B2B Ecommerce in the UK Construction market

B2B Ecommerce in the UK Construction market

B2B Ecommerce in the construction market is in an interesting place; currently very few true online offerings exist - with client specific pricing, a good range of product, and a convincing logistics solution to back it up. The opportunities for a company which gets this right are huge, and the potential costs to a company which delays implementing eCommerce are correspondingly clear, as Forrester explained in their report, "Online and Mobile Are Transforming B2B Commerce", available here

“Every day that B2B companies fail to offer a compelling B2B eCommerce experience, they fall farther behind more advanced competitors. Specifically, they risk losing market share to B2B rivals already executing an eCommerce strategy … For B2B distributors and wholesalers in particular that rely on adding value as middlemen, failing to exploit online and mobile as leading channels … represents an existential threat to their businesses.”

The digital transformation is changing the B2B landscape quickly. This blogpost aims to look at the factors affecting the UK construction market, and why eCommerce is destined to play a big part in the construction industry's future.

Set against the pattern of sustained growth in the overall UK economy now totaling 10 consecutive quarters as the recovery from the recession of 2008/09 continues, construction output has been slowing recently, despite a continuing rise in houseprices sustained since late 2013.

The Office of National Statistics comments,

“… the data for June 2015 continues a run of relatively weak monthly growth. The annual rate of construction output growth has slowed from 10.2% in the year to June 2014 and a recent high of 11.2% in the year to December 2014, to 2.6% in the year to June 2015…

…The recent easing of construction output growth is partly due to a slowdown in housing output growth… Private house building, which accounts for the largest share of total housing output, grew by 8.5% in the year to June 2015, while public housing output fell by 9.8% over the same period, putting downward pressure on housing output overall.

House price inflation England & Wales 2008 to May 2015, Source Land Registry

The slowdown in housing output growth may be due to the slower pace of house price growth affecting building incentives and skill shortages which affect the ability of firms to deliver new housing units… The imbalance between demand and supply of houses on the market may partly explain why house prices continue to rise albeit at a slower rate.”

The Office of National Statistics (ONS) most recent report shows that eCommerce sales have grown steadily since 2008 to £557bn in 2013, representing nearly 20% of business turnover, although the ONS data does show a small drop from 2011 to 2012 as reported EDI[1] sales fell year on year[2]. This proportion has grown from around 14% of turnover in 2008.

EDI sales of £364bn made up almost two-thirds of the total value of ecommerce sales, the remainder £193bn being website sales, as although the volume of website sales was three times greater than EDI transactions, the average value of EDI sales is much greater.

Value of total sales derived from e-commerce sales - source ONS

The proportion of businesses undertaking eCommerce as a sales channel also rose to 22% in 2013, up from 17% in 2009, the earliest year where comparable records are available. The UK’s largest businesses, those employing more than 1000 people, continue to dominate eCommerce sales with just under half (46%) of all eCommerce sales in 2013.

Critically, the proportion of businesses making eCommerce purchases exceeded 50% for the first time in 2013, indicating that electronic purchasing either via website or EDI is now the business norm across all industries (ONS).

Given the general strength in the economy as a whole the trend towards eCommerce growth will have continued within the B2B marketplace; analysts Frost and Sullivan predict that globally by 2020, “27% of the $25 trillion trade by manufacturing and wholesale businesses is projected to move through online e-commerce platforms – a total of more than $6.7 trillion.” 

Whilst that relates to the global market, the increasing rate of eCommerce spend in the UK B2B space is further illustrated by data from Statistica, showing that between 2012 and 2013 B2B website sales in the UK grew far faster than their B2C equivalents, albeit from a lower base, and Advansys stating that with the introduction of Amazon supply and Google shopping suggesting that the B2B market will be twice the size of B2C by the close of 2014.

UK B2B & B2C ecommerce sales 2012 & 2013 (Statistica)

The digital transformation is also changing the way that B2B companies sell and market to their customers and compete within a supply chain as well as with traditional rivals. Forrester surveyed 717 B2B companies across the globe. Key findings were:-

• 50% are currently selling direct to customers online
• 69% expect to stop producing paper catalogues in the next 5 years
• 41% sell against their own wholesalers, distributors and suppliers

The continued pressure on costs and trends towards centralised & collaborative purchasing to maintain control but give users an input into decision making means that online B2B purchasing is becoming more like a B2C retail experience, with procurement websites taking on features such as user product reviews and a ‘look and feel’ matching the best retail environments, at the same time as the big B2C retailers look towards the business market for new customers.

Below you have examples of similar products marketed by Amazon, and Grainger, an industrial supplies company. The look and feel adopted by Grainger is very close to that of Amazon, although the B2B nature of the site is highlighted by the auto-reorder function and prominence of the UNSPSC code. 

Spot the difference (1) - Amazon.com

Spot the difference (2) Grainger.com

The construction industry globally has taken time to adapt to the changes and opportunities posed by eCommerce. A study by the Havard Business Review placed construction contractors at the bottom of a survey investigating how 20 different industries were responding to the digital challenge. The UK construction industry was the smallest contributor to the value of eCommerce sales across the UK economy in 2013, making up only 1% of the total value of online sales. ONS

Why has the construction industry taken so long to start to adopt eCommerce as part of it's procurement and supply strategy? The 2013 research report into the UK Construction Industry for the Department for Business Innovation & Skills highlights that the industry faces some challenges in modernising its approach to the supply chain, including that the industry is focused too much on waste as a physical issue, rather than a process problem. As the reports authors state,

"Interviews show that the industry’s focus is on the reduction of physical waste. Most respondents did not recognise other aspects of duplication or loss of value as waste; In our view, waste is embedded into industry’s structure, risk management practice and working culture. Addressing the narrow view of waste as a physical by-product of construction will create opportunities for performance improvement; We found little awareness of opportunity, insufficient ability to act and only limited incentive to improve performance with respect to removing all sources of waste from projects."

Clearly eCommerce can play a huge part in reducing waste and increasing productivity. A United Nations study showed that eCommerce contributed 17% of labour productivity growth across Europe between 2003 and 2010. That such productivity gains are less obvious than waste material is self-evident, but not really an excuse for the Construction industry being so lax in adapting to change. 

However, change is starting to happen. Although from the low base noted above, the Construction sector reported the highest percentage increase in total e-commerce sales in 2013, an increase of 50%, from £4 billion in 2012 to £6 billion in 2013. (ONS) Should this trend continue total online Construction sales would be expected to be around £10bn in 2015 or around 13% of total Construction Industry turnover (£76bn in 2014).

As a consqeuence suppliers are starting to change their strategy and key players such as Travis Perkins, Wolsley, and SIG are in the throws of launching or capitalising on this opportunity. Smaller players are also getting involved with the Hull-based MKM, being amongst the first of the builder's merchants in the industry to offer an eCommerce platform with client specific pricing and integrated logistics.

In addition, companies which straddle the trade and consumer divide such as Screwfix are benefiting from the increasing consumerisation of B2B spending, with Screwfix in particular generating rapid growth from the successful combination of a mobile site and a click and collect proposition. 

In summary, although the UK construction industry has taken time to come to terms with the opportunities for cost reduction and efficient purchasing offered by the digital revolution, we are on the cusp of an exciting time where most major suppliers in the industry will be bringing to market an eCommerce proposition. The competitive landscape is changing fast, and the opportunities to make the construction industry more efficient and more effective are huge.

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[1] Electronic Data Interchange – means of sending order directly between organisations.

[2] ONS states that this should be taken with a degree of caution, and could partly be explained as a consequence of sampling variability.