There are benefits and drawbacks to selling directly or through a distributor. Kazuo Sakakara, chair of FG Eurofred, can see no reason why the company should not be able to have the best of both worlds - and boost business into the bargain
BATTLE lines are being drawn up across the air conditioning industry on the thorny issue of route to market.
On one side, you have those who advocate going direct from manufacturer to contractor; on the other you have those who put forward the advantages of going through distributors. An increasing number of manufacturers are saying direct is best, distributors say their way is better, and contractors are split.
At FG Eurofred, the company has, as a matter of policy, decided to go a completely different way, with a mixed route to market - both direct and through distributors. But can it work?
Fujitsu General operated for decades through a network of efficient and enthusiastic wholesalers and distributors; a system FG Eurofred says it was happy to adopt. These distributors do much of the actual selling to contractors and, sometimes, end-users, while the company supports them with a strong advertising programme and sponsorship.
The distributors also supply contractors with any skills and expertise that they may have been lacking; such as designing, CAD, estimating, commissioning and so on. They are also able to ensure equipment is delivered on time and exactly where it is needed. They are often able to deliver pipework, controls, tools and other peripherals at the same time.
If something does go wrong, the distributors have enough expertise to deal with it without reference back to FG Eurofred.
Some distributors even go to client meetings with contractors to help in the negotiations. They build up a real and commercially fruitful relationship with their customers.
If it ain't broke...
With a strength such as that at its disposal, FG Eurofred believes it would be mad to sweep it all aside, as some manufacturers have done, for the sake of a few per cent of extra margin. It wants to keep its distribution network and support it as it has always done.
Indeed, some of the biggest beneficiaries of the joint venture between Fujitsu General and Eurofred will be the distributor network. The new company now has access to Eurofred's massive European stock holding, which means it will virtually always be able to deliver ex-stock, even for larger orders.
However, FG Eurofred says it believes there is also room for a direct sales operation. It can serve the larger contractors that prefer this route to market, and develop new sectors that have not yet been won over to the merits of air conditioning.
For example, there is now a growing number of contractors large enough to do most of the things that smaller installers use distributors for. They can do their own negotiate, design and commission, so they do not see why they should fund a distributor's margin when the equipment is probably delivered straight from the manufacturer anyway.
Also, increasingly, major end-users, such as supermarkets and health trusts, often like to deal directly with manufacturers when placing larger orders. Their projects are normally sizable, placed well in advance, and the end-users know their spending power is substantial enough to ensure the best prices, which, again, can only really be achieved through direct sales.
The other potential direct sales areas that FG Eurofred believes it can exploit, without eating into its distributor business, are those sectors that do not use air conditioning as much as they could. These days, offices, restaurants, health service buildings and leisure centres install air conditioning as a matter of course. But that still leaves a number of other areas that have yet to be fully developed. The company says that if it can help contractors through price and promotion to break into those areas, it can only help the market as a whole.
For example, the trend for conservatories, luxury flats and the new building regulations are all playing their part in increasing activity in the domestic sector, particularly the use of heat pumps where gas heating is not available. Even those intimately involved in the industry often forget that air-conditioning products heat efficiently as well as cool.
Also, while supermarkets, convenience stores, and restaurants have long been converted to the merits of comfort cooling, there are whole sections of the high street that have not. The potential here is easy to see: all you have to do is walk down any high street in the country on a hot day and count the mobile air conditioning hoses sticking out of the open doors of boutiques, record shops and so on.
If its direct sales operation brings in an order from a contractor that usually buys from a distributor, FG Eurofred says it would not turn it away. But it is not aiming at those customers. Neither is it seeking to undercut distributors, there would be no value in it for the company because they provide the bulk of its business in the UK.
Strengthening distributors' businesses is a matter of the utmost importance, says FG Eurofred, and it will be putting a great deal of effort and resources into doing just that.
Has the company succeeded in running a distributor network alongside a direct sales operation? Not only does it believe it has, it believes it will prove a model that other manufacturers will follow.