Buying Groups: Sharing expertise

Buying Groups: Sharing expertise

Once billed primarily as a way for kitchen and bath dealers to get volume discounts that can help them compete more effectively against big boxes, buying groups have evolved into multi-functional entities that are as much about education as about rebates..

Sound like a direct mail solicitation from Ed McMahon? It could be but it could just as easily be a message from a kitchen and bath buying group. While million-dollar promises are generally the venue of impossible-odds sweepstakes offers and lottery commercials, kitchen and bath dealers face far better odds of earning "free money" through membership in buying groups, which offer significant rebates, as well as a host of other benefits.

In fact, according to Thompson Price, director of membership for the Bath & Kitchen Buying Group (BKBG), last year, more than $1 million in rebates were distributed to BKBG members for the second year in a row, with the average member earning more than $7,800 in rebates and the top member earning more than $76,000.

Likewise, Ken Peterson, president of the Chapel Hill, NC-based SEN Buying Group sees his group's members earning significant rebates through volume purchase discounts rebates that amount to an average of 2.55% of sales, he reports.

However, while there's no question that the rebates have long been the draw for members, buying groups in the kitchen and bath industry have evolved far beyond just being a way to earn extra dollars.

Indeed, the two major buying groups in the industry BKBG and SEN have increasingly focused on education and a sharing of expertise as ways to further their value to kitchen and bath dealer members.

As Peterson explains it: "The value the buying group brings to the table isn't just in rebates. It's in marketing programs and business training things that enhance members' ability to be profitable on all fronts."

He adds: "Our mission is to empower dealers and designers to earn more profit." And, while the buying group's rebates certainly help with this, he believes it's the group's other services that really contribute to its value.

SEN member Tom Blau, president of Milwaukee, WI-based Blau Bath & Kitchen, Inc., believes the benefits of buying group membership are clear cut and simple: "Two heads are better than one. And, [in the case of buying groups], you are talking about potentially 20 to 30 people analyzing problems that are common to a lot of us, and coming up with solutions that you might not come up with on your own. It's not just about buying. It's also a business management, sales training and educational entity that will help to you to grow and keep your business profitable."

He adds: "While the rebates are great, the biggest benefit is the business management, the networking and the education that we get from being a group and talking to each other."

BKBG's Price agrees: "It's not just the rebate dollars as much as it is the education. There's a lot of business knowledge to be gained by being involved with a group like this."

BKBG member Megan Landry, president of the Santa Barbara, CA-based Jack's Kitchens concurs with this: "Buying groups give us several fundamental benefits. The first is the combined buying power and the ability to have a direct relationship with large companies who would otherwise have us buying through distribution, thereby adding more layers of middle men. As part of the buying group, I can buy direct from the company, which gives us a higher credit limit as individuals, since it is the buying group's credit limit [that counts]. The ability to contact the company directly in the rare instance that there is a problem [is another key benefit].

"Another important aspect is the opportunity to network with vendors and other members at conferences and learn from one another. It becomes an ongoing school for finding the best practices in the industry."

While buying groups have been around in most industries for decades, the kitchen and bath industry is still a relative newcomer to the buying group game, with SEN only celebrating its 10-year anniversary in September, and BKBG currently in its ninth year of existence.

Membership numbers are still relatively small: According to Peterson, SEN currently has some 230 dealer members and 68 vendors, while BKBG counts "roughly 225 to 230 showrooms and close to 80 vendors" among its members, according to Price.

So, why, in an industry of thousands of dealers, do buying group members number only in the hundreds? Some believe it's a function of the industry's lack of knowledge about them (see related story, Page 62). Still others may be concerned about the compromises a buying group requires: To be successful, the group must do a volume of business with specific vendors, and some dealers are loathe to give up the freedom to do all their business with the vendors they choose, regardless of whether they are buying group vendors.

However, both Peterson and Price stress that ultimately, buying group vendors are chosen by the group. Additionally, while members are encouraged to buy from buying group vendors (and receive greater rebates when they do), members may still choose to buy other products from non-member vendors, as long as they make their minimum purchase requirements for the buying group. Plus, they always have the option of recommending a vendor for possible inclusion in the group.

In fact, as Peterson notes, "We are increasingly getting new member referrals from our vendors. These dealers are already doing business with them, so it just makes sense."

Membership requirements for the two groups vary: For instance, the member-owned BKBG only accepts dealer
members who have a showroom, and requires that members can do at least $500,000 annually in sales, total. BKBG also requires that dealer members not belong to a competing buying group.

SEN requires that dealer members make $25,000 minimum annual purchases in their first year (that number goes up to $60,000 per year for those in their second year and beyond), and have at least one SEN cabinet line on board by the end of the first year (the buying group currently has 11). It offers two different membership levels to satisfy different dealer needs.

Both groups charge a one-time $1,000 membership fee.

SEN requires annual sales dues of $2,000 (if members do less than $1 million in sales) or $3,000 (if they do more than $1 million in sales). However, Peterson notes that 50% of the dues can be used toward any of SEN's services, of which the buying group offers a wide variety, from business evaluations to showroom design.

BKBG notes that it charges no dues or assessments as long as the annual minimum purchase amount of $48,000 is achieved within a 24-month period. The only other costs would include the cost of marketing tools and attending the conferences, Price further notes.

Both groups believe participation is key to maximizing the group's effectiveness; for that reason, members of each are required to attend at least one of the buying groups' two conferences held each year.

Benefits & Services
At least initially, most kitchen and bath dealers and designers are drawn to buying groups
for the rebates. While each group structures its rebate system differently, both work on the simple premise of combining the group's buying power by purchasing products from member vendors at high-
volume discounts.

Interestingly, however, many of the benefits of buying group membership have nothing to do with the rebates.
For instance, SEN member James Yiznitski, president of the Chicopee, MA-based Interstate Custom Kitchen & Bath, Inc., notes, "We have always billed ourselves as a complete remodeling company, and we do that as far as service, but we haven't always been able to do that as far as materials go. [But since we joined the buying group], we are now taking on appliances, which we have never been able to sell competitively before. But, because of the size of the buying group, it is very competitive in the appliance market, so now we will be able to offer that."

BKBG member Joyce Cessar, designer/owner of the Pittsburgh, PA-based Cuvee Kitchen Design, Inc., agrees, noting, "Buying groups have helped me expand the items that I sell. For instance, I didn't do bathrooms before. But the buying group makes it easy to do bathrooms."

She adds, "The best benefit [of joining] is the synergy you get. I joined because it made sense to receive rebates on a lot of products I was already buying and I knew I would be introduced to products that I hadn't had access to in the past. However, after going to the conferences, I realized there was a tremendous amount of information available [that was equally valuable]."

Several members of both buying groups noted that their membership gives them more clout in resolving issues with vendors, leading to better service and speedier resolution of problems.

Both groups are also focused on providing education through meetings and other services.

For instance, BKBG's semi-annual meetings allow members to gain greater product knowledge and build stronger dealer relationships through one-one-one sessions with vendors, while educational seminars enhance business knowledge. "It becomes an ongoing school for finding the best practices in the industry and sharing them. At our conferences, we [have] the equivalent of a full-day of continuing education," says Landry.

Price also notes that BKBG offers the opportunity for national consumer exposure through its newsstand magazine, Bath & Kitchen Design Ideas.

At SEN, dealer roundtables have been instituted where members compare financial statements. "At our next conference, we'll have eight roundtables and we'll do P&L and balance sheets for each member of each group, with very focused advice on how to improve financial performance from one meeting to the next," Peterson notes.

While he admits that dealers may initially be reluctant to share financial information, once they get past this hurdle, he believes this helps members use financial statements to make good business decisions.

"Knowledge is how you better yourself and your business," he says, explaining that the kind of business knowledge dealers can glean from peers is invaluable in evaluating and improving a firm's bottom line.

Yiznitski believes that buying groups are also essential to the independent dealer's ability to stay competitive in the future.
He explains, "The home centers seem to be ratcheting it up to the next level they are really stepping it up. Locally, we are seeing where they are starting to charge for estimates, and where they have taken the whole job from soup to nuts.

[These are things] that I always thought separated us from them. But they're doing more now. We need to stay one step ahead of them, and by hooking up with a buying group and getting the resources and the education of over 250 other dealerships and the power that comes with that that's what's going to help us stay competitive in the future." KBDN