Stone Industry
Report: Wholesalers

Engineered quartz has given stone processors and the wholesalers that supply them twice the share of the kitchen worktop market that granite alone could have delivered. But we could already have reached peak quartz and the sector is greedy for new products that might increase its share of a market scythed down by the economic decline.

Life has not become any easier for the stone supply chain. Competition has increased but the market has not, which has hit margins for wholesalers and processors alike.

The toll on processors has been hard. According to some estimates, as many as a quarter of those supplying and fitting granite and engineered quartz kitchen worktops have gone bust since the crash really started to bite at the start of 2009 when banks withdrew their support for a lot of companies. Some of the people who had managed or worked for failed companies have started up again, leaving the debts of the previous companies with their suppliers – and it does not look as if the receivers’ work in the stone industry is over yet.

The expansion of sales on the back of the property boom up to 2008 can now clearly be seen as a bubble, so any expectations of a return to that level of activity in the short-term are unrealistic.

There are, though, anecdotal reports of an improvement in business now after fairly subdued demand during the long, cold winter, and news from the wider economy is also more encouraging than it has been for some time.

The Government has revised its figures so that instead of a 0.1% second dip into recession last year the market stayed flat, which has provided some positive headlines.

On the downside, the announcement was accompanied by the news that the fall in output in 2009 had been greater than previously thought at 7.2%, leaving the country’s income, measured by Gross Domestic Product (GDP), in the first quarter of this year still 3.9% below its pre-financial crisis peak, which it reached in the first quarter of 2008. Previously, GDP had been estimated to be only 2.6% below that peak in the first quarter of this year.

There has not been much good news for the construction industry since the crash and there has been little comfort from output figures this year, although new orders at the end of last year offered some hope for the future as they were 11.2% higher (£1.1billion more) in the final quarter than they had been in the corresponding period a year earlier.

They could have been more if there had not been such big cuts in infrastructure spending. Infrastructure budgets were halved again in the first quarter of this year, dragging construction orders overall down 13.9%.

But then June saw the Government announce a £100billion commitment to infrastructure spend, some of it before the next election in 2015.

It will not be spent on dimensional stone, but if the Government really does pump billions into the economy in the next two years, demand for just about everything will increase.

There is an indication that consumer confidence is returning in any case, with the household savings ratio at 4.2% in the first quarter, the lowest level it has been since the first quarter of 2009 (when it was 3.4%).

If the Government infrastructure stimulus comes on top of an already increasingly confident market, the biggest threat will be inflation, although just at the moment not too many people are going to be unduly concerned about that.

Certainly the strands of good news have been grabbed by the construction industry in general. The Federation of Master Builders (FMB) State of Trade Survey last month showed increases in confidence among small and medium-sized builders across most of Britain (Scotland is an exception). For the first time since 2007 in the second quarter of 2013 there were more FMB members expecting workloads, expected workloads and enquiries to get better than there were those expecting them to get worse.

Even in difficult times there are opportunities as well as threats and when growth has gone out of the market, those who are going to survive in it have to find ways to compete.

Inevitably margins have taken a hit for both wholesalers and processors and while cutting prices when sales volumes are falling compounds the problems, there are few alternatives when competitors are doing it.

As one traditional stone wholesaler who preferred not to be named told NSS: “I hate the bloody internet. So many people just go on there and look at the price, which doesn’t mean a damn thing. You can’t compete with all this cheap stuff coming in.”

Even engineered quartz, which the manufacturers had successfully branded in order to reduce the commoditisation of the material, is beginning to succumb to price pressures as ever more products are introduced.

One of the latest is Kalinga Stone Quartz, a product many people saw at the Natural Stone Show in ExCeL London this year on the stand of Nile Trading UK Co, which has opened a depot in Cheshunt, Hertfordshire, and is servicing the whole of the UK with its own fleet of lorries.

Kalinga joins a wide range of natural granite and marble at Nile Trading that is sourced from around the world. The quality and service from the company is clearly proving popular as the company is one of the fastest growing wholesalers in the country. One of the contracts that has helped it on its way is the supply of Carrara marble to a customer who is refitting Pizza Express.

Most of the stone wholesalers sell quartz but they have also been looking for other materials to give them an advantage and a better margin and what they have found has been slab-size ceramics of one kind or another.

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