How Price Decreases Can Imperil Distributor Profitability

By Al Bates – Principal of the Distribution Performance Project Over the past few years, distributors have enjoyed the benefits of continually rising prices. By passing along supplier price increases percent for percent to customers, firms have recorded record profits in almost every segment of distribution. Data from financial benchmarking programs indicate that profits in 2022 were higher than they have been in more than 20 years. In fact, in some industries PBT (Profit Before Taxes as a percent of Total Sales) was twice as high as in any other year in history. Such is the power of supplier price increases passed along to customers. As hyper-inflation has given way to more moderate rates of inflation, the increase in profits has moderated. However, the overall change in the margin and expense structure flowing from inflation remains. There is seemingly a new plateau. Unfortunately, as Herbert Stein so wisely stated: “If something can’t go on forever, it will stop.” Not only is inflation moderating, there are some anecdotal incidents that suggest that some supplier prices are falling. READ FULL ARTICLE >>