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Midwest Wholesaler Exemplifies Market Center Distribution

December 10, 2007
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HVACR wholesalers who look to gain an edge on their competitors are often utilizing a business model without even knowing its name or purpose. Market Center Distribution (MCD) is a business model - or philosophy - developed by the Heating, Airconditioning & Refrigeration Distributors International (HARDI) several years ago.

In a nutshell, MCD centers on the strength of each local wholesaler within its own market and how each business uses the knowledge of its market to position themselves as a leader in what is usually a very competitive atmosphere. In a recent NEWS’ article, Don Frendberg, HARDI executive vice president and COO, said, “The value [of MCD] lies in how each individual branch performs in the local market.”

And although many wholesalers on a daily basis commonly use MCD, it is important to clarify what it really means for success and profitability. The NEWS recently visited with three different branches of the Gustave A. Larson Co., a Milwaukee-based wholesale HVACR and controls company with 44 locations throughout the Midwest, Plains, and Mountain regions to learn how each management team, acting under the Larson umbrella, takes different approaches to their own markets, based on their philosophies towards customers, employees, and changing trends in the local economies.

While there are many similarities based on their training in the Larson business model, there are also noticeable differences, too. The actual physical makeup of each branch is unique to each location. The West Allis branch, in suburban Milwaukee, is in a brand-new building and a new location; the Madison, Wis., branch is an older branch, although still a high-tech office, having been in the same location and without significant remodeling, for the past 10 years; and the Rockford, Ill., branch was recently remodeled to provide a fresh look for its customers.

The similarities between all three branches include the segmentation of the sales staff, where there are sales representatives who specialize in a certain segment of the business, i.e., Trane equipment sales, American Standard equipment sales, commercial equipment sales, refrigeration equipment sales, and sales generalists, who sell supporting parts and equipment. The three branches also recruit and hire staff who have a good knowledge of HVACR, 10 have a minimum of a two-year technical degree.

Good customer service is also a trademark of all Larson branches and there are many other obvious operational and personnel issues that remain consistent throughout all branches.

But what are the differences that make each of these three branches unique? More importantly, what makes them successful in their own markets? Let’s find out.

The Madison, Wis., branch of the Gustave A. Larson Co. is in the capable hands of (from left) David Mills, Brian Otto, and branch manager Matt Kuipers. (Click on the image for an enlarged view.)

THE ORIGINAL LOCATION: MADISON

The Gustave A. Larson Co. was founded in Madison in 1936. Since that time, this branch has changed location three times, including its current location for the past 10 years. It employs 17 people. Its customer base is evenly divided between contractors doing residential, commercial, and refrigeration work.

Matt Kuipers has been the branch manager for 10 months. Two of his top people are David Mills, inside sales with 18 years at Larson, and Brian Otto, account representative with 17 years at Larson.

“For the most part, the structure of our branch has stayed the same,” said Kuipers. “The big change happened two years ago with segmentation. The change may have been a bit confusing at first for our customers, until they got to know what everyone’s job responsibility was.”

Both Mills and Otto represent a staff that has a lot of experience in the wholesale HVAC trade. Some Madison employees have 28-30 years of experience working for Larson. “Our strength has been experience and knowledge,” said Mills.

“But that has changed a bit, too. Now since our more experienced employees have moved up from counter sales, besides helping our customers, they also are in support roles for our newer counter sales staff.

“Customers are more demanding now, but they are also more appreciative of what we do.”

That’s good news for Larson employees because there is no lack of competition in the Madison service area, which extends “90 minutes in two directions and 60 minutes in the other two,” according to Kuipers. Familiar names like TSI, Ferguson, Milwaukee Stove, United Refrigeration, Johnstone Supply, and Grainger are among the competition.

Each HVAC wholesaler is fighting for a piece of the market pie that has been slowing down, growth-wise, in the recent past. “For years Madison was growing rapidly but now Madison is down significantly in new construction,” noted Kuipers.

“There’s not a lot of new commercial construction, but there is a lot of replacement work.”

But Madison keeps the level of interest up for customers by offering regular training classes and seminars in its spacious training room. Vendors come in to give expert presentations, too. Otto noted that this is one way to stay competitive. “We want contractors to come in and learn about our products,” he said.

While contractors and techs are invited to come in to train and pick up parts, they are not encouraged to hang around the counter. There are no stools in sight for sitting and although the branch offers free soda and coffee, the counterpeople would prefer to help everyone out as quickly as possible and get them on their way to their jobsites.

One added convenience at Madison is a drive-through service where vehicles can come inside from one entrance, get loaded up, and drive straight out the exit. Madison, like the other Larson branches, ships to its customers twice a week.

Mills has noticed one significant change in the Madison market since the industry went from the 10 SEER standard to 13 SEER. “It has slowed down new equipment purchases because of the cost,” he said.

“This past year was more of a parts and pieces year rather than new equipment sales. People were using the band-aid method and replacing compressors rather than the whole system.”

Kuipers summed up the Madison market. “We are in a lull right now because of the economy,” he said. “There are a lot of houses for sale and little new construction. Contractors are staying busy enough to where they don’t have to lay off people. But they aren’t swamped, either.”

The Rockford, Ill., branch of the Gustave A. Larson Co. is run by branch manager Jeff Hanfeld, a 21-year veteran of the company.

70 MILES TO THE SOUTH IN ROCKFORD

South of Madison over the border in Illinois is Rockford, where the Larson company has had two branches since it became the second company location in 1937. Jeff Hanfeld, branch manager, has spent his entire professional career, 21 years, with Larson and has been the Rockford branch manager since November 2006. He has a six-person staff and shares the segmented sales force with Madison, since it is nearby and the Madison staff spends a lot of time servicing the Rockford market.

The Rockford area is characterized by a strong union presence and a lot of people from the Chicago area, who have moved to Rockford because the cost of living is lower, according to Hanfeld.

He said that Rockford had experienced very little staff turnover until just recently, when he had to hire two new people. “In general, there is a lot of experience here with very little turnover,” Hanfeld said.

He characterizes the Rockford branch as one with “a good group of guys who get along well. We are a very close team. We are always picking each other up when necessary to ensure that things run smoothly.”

Hanfeld is not shy when he talks about Larson’s position in the Rockford community. “I consider us the No. 1 wholesaler in the area,” he said. “You have to think that in order to be successful.”

Like Madison, the Rockford branch has a pretty equal market split among its customers: residential, commercial, and refrigeration. There is a large range within that mix, from contractors with commercial refrigeration and rooftop customers to Trane residential customers. “We treat all of our customers the same, large or small,” Hanfeld said. “Also, you never know when the small-volume customer will become a large-volume customer again instead of little guy and big guy.”

The territory coverage can go from 60 miles in many directions to Iowa, 100 miles away. Hanfeld characterizes the Rockford market as one where there is a strong new commercial building segment, i.e., refrigeration for convenience stores, and where new residential construction has picked up in the last year.

That spells more business for HVAC contractors spread out among the area’s healthy number of HVAC wholesalers.

“There is a great deal of competition for customers, whose own customers have become very price conscious,” he said. “In order to compete against price shopper mentality, we have to offer more ourselves. We have spring, fall, and monthly sales to drive traffic to us.”

Hanfeld pointed to Larson’s online equipment ordering as a real strength. Customers can order online and then set the date and time they want the equipment delivered. He said his branch recently increased its inventory so “customers will be comfortable with the knowledge that we will have their products available.”

Like Madison, the Rockford branch does not want techs to hang around too long but Hanfeld does want to reward them for making purchase. He offers a Tool Time promotion where techs can earn bonus points from any purchase. These points can be used toward future tool purchases. “We want to give the techs something,” he added.

Hanfeld would like to see a larger pool of potential employees to draw from but concedes that people who apply for work at the Rockford branch “are either overqualified or underqualified.” He said it is important to have HVAC experience, but as a result, he doesn’t get a lot of applicants walking through the door. Fortunately, the customers that come though the door are a lot more frequent. “I don’t know of any other wholesaler who offers the variety of products that we do,” Hanfeld said.

The West Allis, Wis., branch of the Gustave A. Larson Co. has industry veterans Judd Sadowski, branch manager (left) and Greg Hecker in charge of the new facility.

THE BIG MILWAUKEE MARKET: WEST ALLIS

The bright, shiny new building across the street from a new office-retail complex is the newest edition in the history of the Milwaukee Larson branch. Originally established in 1939 at a different Milwaukee location, the new branch in West Allis, which opened in May 2007, is unlike the typical HVAC wholesaler. The 37,000-square-foot facility has 25 employees.

“Our increased sales meant that we had outgrown our other building,” said branch manager Judd Sadowski. “We are more centralized now and the majority of our customers think this is a better location.” Sadowski, a former service tech, has been with Larson since 1992. One of his key people in West Allis is Greg Hecker, former manager and now account representative. Hecker has worked for Larson for 21 years.

“There are a lot of new people and a lot of experienced people at our branch,” said Sadowski. “Some have over 25 years of experience with Larson.”

He added that the turnover rate of counterpeople is higher than he would like and acknowledged that finding qualified help is tough to do. He uses an employment agency to help in his search. “A career in HVAC wholesale isn’t pushed enough,” he said.

The market split for West Allis customers is about 50 percent residential, 40 percent commercial refrigeration, and the rest divided into controls and industrial contractors. Hecker acknowledged that the Milwaukee market has been characterized by a slowdown in new construction and an increase in the number of HVAC wholesalers.

“Price is a big issue with the new competition,” Sadowski said. “We have to be on top of our pricing and know that sometimes we have to match our competitor’s pricing.”

“Price is taking over for loyalty,” said Hecker. “There are more and more contractors coming into the market who are causing problems with pricing.”

Both men agree that West Allis has an advantage over competitors because its employees know the customer base very well and offer the best customer service. Like the Madison and Rockford branches, West Allis runs a regular training schedule for customers and employees.

Unlike branches with wider coverage areas, West Allis can be more flexible in scheduling routes. “We don’t have to follow the dedicated routes that other branches have to,” said Sadowski.

The West Allis branch has always been tech friendly and techs are encouraged to stop (although visits should be kept to a reasonable length of time). But everyone is welcome to stop by and take advantage of the products and services available in this large facility. Customers visiting the branch will soon see a new display area in the showroom, which will feature products like a working fireplace. In the summer, vendor reps have been on hand each week to give Larson customers information on their products.

Sadowski said the switch to 13 SEER hasn’t been a big deal but added that contractors are always talking about price-conscious customers, which are the signs of a slower Milwaukee economy. Still, he likes the market and all that it offers. “Milwaukee is a great place on a Great Lake,” he said.

SUMMING UP THE DIFFERENCES

The management at each Larson branch had different things to say about their local markets. Whereas 13 SEER was a big deal in Madison, it didn’t get much thought in West Allis. The Rockford market seems to be stable and growing, while Madison and West Allis are experiencing slowdowns and a decline in new construction.

Pricing is a big problem, which is handled differently among the branches. Rockford plans different promotions throughout the year while West Allis, in some cases, chooses to match prices head-on with competitors.

The older Madison branch has an experienced staff with very low turnover, while Rockford and West Allis have had some issues with longevity among their counterpeople. The Rockford facility is located in an industrial setting; Madison is more of a rural-light commercial setting; and West Allis is in an office-retail setting.

The staff size and sales revenues vary among each branch, too. And according to management at Madison, it has one of the highest volumes of walk-in traffic in the entire company.

But one thing remains a common thread: there is no substitute for experience, both at the management level and the entry level. Having a strong knowledge base to deal with changing economies and being able to satisfy demanding customers are what makes an HVAC wholesaler successful. Just ask the folks at Gustave A. Larson Co.

For more information, visit www.galarson.com.

Publication date: 12/10/2007

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