Brian Bernard: Business-to-business, or B2B, distributors play an important role in supply chains across myriad industries. We believe the most successful distributors leverage scale and robust portfolios of value-added services to maintain attractive value propositions for their customers and competitive advantages over smaller competitors. We think cost advantages from economies of scale, and pricing power and customer retention earned through value-added services can contribute to a distributor's ability to earn excess returns.
However, e-commerce is playing an increasingly important role in the distribution industry. Amazon's real or rumored forays into various industries have caused market apprehension around many of the B2B distributors Morningstar covers; however, we think much of this concern has generally been overblown because many of these companies have built differentiated business models or benefit from other factors that discourage new competition.
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Brian Bernard does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.