Distributorships

Grow Your Business with Electrosteel

Ready to start your own distribution company? Over the past 20 years, the distribution industry has experienced unprecedented consolidation with many large markets now being served by only 3 distributors. And while that has helped in some ways, we have lost the personal touch many utilities and contractors still need. No doubt you’ve seen this too and may be ready to make your move. If so, please consider us for your new company. Check out our Q&A. We are often boxed out of markets because of our competitor’s business practices. We need new distributors for our company to grow. As partners, we’ll bring our extensive product knowledge and competitive spirit to your market helping you make an immediate impact. Together we can help utilities regain the service and hometown connections they have lost.

What Utilities Need to Know about DIP Manufacturers and Their Distributors

Introduction

We are frequently asked, “Why haven’t | heard of Electrosteel?” Implied within the question are concerns about our quality and/or competitiveness. And the question makes sense. How could a company who has been in the USA for over 10 years and claims to be both competitive and of superior quality be unknown to a water utility? Certainly there are several variables that go into a market’s awareness of a brand but one often overlooked issue is the availability of sufficient sales channels. This memo attempts to explain how American Cast Iron Pipe (ACIPCO), US Pipe and McWane Ductile obstruct the sales channels available to us thus preventing utilities from benefiting from additional competition.

The Set Up

A significant amount of DIP supplied in the USA, especially diameters less than or equal 24 inches, is sold through distribution.’ In fact, it’s likely you’ve heard terms such as, “They’re a McWane branch” or “That’s US Pipe’s distributor” when describing a distributor. Ever wondered why we all know who sells which brand of DIP but don’t have similar associations with products like fittings, PVC pipe, etc.? It’s because ACIPCO, McWane and US Pipe rigorously enforce loyalty pledges requiring distributors to commit to only selling their brand of DIP in a defined market (i.e. State of Texas, City of Raleigh, etc.). Despite no distinguishable differences between each other’s products, ACIPCO, McWane and US Pipe require distributors to buy from one of them exclusively. Failure to remain exclusive may result in loss of access to that brand. How can you know if this is practiced in your area? Look at a distributor’s line card. They almost always list multiple vendors for every product line except DIP*. Or watch direct bid results. Distributors are almost always required to bid only one brand with occasionally ridiculous outcomes. For example, recently in Westmoreland, does anybody really think Ferguson wanted to be 50% higher than Pipelines on a commodity like DIP!3 Has Lowes ever been 50% higher on 2×4’s than Home Depot? Of course not! Ferguson is a premier distributor with global resources yet the best price they could find Westmoreland was 50% higher than Pipelines? Hard to imagine!

Is It Legal?

The simple answer is, ‘yes’. A manufacturer has the right to sell, or not sell, anybody they choose. They also have the right to place conditions on the terms of sale. For example, Rolex may only want to sell high-end retailers in order to protect their brand’s reputation. Or Apple may select certain distributors who can show they are capable of providing proper technical support. There are countless legitimate reasons for a manufacturer to limit who distributes their products. But for DIP, it’s hard to rationalize the value water utilities receive from enforcement of loyalty pledges.

Why do distributors take the pledge?

They have no choice. Every waterworks utility in the US uses some DIP. Many use a lot of it. Either way, a distributor simply cannot open for business without a supplier of DIP. Similarly, the mere threat of losing access to their line of DIP is paramount to going out of business. Their negotiating position is even further weakened when “domestic only” specifications are accounted for. Selling even one job from Electrosteel could mean an inability to sell any future projects which require DIP produced by a domestic foundry*. Since these jobs are inevitable, a distributor is all but forced to maintain access to either ACIPCO, McWane or US Pipe. Threats of being “cut off” are simply too great.

Who benefits from these loyalty pledges?

It’s hard to support an argument that water utilities receive maximum competition when distributors are not allowed to competitively shop multiple vendors. Distributors are on the front line of bids and play an immeasurably important role in creating competition and price discovery. It’s also hard to claim distributors benefit by being limited in how they can service their customers and/or grow their business.

It’s easy, however, to understand why ACIPCO, US Pipe and McWane would prefer no competition within their chosen sales channel.

Call to Action

So why haven’t you heard of us? Probably because we can’t find a distributor to work with in your market! Want more competition? While waterworks utilities cannot singlehandedly overcome all of the market forces supporting the practice of loyalty pledges, you can decrease their effectiveness by approving Electrosteel in your system. Outdated, unduly restrictive or narrowly interpreted specifications which exclude Electrosteel significantly increase the impact of these loyalty pledges. Electrosteel does not enforce a loyalty pledge on distributors it works with. We respect the value they bring water utilities and our responsibility to compete vigorously for their business.

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