Is the Future of the U.S. Building Materials Market Sustainable and Profitable?

The US building materials market has undoubtedly been subject to destabilisation in recent times, which has left leaders numerous challenges to overcome. Environmental regulation, multifamily property, skilled labour shortage, digitisation and company consolidation have compounded to disrupt the industry. Consequently, there has been an industrial cascade of adaptational change; techniques, processes, operating models and even the materials themself face innovative change as companies continue to seek new ways to create value. The green building materials industry is forecast to exceed $524 billion by 2027, and those companies that adapt will benefit most from the new streams of value creation.

Technology

One major concern for the building materials industry is its shortage of skilled labour, which has put pressure on product innovation teams to compensate with new value-added products that are easier and faster to install. In order to remain competitive in today’s market, organisations need to invest in new technologies and processes that not only increase operational efficiency, but simultaneously unlock greater levels of product quality, cost-effectiveness and sustainability. A McKinsey Survey of 500 Executives in the building products sector found 70% of respondents felt the need to “get smart” in innovation, digitisation and R&D was a top priority. Leaders who recognise the requirement for education and investment across these disciplines will start to pull away from the pack over the next decade. According to the same report, by implementing this in a holistic improvement programme, building materials companies could boost EBITDA by more than 3 percentage points.

Digitisation and digital innovation have already proved an impactful route to add value for some light-side building materials businesses. By creating digital channels that sell directly to the end customer and bypassing the tradition to sell to wholesale distributors, businesses such as BMI Group, Xella, and Thermondo have reacted to the inevitability of digitisation and identified a new value driver in B2C.

Sustainability

It’s widely understood that consumer preferences and regulatory developments have become increasingly environmental and big industry players have reacted accordingly. Building materials giant CRH, for example, has pledged it will achieve net-zero by 2050. Similarly, Holcim already sells a variety of concrete products under ECOPact that reduces emissions by 30-100% and aims to double its ratio of recycled products by 2030. More specifically, products themselves are becoming increasingly innovative; 3D printed ceramics, pollution absorbing concrete, laminated timber, aluminium foam, bamboo reinforced concrete, bio-receptive concrete, bricks made from pollutants, plaited microbial cellulose and super plasticisers are all examples of products that are providing added value to manufacturers. Industry disruptors are proving that these sustainable products can achieve high value. Biomason, a ten-year-old company that has developed a way to grow cement bricks and tiles with bacteria, had raised $23 million in equity by June 2021 , which has since grown to $95 million by February 2023. Moreover, the global green building materials market size has an expected compound annual growth rate (CAGR) of 8.3% to 2031 and industry disruptors in the sustainability space could exploit this huge value potential.

In summary, if building materials organisations wish to harness the potential value of demand growth for more innovative and sustainable materials, they will need to ensure they maximise the quality of their most valuable asset: people. It starts with senior leadership. Forward-thinking leaders, with clear vision and the open-mindedness to embrace the new will succeed the fastest in leading their organisations to a sustainable and profitable future. Similarly, the increased investment in R&D and innovation requires talented individuals to lead these increasingly more recognised functions. A new breed of leader is being born as the industry shifts shape around us, and those organisations with the best leadership talent will be best placed to exploit the new value created by recent instability across the building materials industry.

If you would like to discuss any of the topics raised in this piece or if you need support with your leadership resourcing strategy, please get in touch with James Pope on: James.pope@beaumontbailey.com