ApplianceAdvisor
March, 2000 (updated at bottom 2000, 2001, and 2005)
Sub-zero buys Wolf's residential range business from Premark
Viking buys Amana's built-in refrigerator business
Background for those not in the
industry
Large major appliance manufacturers such as GE, Whirlpool and Maytag use a
1 step distribution strategy, Factory to Dealer. It is expensive to
have salesmen on the payroll across the country visiting dealers and the
regional warehouses to support them, but these
companies sell in high enough volumes to make 1 step distribution more
profitable than the option below......
No smaller major appliance manufacturer could ever afford to own the
inventory or hire the salesman to cover the entire country so they use a 2 step
distribution strategy of Factory to Distributor to Dealer. Distributors
sign contracts with manufacturers which give them a monopoly to sell the manufacturer's
products to dealers in a particular territory, but requires them to hold inventory of the
manufacturer's products in that territory. Territories are large, for
example, Texas, or Florida, or New England, are 3 territories. Distributors
carry several manufacturer's products (usually 3 to 7 manufacturers), but
usually do not carry directly competing brands. Distributors never sell to the public.
Distributors are not all created
equal. There may be around 6 distributors in a given territory,
but perhaps only 2 or 3 are powerful top tier performers with full sales
coverage, and the ability to leverage it's portfolio of manufacturers and
dealers for the best overall performance. Top tier distributors (with brand monopoly power in a territory)
will cut off a dealer, will not take an order from a dealer who doesn't tow the
distributors strategic line, whatever that strategy is. First tier
distributors carry first tier manufacturers and have access to the strongest
dealers.
Viking, Thermador and Sub-zero
are First tier manufacturers. Though Sub-Zero is often sold by the same
distributors as Viking and Thermador, Viking and Thermador are never sold by the
same distributors.
Analysis
Thermador's owner Masco had once attempted and failed to purchase Sub-Zero. In turn, Masco
turned down the reverse offer from Sub-Zero for Thermador. A few years later when Bosch
purchased Thermador, industry rumor had it that Bosch would then buy Amana built-in refrigerators.
Sub-Zero distributors who also carried Thermador were universal in their
agreement that they
would drop Thermador and simply find another cooking brand. They would not
drop Sub-Zero. To distribute Sub-Zero is to have a license to print
money. (See note bottom) Cooking lines are in a competitive market, and
margins are hurt. Sub-Zero competes with no one. Bosch/Thermador did
not venture into these waters......at least not yet.
Enter Viking into the fray this month when they bought the Amana built-in
refrigeration line. Amana already supplied Viking with its branded
refrigerators sold by its non-Sub-Zero distributors. Viking hoped to find greater
profits with
lower unit costs and
expanded sales of refrigeration products through Viking's distribution channel
in the short term, AND the introduction of a line of Sub-Zero-killer products in
the long term. Whatever Viking's plans though, distributors carrying both
Sub-Zero and Viking will not leave Sub-Zero. There are 6 affected
distributors, roughly 1/3 of Viking's network. Viking would rationalize that it could unseat
DCS, Thermador, or some other from its
Tier 1 distributors to quickly recover the 1/3.
Sub-zero's purchase of Wolf, (a second
Tier manufacturer of pro style cooking appliances) will help the distributors
make an easy decision even easier. The purchase does not have any of the
earth shattering implications of Viking's move. Wolf is a basic
residential high output gas range by a commercial range manufacturer. Wolf
competes with Dynasty, Garland, Imperial, and not with Viking, Thermador,
DCS, or Dacor. Sub-Zero undoubtedly made overtures to each of the later
group as they would have made better partners, but decided in the end that it
could use its market dominance in refrigeration to build Wolf up to Tier 1 status.
The changes should be pretty quick. Bosch could take years to consolidate its Thermador/Bosch distribution channels, but Viking cannot be so leisurely in its moves. Amana (which self distributes in most cases) will not continue to distribute a product line that it no longer owns, AND in any case, Amana's dealer network will quickly dump the line if it believes that it soon won't have access to it. Viking must redirect the line through it's own channel immediately. Wolf consolidation also requires some speed. Though Wolf distributors may harbor some hope Sub-Zero will change distribution to that of Wolf's, this result is unlikely. Sub-zero has the cream of the distribution, and the Wolf brand will only benefit by a move to Sub-Zero. Wolf distributors know this and therefore may start redirecting their resources to their other brands as they wait for the inevitable fall of the ax.
The Losers
Wolf Distributors
Will lose Wolf, will lose money
Wolf Employees
Wolf continues as a commercial range builder, still owned by Premark. Some
job loss due to loss of residential business.
DCS
While waiting for Maytag's inevitable pro product sourcing switch to its new subsidiary
Dynasty, another competitive knock.
DCS has big huevos, so they will likely make lemonade..........(or would that be
Huevo Rancheros?)
Dynasty
High risk that Sub-Zero will force Dynasty out of mutually shared
distributors to make way for Wolf.
Thermador
Might loose key distributors while it diddles around planning it's Bosch
consolidation. You
snooze you lose.
Sub-Zero Distributors (who don't sell Viking)
May have to juggle their brands without any hope of increasing sales for their
efforts.
Sub-Zero Distributors (who do sell Viking)
The painful loss of the juggernaut known as Viking.
The Winners
Viking
The steam roller of high end appliances from Mississippi keeps on rolling and
growing.
Viking Distributors (who don't sell Sub-Zero)
Minding their own business they will soon have a product line to compete with
Sub-Zero.
April, 2000 postscript to above analysis: Sub-Zero purchased Wolf's
designs, but didn't take any people. Sub-Zero has acted very quickly;
eliminating Wolf distribution, and showing the Wolf range in their booth at the April Kitchen
and Bath Show. Viking purchased Amana's built-in refrigerator tooling and
took some engineers. Expect many new products from Viking to compete with
Sub-Zero, and hiring and product development from Sub-Zero to develop Wolf into a
Viking/Thermador like brand. Massive
distributor reorganization is in the works, with the entire industry in a game
of musical chairs. Some smaller distributors may end up out of business.
Viking has purchased its Pacific Northwest Distributor, Gateway Distribution, a
1-1/2 step distribution strategy, if you will.
Note: June 2001
Distributors have taken issue with this "license to print money"
characterization. One distributor said: "We work hard for our
money" etc, etc. We agree and understand. Distributing Sub-Zero
or any major appliance is hard work full of headaches. Sub-Zero customers
are probably bigger pains in the ass than most customers because they have
higher expectations than most customers. Certainly. When this phrase
was first written in early 2000, there were no competitors for the hearts, minds
and wallets of these customers, though the competitive environment has changed
much since then. Still, a Sub-Zero Distributorship is a profitable
venture. We know of no distributor which has willingly left
Sub-Zero. Perhaps the "license to print money" characterization
was over the top, but it should not be taken too seriously. The printing
of US currency is tightly restricted by the US government and is not normally
licensed to distributors of major appliances. In fact, quite often,
organizations that print US currency without license find themselves afoul of
several important federal statutes.
Note: April 2005:
Viking's "1-1/2 step" distributor strategy in which Viking purchased
or created wholly owned distributors in the Southeast, Midwest, and Northwest
has collapsed in failure. Viking has spun off all of its distributor
investments made in the proceeding 4 years. The original rationale may
have been driven by the distributor consolidations of 2000 and the resulting
lack of quality Tier 1 distributors for Viking to go to. Viking's
reputation on the market has also suffered, as the market perception is of an
overall decline in quality and service levels.
Sub-zero has expanded and upgraded the Wolf line to Tier 1 status, a full
fledged brand with a status perhaps equal to that of Viking. The brand has
become so powerful in fact that distributors have started to employ dealer
display requirements which can only put the dealer in the uncomfortable position
of laughing and crying simultaneously.
Thermador spent most of the preceding 5 years years running silently and running
deep, teetering on the edge of oblivion. Some important product upgrades
failed, brand marketing was reduced and it got into a blood feud with its most
important distributor. Recently the process of rebuilding the brand, the
product line, and the distribution network started in earnest, but easy it will
not be.
What
are your thoughts?