SME distributors thrive despite consolidation

10 September 2007 00:00  [Source: ICB]

Good things in small packages

Despite continued consolidation among chemical distributors in North America and Europe, many SMEs in the distribution sector are thriving

Sean Milmo/London

IS BIGGER always better? Not always, and certainly not for everything. The successful small guys are carving out niches with their areas of expertise to survive and thrive in the competitive world of chemical distribution.

Smaller distributors tend to be less efficient than their large competitors in the logistics of bulk chemicals. In Europe they also have the disadvantage of not being able to provide a pan-European service unless they are members of an international alliance.

Instead, SMEs are much more effective operators in the distribution of specialty chemicals and the handling of niche products. In these segments, some small and medium-size distributors are pushing up sales at double-digit rates.

"Distributors who do not have critical mass will struggle in dealing with bulk chemicals," says Marc Fermont, a senior partner at DistriConsult, based in Leysin, Switzerland. "But elsewhere in the chemicals distribution market, performance and profitability are not related so much to size. In some specialty chemical sectors, small and medium sized distributors can actually be very big operators."

"Further consolidation will reduce the number of distributors," he adds. "But the numbers of medium-sized distributors could go down more than those of small ones."

Chemagility, a UK-based information service which has been putting together the world's largest online database on chemical distributors and traders, predicts that by 2012, the number of chemical distributors in Europe will decrease by 12%, from 1,820 this year to 1,600.

While the number of top players - those with over €100m ($136m) in sales - will remain the same at around 40, the total of midsize distributors (over €15m in sales) will plummet by around a third to 200 while the number of small and micro-size ones (under €15m in sales) will fall by 10% to 1,350.

In a market expected to grow by 5% annually to €44.5bn over the next five years, the share of the total sales by the top 40 will rise from 49% to 59%. That of midsize distributors will drop from 31% to 23% while the share of the small distributors will slide by two percentage points, to 18%.

The distribution sector will continue to attract entrepreneurs who will partly offset the loss of small operators through acquisition. In the UK, 25 new distribution companies have been set up since 1998, equivalent to around 10% of the country's total.

DIVERSITY AND FRAGMENTATION

The small specialty distributor of the future will provide services difficult for larger distributors to fulfill and will have high levels of technical and marketing expertise, David Brown, director of Chemagility, told the annual congress of the European Association of Chemical Distributors (FECC) in Paris last June.

"Diversity and fragmentation will always be features of the chemical industry," he said.

DISTRIBUTOR PROFILES

HallStar Company, Chicago, Illinois, US, www.hallstar.com  

HallStar, formerly known as CPH Holding, specializes in the design, synthesis and manufacture of a wide range of specialty chemical ingredients. Personal care products account for around 40% of its ­business while it also has a strong position in ­polymer additives.

"Our history stretches back almost 90 years," says John Paro, president and CEO. "Our success - in distribution, manufacturing and research and development - is based on listening carefully to our customers and responding with the right chemistry and positive solutions."

The company has a global distribution network and sales in more than 50 countries. It also holds more than 100 patents. HallStar has introduced innovations such as new ingredients for UVA absorption in sunscreens and for advanced adhesion in the rubber industry.

In May, HallStar acquired Stepan's personal care ester business.

Lehmann & Voss & Co., Hamburg, Germany, www.lehvoss.de

Lehmann & Voss & Co. is a Hamburg-based trading and distribution company which was founded in 1894. In 1990, it began to expand outside Germany so that it now offers products and services on a pan-European basis.

In 2004 it started distributing in the US, through a joint venture, its own range of high-performance thermoplastic compounds. Over 100 of its 260 staff are in sales or sales-related tasks.

"We differentiate ourselves by our true dedication to specialty selling by focusing on specialties and customized product modification," says Knut Breede, managing partner at Lehmann & Voss. "We combine the strengths of a distributor with those of a flexible medium-sized problem solver and manufacturer."

Hawkins, Minneapolis, Minnesota, US, www.hawkinsinc.com

Hawkins is a formulator, manufacturer, blender, distributor and sales agent of more than 500 industrial chemicals and 600 reagent-grade laboratory chemicals for businesses and municipalities throughout the Midwestern US.

It says that if you drink tap water in the Midwest, make processed cheese or undergo kidney dialysis, chances are, Hawkins was involved in some way. It has moved from being focused primarily on bulk chemicals to being more specialized.

"We started our business back in 1938 strictly as a chemical distributor," says John Hawkins, chairman and CEO. "But we saw years ago we had to get into doing some manufacturing and some value-added. We've been fortunate in that regard. That's where we feel we have some good opportunities -just to run around selling more."

Hawkins recently acquired TruMark, a distributor of antimicrobial products for the food industry.

Aceto, Lake Success, New York, US, www.aceto.com

Aceto, which was founded in 1947, markets chemicals used primarily by the agricultural, color-producing, pharmaceutical, nutraceutical and surface-coating industries. It sells more than 1,000 chemicals with most being purchased in Europe or Asia for sale throughout the US, while some are sold abroad.

"We changed our business model to become more of an independent distributor rather than a sales agency (and) we have prospered," says Len Schwartz, Aceto's CEO. "Less than 10% of the business we are doing now is from the same product or sources as in 1996. As an independent distributor we actually create markets. We've done that by going into emerging-market countries. We go find a customer for a product and a product for a customer."

Chance & Hunt, Cheshire, UK, www.chance-hunt.com

Chance & Hunt sells 350,000 tonnes of chemicals per year - mainly coatings, adhesives, inks, food ingredients and polymer additives.

The company traces its roots back to 1835 when it was in the glassmaking industry.

For much of the 20th century it was owned by ICI before it reverted back to being a management-owned SME distributor in 1999.

In 2002, Chance & Hunt followed the example of many other European small distributors by becoming part of a pan-European alliance or partnership, in this case the Azelis group.

Chance & Hunt is as a result a hybrid. It is part of a large international organization with sales of around €1bn while it operates locally like an SME.

"As part of Azelis, Chance & Hunt has a pan-European relationship with suppliers but at the local level it has considerable autonomy," says Peter Fields, former CEO of Chance & Hunt and now chief operating officer of Azelis. "It retains its local identity and makes sure it understands the needs of its customers."

Superior Materials, Garden City, New York, US, www.supmat.com

Superior Materials has been supplying since 1946 a range of industries, including coatings, inks, adhesives, plastics, colorants, cosmetics, pharmaceuticals and food. Its specialty is pigments and pigment dispersions and preparations. It operates as a distributor for leading European companies such as BASF, Degussa and Akzo Nobel.

"We've had a direct relationship with European companies for over 30 years," says Ted Budman, Superior Materials executive vice president. "Our suppliers have chosen us because of our expertise in pigmentation. Some of our customers are multinationals while others are tiny companies with only a few employees. Because we are technically driven, we have access to certain people which others don't have. We can open doors for our suppliers."

Special Materials Company, Princeton, New Jersey, US, www.smc-global.com

Special Materials Company (SMC) is a global marketer, producer and developer of specialty chemicals with an expertise in the manufacture of niche phosphorus chemicals.

The company offers a line of P4-derived products from reducing agents to fire retardants, while having the capability to custom produce specialized organo-phosphorus molecules.

Special Materials Company, established in 1996, sought to become a bridge between buyers and developing suppliers around the world.

Over the last seven years, its sales have been growing by an average of 40% to reach $75m annually. "About 50% of our business is now in manufacturing and the rest in the purchase and marketing of chemicals," says Mark Silver, president of Special Materials. "We sell the products we manufacture and those we buy in as packages. The fact that we are producers shows our commitment to the industry and gives us a little bit of a competitive edge. We also have a lot of expertise and understanding of what is driving phosphorus chemicals, which we use to helpour customers."

Everchem Specialty Chemicals, Media, Pennsylvania, US, http://www.everchem.com

Everchem Specialty Chemicals specializes in urethane and fluids. One line of business is the placement of distressed products which have become surplus to requirement or are out of specification. But its main activity is urethanes for coatings, adhesives and sealants (CASE). Everchem's staff of around 20 people have a combined chemical experience of 300 years, mainly in urethanes.

"We are focused on technology, sales and marketing," explains David Patten, a partner at Everchem. "We don't do any production nor do we even have our own storage facilities. That enables us to move very quickly. We are not biased towards any type of urethanes product. Our job is to find solutions. We are doing very well at the moment and expect to double our sales to around $50m by 2010."

Hubbard-Hall, Waterbury, Connecticut, US, www.hubbardhall.com

Hubbard-Hall was founded in 1849, which probably makes it the oldest independent chemical distributor in the US.

Hubbard-Hall is hardly recognizable from the time of its founding in 1849 as Apothecaries Hall, a dispenser of everything from candy to caustic soda.

It gradually became a supplier of chemicals and related services to a wide variety of industries. Its core activity is the distribution of metal finishing products.

"Since our foundation we have been in all types of different businesses," says Chuck Kellogg, Hubbard-Hall's chairman, whose family has directly or indirectly been involved with the company throughout almost all its history. "We have had to change our businesses because the market has changed. Some of our customers have moved production to the Pacific Rim but we are continuing to ship supplies to them in Asia. We have survived through acquisitions of small family-owned operations. But we've also had a lot of luck."

Langley-Smith & Co., London, UK, www.langley-smith.co.uk

Langley-Smith, which celebrates its 100th anniversary this year, is located in central London on the edge of the city financial center, from where it supplies the world mainly with rosin, rosin derivatives and resin.

Most of its customers are in Europe, North Africa and the Middle East, while a growing proportion of its supplies are from the Far East, particularly China. It has doubled its turnover to £12m ($24m, €18m) over the last five years and aims to raise it to £20m over the next five.

"We owe our success to our expertise in the products we supply," says Paul Walden, a Langley-Smith director. "We started purchasing supplies from China two and half years ago and with the bad press Chinese producers in general have been getting recently, it may take a little bit longer than expected to build up the confidence of our customers in Chinese products."

The Chemical Company, Jamestown, Rhode Island, US, www.thechemco.com

The Chemical Company (TCC) provides a broad range of chemicals to a variety of industries, including resin and polymer producers, paper makers and pharmaceutical, food and cosmetic companies. One of its specialties is plasticizers. It has a network of warehouses for its chemicals across the US.

"We have an old-fashioned view about service," explains Nick Roach, CEO of TCC. "We have a person in our office to answer the phone and if necessary, tell the caller when people will be available. Callers don't have to press five buttons to get through to the person they want. Our objective is to be extremely responsive. If someone wants any chemical we'll give them a price from anywhere in the world within 24 hours."

Charkit Chemical, Norwalk, Connecticut, US, www.charkit.com

Charkit Chemical, founded 25 years ago, sells a wide range of products to the specialty chemical, flavor and fragrance, personal care, food, pharmaceutical, imaging, water and metal treatment industries. It sources both the most sought-after and the rarest specialty chemicals. It is affiliated to three contract manufacturers - two in the US and one in Ireland.

"There is a market need for middle ­market-sized distributors who pay ­attention to customers who may have been ­rationalized out of getting the proper ­attention they require," says president Charles Hinnant.

Search for listings of chemical suppliers free on ICIS search at www.icissearch.com

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly