UK manufacturers and distributors of hydraulic hose and fittings face changing external market conditions. A decline in UK manufacturing is balanced by growth in the construction sector. Suppliers are challenged by end user customers seeking a much closer working relationship - far beyond product supply - extending into inventory management, on-line feed and rapid turnaround time.
To build up the size
and structure of the UK market for rubber hoses and metal fittings, The
Strategy Works has interviewed leading manufacturers; distributors and
conducted desk research.
The market is split into three distinct sectors:
· OEM –direct
to large manufacturers - where prices are lowest.
· Distributor – servicing smaller OEM’s /replacement
market.
· Mobile – breakdown emergencies - prices are highest due
to high labour content
|
Sector |
Sales
£m. (ex-factory prices) |
%
Share |
| OEM |
41.3 |
49.0 |
| Distributor |
37.7 |
44.5 |
| Mobile |
5.5 |
6.5 |
| Total |
84.5 |
100.0 |
Source: TSW estimates based on sales data provided by manufacturers – all figures @ ex-factory prices, excluding labour.
OEM
The major player in this sector is Gates with 29% of the market. Gates share the largest single OEM account – JCB – that customer alone generates an estimated £10m in sales for Gates. Tribby Warfield, sales & marketing director Europe for the European Hose & Connectors Division confirms Gates operate sophisticated logistics support to OEM’s including line-side feed / scheduling – thus negating the need for customers to hold any stock. Gates support OEM’s with application engineers who build relationships with customers, in addition to dedicated account managers. "There is an intimate relationship constantly going on" confirms Warfield.
Cliff Burgin, Joint MD of Dunlop Hiflex confirms the need to work closely with OEM's - "The OEM will produce a drawing and we will draw up the specifications with them”. Parker work in a similar way Nigel Judd, General Manager Sales UK, describes the best type as "the ultimate partnership where you can't see the join between us and our customer".
Andy Cooper of Europower confirms a trend to line side feed – “We deliver stock right onto the production line”. Mark Ward, UK Sales Manager of Eaton Aeroquip summarises this close relationship as "customer intimacy - it makes it a very difficult decision for them to replace you".
Distributor
The distributor sector, or replacement market, is more fragmented, but Dunlop is the only vertically integrated company owning their own distribution network. Parker, who have 19 certified UK distributors, are the second largest sector player. Europower have closed down what was once a large wholly owned group of depots. "We felt more and more that we were getting into competition with our distributors" comments Cooper.
Burgin explains there are two methods employed to assemble and crimp hoses – “The European model and the American model". The latter, as practiced by Gates and Parker, is where crimping machines are sited on the customers' premises and the customer always uses the same brand of hose and fitting. The other method allows freedom to choose the end fitting and is typically assembled (to order) by the distributor.
The distributor sector is structured locally with branches servicing the local market conditions within the sectors which surround them.
Mobile
One of the key developments in recent years has been the growth of mobiles with a total fleet of over 700 vans now operating in the UK. 343 of these are run as a franchise by Pirtek, the market leader in this sector. Independents are the second biggest group with 193 vans. Parker has over 60 vans trading under ‘Hose Doctor’, and Dunlop Hiflex own 47 vans.
Alan Gibson, divisional manager hydraulics, reports Finning run 34 vans which is the only brand close to the franchise model operated by Pirtek, with the difference being that Finning is a single van franchise whereas Pirtek is a cluster of vans.
A ‘cluster’ is the key to providing the 1 hour response time demanded by most customers when facing an emergency. Single van operators can compete effectively until two jobs come in at the same time, when they are disadvantaged vs. those that operate a ‘cluster’. The mobile sector is down-time driven and has benefited from the growth in construction and off-highway vehicles.
Russell Mundell, sales director of Pirtek now feels the UK market is approaching maturity on mobiles – “We’re currently at about 90 Centres, there is probably room for a further 10” adds Mundell.
Total Market Shares
Based on interviewee’s ex-factory sales, TSW estimates an £84.5m market:
|
Company |
Sales
£m |
Market
Share (%) |
| Gates |
16.3 |
19.3 |
| Parker
Hannifin |
12.0 |
14.2 |
| Dunlop
Hiflex |
10.3 |
12.2 |
| Europower |
6.9 |
8.2 |
| Eaton
Aeroquip |
5.3 |
6.3 |
| Pirtek |
3.5 |
4.1 |
| Ehrco |
2.5 |
3.3 |
| Finning |
0.2 |
0.3 |
| Others |
27.5 |
32.1 |
| Total |
84.5 |
100.0 |
Gates are the market leader, being a major player in both the OEM and distributor sectors. Pirtek, although the major player in mobiles, have only 4.1% of the total market, as hoses / fittings are a minor part of total sales value in mobiles, which is predominantly labour.
Parker Hannifin are the number 2 player overall followed closely by Dunlop Hiflex - both these companies are strongly represented in the OEM and distributor sectors.
Each of the three sectors of the market has its own distinct characteristics which are a pre-condition of supply. For OEM’s , expertise is required in logistics and product development. For Distributors it is knowledge of local market conditions and rapid turn-around service for customers who effectively use distributors as their stockists. For Mobiles it is fast response time – customers are unforgiving on this point and will pay a premium in order to avoid costly downtime.
Conclusion
Despite margins being constrained in the last 3 years, the hydraulic hose and fittings market continues to grow, with market sectors that are increasing balancing those in decline. However it remains a buyer’s market - service is now the key differentiator, as customers become more demanding about what they expect from their supply chain - it's all about ‘knowing your customer’.
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