Measuring the Growth Gap

Total revenues of wholesale distributors grew by 9.9% to $3.9 trillion in 2006, marking another year of strong performance. Will growth keep going? In my opinion, the fundamentals for most wholesale distribution sectors still look good for 2007.

But as I point out in Chapter Five of Facing the Forces of Change®: Lead the Way in the Supply Chain, unusually high commodity price inflation has made revenue growth much easier for wholesaler-distributors.

Here are some fresh data from the all-new 2007 Wholesale Distribution Economic Reports. I used a sector-specific price index to adjust wholesaler-distributors’ revenue for the effect of inflationary/deflationary price changes. (HINT: Click the picture to open it in a new window.)

Some sectors showed minimal or negative growth in 2006 after revenues are adjusted for the effects of price changes. In other words, total unit shipments for wholesale distributors in these sectors was flat or down once inflationary trends are stripped out.

For example, revenues for plastics and chemicals distributors were up 7.4% in 2006, but actually declined by more than 2% once revenues are adjusted for price changes. The price of steel and copper created a similar effect for metal service centers, whose revenue growth was a paltry 0.8% once the data are adjusted (vs. unadjusted growth of 13.2%).

If commodity price growth returns to historic norms, then wholesaler-distributors are going to have to work harder for real growth. Does your company face a growth gap? How much would your top-line revenue growth slow down if product prices remained flat over the next 24 months?