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Fastenal CEO: Getting Close to the Customer Is Key

Fastenal CEO Will Oberton says his wide-moat firm's competitive advantage is rooted in a commitment to make its clients' businesses run better.

Fastenal CEO: Getting Close to the Customer Is Key

Basili Alukos: Hi, everyone. We're here at the Morningstar Conference, and we have the pleasure today to speak with Fastenal CEO Will Oberton. Will, thank you for joining us.

Will Oberton: Good morning, Basili. Thanks for having me.

Alukos: No problem. So, I want to start out--at Morningstar, we look at companies with competitive advantages, and we applaud managers that take decisions that may sacrifice short-term gains for long-term benefits. And we are just wondering, how you think about Fastenal in that respect and how you've been able to manage the company in the uncertainty that we're dealing with today.

Oberton: Well, one of the advantages we have is we've been lucky enough or worked hard enough to get a shareholder base that really understands long-term thinking. Not all of them, but many of them, tell us, think long-term, don't do it by the quarter, because we're going to stick with you. So, that really helps my position being able to do that.

The other is, we just have a long track record of success, we know what it takes. We haven't changed our business a tremendous amount from how we go about our business. Our real goal is getting closer to the customer. If we continue to do that, we believe we'll be successful.

Alukos: And talking about the customer, we rate Fastenal as a wide-moat because of high switching costs, distribution network. And I'm wondering, in your own words, if you could talk about what do you think it is that Fastenal has done to create a durable competitive advantage.

Oberton: I think the most important thing that we've done is that we've gotten close to our customers. We understand our customers' needs, we make their jobs easier, and we bring a competitive advantage to making their businesses run better. If we can work hard to make our customers' businesses run smoother and more profitably, they should reward us with greater business.

Alukos: I know there's a lot of talk now that the developed economies are slowing and there's a lot of emerging-market growth, and Fastenal, in general, doesn't have as much exposure to the international economies, yet the growth in Fastenal has still been strong. I wonder if you can talk about that and your ability to grow a primarily domestic company in light of a slowing or potentially slow economic environment.

Oberton: The simple way to think of it is we've been working hard. It sounds too easy, but that's the biggest thing. We're very focused on our customers, and we have a great team on the field. We've developed almost our entire staff from the beginning. We don't hire outside talent. We bring people in, we train them, we develop them, and our team just continues to get better.

We have a lot of great initiatives. We've got a good product offering. Our industrial vending is helping our growth, and many other things we're working on, and part of it is, we're just going out and selling harder than we did in a better economy.

Alukos: Then, to switch gears a little bit, a few years ago, in 2006, we named you CEO of the Year. I was wondering, if you could kind of talk about some of the CEOs that you've learned some from, that have helped you with your career, maybe some of those that you kind of idolize.

Oberton: Probably the CEO I've learned by far the most from is the founder of our company, Bob Kierlin. Bob is a very unique individual because he's extremely bright and he's talented, but he only gives you advice when I ask. Bob still comes to the office every day, sits down the hall for me, but he never comes in and micromanages the business or tries to get involved unless I ask for his help.

I don't know a lot of CEOs outside of the Midwest. I have a lot of respect for John Wiehoff at C.H. Robinson. He's a great guy, a friend of mine. Another person I have gotten to know recently over the last two or three years is Darren Jackson, who is the CEO of Advance Auto Parts, and he's a very impressive man, young man that's done well leading an exciting company and moving it forward.

Alukos: That's interesting.

Lastly, I guess it would be inappropriate in thinking of the stock markets if I didn't ask you a longer-term question. As you sit here today, what do you think Fastenal will look like in the next 20 years?

Oberton: Well, I think Fastenal will continue to grow, and I have a good historical perspective, because when I started at Fastenal, I started in 1980. We had $2 million in annual revenue, and this year, we'll do somewhere about $2.7 billion, $2.8 billion. So, I've seen a lot of growth.

I think we can continue to grow the business, probably not at that rate, but at a very above-average rate for many years, because the market that we sell into in just North America is estimated at $160 billion. The world market is much larger than that. If we continue to hire smart people, treat them well, and execute at a high level, I would believe the business will be many times larger 10 to 15 years from now, but still have a very similar single focus, getting close to our customers.

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