Hi everyone,
As we previously shared our Q4 Distributor Tech Index, this week we’ll take a look at suppliers investing in technology. While distributors are expanding their previously limited appetite for technology investments, they are still far behind manufacturers in absolute terms - but gaining on a relative basis!
This seems to make sense based on the sentiment at this year’s Executive Summit by the NAW. There were repeated notes of support from distributor CEOs and other speakers, like the economics speaker, on 2024 being the year for distributors to invest in innovation. And, this year in particular, seems to have an added emphasis to invest in efficiencies. As we’ve written before, distributors are an inflation hedge and tend to benefit from rising prices in materials. As inflation is allegedly tamed and a softening demand curve, the need for margin improvements in distribution become even more important.
We track a much smaller cohort of roughly 40 large manufacturers and their respective tech investments, compared to tracking hundreds of billion-dollar distributors.
Since Q1 2022, the number of deals made by manufacturers have steadily decreased almost linearly, quarter after quarter, with 2023 seeing a 26% decrease in deals relative to 2022. Benchmarking suppliers’ tech investment decline to the broader VC market reveals an almost direct correlation. In our Q4 State of Distribution Report, we see similar retrenchment in the overall VC market.
For once, distributor tech investing has the opposite tune! With distributor tech investments slowly increasing over the past two years - including the past two quarters recording the two highest deal counts.
Looking at total dollars raised in Q4, we see material quarterly and yoy declines for
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