Shedeye has been a keen observer of the Shed industry for a number of years and there are a number of very successful Business Models that have been employed. A guaranteed model for failure is the Cannibalism model and there is some very compelling evidence that one of the larger players is about to attempt this business model soon.
The cannibalism model is where the Wholesaler uses a distributor network to sell its product, and effectively competes against them within the distributor regions through another brand.
It has come to our attention that one of the larger players is allegedly embarking on this model as we speak.
The alleged company is Sidach. Sidach has a distributor network through Tasmania and Victoria, and has been losing dominance over the last couple of years. The Directors are launching a new brand called www.vipsheds.com.au and according to the website
Shedeye has confirmed that the site is owned and operated by one of the founding directors of Sidach (and still remains a director). Shedeye has also talked to a few of Sidach’s distributors and they have not been told about this new site and hence it is alleged by these distributors that Sidach is about to become the shed equivalent of Cannibals. It is all alleged of course, but the circumstantial evidence is compelling.
Taking a look at the Sidach site below you will see they are still actively seeking distributors (re-sellers / dealerships).
Will this business model work? We are convinced if this model is employed by any Shed Wholesaler with an existing distributor network, that they will lose their distributor network, as shed wholesalers are continually trying to poach their competitors distributors (very actively). If you take out the distributor network, this has the potential to take down a wholesaler. The internet space is extremely competitive, and it makes entry into the online space challenging, meaning that it will take quite a while and expense to build a successful internet sales channel.
So what models does Shed industry employ.
Vertical integration involves the Roll Formers buying the wholesale distribution chains.
- Roll Formers are the companies that take cold rolled steel coils and bend it into the required components for sheds, such as the C-Section or colorbond(TM) Sheeting.
- Wholesale distribution chains are the well recognised brands that usually have many distributions that sell sheds under their brand. The Wholesale distribution company provides the software to design the sheds, the engineering for the shed and holds the contracts with the Roll Formers and other component providers, such as the PA and Roller doors.
The major Roll Formers in Australia that have vertically integrated are
- Ranbuild was purchased by Lysaght (Bluescope) in 2004
- Fairdinkum Sheds, trading as AG&S Building Systems Pty Ltd was purchased by Stramit in August 2007
- Garage World / Shedboss is owned by the same company as Fairdinkum Sheds. Stramit, also known as Fletcher Building Group acquired the Morinda group (who owns both the ShedBoss and Garage World brands) in May 2008.
- Titan Garages & Sheds is a privately owned family business that has been around since 1991. The key difference is that Titan does their own Roll Forming and built this capability to support its distribution network.
- No Distributor Network. This is usually pure internet plays and is common for garden sheds as the building of Garden sheds is not complex.
- Affiliated Agent Network. This is when the internet is used to generate the sales and much of the sales process and design is handled by the wholesaler. The agent network is required to manage the building / site inspection .
- Non-Affiliated Agent Network. This is for commodity based sheds like garden sheds and shed components. This is when the product is supplied to many distributors across multiple manufacturers.
- Distributor Network. This is where the distributor has a physical presence and usually a display. The distributor deals with the sales process and the building process. This is the most common model for custom sheds. In this case the Wholesaler will provide any internet leads to the distributor for them to handle
There primary networks for custom sheds (C-Section) are
- 4. Distributor Network
- 2. Affiliated Agent Network and 4. Distributor Network
The key for Wholesalers is that they derive their profits through volume, fees they put on top of each shed, margins on the components and rebates from the Roll Formers based on volume targets. In this scenario the successful companies in Australia maximize either their margins per shed or the volume of sheds sold. Due to the rebates (more steel sold the better) volume is often a primary driver. So it is a big risk for a Wholesaler to take on an Internet only approach as the building process requires local attention and they also risk not generating as many sales as using 4 and 2 as these capture more sales than an internet only channel.
As discussed the cannibalism model is when a Wholesaler tries to employ
- 1. No Distributor Network and 4. Distributor Network / 2. Affiliated Agent Network
There primary networks for garden and predefined sizes (not custom)
- 3. Non-Affiliated Agent Network
- 1. No Distributor Network
There primary networks for custom large sheds (structural steel)
- 1. No Distributor Network
Shedeye hopes that it has it wrong as this is not good for distributors trying to make a living in a very tough market. Shedeye predicts that any company adopting the Cannibalism model will last 6 months and then bankruptcy will ensure or the company will be forced into a reversal of the model. Time will tell…