It should be fairly obvious to most B2B distributors that Amazon Business has disrupted their traditional business model. But what some might not realize is the extent to which they’ve done it. Consider that Amazon Business is projected to rake in about $83 billion in gross merchandise volume by 2025, according to a Bank of America analyst report. In fact, Amazon Business has already supplanted some of the top distributors in a variety of categories, including:
Regulated Medical supplies
Safety products
Automotive
Industrial products
Electrical
Food service equipment
Given that nearly half of all B2B buyers start their product searches on Amazon, it’s likely that Amazon’s ability to capture B2B sales is only going to continue to grow.
Where does that leave traditional distributors?
After counseling hundreds of B2B firms on their approach to Amazon, one thing is abundantly clear to us: Distributors still have an important role to play in the B2B purchase path. At the same time, Amazon has raised the bar significantly, and distributors who don’t keep up will indeed face some difficult challenges in the coming years.
It is not the death of distributors, but rather an up-leveling.
That is, it’s an opportunity for distributors to understand their true value and align their business models with what they are truly best at in the world, which needs to be more than just a great price and product availability.
Very few distributors, even the largest ones, can beat Amazon on assortment, breadth, and convenience. Amazon is a massive and highly effective search engine with more than 3 billion products on the marketplace. It's "the everything store" in Jeff Bezos' own words. When a customer needs a small quantity of a product quickly, and they don’t want to have to work with a sales team or go through the full procurement process, Amazon is there to scoop up the sale. This is particularly true when a customer knows exactly what they want and doesn't need any technical or other consultative help to find what they need.
The net of this is that commodity, repeat, and small quantity purchases are slipping away from distributors and shifting towards Amazon.
Instead, it’s better for distributors to focus on being the experts in their industry. They can better understand the buyer’s overall need and how it fits into their workflow. That’s something that’s far more valuable than fast fulfillment; it’s purely strategic value. And, ultimately, I believe this will force distributors to build better businesses.
Take some of the biggest MRO distributors such as Grainger and Fastenal for example. They take the time to more fully understand their clients’ businesses and build complex vendor managed inventory systems—like vending machines geared directly towards what a client needs. Not only is it faster than Amazon (since the buyer doesn’t need to wait for fulfillment), but it adds tremendous value to the buyer’s own business.
This is just one example. In order for distributors to remain relevant—and in business—they need to invest in advanced digital capabilities and Ecommerce. The good news is that the barriers to entry here are fairly low. There are a ton of tools out there that can help align digital offerings with customer expectations.
But most importantly, distributors need to invest in differentiation. That is going to be the driving factor that determines whether a distributor succeeds in the long-term or just fades away, a relic of history.