Distribution companies are facing an existential crisis in the face of price and convenience driven competition from online competitors, notable Amazon. In order to have a chance at long-term survival, distributors are expanding their service offerings to diversity their sources of revenue and command more customer loyalty.
We often use the dental and veterinary equipment and supply distributor Henry Schein as an example of the type of company that could succumb, or at least suffer damage from the dreaded “Amazon Effect.”
Today Henry Schein announced it was spinning off its $3.5 billion animal health business unit. The plan is to merge the animal health business with Vets First Choice – which has raised $223 million from outside investors. Ben Shaw, CEO of the new unit – Vets First Corp. – said the entity will be focused on delivering ” . . . very sensitive, high-touch services — prescription management, inventory management, workflow of the business — that’s crucial to day-to-day work.”
Henry Schein CEO Stanley Bergman tried to dismiss the notion that the move is another example of the Amazon Effect saying “some people felt this (deal) is perhaps to fend off online retailers, but it has absolutely nothing to do with that.”
Bergman’s assurances aside, it is very hard to believe that Amazon is not having a significant impact on the entire Henry Schein business. As I wrote earlier, Henry Schein recently established Henry Schein One – a joint venture with DemandForce to serve the dental market.
Companies like Henry Schein once got by quite nicely on selling cases of gauze or surgical gloves or whatever supplies its area of focus required. Today, distributors must in essence become consultants to survive. They need to help small businesses solve the ever more complex challenges they face. Otherwise, what’s to prevent their customers from sourcing their supplies from Amazon?
Becoming a consultant can take many forms. Distributors could help their small business clients cost-effectively acquire new customers. Or they could guide their accounts on how to leverage machine learning and AI to better understand their customers and deliver higher-quality customer experiences. If it’s just about the price of gauze, sooner or later the Henry Schein’s of the world go under.
Henry Schein’s latest move demonstrates that it understands these challenge. Now it’s a matter of execute or die.