Construction Materials Market Size
While the information needed to fully address the market size of the Pro (e.g., contractor) segment of the Lumber and Building Materials industry is not publicly available, existing data has allowed us to triangulate that it saw approximately $84 billion in revenue in both 2017 and 2018. The top competitors with RenoRun in this space are ABC Supply, Builders FirstSource, Beacon Roofing Supply, BMC Stock Holdings, 84 Lumber, and US LBM. While Lowe's is far larger than any of these, it technically belongs to a different industry. Below is a deep dive into our findings, rationales, and calculations.
IDENTIFYING THE INDUSTRY
RenoRun is a startup construction supply company based in Montreal, Quebec. It was founded in 2015 and has so far raised $4 million in venture capital funding, with the most recent seed round raising $3 million in February 2019. Since startups generally attract investment by offering a new solution to an existing problem, we dug in deeper to better understand RenoRun's value proposition to better understand the space it occupies in the construction supplies industry. RenoRun's value prop is not simply that it delivers construction materials to the "pro" industry segment (e.g., contractors), but that it can do so in 2 hours instead of the usual 1-2 days. This puts RenoRun in the "Pro" segment of the "Lumber and Building Material Stores" industry, which also includes sales to DIY ("do-it-yourself") customers.
THE "PRO" BUILDING MATERIAL STORES SEGMENT SIZE — TOP 100
IBISWorld estimates the total US industry to have had $95 billion in revenue in 2018, having grown at an average compound annual growth rate (CAGR) of 1.2% over the past five years. Note that there was a spike in the growth rate to over 8% in 2017 and that growth then slowed to nil in 2018. This will become important in our ultimate calculation.
While a review of the report's table of contents suggests that it provides segmentation of the industry by "Household Consumers" and "Other," the latter presumably encompassing the Pro segment, this information was not available in the public summary and the report itself would be expensive to obtain.
(Note that due to how IBISWorld handles incoming links, the above inline citations may divert to their homepage. You can find screenshots of the relevant data here or use the following URL: https://www.ibisworld.com/industry-trends/market-research-reports/retail-trade/building-material-garden-equipment-supplies-dealers/lumber-building-material-stores.html)
Since IBISWorld did not provide the "Pro" segment of the market, we had to turn elsewhere. Each year, ProSales produces a list "of the nation's 100-biggest pro-oriented building material distributors." Very notably, Home Depot and Lowes are not on the list, for reasons that we will come to momentarily.
ProSales further documents that the total sales among these top 100 competitors equaled $55.85 billion in 2017. They have not yet released the 2018 numbers (which we would expect in the 2019 top 100 list), but as there was flat growth from 2017 to 2018, this should not matter overly much to our own triangulation.
TRIANGULATING THE TOTAL PRO SEGMENT
Since ProSales shows only the top 100 competitors, we next needed a way to determine the share of the smaller operations. Having already determined that the information was not directly available in a market report abstract, we first attempted to locate a better estimate of the market in ProSales before searching for other industry sources. This did not yield a more complete picture, nor did a search of business news and other trusted media sources (e.g., Forbes, Business Insider, US News & World Report). Finally, we conducted a quick sweep of Google's scholar database and the Harvard Business Review on the off-chance that this had been the subject of recent academic work, to no avail. (For the sake of a clean source list, we have not attempted to document these dead ends.)
Since the exact size of the Pro segment isn't known, we used the data from ProSales to calculate it, pulling the Pro percentage from each company into Sheet 2 of the project spreadsheet. For the sake of time, we did not include the names of the companies or any other information. Our only assumption for the purposes of this calculation is that the average share of the Pro segment in the top 100 would reflect the average share throughout the industry. That's not entirely supportable; many of those in the bottom half of the top 100 list have far lower Pro/DYI ratios than those at the top. However, there is no pattern of the ratio declining as we get further away from the top. Lacking any contrary information, this seems the best way to get an average percentage of the Pro segment's share of the industry.
As shown in cell D1, the average Pro share of the industry is 88.42%. Multiplied by the $95 billion Lumber and Building Material Stores industry, this would give us a triangulated Pro market share of $84 billion (rounded).
HOME DEPOT AND LOWES
Our next step was to determine the market share of the leaders in this space and/or Home Depot and Lowe's. As both of those companies are publicly traded, we began by reviewing their financial reports. Here we immediately ran into two problems.
First, while both reports emphasize that building relationships with the Pro side of their customer base was important to the growth of their revenue, neither provided any segmentation of their revenue along those lines. We hypothesize that it is nearly impossible to determine whether a sale is going to a DYI homeowner or an outside contractor, but nothing in the reports directly spells this out.
Second, while Home Depot's net revenue of $11.1 billion in 2018 would not be out of place in a leading company in a $95 billion industry, Lowe's was quite another matter. Their FY 2017 Annual Report (2018 is not yet available) claims $68.6 billion in net sales, of which only 7.8% came from outside of the US, putting their US earnings at $63.2 billion (68.6 x (1 - 0.078)).
Since this could not possibly be reconciled with the data presented so far, we returned to examining market reports and soon found a separate report, likewise from IBISWorld, which provided the answer: The Home Improvement Stores industry is actually considered separate from the Lumber & Building Material Stores industry and currently totals $190 billion in the US. (Due to the aforementioned issue with IBISWorld, screenshots of the second report have been added alongside those of the first, or you can use the following URL: https://www.ibisworld.com/industry-trends/market-research-reports/retail-trade/building-material-garden-equipment-supplies-dealers/home-improvement-stores.html)
The obvious question is whether these two industry reports overlap. While we cannot be certain, we do not believe so. The key players in the US Home Improvement Store industry are Home Depot, Lowe's, and Menard, while the only key player mentioned in the Building Material Stores industry is Builder FirstSource, which appears in the #2 slot of the ProSales list. We, therefore, understand that while both industries sell similar items, they do not overlap.
BUILDING MATERIAL STORE INDUSTRY LEADERS
A review of RenoRun's site puts it definitively into the Building Materials Store market, not the Home Improvement space. Therefore, if we take the top six companies that serve that industry rather than the Home Improvement Stores industry in order to properly identify RenoRun's true competitor set, we have the following competitors, sales to the Pro segment, and percentage of the triangulated $84 billion Pro segment of the market (derived by dividing the Pro sales of each by the total market size):
- ABC Supply — $9,329,000,000 (11.11%)
- Builders FirstSource — $6,330,800,000 (7.54%)
- Beacon Roofing Supply — $4,315,000,000 (5.14%)
- BMC Stock Holdings — $3,366,000,000 (4.01%)
- 84 Lumber — $3,136,700,000 (3.73%)
- US LBM — $2,999,200,000 (3.57%)
Note that if we were to combine the $95 billion Building Materials Store market and the $190 billion Home Improvement Store market, we would end up with a total market of $285 billion, with Lowe's taking the top spot. Home Depot has revenue of a little over $11 billion and Menard's has a reported revenue of about $10 billion, an unknown percentage of which consists of DIYers. We therefore judge it likely that both are behind the top direct competitors with RenoRun as provided by ProSales. Moreover, as the range of goods and services offered by Lowes seems to go outside of the intent of this request, we will not detail them further, focusing instead on the more direct competitors with Reno Run.
We therefore triangulate that the Pro segment of the Building Materials Stores industry is approximately $84 billion and that the top competitors with RenoRun in this space are ABC Supply, Builders FirstSource, Beacon Roofing Supply, BMC Stock Holdings, 84 Lumber, and US LBM, which combined comprise approximately 35.1% of the market. Technically, the market is growing at a CAGR of 1.2%, but most of this is concentrated in 2017's 8% surge. Note that since some information requested in this report is pertinent to the second request, we have provided it in the attached project spreadsheet.