When David Kilburn was made redundant from Harcross in the mid-90s he may not have imagined that a couple of decades later he would be presiding over a 51-branch builders merchants group – but that is exactly where MKM Building Supplies has its roots.
Along with another former Harcross employee, Pete Murray, Mr Kilburn set up the first small branch of MKM in Hull in 1995. It was an extremely successful venture and, unlike many business start-ups, it made a profit in its first year.
Before long, another former Harcross colleague wanted to strike out on his own and asked Mr Kilburn if he would support him. This sowed the seed of a business model that has been at the heart of MKM’s success. “David came up with the idea of giving a branch director equity in the business they started up,” said Philip Johns, chief executive officer. “The first branch to open on that basis was in Driffield and 22 years on we’ve grown to 51 branches.”
This model of branch shareholding is thought to be unique in the builders merchant sector and in another twist on the norm, new premises are located and opened when directors are taken on, not the other way around.
“They come to us because they like the idea of being able to do something for themselves where they are a shareholder,” said Mr Johns. “And it’s a certain type of person because they have to back themselves and be sure they can make it a success. It’s not for everyone.”
As a result, he added, the branch directors tend to be “very driven, quality people”. “They are in complete control of the service they provide to their customers and that makes them extremely agile businesses. They don’t need to go up the chain to ask permission to do something and because decisions are made locally and not in a head office miles away, that creates superior customer service.”
This autonomy extends to buying their own stock through a network of MKM’s approved suppliers. The policy is to keep stocks high.
“High stock levels are absolutely essential to our commitment to customer service,” said Mr Johns. “Having everything a customer needs to complete his project is a massive benefit to that customer.”
The downside, of course, is that stock ties up capital and tired stock affects profitability. “We keep the focus on working capital and making sure the stock is moving. We don’t put a cap on how much the branches stock, but we do have a charging policy on aged stock. When stock reaches six months we introduce charges to the branch, which then increase as the stock gets older.
“The branch directors take this very seriously and know how important it is to be diligent in stock management. They know that in order to run a good business they have to take responsibility for ensuring the stock they have ordered will sell.”
Because of its decentralisation, the company is run on a flat management structure. The operational board comprises David Kilburn, executive chairman; Mark Smith, group finance director; Linda Clarke, digital and marketing director; and Philip Johns.
Mr Johns joined the company in 2015 after 28 years at SIG, the last 10 of which were spent running the 200-branch exteriors division and a turnover of ?400m. It was “a massive decision” to leave SIG, he said, but moving out of a very corporate environment and into the fleet-of-foot world of MKM was “extremely refreshing”.
“We don’t have meetings for the sake of them; we make quick decisions and everything we do is about supporting the branches to be as good as they can be.” The other representatives on the board are from MKM’s private equity partner, Bain Capital, and have no operational involvement. “They are very committed as we are to a strategy to significantly grow the organisation at a much faster pace and our five-year plan is to double the number of branches,” said Mr Johns.
MKM’s turnover in its last financial year, which ended in September 2017, was ?334m, representing a growth of 17%. “Like-for-like – in other words, where we’ve got a full year-on-year trading history – our growth is just over 12%,” said Mr Johns. “So, in addition to adding branches, we also have good organic growth.”
In terms of turnover, the company currently has around 2.5% of the builders merchant market.
“It’s tiny, which is fantastic because it means we’ve got so much to go for,” he said. As the group has grown in branch numbers it has extended its reach in the UK; from its earlier concentration along the east coast of England it has spread north all the way up to Scotland.
“We are now seeing more branches developing in the north-west and in the Midlands and we have a scattering of branches in the south-east and south-west,” said Mr Johns. “I am sure that is going to develop as the years progress.”
There are some areas where the level of trade can justify more than one branch. There are two in Sheffield and two in Hull, for example, although they would tend to be no closer than about 12 miles. “We look at things in a very pragmatic way. We look at the director and what he can bring to the party and make an assessment on what we already have [in the area]. It hasn’t caused us any issues up to now and I think there is plenty of room for new businesses, particularly in cities.”
Around 80% of MKM’s business comes from the repair, maintenance and improvement (RMI) sector. That includes an element of DIY trade, but the trend towards the do-it-for-me culture has reduced that somewhat.
“We deal with a whole range of contractors in that sector – specialists such as joiners, heating and plumbing contractors and roofers, but we also deal with general builders of completely different scales,” said Mr Johns.
MKM also supplies local property developers and some branches supply some of the larger housebuilders. “We do have exposure to new housing, but RMI is really our core business and I don’t see that changing significantly over the years. We are very much focused on local markets because our branch director is the guy who drives the proposition into that market – which is what RMI is all about.”
The branch network reveals some regional differences in terms of product mix, reflecting vernacular architecture, so the core elements are the same, but with some variations on the theme – plain clay roof tiles in the south-east, for example.
Timber represents around 20% of MKM’s business and is supplied by “the main players”, either distributors or direct from suppliers that have their own production facilities. It is sourced from responsible suppliers in the UK, Europe, Scandinavia and elsewhere.
“Most branches would always look to have a timber specialist in their branch to take some responsibility for managing the stock, but also to provide technical expertise so they can provide a complete offer to their customers,” said Mr Johns.
“We are very committed to training our people to become knowledgeable on timber and put a lot of emphasis on learning modules and use the Builders Merchants Federation a lot.
“We also work with our key suppliers on that because many of them have training schemes. We have also developed a training workshop called “Serious about timber”, which is available to all our branches.” Training isn’t forced on anyone, he added, because that goes against the MKM culture, but most branch directors take it up because they recognise the importance of having a well-trained team.
Staff turnover is very low, but when recruitment is necessary it doesn’t present too much of a challenge to find good quality employees, including apprentices.
“I think we’re an attractive company to work for because the localised nature makes people feel much more of a team. The team is everything.”
Timber is to be at the forefront of MKM’s growth plans as it intends to increase its support of the joinery sector.
“Structural timber is the bread and butter of the builders merchant, so we sell a lot of that, but we are starting to put more emphasis on joinery products and see that as a big area of opportunity for us,” said Mr John.
Expanding the product offering is as key to growth in the company as is increasing the number of branches or the number of customers, he added.
“Apart from the 2008/2009 recession years, we have had double-digit growth for years and product growth has been a major part of that,” he said.
“Each branch has different opportunities based on where its core business is. For example, some branches have the potential to increase their timber sales. In fact in the last year we’ve had some great results from branches that have put more emphasis on timber.”
While the house construction sector is notoriously volatile, the RMI market is more stable.
“You don’t see the boom and bust that you do in housing and the RMI market tends to grow consistently at around 2% per year. If it drops, it doesn’t usually drop more than 2%,” said Mr Johns.
He doesn’t see much to threaten that in the coming years and is hopeful that the UK economy won’t suffer as a result of Brexit uncertainties.
“Politically it’s an unstable environment and that unpredictability does affect the construction market. The sooner we get to some clarity, the sooner people will be able to get on with things. And then we might start to see things blossom and grow.”
