INTERVIEW: Specialisation, AI drive Univar long term, questions on Q4 demand

Will Beacham

13-Sep-2022

BARCELONA (ICIS)–Increasing specialisation in key end-use markets and more use of artificial intelligence (AI) will help drive distributor Univar in the longer term, while it navigates an uncertain demand environment this year, according to an executive at the company.

US-headquartered Univar will drive long-term growth through specialised, global business units and laboratories akin to independent companies, with AI allowing greater automation of ordering and pricing. In the short term, there are concerns about the demand environment following a sustained period of very profitable market conditions, according to Nick Powell.

The executive, who is Univar’s president, global specialty chemicals and ingredients, as well as president Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC), spoke to ICIS on the sidelines of the European Association of Chemical Distributors (Fecc) congress in Sitges, near Barcelona.

The company is split into global business units that ensure a consistent approach for customers and suppliers and allow sales staff to develop expertise in individual market segments.

Houston is the global centre of the company’s ingredients and specialties channel, representing about 35% of sales. This focuses on seven global core markets split by consumer solutions and industrial solutions.

According to Powell: “I almost look at the different industry groups within my global organisation as wholly owned businesses within Univar Solutions.”

He gave the example of the beauty care segment: “That’s all they do, all the people in that business, all they ever focus on is beauty care. They’re qualified, have served time in the beauty care industry and are experts in that area – we believe there’s a strong future in bringing a much greater level of industry focus.”

GLOBAL LABS
Solution centres and laboratories have been put into a hub-and-spoke network, with the seven largest given a single global centre of excellence. These are connected to smaller labs near local markets.

“Our competitors have not done this. Wherever you may be, you now have access to that same cutting-edge formulation technology we’ve developed in one of those hubs,” says Powell.

AI FOR PRICING, ORDERS
AI drives a lot of Univar’s pricing dynamics. With thousands of customers all over the world buying in numerous countries, selling prices vary a lot. With AI, the company can take all of that data and look at average selling prices at the top and bottom.

“We can analyse how customers react to those prices and if the product is priced appropriately without losing business. We analyse if we could take more share if we reduce the price, and that’s a very simple dynamic,” says Powell.

Univar – the world’s second-largest distributor after Brenntag, according to the ICIS Top 100 Chemical Distributors list – is now trying to add AI and digital solutions to enable customers to self-serve.

Through a web ordering system, customers can say they want to produce a product with certain features such as a shampoo that makes hair thicker and shiny or curly. They don’t know what chemistry to use, but they know the effect they want, and AI helps customers make the right choice.

Customers are asked questions, with AI analysing which products will best achieve those effects.

Powell says: “Because we’ve invested in digital customer sales tools, they can then go to our website and purchase that product. So theoretically they can have a seamless transaction with us without ever having to interact with a human.”

TWO DIGITAL PLATFORMS
Univar has two digital sales platforms with very different approaches. Univarsolutions.com is gradually being populated with its entire product catalogue. Within two years the aim is to have all of its tens of thousands of products available online.

Already, 49% of the group’s US customers are registered with the platform, which Univar claims offers simplified customer interactions and reduced transaction costs.

The other platform, called ChemCentral Marketplace, is totally agnostic as it is not branded as Univar Solutions. This site is aimed at customers who are not necessarily aware of Univar, but just search the web for the products they want.

“It’s doing exactly the same as the other platform – if you like it’s almost a drive by for ‘convenience’ shoppers. Google Search will take you to it and you’ll be able to buy a range of our safe-to-sell products instantly using a credit card, delivered by the Univar Solutions network,” says Powell.

BIG DISTRIBUTORS TO DOMINATE
Powell believes the distribution market can be divided into three types of company in terms of digitisation:

  1. Companies that are not interested in digitising their sales and marketing.
  2. Smaller distributors that do not have the capital to invest heavily in platforms. They may use third-party online marketplaces.
  3. Companies with the capital to invest heavily, probably dominated by just a handful of larger distributors.

“I personally think that in 10 years’ time, a significant difference will have been made in the digitisation of this market by the bigger four or five players. Those third-party platforms are not yet proven, in my opinion, because I think the big worry there is confidentiality of data,” says Powell.

He explains that if a distributor places its products on such a platform, some data will have to be surrendered.

“For me that’s one of the fundamental flaws: as we’ve just seen through COVID, shortages from the Houston freeze and now the huge ramp of demand, he or she who has product is absolutely king. If I have product, I know I can serve my customers well.

“Therefore my inventory is my asset, just the knowledge of the industry is an asset. I don’t see distributors wanting to share that information,” concludes Powell.

DEMAND UNCERTAINTY
The war in Ukraine and surging inflation are putting consumer spending under intense pressure, especially in Europe, raising questions about demand across the chemical sector.

Powell said: “Over the last two, three, four months, particularly in Europe, we’ve entered new times and I think I could only classify them as uncertain. We’ve all been waiting for that slowdown probably for a year or so.”

However, for the first half year, Univar has not seen any real evidence that customer order patterns are changing. Profitability has been very strong across the sector, fuelled by supply shortages that are still ongoing.

As the summer lull comes to an end, all eyes are now on September and the rest of the year, for signs of a slowdown. In contrast to chemical producers, distributors at Fecc say they have not yet seen a downturn in demand. This could be because they are more directly exposed to downstream segments such as personal care and food ingredients, which tend to be less cyclical.

“It will be interesting now to see how it bounces back during September – it’s a key month. So far from what we see at this very early stage, we’re comfortable with how the month looks for us,” says Powell.

He believes there is a question over how consumer spending habits may change in this downturn compared with others.

“Instinct would tell you that there will be a slowdown in consumer spending. However, levels of employment are high, so there are still a lot of people earning money, albeit now more of it’s got to be spent on staples such as energy.”

He believes people who were earning through the COVID lockdowns have come into this crisis with more savings.

“Does that allow a certain level of continued buoyancy and consumer spending? I don’t know, but I think it brings a different dynamic to the current economic crisis. If you look at it just through a European lens, that’s a concern. I manage businesses in the US and they are definitely more buoyant and more optimistic.”

Powell points to onshoring in the US, which is boosting domestic production and supply chains. He thinks this bodes well for the North American distribution market.

MORE ASIA SOURCING
Historically, Univar has only sourced a very small amount out of Asia, in the very low single-digit percentages. But this may change: “We’re opening our eyes a little bit wider, to what Asia might be able to give to us during these more difficult and turbulent times and particularly in Europe, where it’s likely Asian products may become more competitive.”

BALANCE ASIA POTENTIAL AGAINST RISKS
Univar is very focused on US and EMEA markets. Yet the largest chemical ingredients distribution market is in Asia-Pacific, primarily India and China.

With a growing and increasingly affluent population, APAC offers a lot of growth potential.

“We want to access that opportunity, but clearly we have to balance that against the political and economic disruption. We’re talking about this and the effects that may bring but at this point in time, we don’t yet have an answer,” says Powell.

LOGISTICS EASING
Delegates at Fecc heard that 400,000 Ukrainian truck drivers have been taken out of circulation in Europe, exacerbating an existing driver shortage. Powell agrees that trucking is still tight in Europe.

However, container shipping congestion is gradually easing and freight rates are falling slowly, albeit from record highs.

According to Powell: “We’re definitely seeing a freeing up in supply chains from a shipping perspective. We are now seeing product land on the on the west coast of the US from China in a more routine fashion than we would have done even three or four months ago.”

OWN YOUR OWN FLEET
Emissions reduction along supply chains is now a key priority and distributors can play an important role in this, especially transportation.

“Clearly, you can only really play that card if you’ve got control over your shipping fleet. If you’re using a third party, you’re at the behest of somebody else, so having our own in-house fleets, we think, is a real advantage,” he says.

Univar has its own transport infrastructure and is now using large Nikola electric trucks for long-distance deliveries and smaller ones for local deliveries. Deliveries can be taken in bulk by rail, then repacked at its facilities, cutting carbon dioxide (CO2) emissions from producer to distribution facility.

“We plan to ultimately use electric vehicles to ship that last mile,” concludes Powell.

Interview by Will Beacham

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