It has been an exciting few years in the development of the chemical distribution business. The volatile economic environment has created challenges for nearly every industry sector, with organisational needs changing constantly. In addition, the business of chemical distribution is transitioning from being a provider of local product delivery to becoming a critical link in a globally networked supply chain.
As a partner for both chemical manufacturers and end customers, chemical distributors must adapt to the changing needs of their key stakeholders. During the recent economic recession, some manufacturers had to make difficult decisions and scale back on internal operations and staffing. As a result, suppliers have sought to outsource more functions related to distribution, including sales and marketing, blending and mixing, application development and repackaging.
Changes are occurring on the customer side of the equation as well. In an effort to streamline purchasing and simplify supply chain operations, customers have sought to consolidate the number of distribution partnerships that they manage. With vendor reduction efforts being promoted across the industry, both in the UK and the wider world, the need for distributors to offer a diverse and comprehensive portfolio of products and services is more important now than ever.
These developments have made the chemical distribution landscape more competitive. It is not enough simply to ship products any more. Leading chemical distributors have recognised these changing market dynamics and have invested accordingly to find new global sources of supply, expand the target customer base, increase the efficiency of their logistical networks, develop new value-added services and improve their relationships with suppliers and customers.
During the recession, Univar resisted the temptation to postpone strategic investments. Instead, over the last few years, the company has grown organically and through targeted acquisitions to improve R&D, enhance capacity and logistics, and expand into new markets in Eastern Europe, the Middle East, Africa and Asia.
In any industry, leading companies invest during down cycles to gain a competitive advantage during growth cycles. With global economic indicators pointing towards recovery, chemical distributors who have continued to invest have good reason to be optimistic about the future and are emerging from the economic crisis stronger than ever before.
Scale & expertise
As suppliers seek to outsource more functions and customers seek to work with fewer vendors, chemical distributors with the expertise and scale to meet these new requirements stand to benefit significantly. A full-service distributor with a comprehensive and diverse product portfolio is a more attractive partner for suppliers and manufacturers, especially in the current market environment.
Univar has a broad presence in many regions and industries around the world. This breadth and diversity provides unique insight into the chemical market that benefits all key stakeholders. Through its wide array of commodity and speciality chemicals, it provides significant value to customers looking to purchase multiple products from a single partner. This portfolio diversity also contributed to keeping business relatively resilient during the downturn.
In addition to its diverse product offering, Univar is constantly developing its portfolio of value-added services, including significant sales and marketing capabilities. This added expertise is beneficial to suppliers as it helps promote their products, but it is also good for customers, as the company can proactively bring them products they need based on its understanding of their business.
Univar has set up its sales teams to ensure that it is industry-aligned and have the right technical support to deliver innovative solutions that satisfy customer requirements. The company believes that the breadth of its product and service offering enables it to provide a tailored approach to different markets and a better service for customers and suppliers.
In 2010, for instance, Univar opened a dedicated European coatings laboratory in Middlesbrough, UK. This new laboratory complements an existing solvents and blending facility in the same location, where the company is able to take unique blending requirements from customers and develop bespoke technical offerings using in-house expertise.
The fact that all major testing can be done within this single facility adds to Univar’s credibility as a key source of coatings products and an expert in customised coatings formulations. The company is already seeing the benefits of this enhanced capability with an influx of new business opportunities.
Finally, maintaining an efficient logistical network is also an essential requirement if a chemical distribution business is to remain competitive in a challenging market. Through a strategy of continuous improvement, Univar invests in new technology to improve its logistics networks and increase efficiencies, which in turn has contributed significantly to increased output and a rise in overall bottom-line growth.
However, technology is only part of the equation. An effective distribution network must also have capacity. Univar has a long history of adding capacity to its distribution network either through acquisitions or organic growth. For example, it has a strong presence in the Benelux region but last year sought to expand its business further in this important market.
Univar recognised that the fastest way to achieve its goals was through an acquisition, and identified Dutch distributor Quaron as the best target. With the acquisition of Quaron’s Benelux operations, Univar gained access to a significant new customer base during a challenging time, as well as additional logistical and technical capabilities. All this significantly enhanced the company’s offering in the region.
Expanding to new markets
It is clear that the potential for expansion and acquisition in new markets provides many opportunities, but the challenges should not be disregarded. For suppliers and customers moving into unfamiliar territories, the variations in local culture, business practices and regulatory requirements can be disconcerting. Having a trusted distribution partner on the ground who is already established in the local market provides stability and a significant advantage.
In particular, chemical distributors are looking to grow their business in Eastern Europe, Africa, the Middle East, South America and Asia. Previously, most international activity in these regions was on an export basis, with distributors selling on a fairly small scale, sourcing from their more established operations. However, the need for a real local presence is becoming apparent as these markets mature.
In countries that are experiencing strong economic growth, there is typically a trend for consumer tastes to become more sophisticated and for demand to grow for higher quality, more varied and more exotic products. The Middle East and Africa are exciting markets in this respect and Univar’s portfolio of ingredients with applications across various sectors leaves it and its partners well placed to benefit from this trend.
In particular, the Middle East is a region with potential for high levels of growth, due mainly to the prominent oil, gas and petrochemicals industries. Univar set up offices in Dubai in late 2009 and manages all its Gulf operations from this base, covering territories such as Saudi Arabia, Kuwait, Qatar, Oman and the UAE.
The company is confident that the good levels of organic growth in the Middle East will continue throughout 2011. It expects to see huge growth in food, as well as in the oil, gas and petrochemicals sector, where demand will be driven by natural resources within the region and global demand for energy-related products.
Turkey has also shown itself to be an important market for Univar; its population of more than 77 million people and its strong economic growth present significant opportunities for the business. The chemical distribution sector in Turkey is largely unconsolidated, leaving a clear opportunity for a distributor with international reach.
Capitalising on this opportunity was one of the main reasons behind Univar’s acquisition of Turkish chemical distributor Eral-Protek in March 2011. Establishing a significant presence on the ground in the region also represents a crucial step towards building a strategically important logistical and cultural bridge between European activity and growing business in the Middle East and Africa.
Africa, consisting of 53 countries and over a billion occupants, still remains a largely untapped market. Distribution is localised and highly fragmented, with only a handful of strong domestic players that operate beyond their own borders.
The shortage of strong potential takeover candidates means that Western distributors are looking to drive growth through greenfield development as well as by acquisition. Currently, the most popular territories are Algeria, Egypt, Morocco and Tunisia, countries in which Univar has recently established local operations.
There are challenges involved in targeting markets as vast and culturally diverse as the Middle East and Africa. The regions are populated by a number of small vendors and the markets are heavily price-driven. Local distributors and suppliers tend to look for a spot sale and then swiftly move on; value-added services are not in the mindset of local customers, so Univar and other chemical distributors must work hard to demonstrate to suppliers and customers in these markets the value of building long-term relationships and the benefits this can have for their business.
Overall, it is clear that the last few years have been a challenging time for the chemical distribution industry as a whole. As supplier and customer needs have changed, distributors have had to adapt their services to not only meet these needs, but also to secure their position in the market and survive in the new economic reality.
Univar is very optimistic about its ability to build on the developments of the last few years. The company is continuing to invest for the future, and is focused on building an even better, more efficient and more consistent experience for its customers and suppliers.
Univar will continue to focus on growth through a mix of organic expansion and strategic acquisitions. The company consistently invests in the quality and depth of its product and service offerings, thereby improving its operational excellence, global supply chain organisation and infrastructure. It will also continue to invest in its staff to develop and empower industry teams that provide additional value for customers and suppliers in all geographies.
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