Builders and distributors will find out if bigger is better

QXO’s acquisition spree is about to test an old assumption in building products supply. That assumption, supported by Phocas’ latest distribution in sales research, is distributors believe that customers value service and a relationship above everything else. The knowledgeable sales rep who understands the customer’s business and recommends the right products is the distributor’s competitive advantage.

Since QXO launched three years ago, the company has moved fast on its goal of becoming a tech-enabled leader in building materials distribution. It has acquired Beacon Roofing Supply, TopBuild and Kodiak Building partners, combining lumber, roofing, insulation and installer capabilities into one of the largest publicly traded building products distributors in America.

As someone who spends my working life around distributors, I’ve watched this unfold with interest. I’m keen to learn whether QXO’s size will mainly benefit customers or improve the profitability of this new building supply group. My own view is that the answer comes down to whether a sales rep on their runs is backed by data insights so they can confidently make decisions and give accurate advice. A distributor of any size can grow and stay profitable, but it retains its customers by making sure its reps always have a reliable answer. Connected systems and consolidated data let a rep anticipate a customer’s needs and hold onto that account as a business grows.

Builders and other customers of building suppliers usually buy lumber, doors, roofing and windows for a job from several businesses, each with its own credit terms and delivery schedule. QXO says its size will lower costs and speed up delivery as well as offering an AI-driven pricing system. If QXO delivers on that promise, a builder gets a one-stop shop across four product categories, simplifying most aspects of sourcing materials for a project. The current fragmentation in the sector can be costly, such as when one supplier doesn’t have the products required at the right time for a project and then a job stalls. A good project manager can shift the crew to another part of the build but the delay still costs time and money.

Building products are more complex and specific to a single project than goods that are identical wherever you buy them. Doors need measuring, roof and insulation choices depend on weather conditions and building codes, and everything needs to fit within the client's budget. This is why the building supply industry has always leaned on knowledgeable sales reps. Someone who can advise on the right product and flag a problem before it becomes a delay. Data analysis and CRM tools now back that rep to pull up a customer's order history and rebate levels in the middle of a visit. Data insights are what supports that person to provide answers and recommend the right product mix for each customer’s needs.

As QXO combines more companies and more brands into one operation, there is potential for the sales rep to be replaced with a self-service portal. The industry will be watching closely to see how QXO handles the transition and whether it’s customer base prefers a more automated, self-service offering or jumps ship if a competitor’s rep does the work for them or anticipates their needs.

For full disclosure, Phocas already works with several of the companies QXO has acquired and we hope to continue that work as they combine resources. That gives us a direct interest in how this plays out. My own expectation is that customers will judge these acquisitions first on how little their day-to-day service changes and whether the rep still visits or takes the call about the job, and only later whether pricing and delivery improves.

Independent distributors will be watching these acquisitions closely too and determining how much the consolidation changes their own offering. Many already operate through buying groups such as Affiliated Distributors, known as AD, which represents more than 1,000 independently owned members across construction and industrial verticals. Groups like AD exist to give independents collective buying power which means many of them are already running a smaller version of the model QXO is creating.

For AD members and businesses like them, QXO is a competitive threat, but independents have long competed with national chains on local knowledge and knowing the job and most suitable products ahead of the price. If QXO can hold onto that same excellent customer service with national coverage, then independents might lose their competitive advantage.

Talk to enough builders and you’ll find what they care about is whether the person they deal with knows their job, their product categories and when everything is being delivered. Customers value personal care and responsiveness more than the ownership structure. A comprehensive study by global consultants Simon-Kucher found that 93% of builders and contractors stick to preferred suppliers primarily based on service consistency.

QXO is one example in a much larger trend across distribution. Economies of scale are driving mergers and acquisitions in other verticals too, including automotive aftermarket parts and electrical wholesale. In every case, the test is whether the bigger business still feels like it’s run by people who know the customer or more like a call centre where the customer waits to get through and then they don’t have access to all the necessary information. Getting bigger doesn’t automatically make a distributor more efficient or trustworthy. It raises the stakes on that assumption that QXO is now putting to the test.