Survey Perspectives – May 2007

The Dealer Shuffle

Whether you live in London, Lagos, Lisbon, or Los Angeles, when you are looking to buy a survey instrument, most likely you have a “preferred” instrument distributor in mind. Maybe it’s the local Topcon dealer. Perhaps your Leica dealer has served you well. Or you might prefer the Trimble dealer in your area. All of the manufacturers have distributors signed up around the world. Some operate on a regional basis, serving several countries, while others serve one specific country.

I raise this point because of recent, significant changes in the U.S. distribution of survey instruments. These include:

• Topcon’s intent to acquire Sokkia (still subject to Japanese Fair Trade Commission approval).
• Leica’s purchase of Allen Precision Equipment, Inc. (APE, Atlanta, Georgia), the largest nationwide catalog distributor of survey instruments in the United States and the largest Topcon distributor in the country.
• Topcon’s purchase of Hayes Instrument Co., a regional and online distributor of Topcon, Magellan, TDS (Trimble), Sokkia, Nikon, and Carlson instruments.

A little history. Generally, instrument distributors are independent companies that have distribution agreements with particular manufacturers. Sometimes, a distributor like APE will have agreements with several manufacturers. APE had (prior to being purchased by Leica Geosystems) distribution agreements with Topcon, Sokkia, and Magellan for GPS equipment.

Another type of manufacturer/distributor arrangement is one like what Leica Geosystems has traditionally maintained in the U.S. They have one distributor that operates exclusively in a region, and no other distributor is permitted to sell in that region. In essence, the distributor is somewhat “protected” by Leica. In return for this protection, the distributor is not allowed to have a distribution agreement with a competing manufacturer.

Outside of the U.S., there may be several distributors in a country, or there may be only one distributor for an entire country, or, in some cases, a distributor’s responsibility may include more than one country.

Lastly, in other countries or regions outside of the U.S. where a suitable distributor does not exist or the country is very large, a manufacturer may set up its own regional office.

The distributor is a very important part of the sales channel for the instrument manufacturer because, for the most part, the local distributor is the one that makes the sale and supports the customer. If the distributor does a good job of supporting the customer and building trust, the customer may be very loyal to the distributor. On the other hand, especially with GPS/GNSS equipment, the customer makes a significant investment training to learn a specific system. So are customers more loyal to the distributor or to the manufacturer?

At the end of the day, I think they are more loyal to the manufacturer. Even though the customer may well prefer to work with a specific distributor, the significant investment in equipment and training in the manufacturer’s hardware/software trumps the relationship with the distributor. Not many customers are willing to retool their equipment, training, and procedures to stay loyal to a particular distributor.

Back to current events. It’s been nearly two months since Topcon announced its intent to acquire Sokkia. There was some significance to the announcement in terms of brand differentiation and reconciling the Topcon and Sokkia distribution channels, but the synergy was plausible (refer to my March column for further details) and it didn’t upset the instrument distributor applecart in a significant way.

Then along came Leica, who announced last week that it had acquired APE — a discount, nationwide, mail-order survey equipment supplier. APE is (was) Topcon’s largest U.S. distributor. In response to the purchase, Topcon announced it had severed its relationship with APE. In one fell swoop, a decades-long relationship was ended.

On its website, APE stated that it “wished to continue representing all current product lines, including Topcon.” But the site goes on to say, “However, Topcon has chosen not to support our mission…” It doesn’t take a brain surgeon to understand why Topcon cut off the relationship.

With its largest U.S. distributor cast away, Topcon was left with a big hole to fill. Within days of the Leica announcement, Topcon announced it had purchased Hayes Instrument Co. of Shelbyville, Tennessee. Hayes is a regional and online distributor of survey instruments which has garnered a reasonable reputation of providing quality technical support. Hayes is also a distributor of Magellan, Sokkia, TDS, Nikon, and Carlson. Topcon also announced Hayes will be opening an Atlanta, Georgia, office by the end of June. Clearly Hayes gives Topcon the springboard to expand their distribution quickly in the southeastern U.S. — where APE is the most dominant. This is damage control at its best and actually is a better long-term solution for Topcon, in my opinion.

What I don’t get is how Leica is going to reconcile the APE purchase with its U.S. distributors. Leica has traditionally protected its distributor network fairly well, so on the surface the APE purchase seems really out of character. Perhaps APE was purchased to “fill in the blanks” where good Leica distributor coverage is lacking. Rumor has it there was a Leica distributor meeting last Monday (May 14th). It will be interesting to hear the fallout from that meeting.

One thing is for sure: the dust hasn’t settled yet.