Grainger ‘Well Positioned’ to Meet Ongoing Market Challenges

• Grainger wasn’t impervious to COVID-19-driven headwinds, but the company posted revenue growth and a profit in 2020.

• CEO DG Macpherson outlined the company’s pandemic priorities that kept Grainger focused on customer service, employee safety and financial stability in 2020.

• Obstacles remain in the post-pandemic world, but Grainger is confident in its ability to navigate them.

W.W. Grainger Inc. wasn’t immune from pandemic-related disruptions in 2020, but the Chicago-based company used its size and scale to maintain a hold on its rankings from the previous year and retain its status as North America’s leading MRO distributor.

Grainger, whose revenue of $11.8 billion was up 2.7% from the previous year, again came in at No. 1 in the MRO Industrial category and No. 2 in the Top 40 Industrial & Construction category. 

Like many distributors, the company took a hit to its bottom line last year, although Grainger was still profitable in 2020. Net income decreased 18.1% to $695 million for the year.

Grainger went into COVID-19 with a few advantages. As an essential business, the distributor was able to keep branches open. And as a nearly $12 billion-a-year company, it boasted scale that makes it the envy of the industry for many.

In early June, DG Macpherson, Grainger’s chairman and CEO, spoke to an industry-wide media roundtable about the “state of the company,” and MDM was able to present a few questions to the distribution giant’s chief executive about where Grainger has been and where it’s going now that the pandemic is almost in the rearview mirror. Here are a few of the topics covered on the call.

Pandemic priorities

Grainger, like many distributors, shifted its focus during COVID-19 to protecting employees and finding new ways to serve customers. 

From mid-March 2020 on, Grainger was more interested in the proverbial “blocking and tackling” than trying anything new. As Macpherson described it, the company “set a fairly narrow set of priorities during the pandemic.”

The first was serving customers “really, really well,” he said. “And, obviously, given the breadth of customers that we have, that meant serving customers like hospitals and state agencies and food manufacturers — all kinds of critical customers.”

No. 2 was “protecting our team members,” he said. “We changed protocols dramatically in our facilities to make sure that we kept everybody safe, and I think we’ve been generally very successful.”

And the third priority was “maintaining financial strength,” Macpherson said. 

“If you’re familiar with our company, we have a strong cash flow generation. That became less of an issue pretty quickly. Pretty soon we realized the big issue was going to be serving customers,” he added.

In addition to serving existing customers, Grainger found ways to attract new ones to its universe. The company’s scale allowed it to source PPE better than other distributors, and new throngs of B2B buyers found their way to grainger.com — but also its smaller-business-focused division Zoro and Japanese e-commerce division MonotaRO — providing a nice boost to the top line.

Those pivots paid off last year in the form of new customers, and Grainger spent much of the second half of 2020 deploying marketing and analytics to get them to stick. 

The other areas where Grainger has focused: merchandising, marketing, inventory management and seller connections, all priorities that have carried over into 2021. 

And while MRO sales were down 5%, Macpherson said, safety and other pandemic-related products bolstered revenue for the company. Moreover, the company is happy with its current branch footprint.

Organic growth before M&A

Holding to recent trends, Grainger wasn’t acquisitive in 2020, but the company did divest a couple of business divisions.

Grainger in June of last year agreed to sell Fabory Group to Torqx Capital Partners, a Dutch private equity company. A few weeks after announcing that deal, the company agreed to sell its distribution business in China, Grainger China LLC, to a purchaser owned by the Grainger China management team and Sinovation Ventures, a China-based venture capital firm. The financial terms of both deals weren’t disclosed.

When asked about how Grainger views M&A moving forward, Macpherson said the company will take an opportunistic view of acquisitions but that it probably “won’t be very active in the M&A market at this point.”

“We are an organic growth company first,” he said. “We were going into the pandemic, and we are coming out of the pandemic. We are not afraid to make acquisitions, but our focus is helping grow with our customers through organic growth. 

“We’ve got the capabilities and investments in the balance sheet to be able to do that. And it’s much better, typically, for customers because there’s less disruption. That’s our focus.”

Supply chain issues continue

The first half of 2021 in some ways marked the end of the pandemic but the beginning of a global supply chain crunch that didn’t spare Grainger or any of the other Top Distributors.

How much this affects next year’s rankings remains to be seen — and higher-ranked distributors may put some distance between themselves and their competitors — but the impact on companies’ operations, even the behemoths like Grainger, has been severe.

“I think the nature of the challenges are driven by what has been a very weird business shape over the last year and a half,” Macpherson said. “COVID was the steepest decline we’ve seen in a very short period. The world just stopped. Things have bounced back a lot faster, as well. The supply chain manufacturers and other transportation entities took capacity out. And then, bam, they need the capacity and now they’re chasing it.”

Macpherson said he thinks the current constraints are “probably going to work their way out this year, and by the end of the year we’ll be back in balance.”

But, he added, other headwinds have emerged. Commodity issues, for example, are impacting certain categories like lumber and steel, as well as pricing across numerous SKUs. 

Labor shortages, especially in the U.S., have stymied the movement of goods around the world.

“Behind the scenes, we’re paddling harder than we probably have in a long time,” he said. “To be clear, I think everybody probably is. It’s not a smooth time in the supply chain, by any stretch. I think it’s probably the worst in 30-plus years. I don’t recall in my career anything quite like this.”

But once again, Grainger’s scale has proved to be advantageous and should continue moving forward, Macpherson noted. “We think we can manage [these challenges] pretty well,” he said, “and I think we’re well positioned.”