The Jurassic Park Theory of Distribution

While two-step remains viable for distributors, e-commerce and consolidation are making it tougher for family-owned businesses to compete
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Mesco president Donald Kirkland Jr. (center) is flanked by his sons Don III (left) and Andy. The sons are the fourth generation of Kirklands to run Mesco and Seacoast. 

Mesco president Donald Kirkland Jr. (center) is flanked by his sons Don III (left) and Andy. The sons are the fourth generation of Kirklands to run Mesco and Seacoast. 

Mike Keller has a theory about why some family-owned marine distributors have survived while others have gone the way of the dinosaurs. “I call it the Jurassic Park theory of business,” says Keller, whose parents founded Keller Marine in 1958. “It’s not the big who eat the small; it’s the fast eating the slow. If a family business is going to survive against a large business, you’d better not fall in love with how you’ve always done things, because you’re not going to be around very long.”

Keller Marine distributes products to 1,000 independent marine and recreational vehicle dealers across the Mid-Atlantic and New England from its headquarters in Port Trevorton, Pa. Mike is president, his sister Lori Keller Morrow is the secretary/treasurer, and his son Michael is director of sales.

Keller has seen a downsizing in two-step distribution over the last 20 years with business failures and acquisitions, and his company has moved increasingly toward servicing the RV market. “Now 70 percent of our business is RV and 30 percent is marine, which was the opposite just 15 years ago,” he says. “But it shows how much the marine industry has changed in that time. The market no longer looks anything like the boating market of, say, the 1970s.”

The types of products sold 40 years ago were general boating accessories, such as life jackets, cushions and rope. “We had runabouts, pontoon boats and skiffs back then, but then in the 1980s, boating got much more specialized,” Keller says. “There was suddenly a proliferation of small items. A boatbuilder wanted every model to have exclusive features to differentiate their boats. They might want the cleats to be different every year. So instead of stocking general items, dealers were stuck with many more SKUs that didn’t involve much volume. That made everybody’s life hard because it forced us to increase our inventory levels while lowering our turn-and-earn on products.”

Family businesses like Keller Marine have adapted to new market conditions to stay relevant. (From left) Mike Keller, president; Lori Keller Morrow, treasurer; Michael Keller, director of sales. 

Family businesses like Keller Marine have adapted to new market conditions to stay relevant. (From left) Mike Keller, president; Lori Keller Morrow, treasurer; Michael Keller, director of sales. 

Consumer is the End Game

Consumer expectations, fueled by the rise of Amazon, to have parts delivered in 48 hours has added pressure to the business. Keller, who owns a separate technology company, has been able to keep up with the pressure in his boating business by advancing technology. “The consumer is the end game here,” he says. “He’s not going to come back to the dealer if he’s not satisfied.”

The shakeout in distribution over the past 15 years has been happening to smaller distributors that have been undercapitalized and slower to adopt new technologies. The two-step model is solid, most distributors believe, but the sector will continue to consolidate with the growth of public-company players, such as Brunswick Corp. and West Marine’s Port Supply, and national family-run businesses like Donovan Marine, along with more regional companies.

When Don Kirkland joined his family business, Mesco, in 1976, the distribution landscape was different. “There were probably a dozen competitors in our immediate geographic reach,” he says. “The economic cycles pushed companies out or consolidation happened through normal business cycles. If often came down to operations — whether you could afford to keep multiple lines in stock and if you had the financial wherewithal to offer terms to customers.”

Over time, survivors became larger regional distributors. Mesco, for instance, acquired Seacoast, and its territory expanded from Connecticut through Virginia. It now represents more than 250 product lines. “There was some luck involved and some good decision-making, but we’ve also made mistakes that we’ve regretted,” Kirkland says. “I also don’t want to underestimate the impact of my employees. Some have worked with me since they got out of high school and have an exceptional knowledge of the business.”

Distributors now need to be well capitalized to keep warehouses full of products for just-in-time delivery. 

Distributors now need to be well capitalized to keep warehouses full of products for just-in-time delivery. 

Transformation of the Sales Rep

One of the largest changes since the 1970s has been the transformation of the sales rep, who used to personally deliver products in Mesco’s truck fleet. “They used to write more orders for what a customer needed, but now because of technology, their roles are more advisory and educational,” Kirkland says. “In the old days, they might be able to sell on personality. Not anymore. Because of cellphones, our guys are getting called constantly. It’s becoming very fast-paced in terms of delivery times. We add value to a customer’s business by solving frustrations and being a source of information, and of course, prompt product delivery.”

Donovan Marine began in 1913 as a retail and wholesale supplier to the commercial fishing industry from an office in New Orleans. “My grandfather bought the company from John Donovan,” says Benton Smallpage III, Donovan’s president. “He continued on the original path from the 1950s through the 1970s and then started supplying the guys who built the offshore supply vessels for the oil patch in the Gulf.”

Smallpage’s father took over the company in the early 1980s, turning it into a two-step distributor of marine supplies.

Over the next 15 years, Donovan began acquiring distributors in neighboring states. “Our first big acquisition was Jacksonville Marine, which got us into the main Florida market,” Smallpage says, adding the company now has 20 locations around the country. “We consider ourselves national. And we’re looking for new opportunities,” he says.

The capital investment required to not only stock a business but expand into new markets limits competition, according to Smallpage. “Distribution is so capital intensive and the market so consolidated into pockets that it would be difficult to service those markets without some efficiency,” he says.

The family distributors believe the two-step model has long-term staying power, even with the rise of Amazon and fall of smaller distributors. “The marine industry will always need a dealer, and the dealers will require suppliers with technical abilities,” Smallpage says. “As boats become more technically advanced, it’s going to become an advantage for the dealers and companies like ours. Boaters will need experts to install and service this equipment.”

Seawide Marine Distribution’s growth route is different from other family distributors, who expanded outward from a given geographic regional base. George Yarbro, who launched Seawide in 1979, focused on serving dealers in Southern California as a wholesale electronics distributor. Seawide then opened an office in Seattle, and eventually locations in Sarasota, Fla. (2008), and Youngwood, Pa. (2016).

Now in its third generation of family ownership, Keller Marine was founded by George and Margaret Keller in 1958. 

Now in its third generation of family ownership, Keller Marine was founded by George and Margaret Keller in 1958. 

“We recognized that the business had to change in order to grow,” says Mike Yarbro, who took over the company from his father. “We couldn’t run like a regional distributor. We knew we had to bring on a larger customer base.”

Yarbro says that Seattle, ground zero for the tech revolution, became too expensive, so he shut down the office there. The move to Sarasota was successful. “Florida is such a big market, we saw substantial growth quickly,” Yarbro says. “We were able to support it locally, with sales people out in the field. One of our other advantages is having warehouses and sales forces on both coasts, so we can provide service to clients through our call centers late into the night.”

Since 2008, dealers are looking for “just-in-time delivery instead of stocking products,” Yarbro says. “E-commerce has put a lot of pressure on them since there’s no tax. Our economy of scale gives us the ability to ship to 80 percent of our customer base in two business days. Wholesale distribution has really come down to providing good customer service, fair prices and fast shipping times.”

Yarbro, who each day was picked up from school by his mother and brought to Seacoast’s offices, can’t imagine not working in distribution. Two of Don Kirkland’s children are now part of his fourth-generation business. Recently out of college, Michael Keller is now working beside his dad, Mike, at Keller Marine.

Smallpage says many clients are family businesses that relate to the fact that Donovan is privately held. “A lot of dealers like that we’re family owned and not part of some bigger company,” he says. “There are markets out there where the dealer needs a partner to work effectively. And it’s really important for us to be an independent option for that dealer to succeed.” 

This article originally appeared in the July 2019 issue.

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