IMCD: Principal - Distributor Dynamics

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Perhaps the best place to start, is to discuss the principal-distributor relationship and the durability of that relationship. I'm particularly interested in how distributors emphasize the stickiness of these relationships with the principals and their importance for the long tail of business, which the principals themselves are not interested in managing. Could you elaborate on that?

From a European perspective, in the 2000s, distributors started developing more when manufacturers found it increasingly expensive to service their customers. As the industry matured, manufacturers had to focus on their major customers and regulatory pressures. Distributors began to take over customer service and found they could do better than the principal. They realized this because they could represent multiple principals, offer multiple products, and weren't tied to offering a specific product. They could also bundle logistics in small lots, which was very powerful.

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Perhaps the best place to start, is to discuss the principal-distributor relationship and the durability of that relationship. I'm particularly interested in how distributors emphasize the stickiness of these relationships with the principals and their importance for the long tail of business, which the principals themselves are not interested in managing. Could you elaborate on that?

The stickiness only started to change when the chemical industry began consolidating. There were instances where companies got new owners and had to let go of one of their distributors. This posed a threat to the distributors but they remained sticky because of what they were offering to the principal, something that the principal increasingly couldn't do or didn't want to do.

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Regarding what you just mentioned, distributors can represent more than one principal, thus offering a diverse range of products to a smaller customer base. For instance, in the food ingredients sector, if there are two competing functional ingredients for a specific application in the food manufacturing industry, and a distributor is an exclusive representative of a principal in a particular region for that food ingredient, could they also represent another competing ingredient in that region? Or are they bound by the terms of their agreement with the principals that they can't offer a second and third option for the same product application?

In coatings, a significant area for distributors, you've got a binder or resin, an additive, a pigment, and various other additives. You may have five or six materials going into a paint. Therefore, the small to mid-sized customer finds it efficient to buy from a one-stop shop who can also offer, a relatively recent development in the last decade, a laboratory to provide formulation advice. This advice is not representing our product, but rather, it's market-back. What do you want? We can mix and match for you.

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