Indy Market Mirrors Industry’s Changes

August 30, 2001
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EDITOR’S NOTE: Indianapolis was a “consolidation hotbed” just three years ago. News business management editor John Hall returned recently to this Midwest community to see, if anything, has changed. The conclusion: It has. In fact, The News believes the many changes in the hvacr industry are reflected in the changes in Indianapolis — a mirror image may even be a more accurate description. This two-part report will conclude next week.

INDIANAPOLIS, IN — The overused cliche, the more things change, the more they stay the same” was put to the test during The News’ recent return visit to Indianapolis. Although the “Wild West” atmosphere of consolidators vs. independents has diminished since its original flurry in this Midwest community, there still is a remarkable story here.

Let’s recap, using a before-and-after format.

  • American Residential Services (ARS), which rolled up several local independents and built a centralized facility, was eventually purchased by ServiceMaster and folded into a special Rescue Rooter/ARS division. All of the old management has moved on or been replaced.
  • Service Experts rolled up two local contractors and eventually was purchased by Lennox. The former managers have also moved on or have been replaced.
  • GroupMAC purchased Airtron, with 13 locations in the Midwest. GroupMAC eventually merged with Building One to form a new company — Encompass. Management has remained consistent.
  • Modern Heating & Cooling, a “diehard” independent, eventually sold its business to ServiceMaster, which eventually purchased ARS.
  • Dial One Hoosier, purchased by ARS and then resold back to its original owner, was eventually sold to Blue Dot Services.
  • Comfort Systems USA, not featured in The News’ 1998 report, actually moved into Indianapolis just after The News published its Indy report three years ago.
  • The two things that remained constant were independent contractors: York’s Quality A/C & Heating and Boll’s Heating & Cooling/Unique Air Comfort.
  • If you are keeping score, the tally sheet shows that all four major public consolidators (which prefer to be called operating companies) and the next largest consolidator/operating company are all strongly positioned in the Indy market. That fact alone is somewhat amazing if one considers the size of the market relative to other areas of the country.

    But all are doing well enough to compete in the crowded market. However, the road to success has seen its share of bumps, potholes, and sharp curves — the most notably affected have been Dial One Hoosier and Modern Heating & Cooling.



    Scott Warwick gets used to his new digs at the ARS/Rescue Rooter headquarters in Indianapolis.

    CONSOLIDATION WHEEL KEEPS SPINNING

    The animosities between Dial One and ARS are part of the local folklore. Tom Wells and John Marod, two key managers at ARS of Indiana, left the company in 1997 because of philosophical differences and started up a competing hvacr business in the Indy and surrounding markets. Bad blood spilled over the use of the Dial One name, among other things, and relationships soured for a period of time.

    Over a period of two years, Dial One sales grew to become one of the largest residential service companies in central Indiana. After establishing itself in the market, Dial One was looking to strengthen the business via the consolidation route — again.

    “I was actually looking to work for Blue Dot when they started up in 1997,” Wells said. “The opportunity to join them came up in 1999 and I felt the timing was right.”

    The legal entanglements with ARS ended in 1999 and Dial One set its course to join Blue Dot. It signed the dotted line in March 2000.

    “Our goals of building long-term relationships with customers and employees matched perfectly with Blue Dot,” said Wells.

    The Indianapolis group has five different locations, including its newest acquisition, Huck Heating & Cooling. Wells said that the overall replacement market in Indianapolis was down 30% last year and acknowledged that “below the surface, some consolidators have struggled.” But he also is optimistic about the future of his company, which he said relies on residential service and replacement for 90% of its business.

    “We’d like to grow our plumbing division over the next couple of years,” he said. “I’d like to see 10% to 15% annual internal growth. And I’d like to see all our employees work at Blue Dot to retirement. Blue Dot has been a great experience — better than expected.”

    And what of ARS?

    “Time takes care of problems and erases bad feelings,” answered Wells. “A lot of the people who caused problems are gone now. I just feel that now they are just another competitor — that’s all.”



    The Dial One Hoosier/Blue Dot facility spreads out in suburban Indianapolis.

    IN AND OUT OF CONSOLIDATION

    Modern Heating & Cooling’s story is different. Three years ago, Scott Warwick was very adamant about remaining independent, stating, “We are the largest independent contractor in Indianapo-lis and intend to stay that way.”

    But Warwick saw the possibilities for future growth and successful careers for his employees if he changed his business plan.

    “Having to compete with companies that offered better benefits and training was a concern,” he said. “We just didn’t want to be left behind and lose employees — employees whose careers were important.”

    He knew that he didn’t want to go with a consolidator whose idea of growth was “just rolling up companies.”

    When ServiceMaster Co. approached him, he was impressed by its objectives and business plan — and, what it could do for his employees.

    “A lot of former Modern employees have moved into larger roles now,” said Warwick.

    When ServiceMaster acquired ARS, Modern was added to the stable of ARS/Rescue Rooter companies in the Indianapolis market. Warwick stayed at Modern until December 2000, when he moved to the main office as ARS area/general manager. The main office employs 170 people and another 98 work at the Modern facility.

    Warwick thinks the overall hvacr industry in Indianapolis is strong and “very professional.” He also thought the “80-20 rule” applies in the local market.

    Tom Wells (left) and John Marod stand in the 1,500-sq-ft Dial One training room.

    “Twenty percent of the contractors do 80% of the business,” he said.

    Modern strengthened its market position by its tuck-in of local plumber, McNeely Plumbing, in January 2000. Warwick said Modern was the first heating and cooling company in the U.S. purchased by ServiceMaster. Likewise, McNeely was ServiceMaster’s first purchase of a U.S. plumbing contractor.

    “In addition to our residential service, we are focusing our business on the light commercial sector, and in developing a good training program,” said Warwick. “Our greatest challenge is developing our people.

    “The sole proprietors [in Indianapolis] should be concerned about keeping their employees, because of the opportunities and benefits that bigger companies offer.”

    NEXT WEEK: In the final installment, The News will examine other major consolidators in the Indianapolis area. Each has carved out its own niche in residential service and replacement, new construction, and commercial design-build.

    Aaron York is a veteran of the hvacr trade and he simply "loves it."

    Sidebar: In Indy, Familiar Face Keeps Humming Along

    INDIANAPOLIS, IN — Aaron York is a familiar face in the Indianapolis business community, in the Air Conditioning Contractors of America (ACCA) circles, and as a contractor consultant for The News. He is a “must see” when visiting Indianapolis for a story on the hvacr trade.

    Three years ago, The News talked with York, a staunch independent contractor, about the buzz of consolidation activity in the Indianapolis market. Back then he said that consolidators would “force contractors like me to get out from behind my desk and service customers.” Today, he has some different thoughts on the competition.

    “Consolidation has helped us out as far as lowering equipment costs,” said York. “But it has hurt distributors, who have seen the price of equipment they sell drop.” York is also not sold on the hype that consolidators would raise the level of service, adding, “It may have raised the level of salesmanship, but not the level of service.

    “There have been instances where the major thrust of the consolidators is to condemn [relatively new] equipment and sell replacements. I don’t think it is all that bad to be pushy to sell new products — but we need to give customers options. We find that many technicians are trained to sell and not to fix.”

    York said the solution to that situation is to keep workers motivated and trained. He preaches that credo all the time to his employees.

    “We are heavily into training and making it available,” said York. “We want people who are interested in improving themselves.”

    York also sees problems with the hvacr image. He was concerned with the recent closure of an Indianapolis-area tech school, which opted for higher-end computer training over hvacr tech training. “We need to put some glamour into the industry and tell people that this is the place to be,” he said.

    York hopes that the weather will turn soon and give all service contractors in Indianapolis a fighting chance. “It has not been a good year for the locals,” he said. “There have been layoffs and the poor weather has hurt us. Around here if you don’t have hot weather before the 4th of July, you’ve lost your summer business.”

    Despite the ups and downs in weather conditions and changes in the trade, York is steadfast about one thing. He still insists that it is the only industry in which to work. “I am encouraging all my grandchildren to select it,” he said. “My children have made that wise decision.”

    Publication date: 09/03/2001

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