The consolidation of the rental industry has been the No. 1 topic with many customers, competitors and friends during 1998. Most thoughts that I've heard have been negative. Perhaps, the time has come to identify some of the positive aspects of consolidation and to comment on their impact on our industry.
First, I note that much of the industry consolidation was predictable and inevitable. All industries move through business phases from their entrepreneurial beginning toward maturity. As the industry matures, some consolidation will occur because of marketplace efficiencies. However, the notion that four or five companies will own 95 percent of the rental businesses hasn't happened and won't.
The driving force behind the inevitable consolidation is the rental customer. Because the industry has done its job well, customer expectations have increased and needs have expanded. Yesterday's deal - whether price, level of service, product features or quality - is not good enough today. The industry responds and matures.
These changes have brought about disturbances in the existing structure. Keep in mind, however, that changes also bring many benefits.
The first benefit is that the large consolidators will cause the market to expand rather than shrink. The consolidators will utilize major marketing efforts with personal selling, advertising budgets, increased publicity and editorial comment to supporttheir position in the market. A benefit of this increased marketing will be to alert many potential customers who had never thought of renting before. As more customers seek rental as their preferred alternative, the rental pie for the whole industry will grow.
The second benefit is that the rental market itself will become more segmented. The big consolidators will focus and serve the market mainstream. They can achieve price efficiency and product availability for high turnover items. But this focus will leave a vacuum in the market for other segments, which will create new opportunities for specialized products and markets, low turnover products, and localized markets with specialized needs and services.
Another wave of entrepreneur will result from the consolidation of existing businesses. Several things can happen when the consolidators purchase these companies. First, the change in ownership will bring with it changes in business philosophy. The wheeling and dealing will be replaced by a more rigid set of rules. At many of these companies, the rental of the equipment is emphasized to a point where sales are now discouraged. Compensation programs that have been in place for many years are changing.
During the transition period, the independent rental houses will find a new pool of talent available to them in both the sales and service departments.
Some of this talent will fulfill their desires to own and grow their own businesses. Many of these new business owners will come with extensive knowledge gained from their experiences with the consolidators.
Channels of distribution will both shorten and lengthen. Factory sales forces and manufacturer rep agencies will become more important, because of greater variety of market channels and economic pressures for increased efficiency. Product information, new product promotion, product application, demonstration and after-sales service must be completed at some level. The cost and efficiency for these services will face continued pressure.
Consolidation clearly benefited those owners who took the substantial risk of starting a new business in an industry that was evolving. The ability to cash out the investment and realize a substantial gain for their efforts may not have been possible without consolidation.
In conclusion, while I do believe that many have benefited from the consolidation and the consolidators - whether it's the overall rental market or the individual within it - the greatest benefit will be to the rental industry's customers. They will receive better products and services through all of these monumental changes in our industry.
That is how this great industry will continue to grow.
