Looking for the right model in the right place

By Steve Bohling June 01, 2014 Hard Talking - Industry Interviews

Dean Fradgley, Chief Executive of Fletcher Building Distribution New Zealand, recently made time to talk with us about PlaceMakers and Mico, the here and now and the coming soon. Steve Bohling reports.

To view a PDF of the complete feature as it appeared in NZ Hardware Journal magazine, click the download this story button at the bottom of this page.

Fletcher Building Distribution CEO, Dean Fradgley, is from the Midlands in the UK. Born in 1969, he’s a Manchester United fan (“they’re my boys”), but he’s also a big rugby fan and has played the game for some 30 years, man and boy.

Having spent the past 13 years in the trade plumbing and hardware sectors, Fradgley’s senior level experience includes time as Head of Trade for B&Q and, from 2007, he held a number of senior positions at Wolseley Group, one of the world’s largest plumbing specialist trade distributors. 

The fact he’s here in New Zealand is actually a fluke of timing. His career with Wolseley almost took him to the States but Fletcher Building invited him to come over last year to check the company out. It turns out New Zealand “just felt right” and the die was cast.

Dean Fradgley moved here with his family at the end of November last year and went straight into the CEO’s role with Fletcher Distribution across PlaceMakers and Mico. It’s been “a whirlwind 5 months”, he says.

Taking a quick step back in time, he ran the Kitchen Appliances category at B&Q which was worth about $1 billion and growing! He was also B&Q’s Head of trade which ended up as a $1 billion business from being “small beer”.

Among Fradgley’s keepers from that experience were some “great learnings” around customer segmentation and delivering “what customers want, rather than what we want to give them”. Call it customer-centric or not wishing to force a square peg into a round hole, this outlook came up time and again during our interview.

The new Fletcher Distribution CEO is proud of his blue collar background. His father was a bricklayer and all his family were tradesmen. His great grandfather even built the anchor for the Titanic…

As you’d expect, then, he is a hands-on and down to earth type who you won’t often find stuck behind a desk. “I like flat structures – so one of the big things I will be trying to do at PlaceMakers and Mico is around engagement with our front line, the people who sell stuff and the people who buy stuff. If you get your employee engagement right, you improve your customer service.”

What about the bigger picture? “I do like the strategic role but I also like getting the job done. My style is very open – no-one has a monopoly on good ideas. Strategies are born in the boardroom but, without execution, you don’t have a long term strategy.

“I won’t be in the office five days a week. I shall get out and engage with the front line teams and I’ll be listening and learning, sharing the vision and receiving feedback… Strategic plans aren’t set in stone, they should be fairly liquid and, as long as we perform well, then I am pretty happy.”

HALF YEAR REPORT: MORE TO COME

So, how about PlaceMakers’ performance for the year to date? “So far we are having a good year but there’s much more to come I think. We are probably in the right space, just ahead of the market holistically overall,” says Dean Fradgley.

Although there are some areas where PlaceMakers is “significantly above the market”, there are others where it is “slightly under”, and “some gaps which we need to fill geographically”. “My half year report would be: fine, we are hitting the KPIs that we want to, and all the data suggests that we are taking market share.”

That growth is coming from business to business (B2B) customers. Still, he recognises there is a “must try harder” flag against PlaceMakers’ performance in certain segments: “I think we are doing a great job with the large customers, the group home builders, but I think we recognise that, with the SMEs, Bunnings and Mitre 10 have done a very good job.

“I personally think we can do a better job with the SME customer. We should be easier to do business with than anyone else, but I think in some areas we may have been focusing too hard on other things. So we have been regrouping and have been re-attracting SMEs based on service and price. SMEs are great customers – we just have to give them what they want!”

Does this indicate a slight refocusing back towards B2B customers, large and small? “We have made the strategic decision to play where we do best,” he says.

Recent news about PlaceMakers’ refocusing on and re-investment in its frame & truss capabilities suggest this isn’t whistling Dixie. “We are very keen to invest,” says Dean Fradgley, adding “There’s much more to come!”

 

RETAIL, DIGITAL AND OMNI-CHANNEL

B2B may now be some 80% of PlaceMakers’ current business but at the same time around the network Dean Fradgley says there are some “great outposts where we do well with retail” and that he won’t be turning these punters away any time soon.

“We know what we do best but we shouldn’t exclude customer segments if the customer chooses to trade with us and we can service them well. We still run a promotional campaign for those customers who do want to do business with PlaceMakers at retail and we don’t want to close the door on them.”

A digital solution may be the answer for retail customers, he says, adding that 60% of UK retail consumers already shop online and many “don’t want to go into a shop any more”. Dean Fradgley believes we may see the same trend here.

What of PlaceMakers’ digital strategy for B2B customers, the BuildIT and PriceIT systems and beyond? These “will continue to play out and we will be biting them off in chunks with a focus on executing them well. There are plenty of businesses which ran too fast down the road of IT and tripped over themselves,” he adds.

In this respect, Dean Fradgley says his outlook is more omni-channel than digital: “If it doesn’t help the customer then we shouldn’t be doing it” is his firmly held view.

That means don’t give the customer just one way of doing business with you: “That’s what we are looking at, rather than saying everyone has to be online and nobody needs to come to our branches. We will always have a substantial branch footprint,” he adds.

So what about PlaceMakers’ physical network? Of the current 49 sites, the new CEO says: “We are generally happy with where they are although some of the estate looks a bit tired and we can freshen them up. That’s in the plan and we continue to invest a percentage of capex into refreshing sites, both corporate and JVs. If a site needs investment, it gets it.”

Although clearly not targeting a substantial store expansion programme any time soon, Dean Fradgley admits there are “a couple of gaps in the network”, particularly in Auckland, as well as further opportunities in the South Island.

 

ONE SIZE DOES NOT FIT ALL

What of the PlaceMakers’ JV model, now nearing its quarter century? The current level of 22-odd JVs out of 56 sites is a far cry from the heyday of the model, so what is Dean Fradgley’s take on joint venture versus company-owned?

It’s horses for courses he says: “I want the right model for the right solution in the right geography. The number [of JVs] will continue to expand and contract with the economic cycle.

“I like the fact our JVs have skin in the game [and] our customers like that so I don’t think we will ever not have a JV model of some type. But the model has been around since 1991 and will change in its consistency and its shape over time as the market changes – you cannot be a statue in this world.”

Fradgley calls the JVs “genuinely great people who we want to embrace and work with” and in the same breath talks about recognising the need to drive shareholder value and give the customer what they want.

“We are very proud of all of them. We just need to make sure that what we have is sustainable… In the last GFC, some of them went under because times were tough so we have got to work out how we can help them through the bad times and, at the top of the good times, we have to make sure we continue to outperform the market.

“I really like the tenure and experience of all our JV operators and managers – our average Branch Manager has 13 years’ experience as a branch manager,” he emphasises.

The customer should not see the difference between a JV-run and a company owned store, he says, although this may not always have been the case…

In mitigation, PlaceMakers “has been working hard at improving the management in non-JV branches,” he says, and with encouraging results. Of course the next step is to retain those high performing managers.

Bottom line? Dean Fradgley is “a fan of the model that is the most operationally efficient and gives the best customer service and outperforms the market by a clear margin.” You can’t be clearer than that.

 

RECENT ISSUES AND MOVING FASTER

What is his take on the timber price fixing issue that went broadly public during his first few weeks in the country? Without going into too much detail in print, both customers and employees have been put right, he says.

“There’s a lesson to learn for everybody that there are places where we just don’t go and where we have no intention of going. It’s bad form and it won’t happen again. My message is very very clear: we do what we do as per policy, we are clean, we are tidy, we are ethical and we are moral. If you do that you can’t go wrong.

The brouhaha around FMCG, the accusations of retailers bullying suppliers? “It’s about category management – if you have the right controls and the right processes and procedures you will be safe and clean and tidy.”

And about the perennial subject of Masters (etc) buying PlaceMakers? “I haven’t moved 18,000 kilometres across the world to be sold. I think we are more interested in how we can organically expand Distribution rather than selling it. Still, if it was for sale, I think I would probably want to buy it – it’s a good little business…

“After a period of uncertainty and a bit of a gap I think we are in a good place. We are firmly in the driving seat, we know where we are going and have been able to communicate it to everyone. I think we’re also moving at a faster pace…” 

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WHAT ROLE FOR MICO IN ALL THIS?

Now with decent billing on the signage outside Fetcher Distribution’s Head Office, Mico has been showing some good top line growth but is operating in a samey, far from margin-rich market. What does the future hold for Mico?

Plumbing is “a cracking business” that Dean Fradgley estimates at somewhere between an $810 million and a billion dollar market. And Fletcher Distribution won’t be exiting it any time soon: “It’s a good market to be in and we want to be in plumbing – we just have to find the right cost of serve for Mico.”

The new CEO typically goes straight to the nub of the matter: “I was surprised at the lack of profitability in the plumbing market over here,” he says frankly. “It’s a tight, competitive landscape. Everyone’s busy and no-one’s making any real money would be my frank appraisal. I think everyone is doing the same thing in the world of plumbing, and no-one really stands out.”

Part of the programme going forward is making sure Mico becomes more customer focused. Mico, like PlaceMakers, should be “famous for service, solutions, relationships and price”.

What of more radical changes like the trial in Whitianga where a Mico store-in-store approach was taken with the PlaceMakers branch? “I see an opportunity for Mico to get closer to PlaceMakers. We should share properties where it makes sense – property won’t get any cheaper in NZ – so if we have capacity within our PlaceMakers network, it’s a safe house for Mico to trade more profitably in.

“So we should consider that – provided the service improves and we give the plumbing customer segment what they want. If the service is good enough, the customers will trust us.”

Will there be further trialling around this concept? The Whitianga trial was a “useful stepping stone” although “the numbers weren’t great”, admits Dean Fradgley. Still, the concept will be trialled again in Kerikeri. “Two separate businesses but the same great level of service and one invoice per transaction. PlaceMakers and Mico together can give the customer something unique.”

That said, Fletcher Distribution will be taking a measured approach to this option: “It is a transformational change for both the customer and for us so we are going to take our time, test that model and concentrate on giving the customer what they want…”

What the plumbing customer wants is guaranteed stock availability, quick delivery and more proactivity around being able to source non-core products. Mico may also be adaptable to “a more digital solution”.

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