On-site Stores:
Evaluating industrial distributors’ new solutions for customers
Client
Institutional Investor
Role
Analyst
Team
Chris Fitzgerald - Associate Consultant
Duration
6 weeks
Problem
What is the effect of an industrial distributor’s on-site service offering on said company’s stock prices over the next 5-10 years?
Our client wanted us to focus on the following research areas:
What is an on-site store and how does it benefit the customer?
How does this service differ from previous service offerings of the industrial distributor of interest?
What does the competitive landscape of industrial distributors look like?
BACKGROUND
On-site services offered by industrial distributors are stores that are set up on the factory floor of businesses to help them save time and cost. It is not a brand new concept but it is the expansion of vending machines, which brings back the personal touch of customer service as now industrial distributor employees get integrated into manufacturing teams of their customers.
Over the past couple of years, an industrial distributor has been trying to expand the on-site service side of their business, so I had to find out about the benefits and costs of this offering through primary and secondary research.
UNDERSTANDING ON-SITE OFFERINGS
Traditional Stores
Can order online, via phone, or in person
Company delivers the goods to the dock
Vending Machines/Binstocks
Industrial distributor stocks the vending machines and bins as needed
Distributor charges the business as they use the supplies
On-site Stores
Private store on business premises stocked with custom inventory
Industrial distributor delivers supplies to the work benches and are integrated with the customer staff
Showing storyboards to explain how the different industrial distributor services better helped my client understand the business model better and make better informed investment decisions.
MY ROLE IN THIS PROJECT
As an analyst, I was collaborating with another colleague, Chris, and I was assigned with designing and programming a customer survey, conducting customer interviews to understand customer pain points. I additionally performed competitive and total addressable market (TAM) analyses. I reviewed SEC filings of the business and their competitors, and investigated how on-site services for industrial distributors worked and how they integrated with businesses.
RESEARCH PROCESS
In addition to the research methods I listed before, my colleague Chris and I conducted on-site customer interviews to understand how this service works, why businesses might want to employ these services, and what pain points they might have that have either caused them to stop using these services or are causing them to re-evaluate their decision.
We additionally wanted to conduct contextual inquiries, but the businesses we reached out were not open to the idea since our firm was not hired by their industrial distributor but by a third-party client. Therefore, we were unable to visit on-site stores and make in-person observations.
PROJECT CHALLENGES
Due to compliance reasons we were not allowed to speak to anyone who currently worked at the industrial distributor of interest as well as any other people this company employed in the past five years.
It was difficult to locate businesses that used the on-site services by this company because other than the case studies published by the company, there was not much public information available.
Even after locating businesses that used the on-site services, it was challenging to get people on the phone for interviews.
Towards the end of our 4-week sprint, our client also wanted us to investigate any potential competition from Amazon, which required us to expand our project scope on the spot and meet the new deadline.
RESULTS
Our recommendation to the client was to be cautious about investing in this business in the long run because our research showed that the business had picked all the low-hanging fruits, and their profit margins have been getting smaller as they tried to expand their on-site store offerings.
Customers who have on-site stores like it primarily due to time and cost savings. The business needs to be large enough to see cost savings or discounts.
Customers’ satisfaction with this service still depends on the individual staff members operating the on-site store. This means that sometimes the unsatisfied customer may ask the industrial distributor to close their onsite store at a specific location while continuing to use this service at other locations.
Amazon does not appear to be a competitor to the industrial distributor of interest. The businesses we talked to need their materials to be certified, and they just cannot trust Amazon’s product selection; for other items such as cleaning supplies, they just think that buying everything from one vendor is so much more efficient, which leads to extra purchasing from industrial distributors.
IMPACT
My contribution to this client project focused on streamlining survey design and launch processes and resourcefully identifying potential target customers of interest in a short period of time.
My firm usually outsourced the programming of surveys to survey vendors, which resulted in longer times for survey launch. I suggested doing the programming on Qualtrics platform, which allowed us to launch the survey in 2 days and save in programming costs. Going forward my firm switched to Qualtrics for designing surveys, and I started training fellow analysts, which helped us iterate and test our surveys faster internally.
Given the short timeline for the project, I had to create a call list of on-site customers with almost no public information. I wanted to have a call list that wouldn’t be just random businesses that might be customers of this industrial company but wanted to find potential businesses that have a higher likelihood of having an on-site store. I figured out a way to create such a list by going to the industrial distributors’ career page and identifying new hiring patterns to locate their potential on-site customers with the help of Google Map and its street view features.