Big Moat Stocks

Fastenal is one company where the Moat is not a question. They have repeatedly shown that they are here to stay and have been doing what is necessary to maintain their position as a leader in the MRO industry. Below are some brief highlights of why Fastenal has such a strong moat.

Brand: Fastenal is known as one of the big competitors in their industry and sometimes they are lumped in with Home Depot, Lowes and other home improvement companies because of the retail side of their business. They also do a huge amount of wholesale business where they compete with Grainger, Hagemeyer, MSC Industrial, Graybar and a few others. The MRO industry is very fragmented but Fastenal has continually remained a well known brand and they have the sales to back it up.

History: Existing customer relationships are very low cost for both Fastenal and their customers. The buying power of Fastenal means that competitors can’t compete with them on price. That means that for a competitor to take away a customer from Fastenal, they will have to provide better service. The cost in changing processes to implement a new supplier is often very prohibitive for the customer which makes sticking with Fastenal a very attractive option.

Wide Customer Base: With 1800+ stores worldwide and thriving retail and wholesale business, Fastenal has a very large customer base. Smaller customers pay higher margins on products while larger customers buy in volume. Both big and small customers have predictable purchasing intervals which allows Fastenal to better manage their own purchasing and inventory.

Distribution and Logistics: For many companies in this industry, inventory management and distribution can be the Achilles Heel. Fastenal has 12 main distribution centers and a truck fleet to deliver inventory to stores as needed. By having a hub and spoke setup, inventory and distribution challenges are kept under control and more easily managed.

In a future post, we’ll examine the Big 5 numbers to see if they back up the moat.