It was so much simpler years ago. The manufacturer would ship equipment to its network of exclusive dealer-distributors who would keep large quantities of machines on site and sell to their customers, including end users and rental companies. Rental companies would primarily buy from dealers and in turn rent to the end user.
Dealer-distributors received special discounts from the manufacturers, allowing them to make a tidy profit when they sold machines.
But times have changed. Rental companies increasingly found they had to respond to all the needs of their customers, which included sales, rental-purchase options and financing. More and more traditional rental companies became dealers themselves.
As their end-user customers increasingly used rental as their equipment usage of choice, dealer-distributors, whose margins on sales were dwindling, decided to offer rental themselves. Many had offered rental services for years, particularly rental-purchase options and long-term leasing agreements, offering short-term rental only when customers specifically requested it.
But as that choice increased in frequency, dealers became more serious about inaugurating full-scale, dedicated rent-to-rent departments, in many cases opening separate rental facilities and even stand-alone rental companies with different names and identities. The question of who was a dealer and who was a rental company became increasingly difficult to answer.
The identity crisis became far more profound and acute in the late 1990s as the era of rental consolidation was ushered in by such companies as United Rentals, National Equipment Services, Prime/Rental Service Corp., Sunbelt Rentals, NationsRent and Hertz. As these companies expanded their footprints on a national and international level, they began to insist on buying directly from manufacturers, by-passing the distributor go-between. As national chains ordered in larger volume, in addition to buying direct, they pressured the manufacturers into discounts that placed dealer-distributors — who continued to offer parts and service support, warranty, financing and more — at a competitive disadvantage. And increasingly, the concept of territorial exclusivity disappeared for many dealer networks.
Faced with diminishing margins and relevance, independent distributors have themselves merged and consolidated in recent years. And some dealers, faced with financial difficulties and insufficient access to capital, have been acquired by manufacturers that would rather take on the financial commitment of rescuing dealer-distributors than risk losing important outlets of distribution for their equipment.
For many dealer-distributors, the early 2000s have been a time of serious soul-searching, questioning, and re-defining the relevance of their business models. The parts and service business has become more of a focus for many dealers, finding margins far more profitable than in machinery sales. And for many, mastery of the rent-to-rent business has become necessary for their survival.
Exacerbating the dealers' difficulty has been a supply-demand imbalance coupled with an economic downturn that turned more severe than expected. And rental rates plunged along with used equipment values.
Former AED president Bob McNutt, Wolverine Tractor, Detroit, says that while the economy has been a major concern and industry dynamics have threatened the traditional role of distribution, dealer-distributors need to examine their own operations rather than blame outside forces. “We need to take a long look at the way we do business,” he says. “Are we still innovating? Are we listening to what our customers are telling us they want? What has happened to our entrepreneurial spirit?”
Many dealer-distributors have answered those questions and gone through significant changes. Product knowledge and service expertise has enabled many to remain a vital force. Tough times have forced enhanced efficiencies. For example, major advancements on electronic parts-ordering systems, enhanced service capability that is quicker and more cost-effective, more complete attention to repair, and service of customer-owned equipment have all enabled many dealer-distributors to offer services that are far more effective and relevant to their customers' needs than in the past.
While distributors have adjusted and modernized their economic models, flux and change among the manufacturers they represent have made survival a greater challenge than ever before.
“This is a time of uncertainty,” says Toby Mack, executive director of Associated Equipment Distributors, the Oak Brook, Ill.-based organization that focuses on services for dealer-distributors “If the OEM is a substantial part of your revenue model and there's uncertainty in respect to the possibility of a merger or significant loss in market share, the dealer is affected. If companies merge, somebody falls out the bottom of that. These days we live with constant speculation about mergers and acquisitions among manufacturers. But you have to live with that and be prepared. Dealers that are well positioned with a decent capital base are fairly optimistic.”
Mack says one of the keys to success in the distribution business is obtaining capital. “Capital is a major issue dealers face, and as the rental function becomes a bigger part of the business, then it becomes even more capital intensive,” Mack says. “With slower returns, it is harder to attract capital on attractive terms.”
After the emergence of the national rental chain, many industry observers and participants predicted the demise of the traditional dealer. And while the economic slowdown exacerbated an apparent identity crisis, the dealer's role still appears extremely important in an industry where service is sometimes overlooked in the quest for quick profits. And while most dealer-distributors, like most economists, are currently optimistic that the economy is improving, the recovery is at best tenuous.
“About a third of AED distributor members have taken the painful step of laying off employees,” adds McNutt. “Many others are closing down branches. Every time we turn around it seems distributor profitability comes under new attack. New elements are impacting the traditional structures of our businesses and the strategies that we have successfully employed for decades. Never before have customers had so many choices in terms of where and how they can acquire machinery and the parts and service support they need to keep it operating. And we all know what happens to price when supply goes up in a mature or decreasing market.”
While many in recent years predicted the demise of independent equipment dealers, the reality has been far from that. However, dealers have had to redefine themselves as the margins on sales of new machinery and the dynamics of the marketplace have given birth to a new emphasis on product and parts support and a search for more efficient ways to deliver services.
“There was a time I feared that the role of the equipment distributor would be taken over by the big box rental stores,” says John Engels, vice president of Bobcat operations for Wichita, Kan.-based Berry Companies. “And I feared the Uniteds and the Hertzes would become the Bobcat dealers. But the market has said there is a place for both. There is a place for the company that wants to do nothing but rent on big jobs, but there is also a customer who wants to deal with a dealer, who wants to buy or rent from a dealer who focuses on a product.”
In the following pages, RER takes a look at several dealer distributors and the different approaches they've taken to finding their way in a more challenging economic environment.
NU WAY OFFERS SERVICE THE OLD WAY
Instead of cutting back, Nu Way expanded during the recession. The result? Increased market share.
Nu Way Equipment seems to have almost everything a contractor could want, for sale or purchase. With four locations covering a wide market area, and a distributor for more than 200 lines of tools and equipment, Nu Way has benefited from diversity and a strong rental presence to enjoy a steady growth over the past decade.
CEO Greg Rhomberg, a third generation owner of this St. Louis-based family business, came to the belief that the future success of the company depended on a serious commitment to the rental business. And contrary to the conventional practice many companies have of retrenching during slow economic cycles, Rhomberg believes that's the perfect time to invest in the company's growth.
“Our margins are increasing,” Rhomberg says. “A lot has to do with increased rental revenues, new products and new product lines. We invested in the company during the slowdown. We added sales force, we beefed up inventories, we added a fourth location and we did more marketing. We follow the economic cycles and invest during down times. While our competition cut service and promotions, we had banner years.”
Rhomberg took over the reins of the company in 1992, the end of the last slowdown in the Midwest. “That's when we expanded our facility,” he says. “We made a commitment to rental and increased our business 25 percent in one year. We have continued to put more resources toward the rental and service end of the business.”
Nu Way Rents has a different emphasis from most AED-type distribution businesses that typically handle larger equipment. “We're heavily weighted into building materials with concrete forms, concrete accessories, and light equipment. That's the bulk of our business.”
Nu Way specializes on smaller items. As Rhomberg says, Nu Way carries “anything you can pull with a one-ton truck.”
Original founders Adolph and Arthur Rhomberg, brothers, were carpenters and independent contractors who developed a new method of concrete forming and began Nu Way Concrete Forms in south St. Louis in 1955. The business developed into sales of concrete forms and accessories as well as consulting. The company continued to add equipment lines and added a full-line rental business in 1990, opening its first branch in Jefferson City, Mo.
In 1992, the company moved to a seven-acre headquarters in St. Louis and added branches in Jackson, Mo., in 1996 and Wentzville, Mo., in 2002, where it helped pioneer a Builders' Resource Park, a one-stop shopping zone for professional building contractors.
Like many dealers, Nu Way sells a lot of equipment to rental companies, even though it is a strong rental player in its own right. It places a strong emphasis on service and repair, areas that continue to grow along with the rest of the business.
“We service equipment, as opposed to big box firms that just sell equipment in a box,” says Rhomberg. “We check to make sure fluid levels are topped off, that everything is checked and serviced before it is delivered, and 90 percent of our sales are job-site delivered. After the sale, we service equipment, we do warranty repairs, and we provide a loaner at no charge if a piece of equipment is under warranty. If the machine has passed the warranty period, we'll offer a half-price rental for the life of the equipment. That way we entice people to come back for repair, from changing a spark plug to refurbishing equipment that's been run over by a backhoe.”
While specializing in old-fashioned service, Nu Way has embraced the electronic age with electronic purchase orders and a small but effective Web site that includes rental rates and promotions. “But when we get inquiries through the Internet, we still respond the old-fashioned way,” Rhomberg says. “We call those people because we want to know what they're doing. If they call for an auger, I want to know what they're going to put in the hole.”
NU WAY RENTS
Branches: Jefferson City, Jackson and Wentzville, Mo.
Top Officer: Greg Rhomberg
Equipment: More than 200 lines.
Top lines: DeWalt, Target, Multiquip, Paslode, Amida and Wacker.
ROCK OF THE INDUSTRY
With a strong commitment to core manufacturers and state-of-the-art service facilities, Casey & Dupuis show traditional dealer paradigms still can work.
To Casey & Dupuis, the role of the dealer is the same as when it started in business more than half a century ago.
“The dealer's role hasn't changed,” says CEO Jon Casey. “But everything else in the industry has. We have to do more rentals to compete and the industry has changed, for better or worse. But we're the rock of the industry. We're still here as a full-service dealer.”
While its primary manufacturer JCB — and while Casey & Dupuis represents a number of other dealers, JCB represents the lion's share of its business — recognizes the changing dynamics of the industry, it tries hard to maintain the territorial integrity of its dealer network by assigning protected territories and offering top discounts for its dealers.
“One of JCB's claims is that it has a protected dealer base,” says Casey. “When a customer buys JCB, there is local service and support. They provide the equipment and the programs we need to do our job, such as floor-planning and discounted finance rates.”
While Casey & Dupuis has had to get into the rental business for its own survival, it avoids competing with rental customers that buy from it. “They tend to rent to people who are more demanding from a price standpoint. We're really looking at a different customer base.”
Casey & Dupuis' customer base has done business with it for five decades as the company, with locations in Watertown, Mass., and Brentwood, N.H., is celebrating its 50th anniversary.
“We're very much a full-service dealer,” says Casey. “We sell, we rent, we service, we provide extensive parts availability, and we finance equipment. We do daily, weekly and monthly rentals. But we do rental/purchase options more than we do straight rental.”
Service is the key component to Casey & Dupuis' business and with margins cut in half over the past decade, it has become more important than ever.
“National companies with deeper pockets buy at lower prices, bypassing dealers, and rent for less, and that causes competition which drives down margins,” Casey notes. “To combat that, we offer what they can't. We can service and provide parts for the lifetime of the machine. We stock enormous amounts of parts to service our customers, and parts and service is the most profitable part of our business.”
Casey & Dupuis doesn't limit its service work to JCB and its other lines. “We will work on any piece of equipment,” he says. “If they come in with a competitive brand, we'll work on it, purchasing parts from another dealer. You have to find ways to make money.”
Casey & Dupuis has a three-year-old state-of-the-art service facility in Watertown that is among the best in the industry. The company is constructing a new service facility at its Brentwood location.
Casey is confident about the future of distribution. “Equipment today is becoming more complex, with advanced computer systems, and end users won't have the infrastructure to solve those problems,” Casey says. “So more than ever manufacturers will have to rely on a strong dealer base. I hope that will ensure the future of dealers. Twenty years ago, somebody who bought a backhoe knew how to fix it because they grew up in the business. Today, businessmen open construction companies without knowing which end of the wrench to use. That solidifies the place of dealers in the food chain. I just hope margins remain high enough so we can afford to stay in business. We have to run conservatively and smartly and if we understand that customers are the No. 1 priority we're in business for, we'll be in good shape.”
CASEY & DUPUIS
Branch: Brentwood, N.H.
Top Officer: Jon Casey
Equipment: Primary line is JCB. Also represents Sullair, Tymco, Rammer and others.
SIZE STILL MATTERS
Two Ditch Witch two-location dealerships found a merger would be the best way to solve California's elevated business costs.
Workers' compensation. Vehicle and equipment licensing fees. Property values. Taxes. Insurance costs. You name the area, and although equipment distributors and rental companies face spiraling costs throughout the country, nowhere is it more acute than in California. And the spiraling cost of doing business is a long-term problem that is not likely to be terminated by a new governor.
Faced with these problems, Ditch Witch of Southern California owner Paul Rodgers, who owned dealership facilities in Corona and El Cajon began discussing merger possibilities with his friend Mike Anderson, who owned northern California Ditch Witch dealerships in Fremont and Fowler (near Fresno).
“We just combined, it was economies of scale,” says Rodgers, a former Ditch Witch executive who acquired his dealership in November 1993 after serving as director of sales worldwide for Perry, Okla.-based Ditch Witch. “With one bigger operation, we save on lots of overhead. We combine on insurance, workers comp fees, inventory, and many other areas.”
While Rodgers and Anderson had discussed the possibility of a merger several times over the past decade, their conversations turned more serious in the wake of the most recent business downturn.
“I've always been a proponent that bigger is better, especially in California,” says Anderson, an Illinois native who acquired his dealership 15 years ago. “Paul and I discussed this possibility even before the economy turned south, as long ago as 12 years ago. I believed we needed fewer dealers, but we needed bigger and better dealers.”
Anderson believes dealer mergers are as inevitable as the consolidation that has gone on in other segments of the industry. “It's definitely a balancing act, managing inventories, managing cash flows, managing the dollars and our profit margins are squeezed by everything,” he says. “You've got more globalization, the corporate nature of all our businesses. We've seen it in our customer base, and it's the same thing in the distribution base as well. It's just a natural progression, and the distribution industry has to do the same. The same economies of scale that the corporate rental companies enjoy, we enjoy on a smaller scale.”
Both Anderson and Rodgers have been gratified with the positive attitude with which their combined 40-plus employees and their customers have accepted the coming together. And their complementary relationship has been a positive force.
“There are tough situations in any partnership, but one of the advantages we had in doing this is that things I like to do, that are my strengths, Mike would just as soon let me do them,” Rodgers says. “And the things he is really good at and likes to do, I don't care to do.”
As for their customer base on the rental side, both Rodgers and Anderson take the opposite approach towards rentals than most distributors. “We don't rent at all,” Rodgers says. “If any of our end users want to rent, we refer them to our rental customers. We want to be a supplier for the rental industry, not a competitor. We'd rather refer and let people that do it well do it.
“It's the nature of the rental market in California that we'd be stepping on toes that we don't want to step on. We've always looked at the rental industry as being our marketing partner. Rental companies help us to promote our products and most of the time when we introduce the size and type of product that's acceptable to the equipment rental business, usually the first people to see it are rental folks.”
Ditch Witch of California is a major part of the company's tightly knit dealer network that devotes itself exclusively to Ditch Witch products, rather than multiple brands. It's a unique business model, a throwback to traditional ways.
And, apparently, it still works.
DITCH WITCH OF CALIFORNIA
Locations: Corona, El Cajon, Fowler and Fremont, Calif.
Top Officers: Paul Rodgers, Mike Anderson
Equipment: Ditch Witch products
The mixture of the traditional and the modern has made the Berry Companies one of the country's leading Bobcat dealers, with other services as well.
Like many independent equipment distributors, Wichita, Kan.-based Berry Cos. is a family-owned business adjusting to a new era by modernizing while holding true to the bedrock values that made the company a $120-million-plus company in the first place.
The company — or companies, and there are more than one — are multi-faceted. It is one of the country's largest Bobcat distributorships, a Komatsu dealer, a construction supply chain and a rental company big enough to be listed in the RER 100 ranking of the nation's 100 largest rental companies. It is a sales company, a service company and a parts company. It has multiple locations in Colorado, Kansas, Missouri, Oklahoma and Texas. It does business the old-fashioned people-to-people way and yet has a sophisticated Internet system that allows customers to request sales quotes, open a credit account, calculate a payment conversion schedule, find out who its sales representative is, find store locations and more.
CEO Walter Berry, like so many young equipment executives, took over leadership from his father, the company's founder, and has had the vision to maintain the company's key strengths in customer service while keeping up with industry changes and growing the company onto a large scale. With a sales staff averaging 12 years in tenure, it offers a stability that is part of a long-established Midwest way of doing business. The Berry business model is rooted in service and the Berry companies has grown its product support capabilities with a parts and service sales representative system that enables the company to market its repair business profitably.
The company has also ventured into manufacturing, building its own self-propelled broom. In addition to its manufacturing, the company has six operating divisions — Berry Tractor & Equipment Co., managed by another family member, Dan Scheer, covering Komatsu in Wichita, Topeka, western Kansas, and parts of Southern Missouri; Bobcat of the Rockies, based in Denver with locations in Commerce City, Golden, Parker, Grand Junction and Greeley, Colo.; Bobcat of Houston; and KC Bobcat with three locations in Kansas City; a Yale industrial forklift business with branches in Wichita, Topeka and Garden City, Kan.; White Star Machinery, which handles a wide range of concrete equipment and construction-related supplies, throughout Kansas and Tulsa, Okla.; and Watkins Sunflower Supply, a Topeka-based supply house representing a wide range of industrial, construction and woodworking products and supplies.
Berry's biggest product is Bobcat, covering about 50 percent of its overall volume, with another 20 coming from Komatsu and 10 percent from Yale.
Berry's father Fred Berry Jr. and his brother Paul purchased an equipment dealership in Wichita in 1957 and renamed it Berry Tractor & Equipment Co. Fred Berry is still active in the business, although without day-to-day responsibilities. “He added retirement to his other duties,” says Walter Berry. “A lot of his friends are customers, and he has always been very active in the Wichita community.”
Walter Berry joined the business full time in 1985 after getting a graduate degree from Indiana University. He started with the Denver Bobcat division around the time of Colorado's construction downturn. Scheer, Berry's brother-in-law and partner started in the White Star Tulsa location in the same year. Scheer now oversees the non-Bobcat operations.
“In the late 90s, we went to Bobcat and said we wanted to expand and asked if it had any opportunities,” Berry said. “That's how we ended up with Houston and Kansas City.”
Berry has been a serious player in rental since the 1970s, primarily on the light side, with the heavy equipment side concentrating more on rent-to-sell opportunities. On the light side, short-term rental is a Berry mainstay, especially in the forklift and Bobcat arenas, as well as light towers, air compressors, a few scissor lifts and various other items. Berry sees the company as more of a rental specialist than trying to rent all things to all customers.
“We're not going to be the supplier of choice for everything on the job site,” he says. “We're not really marketing to the short-term home-owner. We want our customers to have an account with us, we want the customer's address, his credit information, his purchase orders, we want a longer-term account basis and a relationship. We want contractors that do this work for a living, not weekend warriors doing a landscape project during their two days off. Even if he may only have one machine and it is down and we need to provide him with a loaner or turn a repair around quickly in the shop. That differentiates us from a typical ARA business or a national chain, where customers can pay a deposit or leave a credit card and go.”
Customer selectivity and refusal to enter the one-stop-shop style of business helps Berry Cos. maintain a partnership with rental companies, avoiding competition with them. “The smaller, ARA-type rental companies go after a different kind of customer,” Berry notes. “He rents by the hour, by the day, on weekends and he's probably in a location that's a lot more convenient than we are. As for the big players, for example, in Houston, where there is a lot of industrial rental, a lot of rental conglomerates are in the refineries there with a wide-ranging inventory, we don't compete with them. We tell the customer, ‘If you need us to fill in, we're there.’ But it's not our goal to try to get an RSC machine returned so we can get ours out there.”
Berry rents a lot of attachments to rental companies who don't necessarily want to have two different kinds of Bobcat attachments in their inventory. So they rent the items from Berry and re-rent them to their customers.
In addition to selling and renting equipment to rental companies, the Berry Cos. puts strong emphasis on the service and repair business and rental companies are among its most important customers. Berry does a lot of repair and maintenance contracts with end users and service and repair for rental companies. Service support ranges from oil changes and basic service to major component failures. And the company is not adverse to taking on small repair jobs.
“We'll get it turned around in half a day, that's where we differ from the guys with the big fleets,” Berry says.
Berry, who in addition to running his group of companies, serves as current vice-president of AED, is enthusiastic about the role technology will play as the company continues to develop its service capabilities. For example, with global positioning technology, it is becoming easier to find machines on job sites so the routine maintenance can be carried out more quickly and efficiently.
“Technology will affect what we do so we can grow without adding as many people,” Berry says. “I'm not sure how we distributors will automate, but there will be pressures for us to do that. We need to be more efficient, cut down on expenses.”
Berry is optimistic about the future of distribution, as is his right-hand man John Engels, vice president of the Bobcat operations. “The customer that we deal with still wants to get on a machine, pushing dirt and digging a hole in the ground,” Engels says. “They still want us on the job site and want us to see what they are doing. It's still a face-to-face, press-the-flesh business as opposed to a buyer in an office who just wants a brochure and the best price. A customer wants you involved and values a relationship. Thank goodness, or there wouldn't be a role for us.”
WALTER BERRY COMPANIES
Locations: 4 in Kansas, 4 in Missouri, 2 in Texas, 5 in Colorado, 1 in Oklahoma.
Top Officer: Walter Berry
Major Lines: Bobcat, Komatsu, Link-Belt, Multiquip, M-B-W, Ingersoll-Rand, Allen
VOLUME AND SPEED
Specializing in small tools and equipment and able to almost completely equip a general rental center, MTA Distributors manages to add value as well as price.
If you look around a general rental center, 90 percent of the equipment it would require, is sold by MTA Distributors. Its 60,000-square-foot distribution center carries about 150 lines and about 2,000 items, including shop tools, carpet tools, power tools, lawn & garden tools, painting equipment, pumps, generators, scaffolding and more.
One might think a company with that volume and variety couldn't do much to support the products they sell, but MTA offers a unique brand of backup to its primarily rental customers. MTA offers technical support with the initial set-up or diagnostics and repairs on any item it sells.
“We have the ability to make repairs at our facility, but it is better for our customers if we can advise them by phone,” says MTA's Mark Ammerman, sales development specialist. “This gets the equipment back in operation faster, so it can generate income and saves money for the customer not having to ship the product.”
MTA also offers a one-day rental seminar to help dealers get started in the rental business, covering most of the basic day-to-day aspects of operating a rental business. MTA also offers a warranty for everything it sells, and receives a 65 percent shipping discount from a number of carriers, which it passes on to its customers.
The company, in business since 1980, is one of the country's top Honda engine distributors, with almost all of the gas-powered equipment MTA sells being powered by Honda, which CEO David Harrington calls “the heart and soul of this company.”
MTA is also becoming a major player on the Internet, with more than 200 orders per month sold online. MTA offers additional discounts to customers who order parts online.