HVACR distribution is a highly competitive industry.
Not only do wholesalers have to compete amongst each other, the chase for profit margins includes challenges from e-commerce, Amazon, consumer-direct sales, big-box conglomerates, and more.
Those who appropriately navigate these obstacles continue to lead the pack. The innovators surge ahead, while the imitators fall behind.
For our inaugural issue of Distribution Trends, we’ve assembled a panel of some of HVACR distribution’s most recognizable leaders — individuals who have their pulse on trends of today and aren’t afraid to set the tone of tomorrow.
HVACR distribution is a cutthroat competition, and we’re keeping score. Without further avail, we present Distribution Trends’ Leaderboard.
What Is The Biggest Challenge In Your Company Today?
CARLTON HARWOOD, vice president, HVACR group, Ferguson Enterprises: The biggest challenge in the HVAC industry today is the growing labor shortage. While growth in nonresidential construction over the past five years has incentivized a flurry of activity for HVAC, when combined with the labor shortage, we’ve seen a great strain put on the industry. Collectively, our industry needs to be actively engaged in educating and promoting the great career opportunities that are available in HVAC.
ROLAND GORDON, CEO, Winsupply Inc: Our biggest challenge, which we’ve dealt with for some time, is finding young, talented, customer-focused people who are interested in sharing in our entrepreneurial values. We’ve also struggled with logistics, as our transportation costs have increased. We’re focused on streamlining our deliveries and figuring out how to reduce costs in that area while still getting our products to our customers on time, every time.
JON HIRSCH, director of business development at Auer Steel & Heating Supply Co. Inc: While I feel we are an employer of choice, like most businesses in an economy with 3.8 percent unemployment, finding, recruiting, and retaining great employees can be a challenge. In order to be the employer of choice, we need to be efficient and profitable, so we can provide great benefits, competitive pay, and continue to offer a desirable and contemporary place to work. We also need to be able to invest in and train our employees, so they remain informed and able to provide great care to our customers.
KEITH KRAMER, president, Illinois/Indiana, Munch’s Supply: People. As a company, we’ve been on a fairly aggressive growth track. As we continue to grow in existing and new markets, it’s vital that we continue to add quality employees to the team. We also need to make sure we’re giving new hires the training and resources needed in order to be successful at their jobs. In the past, it was possible to hire new employees and put them with a group of experienced team members for on-the-job training. We used to call this “community” training. As we’ve grown and the pace of our business has increased, we’ve had to adjust our thinking and move away from this approach. We’ve now added an in-house trainer solely focused on developing curriculum and utilizing new resources that can be used to train our employees.
AMBER SHEEHAN-JELINEK, COO at Johnstone Supply – Southeast Michigan and Toledo: I’m sure you’re expecting me to say that, like many other companies in our industry, finding talent is our largest challenge. However, our largest challenge is actually restructuring as we become a second-stage company. Growth is always exciting but challenging as well.
What Do You Foresee As The Biggest Challenge On The Horizon?
MIKE MEIER, vice president and COO at Meier Supply: The two-step distribution channel continues to see pressure with a variety of forces nipping at the edges of our business model. Tie that in with twice the competitors we had 15 years ago, fewer proprietary supplier product lines, plus B2C going on all around us, and it becomes very apparent that we have to continue investing in all segments of our company, including our people, operations/efficiencies, and technology, which includes e-commerce. E-commerce is way more than just having a website and a B2B storefront. Technology continues to evolve, and we want systems in place that make it easy for our customers to do business with us — no matter where they are. Technology has changed our business in the last five to seven years, and we expect considerable change in the next five to seven years as well. We’ve ramped up our investment in e-commerce and technology, and we’re focused on where the puck is going rather than where it is today.
MARK BRAY, director of supply chain at ACR Supply Co: Over the next five to 10 years, there will be a massive amount of leadership transitions as the baby boomers pass their leadership roles to the much younger millennial generation. This will be a rocky road for any organization that hasn’t already laid the groundwork for a successful handoff.
LAUREN ROBERTS, president and CEO at cfm Distributors: We’re challenged by a lack of truck drivers available to deliver our products to us and our customers in a timely manner, and we expect this shortage to get worse in the coming years. As an industry, we’re going to have to get creative and figure out how to work around this issue. We also need to do a better job across our industry to work together to get more people interested in the skilled trades to address both the truck driver shortage and the HVAC technician shortages. In addition to the skilled labor shortage, the biggest challenge we see in the next five to 10 years is the ever-changing landscape of technology. We’re constantly working on ways to leverage new technology for our business and our customers’ businesses. Technology is changing by the minute, so it’s easy to fall behind quickly; therefore, we’re constantly changing and innovating.
GORDON: Logistics will remain a problem for us and the industry as a whole. Amazon is now creating its own delivery service. It’s looking to hire employees to drive its own delivery trucks. Our customers already want their product immediately, and on the heels of this announcement, we anticipate these expectations will only increase. Additionally, as baby boomers retire, it’s becoming more difficult to find talented people to replace them. A lot of successful Winsupply leaders are anticipated to retire in the next 10 years. We’re also concerned with the economy. While it’s been improving very slowly, and for a very long time, we feel there may be another recession on the horizon, and we need to be prepared for that.
Over The Last Decade, What Business Change Has Had The Greatest Impact On Your Company?
HIRSCH: As I take stock of how we do what we do, the biggest factor in our success is the caliber of people and the broad knowledge and diverse expertise of our team. Employing a diverse and highly skilled team and continuing to invest in their knowledge and ongoing education has enabled us to innovate and lead with value-added services for our customers.
MEIER: A decade ago, there was little to no variable refrigerant flow (VRF) around, so from a product standpoint, it’s been the new opportunity with VRF technology, which continues to grow and be a bigger part of our business.
BRAY: The concept and application of a servant leadership style has had the greatest impact on our company over the past decade. It has transformed our company culture and created a work environment where people actually want to come to work each day. When people understand that they're cared for by their leadership, it creates an environment where everyone can thrive and flourish.
SHEEHAN-JELINEK: Oddly enough, the largest challenge on our horizon has also provided one of the greatest positive impacts on our company. Johnstone has a corporate team and cooperative store members who have worked very diligently and swiftly on leveraging technology for the cooperative as a whole, which has had a great impact on our business. Having those groups of people on our team, pushing us to develop and providing us the tools necessary to advance has been a blessing.
How Is Your Company Managing The Emergency Of E-commerce?
HARWOOD: We are excited about the opportunities that come with the progression of e-commerce. We want to do business the way customers prefer to do business, so we’re continuously evolving our branches and distribution centers to complement their online experience. Our inventory is at our customers’ fingertips at Ferguson.com, and they can quickly collect product information, get quotes, make purchases, and more. E-commerce is no longer a new shopping trend; it’s a preferred way of transacting for a growing percentage of the population.
ROBERTS: We have an e-commerce presence currently and are always working to revamp it to bring the most value we can to our customers online, just as we do in person. It’s important to stay current on what's happening and what is coming in the future of e-commerce, because, as with all technology, the e-commerce landscape changes almost daily. It’s a full-time job to keep up with technology and implement the changes necessary to stay competitive in that space.
KRAMER: We’re currently monitoring e-commerce very closely. We have an existing B2B site that we’re constantly tweaking in an attempt to increase utilization and ease of use. Like most, we’re watching the B2C space as it relates to our industry. Currently, our approach is to keep all options open and make sure that any decision or investment we make not only improves our current platform but also allows us to be ready to expand and keep pace with the market.
BRAY: The leadership in our company has invested a lot of focus and attention toward the growth of our e-store. We understand that this is the sales channel of the future, and we’ve been fortunate enough to see continual growth in our e-commerce business each year.
MEIER: This is going to continue to be a bigger part of our business, and we’ve just set up a technology pillar in our company that has a chair and a committee with a goal of investing more resources into e-commerce so that we’re where we need to be today and tomorrow. We’re working hard to go from being reactive to proactive when it comes to the ever-changing world of e-commerce, and we're now providing customers with real-time access to inventory, product data, and just-in-time truck stock/inventory replenishment.
What One Piece Of Advice Would You Like To Offer The Industry?
HIRSCH: Embrace and celebrate the emergence of e-commerce in the distribution channel. All manufacturers and wholesalers should celebrate and support the evolving interest in this exciting channel. The ability to offer 24/7 access and offer our customers more information and self-reliance on accessing the information will be good for the entire industry. If we do it right, we will enhance our services, provide expanded information, lesson the workload, increase the need for more people, and protect our profitability.
HARWOOD: Our industry is changing rapidly, and it’s important to be able to evolve to meet these demands while remaining invested in your core values and helping facilitate associates’ personal and professional growth.
SHEEHAN-JELINEK: Embrace every bit of change in our industry and evolve. Embrace the changes in the new generation coming into the workforce, the evolution happening in technology, and the “new” contractors. Learn how they like to do business and deliver in that manner. Those who “fight” change too often get left behind and become irrelevant.
KRAMER: To my fellow distributors and valued customers, I would suggest that you not join the race to the lowest price. Profit is essential to allowing you to provide superior customer service and value-added services that separate you from your competition. To manufacturers, I implore you to view all your distribution channel relationships as partnerships. To consumers, I ask you to understand that, for most people, the purchase of a heating and air conditioning system is the third-largest purchase they’ll ever make (after their homes and cars). It’s as important as any purchase you will make when it comes to the comfort and health of your family. Make sure you look for a reputable, quality HVAC contractor who is providing you a highly rated and reliable brand of equipment.
ROBERTS: My advice to manufacturers and distributors is to get involved in trade associations, like HARDI, to stay up to date on all things that impact our industry. I recommend not only going to events but actually getting involved in committees, councils, or other sub-groups, where you can help drive the future direction of our industry and connect on a deeper level with peers who can help you with challenges and opportunities in your business.
GORDON: We’re in the business of nurturing entrepreneurs. We believe in putting owners under every one of our roofs and investing in their success. We’re motivated by the success of our employees and the evolution of distribution’s future.
MEIER: Anyone who wants to start or grow a business — it all starts with a vision and a business plan. Then, follow-up with a strategic plan and retain accountability to the plan — accountability is very important to the success of such a plan. And, of course, you must have the right people in the right seats to make it all happen.
BRAY: Every organization in our industry needs to put an urgent focus on attracting and retaining younger talent to secure the industry’s future. When a leader can’t look at his or her team and identify at least one younger person who is qualified to fill his or her role, it should be a huge warning sign that the future of the organization might be in jeopardy.