada, Singapore, Mexico, and Puerto Rico. Some of the smaller but still large companies in the industry have a regional impact moving toward national (7). •Market Growth Rate: The market growth rate from 2002-2003 was both up and down for the top 50 companies in the industry. Half of the companies had declining sales at an average of 11%, 23 of the top 50 companies reported an average of 11.6% in sales gains, and two companies reported flat rates of growth (7). •Stage in life cycle: The industry is at the mature stage in the life cycle. The major competitors have been established for over 25 years, some dating back as early as the 1920’s. •Numbers of companies in the industry: There are over 100 “big” companies in the industry. The top fifty companies, the “biggest of the big,” range in sales (2002) from $86.5 million to $4.64 billion and from 20 locations to over 1100 (7). In 2003 the top 10 distributors claimed 13% of the market share, and the next 80 companies following the top ten claimed 10% of the market share (17). The thousands of smaller local, regional, and specialty industrial distributors who in 2001 made up 92% of the industry only had less than 0.1% market share each (16). •Customers: Millions of customers purchasing maintenance, repair and operating (MRO) supplies in general, electrical, plumbing, sheet metal, and road contractor construction; also includes farmers, truckers, railroads, mining companies, municipalities, schools, certain retail traders, federal agencies, state agencies, and military branches (1). •Degree of vertical integration: Mixed; the industry is set up to provide both products and services to customers through wholesale as well as through retail. The top competitors also manufacture a small percentage of their product, usually less than 5%, and buy the bulk of their products from suppliers. •Ease of entry/exit: This market is difficult to enter on a global or national scale based solely on capital requirements. However, companies can very easily enter on local or regional levels. The thousands of local, regional, and specialty industrial distributors make up approximately 92% of the market share while the top 50 distributors have less than 10% market share (16). Building retail stores and distribution centers as well as establishing a good customer base can be costly. •Technology/innovation: Technology isn’t the major economic factor in this industry, but it does play a crucial role in e-commerce and computerized inventory systems. Product and service innovation are also essential to keeping up with industry leaders. Companies believe that continued investment in IT systems is necessary to providing a platform for continuing strategic growth, efficiency, and customer service initiatives (3). •Product characteristics: The products and services in this industry are weakly differentiated. Because the products and services are essentially the same across the industry as companies offer various industrial items, what differentiate the larger companies in the industry are the few products or services that they offer customers and their customer service. Some companies have outstanding customer service...
tracking img