Updated: Jul 14, 2019
In the Lipton family, my mother’s cooking is legendary. It's a testament to the human intestinal track that all four of us are still alive.
I remember once when I was a kid my mother decided to try her hand at making pecan-crusted chicken for dinner. For a woman who thinks that tomato sauce and ketchup are interchangeable (“it’s tomatoes!”), making pecan-crusted chicken for dinner should have stayed an aspiration!
Undeterred by the conspicuous absence of pecans in the house, she began a culinary adventure.
Sitting at the dinner table later that night, my father, sister and I were unaware that a memory that would last 45 years (so far) was upon us. Hungry from a day behind the counter in his paint store, my father took the first bite.
I will never forget that expression!
Chewing. Slowly. Using his tongue to clear his palate, my father prepared to speak words soon immortal.
“Is that peanut butter?” He asked. “On the chicken?”
Turns out, all nuts are not the same!
This week, we all got a little peanut butter on our chicken, compliments of Benjamin Moore! Yesterday, they announced a new sales agreement with Ace, which will allow all Ace stores no matter their proximity to existing Benjamin Moore dealers, to buy premium products directly from the Ace warehouse, with no shipping minimums. Independent dealers will need more than a little jelly and a glass of milk to swallow this down.
But despite the initial pasty feeling it leaves in my mouth and an interesting coincidence, which I’ll get to shortly, I do not find myself surprised nor offended by this deal.
Independent paint retailers, its time we are honest with ourselves: Benjamin Moore is in a difficult spot. In the last several decades, despite how well many of us are doing individually, our channel has lost a tremendous amount of market share. A few decades ago, 30 out of every 100 gallons sold in the US was sold by an independent paint retailer. As the largest player in that channel, that was very good news for Benjamin Moore. This year, that number will be around 8 gallons out of every hundred! While there are other boxers in the ring, Benjamin Moore has bourn the brunt of that beat-down.
Through many retirements, closings and realignments, dealers who have made it this far and new entrants into the space (to the extent that there are any, which is ANOTHER problem) find themselves doing well in most parts of the country. But think about the effects that that much market share loss has had on Benjamin Moore!
I began working in my family’s paint store full-time in 1988; about the same time as current Benjamin Moore CEO, Dan Calkins began his career with the paint manufacturer. The Bronx at that time was a $6 million territory for Benjamin Moore. Regal, my best seller now as it was back then, cost me about $10 per gallon. Now, the Bronx is about an $8 million a year territory for Benjamin Moore. But with Regal costing nearly $30 per gallon, the gallon volume is obviously significantly lower. Some quick mental math leads me to estimate that that’s over 50% fewer gallons.
FIFTY PERCENT fewer gallons, in the heart of their Northeast stronghold!
I see it every day in the Bronx. The presence of Home Depot and Sherwin Williams has significantly affected the market: like they have every market.
But dealers have adapted. We sell other lines and do other things. Years ago, I added consulting and writing to round out my paint career. Some dealers added carpeting or hardware; others added window treatments and other design services. The channel with 4000 entrepreneurs did exactly what you would expect: it came up with 4000 individual ways to succeed.
But where did that leave Benjamin Moore?
There’s a story of a man who fell from a window on the 100thfloor of the Empire State Building. As he flew passed the 50thfloor, someone with a window opened heard him say, “So far, so good!”
With no other lines to sell and no outlets beyond traditional independent paint retailers, Benjamin Moore had limited options. During much of that time, their relationship with dealers struggled (shout-out to Denis Abrams and a few others!). That weakness in their relationships with dealers, as well as having overdosed on arrogance during the years that independents dominated the market on their behalf, left them unable to collaborate on solutions that benefited all: Benjamin Moore AND their dealers.
Those circumstances and others assured that the market share would continue to slide. That makes this Ace decision more a necessity than just a desire. If independent dealers are going to survive, Benjamin Moore must also survive! To do that, they need to make their potential market size bigger. They didn’t need THIS deal to survive, but if not this one, then one just like it!
If not for the ownership of Benjamin Moore being who they are, I suspect that they would have had to abandon their “independent only” policy decades ago. Or take some other action doing real damage, which this agreement with Ace does NOT.
We are all fortunate that Benjamin Moore has a wealthy benefactor!
Given that set of circumstances and as distasteful as it may seem to their dealers, this agreement with Ace is a wise choice by the management of Benjamin Moore. A three-run rally in the bottom of the ninth!
But being good for the channel does not necessarily mean that it’s good for every dealer!
This new agreement with Ace WILL negatively impact some dealers; it HAS to!
Benjamin Moore puts the number of existing dealers likely impacted by this action at around 115 based on their proximity to an Ace store. Those dealers now have to compete with an Ace store that has some advantages: their ability to buy our best-selling lines without having to invest the $250,000+ that you and I invested to open our stores comes to mind. Next day deliveries with no minimums is another advantage.
No matter the demographic differences between paint stores and hardware stores (and the data is clear that on a macro-level, we share very few customers with Ace dealers) some dealers sharing a WALL or a short stretch of street with the newest Benjamin Moore dealers WILL be damaged by this action. The sales, profitability and long-term value of the existing Benjamin Moore retailers will all go down. Benjamin Moore CEO Dan Calkins recognizes that and speaks to it on this on this week’s episode of Mark, My Words (out tomorrow).
Despite the damage that this will do to some small number of dealers, it’s the right decision for Dan and his management team.
If this action negatively affects outcomes for 115 stores it will improve outcomes for the other 4885 of the approximately 5000 Benjamin Moore locations. It’s a good deal for everyone: unless you’re in the 115.
I’m going to come back to those dealers in a second.
For the rest, the 4885, this move will add much needed volume and profits to the Benjamin Moore coffers. It gives Benjamin Moore the opportunity to grow while maintaining their long-standing corporate policy of “independents only”. ALL Ace dealers are independent, like we are. Brothers: from another mother!
I have had some experience in large organizations and have made decisions that affect many thousands of people. It’s challenging! The most difficult part of decisions of this magnitude is that just because something benefits the greater good doesn’t mean it benefits everyone. In fact, with a group as large and diverse as ALL 5000 Benjamin Moore stores, policies that benefit 100% of us would seem statistically impossible. This policy will help the channel by strengthening Benjamin Moore while leaving 97% of us uncut by the blade.
That’s actually fairly impressive.
I have gotten to know Dan fairly well in his 6-months at the helm of Benjamin Moore. I find him to be a talented executive who cares deeply about both Benjamin Moore and independent retailers. He understands as only a man who has toiled in that company for 30+ years can, the symbiotic relationship between Benjamin Moore and their dealers. More important than his skills though, I find Dan to be an honest broker. During our time together on my podcast, Dan admitted that this action would likely have some unintended consequences. He also stated that he was willing to work with dealers affected by this change to help them grow their business or otherwise bear some responsibility for them if other efforts to help them fail.
I see no reason to doubt him.
This action is the first that I remember from their recent history when Benjamin Moore was up-front with their communications and opened about their intentions. What a noticeable upgrade from traumas past! That transparency comes from the top, and I applaud it!
Let’s speak now about those 115 dealers affected by proximity to Ace dealers. We wake up this morning to a whole new reality.
That’s right: I said WE!
I am looking forward myself to learning how much damage this agreement will do to existing Benjamin Moore dealers for very personal reasons. We were told that there are about 115 dealers affected by this change. That’s 114 and ME!
I share a short stretch of Broadway in the Bronx with An Ace dealer. Santi, the owner, is a good guy. He’s joked many times “I’d be rich if you were not right there!” Perhaps not rich Santi, but no doubt, better off. My location has been a paint store for over 100 years! The Lipton’s built that territory for Benjamin Moore. Now, Santi will get it all for free! He can buy all the Regal he wants (remember it’s still my # 1 seller) for basically the same price I do (I don’t want this to get longer than it is with a discussion of Benjamin Moore’s pricing policy but on the premium lines, discounts for volume are Lilliputian).
If he can’t destroy me, he can certainly wait me out! At about 15 years younger than I am with kids in the business, he’s got nothing but time.
That will cost me profits and of course reduces the value of my asset significantly, since assets like paint stores sell for multiples of profit. Where does all this leave my 114 brothers and sisters in collateral damage and me?
I have no contract with Benjamin Moore; none of us do really. Some of us have contracts because of investments that Benjamin Moore has made in their businesses, but those are different. We don’t have a piece of paper that defines our standing in their world, or our territories, so there is no legal standard that protects us from this incursion into our space.
While there may be no legal standards to protect us, of course there are ethical standards.
Even in the business world! As we all move forward together, here are some of my expectations from Benjamin Moore to meet a reasonable ethical standard for this situation.
Dealers should be engaged in discussions and work collaboratively with Benjamin Moore to define and calculate damages
Dealers should be compensated for the lost profits resulting from this action
Dealers should be compensated for the lost value of their stores as an asset as a direct result of these actions
ALL DEALERS should be treated equitably and fairly by a nationwide policy, NOT policies controlled by often biased local management
Benjamin Moore should report back to their ENTIRE dealer network the outcomes from these above actions
There are funds available to do all of the above. From a profitability standpoint, Benjamin Moore is a successful company. This agreement with Ace will likely add additional tens of millions in profits to the bottom line. And of course, the world’s second richest man owns them. For the first few years, some of the Ace deal needs to be set aside and quickly and fairly distributed to those affected.
The other 4885 of my independent dealer brethren WILL be watching. And they know that how the 115 of us get treated NOW will be how THEY get treated in the future.
But from where I sit right now, I don’t think that we need to make that threat! I think that Dan Calkins and the rest of the management team at Benjamin Moore know exactly what the right thing is to do and are preparing to do exactly that. We discussed it in my podcast and I read it in his letter.
Being in the 115 dealers that are going to be affected by this action means I’ll be among the first to know if I’m wrong about Benjamin Moore’s intentions.
That means you’ll be the second!
In a world more dominated by social media than the law, Benjamin Moore knows that an ethical misstep here could have very high costs.
To the dealers who fear affects from this action, reach out to your reps, right away. The first step that Benjamin Moore will likely take now is to try and understand the full scope of the problem. Then they’ll look to handle us as a group, so raise your hand if you want to be called on!
Going forward, if Benjamin Moore collaborates with their dealers to provide fair outcomes for those affected and invests the profits from this deal wisely with the 97% of their dealers not affected, then in five years we will look back on this deal and see that our qualms became applause.