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Grainger Idea Proposal (GWW)

Grainger Idea Proposal (GWW)
 

Is Grainger’s price decrease helping it win more share of existing customers’ wallets? Will it help Grainger gain new customers?

Report Available: March 7, 2018

 

Blueshift’s initial research found GWW seeing improved results after its widespread price cuts aimed at increasing volume and share from existing customers and attracting new business. But it has been slow to sign up new customers and faces increased pressure from AMZN’s Amazon Business, which is still priced lower than GWW.

 

Observations

  1. GWW lowered prices in 2017in an effort to eliminate a barrier to its growth. This produced positive results in GWW’s Q4, with the company beating earnings and revenue expectations, with revenue climbing 6.5% year to year. Sales jumped 7% in the quarter, volume was up 11%, while price fell 3%. Sales in the U.S. increased 5% while prices dropped 5%. The company expects 5% revenue growth in 2018.
  2. The price decrease led to a better customer mix, enabling share growth within existing customers, with an eye toward attracting new customers as well, especially among midsize companies. Large customer volume in the U.S. increased 8% while its modest stable of midsize customers saw volume jump 26% year to year. The company admits its new customer acquisition efforts with the price drop are in the early stages.
  3. GWW’s price decrease was also to allow it to better compete with AMZN’s Amazon Business, which is still 10% to 15% less expensive than GWW after its price cuts. Amazon Business introduced Business Prime Shipping in the fall, offering free 2-day delivery for its business accounts in a bid to shift more business-to-business transactions for industrial and construction supplies online.
  4. GWW’s hope is that it has more to offer than Amazon Business, with a greater range of services such as inventory management, documentation, the ability to give different purchasing authorizations within an organization, and simple ease of use that make it worth the price premium. It is also a legacy provider, working with organizations and individuals for years, making switching costs high.
  5. Blueshift reported on GWW and what was then called Amazon Supply from 2012 to 2014, looking at its potential to disrupt the MRO space. Our Sept. 15, 2014, report said AMZN had not taken meaningful share from MROs and would not pose a short-term threat to their dominance. None of the procurement executive sources at large, midsize and small companies had utilized or thoroughly tested Amazon Supply, similar to comments in Blueshift’s Dec. 12, 2013, report. Amazon Supply lacked product expertise, quality traceable parts, local representation, understanding of the MRO culture, and customer service delivery that companies are accustomed to receiving from their chosen distributors. Amazon Supply’s potential to disrupt the market was through its low prices and price transparency. It was expected be most attractive to small businesses in need of disposable commodity items like janitorial and sanitation services. Amazon Supply’s biggest supporters likely would be millennials moving into management positions.

 

Is Grainger getting more share of their existing customers’ wallets? Is Grainger getting more new customers, especially midsize businesses? What is the effect of GWW’s price reduction on existing customers and winning new business? What effect is Amazon Business having on Grainger? How are switching costs for Grainger customers? Are other competitors cutting prices? Is Grainger worth a price premium over Amazon? How has AMZN grown in its ability to deliver expertise to clients in the MRO space? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Companies using only Grainger, Companies using Grainger and competitors, Companies using only competitors, Competitors, Suppliers, and Industry specialists.

 

Companies: W W Grainger Inc. (GWW), Amazon.com (AMZN), Fastenal Co. (FAST), HD Supply Holdings Inc. (HDS), MSC Industrial Direct Co Inc. (MSM)

 

Research Begins: February 19, 2018