The late 1990's were a difficult time for builders merchants, the early years of the 21st Century have reflected improved levels of value growth. The main impetus for the relative buoyancy of the market in the past 2-3 years has been the level of consumer confidence and the level of activity in the construction sector - particularly the domestic RMI market.

The overall value of the builders and plumbers merchants market has been affected by the rate of growth in new housebuilding market in terms of completion numbers in recent years. Recessions within new housebuilding have usually been followed by significant booms in new housebuilding. However, the pattern has not been repeated in the 1990's with housebuilding completions remaining relatively static in the mid 1990's before falling to a post-war low in 2001. Although housebuilding completions again achieved the 170,000 mark in 2002, the annual rate of completions remains well below expectations given the residual demand for new housing and the relatively positive house moving market. Although consolidation of the leading housebuilders in 200/3 may have affected the completions rates in the last 2-3 years other factors influencing the new housebuilding market also include the onerous planning approvals procedures and the change in emphasis from developments of large estates, to smaller projects and urban renewal and regeneration.

The growth of the market has also been affected by increases in raw materials prices during the 1990's particularly in the case of some plastic products and certain timber products, leading to pressure on merchants' margins. This situation arose since the merchants were not able to pass on price increases for all building products. Pressure on raw materials prices have remained throughout 2002/3 with plastic based products having been affected by the continuing high price of oil. The timber and timber derived products have also been affected in the last 2-3 years by depressed demand in the home markets of large producers - USA and Canada - which has resulted in excess supply for certain products, consequently resulting in downward pressures on average prices. In addition, the adoption of the Aggregates Tax since April 2002 has also increased the average prices of quarried products.

The level of competition within the building products distribution sector has also increased in recent years, adding further pressures to the Merchants market. Specialist distribution companies - such as those involved in roofing, insulation, etc - have continued to take share of their particular market sectors in recent years, placing additional pressures on Merchants also operating in these sectors. The growth of the DIY multiples and the extension of the range of building products offered has also assisted in making the building products distribution market very competitive. These latter sectors have increased their presence in the market in recent years, adding to the level of services that they offer. However, some of the larger Merchant organisations are now added specialist divisions to their product offering in order to combat the effects of the specialists and DIY multiples. Organisations such as Grafton and Travis Perkins have made major acquisitions of leading specialists in the heating & plumbing, drylining and ceiling/partition sectors.

Another major threat to the merchants is that of "direct supply" whereby manufacturers of building products negotiate agreements for supply of materials direct to site, effectively cutting out the merchants.

The merchants market is currently continue to benefit from a buoyant level of consumer confidence and the continued willingness of householders to spend money on home improvement products and schemes. The current low rates of interest have made borrowing cheaper and consumers are more willing to commit to large ticket purchases, such as extensions, additional bathrooms and en-suite facilities in order to add value to existing homes rather than save disposable income at only marginal rates of interest. Consumers are currently taking advantage of lower interest rates to finance significant home improvements through re-mortgaging facilities. In addition, the "buy to let" market has also helped boost the Merchant market as these new landlords make improvements to properties in order to boost potential rental incomes.

The market consolidation has continued throughout the last 2 years with both leading national and regional Merchant groups acquiring organisations that will boost both market coverage and product ranges. The process has been extended during 2002/3 with the concentration focused on acquiring particular specialisms that will expand the areas of operation, although the rate of consolidation has slowed consideraby since the late 1990's mainly due to the increasing concentration at the upper end of the Merchants market. The Merchants market is now dominated by a leading group of 5 organisations Saint Gobain (Jewson), Wolseley, Travis Perkins, BSS and Grafton.

The leading group of merchants, together were estimated to account for 61% share of the builders and plumbers merchants market in 2002, and these companies have shown consistent growth in both turnover and number of outlets over the last 3-4 years. The balance of market share is held by regional and local companies, reflecting the key service offered by merchants, ie a local supply of a wide range of commodities to a large number of small and medium sized builders and plumbers.

The major products sold by the merchants include plumbing products, timber and timber products, roofing & insulation products, bricks/blocks & plasterboard along with plaster & cement, heating, kitchens, decorating materials and a wide range of miscellaneous products.

The key groups are plumbing products with 19% of merchants turnover, bricks/blocks and concrete with some 17% share, timber & timber products with 14%, space and water heating with 14%, cement & plaster with 10% and roofing & insulation with 9% share. Key growth areas in recent years have included plumbing and drainage products, space & water heating products and tool hire facilities. The Merchants have also taken advantage of the current trend for garden design and landscaping activities with extension of product ranges within this sector, with some merchants also developing dedicated areas within outlets. The decorating materials sector has been affected by the decline of the wallcoverings industry, but Merchants have also benefited from the positive demand for other materials such as ceramic tiles and wood/laminate floorcoverings.

The most significant products sector for the merchants is the plumbing and drainage materials where the merchants are estimated to for 58-60% of the total market. This compares to their share of the timber & timber products market which is an estimated 20-25% share, and where the merchants are in direct competition to more specialist distributors. Merchants also hold significant share of the market for roofing and insulation products (38-40%), bricks, blocks & concrete (38-40%) and cement & plaster (29-32%). The merchants have least strength in the kitchens market where share is estimated at approximately 9-10% of the overall market, although the development of specialist kitchen and bathroom sales rooms within Merchants outlets in the last 2-3 years is beginning to reap benefits. The decorating products market is also an area where Merchant perform less well with an estimated 8% share of the total market. The weaker position of the merchants in these sectors reflects the high level of competition from alternative channels in each of those markets.

The merchants main customer base remains builders and plumbers with the majority of merchants estimating that 90% of their custom derives from tradesmen. However, the merchants sector is also becoming a target for the "Buy It Yourself" consumer market, whereby experienced DIYer's are themselves acquiring materials for installation into their homes, or are buying materials which will be installed by professional tradesmen. Another niche sector is that of the self-builder with some merchants having set up specialist divisions to offer advice and information to these customers.