Hudaco Group - adding value in niche markets

10th March 2020

Hudaco Group - adding value in niche markets

Hudaco Industries is a South African group specialising in importing and distributing high-quality branded automotive, industrial and electrical consumable products, mainly in the southern African region.

Hudaco businesses serve markets that fall into two primary categories.

The automotive aftermarket, power tool, security and communication equipment businesses supply products into markets with a bias towards consumer spending.

The mechanical and electrical power transmission, diesel engine, hydraulics and pneumatics, steel, thermoplastic and fittings and bearings businesses supply engineering consumables mainly to mining and manufacturing customers.

Hudaco sources branded products, mainly on an exclusive basis, directly from leading international manufacturers and, to a lesser extent, from local manufacturers.

The group seeks out niche areas in markets where customers need the value Hudaco adds to the products it distributes.

The value-added benefit includes product specification, technical advice, application and installation training, as well as troubleshooting, combined with ready availability at a fair price.

The group has a network of specialised branches and independent distributors throughout Southern Africa to ensure product availability to customers.

Hudaco has made several significant acquisitions in recent years, including Filter and Hose Solutions, the Dosco group and Miro. It has also acquired Partquip, which serves the automotive aftermarket sector and is now the group’s largest single business.

Many smaller businesses have also been acquired. This acquisition strategy has included a strong initiative to diversify the revenue base to reduce dependence on the group's traditional core markets of mining and manufacturing, which have had to deal with very difficult trading conditions and in which growth has been elusive.

Consequently, this has boosted contributions from the automotive, communication, security and alternative-energy sectors.

The group employs more than 4 000 people and has a market capitalisation of about R4-billion. Its shareholders include many blue-chip players in the South African investment industry.

The group’s objective is to offer customers more than just a product in a box. It aims to offer advice on product selection, quick availability and technical advice, as well as training.

Hudaco’s value-added offering is in demand from customers. Hudaco is in the fortunate position maintaining its technical skills base through loyal and motivated employees. It can also quickly and easily train new staff through training offered internationally by its suppliers and through its own in-house training programmes.

The group sources products from more than 800 international suppliers across the industrialised world.

It carries more than 230 000 line items in stock. Demand is relatively inelastic, with low line item sales predictability, while supplier lead times can range from three months to well over a year in extreme cases. Inventory holding is, therefore, Hudaco’s most important asset, as its key competitive advantage is the ability to offer availability on demand.

“Our suppliers rely on our understanding of the specific challenges of doing business in Africa, particularly the political and regulatory risks, as well as the limitations which the size of these economies pose, and appoint us to represent their brands in markets which they would not ordinarily have been able to access,” says Hudaco executive director Louis Meiring. It is crucial that the company adapt continually to the dynamics of doing business in Africa, he adds.

“Technical support is provided from South Africa until we have developed locals with managerial and technical skills,” he explains.

Hudaco’s first priority is to take advantage of organic growth opportunities in the markets it serves.

However, after funding organic growth and paying dividends to shareholders, Hudaco’s high cash-generating characteristics mean that funds are still available to fund the acquisition of new businesses.

Its acquisition efforts entail the acquisition of agencies for products where customers either already require these characteristics or, by introducing them, increase customer loyalty to the brand.

“We use acquisitions of successful (and usually privately held) businesses to provide an additional platform for future growth,” Meiring concludes.