Controls Distributors Find Smart Ways to Stay Profitable
It's not a bad time to be an HVACR controls distributor. Despite an economy that is still lagging behind, controls distributors are doing well, whether they are supplying traditional replacement controls or offering high-end building automation systems.
In fact, the current financial outlook and the emerging technologies within the controls industry were two main topics discussed at the Oct. 24, 2011, meeting of the HARDI Controls Council.
Paul Neustadt, chair of the Controls Council, said that distributors involved in supplying replacement parts to contractors and building owners are having a great deal of success. He calls this market "the sweet spot," adding "It's where you want to be at."
According to Neustadt, when times are tough economically, many building owners will opt to replace a part on their HVAC system, rather than replace the system. They would much rather fix than buy new. So even during a time of recession, these distributors are still staying profitable.
This is the truth for Neustadt's company in Downers Grove, Ill. Neustadt is the president of Neuco Inc., which has a very specific niche in the wholesaler market. The company is a master distributor, only supplying controls to other wholesalers that might be short on parts. For example, he explained that if a wholesaler needs 20 Honeywell Spyders, and they only have 15, they contact Neuco to "fill in the holes."
This is the way Neuco Inc. has been operating since the early 1960s, and the strategy is working. While Neustadt said his business isn't "recession proof," the company sometimes does just as well or better when the country is in harder economic times.
While Neuco is not involved in the building automation side of the controls business, Neustadt is seeing wholesalers and contractors successfully adopt the technology and offer it to customers. But it's not just the contractors and designers who are offering the technology, customers are asking for it.
"The retrofit (market) is really doing well," Neustadt said when it comes to building automation. He explained that building owners are actively looking for ways they can save on energy. They also want to create a more comfortable environment in their buildings.
The contractors and wholesalers who recognize this need in the retrofit market are "the ones that are going to be successful and differentiate themselves."
Scott Cross, the vice chair of the HARDI Controls Council, is one distributor who is doing just that.
ENERGY SAVINGSCross, the chief executive officer of Temperature Control Systems in Dallas, has found an opportunity to offer building automation controls to building owners.
Temperature Control Systems has five locations, including offices in Texas and Oklahoma.
"We are doing well," Cross said about the business. "Building automation is a segment of the business that is growing, and it's where my plans are to get much of the majority of my growth."
Cross said the success in building automation depends a lot on the area of the country a wholesaler is located. In the Texas and Oklahoma markets, where Temperature Control Systems does much of its business, there are many building owners who want to make their buildings as desirable as possible.
"Even though the economy is not as strong as it has been, building owners and managers are needing to continue to keep their buildings occupied," he said.
Building owners are eager to keep tenants in their buildings, and one way to do this is to create a comfortable building environment.
"[Building automation] has the capability of not only saving money on energy costs, it also has the ability to enhance the comfort level of tenants," said Cross.
He also said that buildings with state-of-the-art building automation systems are more desirable when the property owner is looking to sell. For building owners that want to flip their buildings in a few years and sell for a profit, a building automation system can help seal the deal. Not only does the system help save on energy, but it allows the building managers to control the indoor space over a laptop or smartphone.
But Cross said that distributors and contractors need to sell building automation as more than just a tool that can be used remotely. While a building owner may love that they can control their HVAC system from an iPad, they need to know that the investment is worth making.
"When you talk to building owners, you have to hit their sweet spot on the return on investment," said Cross.
If you can show the owner that the building automation system will pay for itself in three to four years with energy savings, the owner is likely to take the plunge.
While Cross believes there are enormous opportunities in the building automation market, it is not something a novice wholesaler or contractor can just jump into.
"You are not buying a $12 pair of wire cutters to do the work," he said. Instead, you need expensive computer equipment and sophisticated controls. You also need to know how to use them. That is why Cross does an extensive amount of training, not only for his in-house team but for Temperature Control Systems customers.
TRAININGMike Schwan stresses the importance of training when it comes to building automation systems. Schwan, a member of the HARDI Controls Council and the central California regional manager of RSD Total Control in Fresno, Calif., holds what he calls "Tech Tuesdays" at his company. Every Tuesday from 5 p.m. to 7:30 p.m., there is a technical training course offered to technicians.
Like Cross, Schwan said that building automation is not something a contractor can just start offering to customers. They need to understand the complexities of the systems, which can often include a great deal of IT knowledge.
Schwan explained that most all building automation systems are now Internet- based. For example, a building owner or manager can go online and see what is happening in 50 different buildings if he desires.
"He can go to one spot and get all of the information on energy use and temperature controls," said Schwan.
With this in mind, when it comes time to sell the technology to a building owner, there are going to be a lot of questions from the building's IT person. For example, they are going to want to know how much bandwidth is required and how many IP addresses are needed. If a wholesaler or contractor can't find ways to answer these questions, they could lose the job.
Currently, Schwan said his company was offering training on new high-end dashboard software. The software is a package that takes a building graphic to a new level. It allows several different people within a company to log onto the dashboard and get the information that is important to them. The CFO for the company can log on to the dashboard and find what the current utility costs are in order to plan budgets. Also, a building manager can control all of the HVAC and lighting within the facility, making sure that the systems only come on at certain times, such as when the first worker arrives.
Schwan explained that his training "avoids the sales pitch." It is all about getting technicians to understand the technology, which is growing by leaps and bounds all the time. Evidence of the growth in building automation can be found just by looking at the residential market, where Schwan said these systems are now starting to pop up. Internet and web-based HVAC controls used to be something exclusive to high-end properties or commercial buildings, but not anymore.
These controls are being "pushed all the way down to everyday people," he said.
With the advent of smartphones and tablet computers, more and more individuals are seeing what technology can do, including how it can be used on the comfort in their homes. Many homeowners know there are smartphone applications that will allow them to set the thermostat in their home without getting off the couch. Homeowners can also turn on their furnace by logging on to the Internet, making sure their home is nice and warm before leaving work for the day.
Since customers are armed with information on this technology, they are requesting it from their HVAC contractors. Schwan said that this has made it easier to sell building automation systems, but again, contractors and distributors have to be familiar with the technology. He said if a customer calls and wants information on a smart system, you can't tell them you will find the information and get back to them. In the meantime, they will call another company who is well-versed in smart controls and building automation. When that happens, "you've lost that customer immediately."
Schwan believes if wholesalers and contractors don't start learning about smart controls, they are "going to be left behind."