Over the holidays I was contemplating writing a “10 Trends” type of article. You know, the type where you theorize what will occur in the coming year and talk about how companies can generate growth and profitability in the new year.
And then I starting thinking “why”? I mean, enough has probably been talked about industry challenges. No one has the crystal ball regarding the economy. We know residential will change by market, and segment of the market (new construction, renovation, service) and those playing in the commercial market will have similar dynamics, geographically, that will affect their business. Anyone want to hear about labor shortages again (can dealers hire enough technicians? What about available, experienced, distributor talent?) How about the ever expected “digital transformation” or how if you are not analyzing your data you’re going to be out of business (or at least not informed.) Oh, and can anyone guess what will happen with supply chain issues (it has gotten better, but do you want to bet it will stay that way based upon what you know today?) What about government regulations affecting SEER? Will energy efficient products, supported by rebates, stimulate homeowners to upgrade and hence drive the renovation / service market? What will the weather be where you are … extra cold? Hot? Any natural disasters coming that create economic busts then booms? How about projecting the price of copper at the end of 2023 (and does that mean anything if it goes up and then comes down … or stays sideways?) And what about the acquisition market?
Yes, I think I could put out a prediction and, if I looked at it this time next year, it probably would be wrong (hopefully some parts would be right!)
So, a different approach.
These aren’t necessarily predictions or trends but areas for you to consider to support your goal – profitable growth.
Perhaps this should be considered “9 Things I’m Thinking About for 2023”.
9 Ideas for Profitable Growth for HVACR Manufacturers and Distributors
And this list is in no particular order of importance.
- Major manufacturer in key product categories look at refining their channel strategies and redirect sales efforts. This is a direct result of industry consolidation coupled with management directives to control costs. Companies will consider stratifying their customers and offer different services, or more resources, to those they want to grow with. But the battle for customer dollars remains at the branch level so many will still sell to anyone. Behind the scenes, however, business dynamics will be different and larger companies will become more profitable. There could also be a correlation between “refining” core HVACR strategy and diversifying “channel” strategy, defined as “channels to market” and greater support for big boxes and online channels (either DTC, marketplaces, or eTailers.)
- Labor concerns accelerate function and role automation and refinement. For years everyone has talked about tradespeople shortages. This has now expanded to lack of manufacturing employees, distributor warehouse staff and drivers, let alone the ever-present discussion of “trained / experienced” people. The reason is population dynamics. The industry grayed over the years and companies didn’t invest in back-ups. Its come to roost. Your experienced people will leave (retire). Companies that can, will invest to automate roles that have repetitive processes. This is the epitome of “more with less”. Technology investments to replace the need to backfill people will become more prevalent. More warehouse automation; different delivery methods; different “paper” processing; integrating with customer systems and more. The question then becomes, do you have the right IT and process management people. Are you strategically thinking about your technology investments and have a strategic technology plan?
- Rate of consolidation slows. Yes, we’ll see distributors acquired. Many distributors do not have succession plans and those who have gotten larger will digest their acquisitions and then reinvest their increased cash flow for more acquisitions. Manufacturers are still looking to make acquisitions; they just need willing partners. Witness the recent Hajoca acquisition … and they have plans for more.
- Distributors diversify but struggle due to commitment issues. Distributors talk about diversifying into other industries, but rarely do. Manufacturers do this better. Reps are also challenged. It’s inevitably a commitment issue – of time, money, people, and other resources. But, for distributors, it’s the same infrastructure but different product, suppliers and usually salespeople. All which can be acquired. As customers diversify (think dealers / contractors – now they are HVAC and electrical and some are fully MEP), this is something independent distributors could consider if they are not planning on selling in the near future (or look at Ferguson – electrical, plumbing, lighting, HVAC, PVF and more … and making acquisitions!) Few will do. Most will talk.
- One to few marketing replaces digital to all efforts. COVID, along with the cost to send an email, made digital marketing the darling of many. The challenge is everyone has too many emails to read. How to differentiate? Back to integrated marketing to break through the electronic clutter. Efficiencies, and improved messaging, combined with a little data mining (okay, analytics) will help target like audiences for one to few marketing.
- Brand builders win but it takes time and dedication. In an industry where there are lots of “box (product) sellers, those with a value proposition that can be communicated can differentiate and win business, sometimes at a nominal premium (which becomes additive to the bottom line). They key questions then become “why buy from you” and “can you articulate, prove and live your brand proposition?” This is what enables companies to not be commodities. It is hard to discern and tough to have a vision of what you want to be while being difficult to drive throughout your company but rewarding when it is executed, and customers feel the difference.
- Vertical marketing (audience and industry) drives growth. This is the essence of demand generation. By identifying target markets and communicating solutions, business development teams (sales and marketing) can identify opportunities to drive growth. Manufacturers, reps, and distributors that focus on verticals are able to take advantage of opportunities resulting in incremental growth and market share gains.
- OPM. OPM means “Other People’s Money.” For many distributors this has been synonymous with “asking suppliers for money.” Now it means (or also means) benefiting from government subsidies. The market is awash with monies that have been appropriated by Congress. Distributors that can sleuth out opportunities funded by these initiatives, or can recommend usage of the funds, can generate opportunities. Funds exist from the COVID bills, the Infrastructure Investment and Jobs Act, the Inflation Reduction Act (IRA), and other possibly other set-asides. Manufacturers and marketing groups can invest in this research to help their reps and distributors.
- Secular markets. Speaking of OPM, also think of secular markets that represent growth opportunities and are foundational support for today’s, and tomorrow’s, economy. These will be staples of the industry for the next 10 years and will continuously generate revenue opportunities. Consider these “the gifts that can keep on giving.” Identifying them nationally, regionally, or potentially locally and building a competency around them can lead to sustainable, profitable, revenue.
While these are not “9 Predictions for 2023” or “9 Trends”, hopefully these are concepts for you to consider to help you profitably grow in 2023.