Hvacr Wholesalers’ Profit Margins Slipping, Says Expert

December 19, 2001
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NAPLES, FL — Contractors who complain about the cost of products from their wholesalers need to know that their suppliers are facing tough times, if recent studies are any indication.

According to consultant Albert Bates of Profit Planning Group, in the entire world of distribution there are the “haves” and the “have nots,” according to a key indicator, the return on assets (ROA). (ROA is defined as profit before taxes divided by total assets.) A decade ago, hvacr wholesalers were on the high side when it came to ROA. But that has changed, Bates told attendees at the 66th Annual International Convention of the Air-conditioning & Refrigeration Wholesalers International (ARWI) here. He said hvacr supply houses have moved more and more toward the “have nots.”

Bates based his findings on a study of 10,000 distributors over 50 different industries. Hvacr wholesalers surveyed reported an ROA of 6.3%, just above the 5% “survival line.” Bates noted distributors in some industries were at 2.5% and “heading toward liquidation,” while others were up at an “obscene” 12.5%. Those high rollers, he noted, included those in the liquor industry, an industry that for various sociological reasons is recession-proof, with built-in barriers to competition. Ironically, he noted, the barriers are often created by government.

He suggested hvacr supply houses might need to try variations on those barriers. “We need to build an industry with barriers,” he said. “We need to create an industry where we are not selling the same product the same way. There is a need for local experts.”

Among other comments, Bates suggested a hard look at payroll-related expenses, and ways to increase gross margins.

THE SELLING SIDE

In a seminar on selling, Dave Kahle of the DaCo Corp. noted that for a wholesaler to deal successfully with a contractor, it is necessary for that relationship to be more than seller and buyer. It means creating a partnership.

The process usually involves starting with “suspects in a land of apathy and ignorance.” Found suspects could end up prospects “if they have a need and can pay bills.” Prospects become customers “when money changes hands.” Customers become clients “when they buy over and over.” Clients become partners when the buying is only one part of a relationship. “Creating partners is powerful,” Kahle said. “Your enemies don’t buy from you. Your friends buy from you. Not getting an order is not a failure. Failure is disrupting a relationship.

“Every sales call should end with an agreement of some kind, even if it is to agree to meet again in a couple of weeks.”

He noted that partners:

  • Buy everything they can from you;
  • Protect you from competition;
  • Provide useful information;
  • Are sources of new business; and
  • Provide fulfilling sales calls.

    REESTABLISHING RELATIONSHIPS

    The events of Sept. 11 have changed people’s priorities. They have also created, in many instances, unwarranted fears.

    Those were thoughts of Cecil Mercer, a professor at the University of Florida, during a keynote address that opened the ARWI convention.

    He cited a USA Today survey that prior to Sept. 11 showed people putting their careers first in importance and family in fifth place. After that day, family moved to first and career dropped to seventh.

    That was good, he said. “We are becoming a kinder, gentler people.” And that, he said, is leading to more honest people. “You cannot have a relationship without honesty. If you cannot believe what a person is saying, you don’t have a relationship.”

    At the same time, he cautioned that people should control fears. “Do not let fear make you irrational in your behavior. Listen to rational fears. Don’t listen to irrational ones.” For example, he said the arrival of letters could cause fear in the age of anthrax. But not to open a letter from one’s mother is an irrational fear.

    He stated that many decisions are based on the concept of risk vs. reward. For example, he suggested people should decide if the purpose for a plane trip offers a greater reward than the perceived risk in flying.

    THINK POSITIVE

    Mercer urged development of a positive disposition because that has been shown to improve one’s immune system, healing process, and life expectancy.

    To become most positive, he had the following suggestions:

    • Determine what is important to you and do it.
    • Hang around people who care about you.
    • Hang around positive people.
    • Act as if you like people.
    • Engage in positive self-talk.
    • Help others.


    Sidebar: ARWI Names New Officers

    During the annual conference, Johnnie Drury of Fox Appliance Parts, Lake City, GA, took over as president. Joe Thompson of Superior Supply, Wichita, KS, was named vice president, and Frank Meier of Meier Supply, Binghamton, NY, was picked as secretary-treasurer. Outgoing president Paul Goulet of Westburne Refrigeration & HVAC, St. Leonard, PQ, Canada, assumed the title of immediate past president, and his predecessor, James Luce of Luce, Schwab & Kase, Fairfield, NJ, was named to the Past Presidents Club.

    Also, Mike Burke of Burke Engineering, South El Monte, CA, was named Western Region Director, taking the place of his father, Gary Burke, who passed away Aug. 7, 2001.

    The organization took the occasion to salute Sustaining Members Atofina, DuPont, Gunder & Associates, J.W. Harris, Heat Controller, Heatcraft, Honeywell, Invensys, Johnson Controls, Motors & Armatures, and Nu-Calgon.

    Also recognized were Contributing Members A.O. Smith, Aftermarket Special-ties, Component Sales of America, Daugherty Sales, E.V. Dunbar, Monti & Associates, MIRE International, Ritchie Engineering, Sealed Unit Parts, Sporlan Valve, Standard Refrigeration, T. J. Finnigan, Virginia KMP, White-Rodgers, Worthington Cylinder, and York.

    Publication date: 12/24/2001

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