CONCRETE IS NOT A COMMODITY
In my last post, I described concrete as “the most beautiful, durable, versatile, available, and environmentally friendly construction material in the history of the planet” and posed the question:
“Why is ready-mixed concrete in danger of becoming a commodity?
Concrete is not a commodity. Ready-mixed concrete is an engineered construction material, and each of the 15 ready-mixed concrete companies regularly serving the 53172 delivery area are capable – with varying degrees of quality, service, and delivery expertise – of providing concrete mixes to meet project performance requirements.
Annual ready-mix demand for the 53172 delivery area (population 21,256) is about 42,000 cubic yards – between 4,300 to 6,500 truckloads.
As typical ready-mix plants produce and deliver about 50,000 cubic yards annually, ready-mixed concrete in the 53172 delivery area may be in danger of becoming a commodity because too many companies are chasing too few market opportunities. Production potential significantly outpaces market demand in the 53172 delivery area, resulting in many purchasing options for contractors and homeowners, and a highly competitive pricing environment.
My economics professor described market circumstances like those in the 53172 delivery area as “capacity discontinuities.” My class notes say these market conditions “can lead to price wars and eroding profit margins.”
Note … Our little community is only one of 50+ local markets served by these 15 ready-mix producers, and many of these local markets have higher populations and much higher (by volume) annual ready-mix demands. But long-term trends are clear: Over time, this highly competitive environment will result in industry consolidation (by merger, acquisition, or the extinction of economically-unfit ready-mix companies), bringing Southeastern Wisconsin ready-mix production capacity more in line with the region’s market demands.
Indeed, R. Frederick Redi-Mix is no longer producing concrete, and in the past year, Alby Materials and M&M Concrete have been acquired by competitors.
Southeastern Wisconsin contractors and specifiers are excellent negotiators, and the area’s homeowners, conditioned by Blockbuster, Wal-Mart, Home Depot, Best Buy, and other mega-stores, are adept at price-shopping. Pricing pressures like these push ready-mixed concrete ever closer toward commodity status.
What is a Commodity?
Wikipedia, the free, online encyclopedia defines commodity as
Something for which there is demand, but which is supplied without qualitative differentiation across a given market.
I don’t totally agree with Wikipedia’s definition … but many would suggest it describes ready-mixed concrete as supplied to the 53172 delivery area.
Pessimists believe the process of commoditization is inevitable as markets mature. But the distinctive value concrete provides for specifiers, homeowners, contractors, and the general public can create and maintain differentiation – qualitative and otherwise.
In next week’s post, I’ll share ideas of how ready-mix producers can provide distinctive value.
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