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Advisor Insights

Middlemen in the Crosshairs

Industrial distributors stand up to digital competition.

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Online wholesalers such as  (AMZN) are entering the business-to-business distribution market, bringing increased price transparency. Their growing market presence will change customers’ expectations, and many incumbent distributors must adapt to remain competitive. In a recent Industrials Observer,[1] Morningstar equity analyst Brian Bernard explained how the leading industrial distributors can compete in the digital age. I spoke with Bernard about his research on Jan. 31; our conversation has been edited for length and clarity. 

Brian Bernard, CFA, CPA, is an equity analyst with Morningstar Research Services.

How have leading industrial distributors gained their edge? 

Two factors helped the distributors that we cover become the largest and most dominant in the space. The first is economies of scale. Industrial distribution is a fragmented market, with a lot of mom and pops out there. These guys, relative to those competitors, are very large and have a cost advantage; they are able to leverage fixed costs over a larger sales base.

Laura Lallos has a position in the following securities mentioned above: AMZN. Find out about Morningstar’s editorial policies.