A transition is underway in the distribution of building products. If the shift that occurred over the past 12 months continues, there are potentially larger implications on industry ‘market power’ than many expect.
Last week, Lowe’s announced plans to acquire Foundation Building Materials for $8.8 billion in cash, after a $1.3 billion acquisition of Artisan Design Group.
Earlier this year, Home Depot acquired GMS for $5.5 billion, following its acquisition of roofing leader SRS in 2024 for $18 billion.
During the same 18-month period, QXO completed the acquisition of Beacon Roofing for $11 billion, aiming to expand its business to $50 billion through further mergers and acquisitions as well as strategic growth initiatives.
These deals have three things in common:
- These combinations are squarely outside the companies’ traditional ‘footprint’ of business. Five years ago, Home Depot and Lowes were not viewed as serious ‘specialty pro’ players (sorry). QXO didn’t even exist.
- These acquisitions cater to a tier of pro contractors coined the ‘Complex Pro’ that has outsized influence on construction decisions, and whose influence is poised to grow meaningfully over the next five years.
- Industry conditions are quite soft overall, but these major deals are still occurring, which is a signal of buyers’ conviction about the large opportunity developing ahead in ‘high competency pro construction’. Our analysis shows the value of pro influence will increase meaningfully over the next five years,
In addition to the above, E-Commerce’s share of building products is gaining a permanent foothold, growing nearly 10% YoY in Q2 despite very challenging industry conditions. The message is clear: market power tied to building product distribution is changing and will likely accelerate over the next five years.
Implications beyond ‘market share’ – why all this matters:
The industry normally maintains a balance (partnership) of market power between channels of distribution and manufacturers of products. Channels like Home Depot rely on high-quality brands like Kohler, and vice versa. Occasionally, market power tilts squarely in the favor of either the manufacturer (e.g. lumber in 2021) or the channel, which typically has broader implications.
It’s quite likely that the next 5-year window represents a shift in market power from ‘products’ to ‘channels of distribution’ tied to professional installation. After all, just four years ago, builders were scrambling to get lumber and windows from anyonedue to pandemic shortages. Now, the industry is tilting towards the next supply-demand mismatch of highly capable professionals per job.
Analogy to 1920- What Market Power Looks Like
History is full of striking examples of what ‘channel market dominance’ looks like, including shifts in other industries, for example:
- A 100 years ago (1920s), when movie houses (the channel) first showed silent films (the product), movie houses had tremendous influence. Movie houses would routinely play different movies than advertised, speed up projectors by 50% or more than movie makers intended, and even alter the film by deleting titles. In effect, the ‘channel’ could dictate the ‘product’.
- All that changed about 10 years later, as technology shifted – audio was added to films, which forced movie houses to play films as intended, and vertical integration followed through the 1930s/40s. Exhibitors lost nearly all power to change their products due to technological innovation.
- Advances in technology continued to prompt shifts between channels and products over the following ~100 years. VHS drove the dominance of Blockbuster and other rental chains (Blockbuster famously shared revenue with studios in 1998), followed by Netflix, which now influences go-to-market for media in general.
If the above example seems far-fetched (a distributor selling a different product than advertised and changing the product at whim), consider turn-key installers substituting their own private label products amid extended cycle times in 2021.
The industry has seen this before – but centered around highly qualified labor. Manufacturers with excellent brand awareness had to worry about ‘pro veto’ where a pro installer might swap one specified product for another favored product or brand. Even industry leaders (#1 in their category), saw geographic footholds emerge among competitors who had professional installers who preferred their brand for any number of reasons.
What it means:
Over the next five years, Zonda estimates that the number of professional installers will not be able to keep up with demand – pro installers per ‘bid ’ will fall by roughly -15% in part due to unfavorable demographics, and accelerated by reduction in labor participation in late 2025 (we saw this occur in prior slowdowns also – during 2008 GFC and 2020 COVID).
Remember too that aging boomers are 3x more likely to hire a professional than they were ~30 years ago, and future renovation of aging housing stock is ‘pro-heavy’ (electrical, roofing, plumbing). As a result, industry market power will become increasingly concentrated among the ‘complex pro’. The channels that are preferred by the complex pro gain tag-along influence on products, margin benefit, and de facto market share gains due to the underlying shift in project type. Hence all the acquisitions of pro-heavy distribution amid a market downturn.
A transition is underway in the building product distribution industry, and it is essential that the industry pay attention. Over the next five years, the influence of the ‘complex pro’ will grow, resulting in a shift in winners/losers among suppliers and housing. It remains to be seen who best captures market share among these pro installers. What exciting times to be in the housing industry.
