It’s Q4 earning season, providing distributors (and manufacturers) with an opportunity to benchmark their performance, gain insights (or confirmation) on what they are seeing in the market and possibly learn a little from publicly held companies. Grainger just released their Q4 and Full year results for 2024 which is always interesting to dive deep into their performance.
Grainger is a “bell cow” for the Industrial Channel and we took a deeper look under the hood to see if any Trends stood out for the Industrial Channel. In reviewing their earnings they shared some high-level results which were positive.
Fourth Quarter 2024 Highlights
- Delivered sales of $4.2 billion, up 5.9%, or 4.7% on a daily, organic constant currency basis
- Achieved operating margin of 15.0%, up 110 basis points on a reported basis, or up 40 basis points on an adjusted basis
Full Year 2024 Highlights
- Grew sales to $17.2 billion, up 4.2%, or 4.7% on a daily, organic constant currency basis
- Realized reported operating margin of 15.4%, or 15.5% on an adjusted basis, down 20 basis points
It is fascinating to look at year over year trends on what are the key areas of focus for Grainger. So, we took a deeper dive.
If you follow Grainger closely you will see that they have been classifying their business into two segments
- High-Touch Solutions
- Endless Assortment
Basically to make is simple I think of it this way – High Touch Solutions are the historical branch and DC based Grainger business that is a combination of digital backed with experienced associate support. Endless Assortment are the digital solutions provided by Zoro and MonotaRO.
I took a deeper dive outside the financials into Grainger’s reporting to spot additional trends that may be overall channel trends.
I was looking for what key strategies and featured items that once were highlighted in their annual reports – in the front section. You can tell a lot on a public companies strategy and direction by tracking what shows up early in their reports and what changes from year to year. * Please note Grainger for many years printed an Annual Report with an Accompanying Fact Book until 2021. In 2022 they changed the Fact Book name to Company Snapshot.
What were the key items from the 2024 Company Snapshot (Dec. 31, 2023 Year end stats). (Please note the 2025 fact book is not released yet).
- Number of Team Members > 26,000
- Number of Active Customers > 4.5 Million
- Number of Products > 30 Million offered Globally
- Number of Suppliers 5,000+
In my opinion Number 1 ties to High Touch Experienced Associate support. Number 2 is important for both the High Touch and Endless Assortment Segments. Number 3 and 4 are Breadth and Depth of Inventory. So, in 30 words or less… I conclude that Grainger wants customers to know that they have breadth of inventory (a lot of SKUs to choose from in a one stop shop) and experienced support when you need it.
Simple yet effective in my opinion. Now what has changed in terms of key reporting.
In previous years the fact book/company reported key items like-
- Percent of Orders originating thru a digital channel > 75% (2023 Company Snapshot)
- Number of Branches and DC’s (2023 Company Snapshot)
Those 2 items are no longer featured up front. I am sure you can find them elsewhere in the 10K, but they went from what I call the spotlight to 2nd act. I will predict that in the new Company Snapshot when released they will not be featured up front.
What might this seemingly minor shift mean for the Industrial Channel?
I believe it highlights some big trends that effect everyone in the channel.
The percent of Orders originating online disappearing in my opinion indicates when you get over 75% percent of your orders originating through a digital channel that you have reached critical mass. It shows industry leading digital achievement and performance, so why share it going forward as it is obvious Grainger is digitally winning.
Why stop reporting the branch and DC numbers? I think simply because in the industrial model the where the product comes from is declining in importance to the end customer. Are Grainger’s customers concerned that they have a local branch to buy from? The hyperbole answer is No…they just want what they ordered delivered when they expect it. Whether is shows up from a DC or local branch is frankly really not important today. Grainger does not serve the contractor market primarily (which is a more same day availability channel). The majority of Grainger’s business orders are “next day or later” where the customer can wait at least until tomorrow for the majority of what they order. Industrial is overall a “Next Day or later” distribution channel.
As logistics have improved, DC’s have grown and delivery options have exploded are local branches and inventory a key buying factor for end customers? The answer is where the product comes from is less important to the end customers buying decision. Just get me what I ordered promptly tomorrow or at the expected delivery date….I do not really care if it arrives by carrier pigeon.
So, what can you take away from looking at Grainger’s strategy for your Industrial Channel Business?
Breadth and proper depth of inventory is a competitive advantage. What are you doing to make sure you have the right breadth of product choices and the depth needed to logistically fill those next day orders?
Digital Self Service Ordering is already a differentiator and becoming bigger each and every day. Customer want Self Service digital solutions today, tomorrow, and in the future. Grainger is working every day to become that Staples Easy button and then backing that with High Touch Human Support for complex orders and projects.
As always, we appreciate your comments and support.
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