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2012 Executive Roundtable: Industry Leaders Tackle the Tough Issues

June 1, 2012
Ask the leaders of the HVACR industry about trends, challenges, and opportunities, and you know you’ll get an earful. You’ll hear words such as unthinkable, critical, complex, compelling, nimble, volatile, challenging, creative, and —ultimately — enlightened. So welcome to Contracting’s 2012 executive roundtable — where nothing is off-limits and anything is possible.

Ask the leaders of the HVACR industry about trends, challenges, and opportunities, and you know you’ll get an earful. You’ll hear words such as unthinkable, critical, complex, compelling, nimble, volatile, challenging, creative, and —ultimately — enlightened.

So welcome to Contracting’s 2012 executive roundtable — where nothing is off-limits and anything is possible.

CB: What do you see as the top issues facing HVAC contractors today?
Swift: Let me start by saying that HVAC contractors are an incredibility resilient group. During the last several years HVAC contractors weathered an economic slowdown unmatched, in some cases, since the founding of their companies. Many HVAC contractors operating today have demonstrated outstanding adaptability. This just shows the strength of the entire HVAC industry.

One issue facing HVAC contractors is the continuous challenge to make the right decisions resulting in the success of their business. Whether the goal is to increase the customer base, to increase sales to current customers, to lower operating expenses, or a combination of all three, all HVAC contractors must relentlessly address the goal of being a profitable business.

Baker: The largest issue facing the HVAC industry has and continues to be selling value, of both the products and services HVAC contractors offer to consumers. We must, as an industry, improve our retail sales skills. Imagine an auto industry where 70%+ of the cars sold were the least efficient, least costly model available. It’s unthinkable.

Meyers: It’s critical for residential dealers to position themselves so they remain competitive in all segments of the market. At the same time, it’s important to ensure HVAC contractors are trained to demonstrate to homeowners the compelling benefits associated with higher efficiency and more fully featured products, including superior comfort and long-term energy savings.

Purvis: The workforce in the HVAC industry is aging, and the technical skills that are required are changing. So a top issue is how we attract young, bright people who are the caliber that we need into an increasingly complex business, and how we train them.

Meier: My belief is that contractors must focus more on training their people in all aspects of their careers: personal development, business skills, and technical capability.

Peel: Training is key. Rheem overhauled our training programs in 2011 and have created a reenergized Rheem Academy initiative. Rheem Academy is a centralized, comprehensive training resource that offers online and in-house sessions taught by leading trainers and industry experts.

Rheem Academy coordinates with North American Technician Excellence (NATE). All Rheem Academy courses are NATE-recognized, and technicians that hold a current NATE certification are automatically eligible for a Rheem Academy Master Track certificate. This helps Rheem encourage NATE certification of technicians, while ensuring contractors that already have the certification can leverage it for even more training opportunities with Rheem.

Byrne: The biggest issue for contractors is adapting to a changing marketplace and changing consumer behavior, which has been shaped by the recent economic downturn. Today’s HVAC contractor must be more nimble than ever. He or she must be comfortable operating in a market that is volatile because of enhanced regulation, government/local utility incentives, a fragile housing market, and low consumer confidence.

Young: Our industry is becoming more seasonal, and that will likely continue as we work ourselves out of the pent-up demand that has been created over the past four years. This demand will create higher volume peaks in-season, causing contractors to find additional manpower to handle the increased load. Hiring and retaining great technicians will become even more challenging. How contractors handle the excess amount of technicians as their volume drops going out of season will be important. Finding and keeping a great team in place will become more difficult in the coming years.

Smith: In addition to ongoing training needs, contractors must be up-to-date on statewide codes that impact their business and must stay on top of ever-changing government regulations. They should also keep up with the latest HVAC technologies. There is no need to lose a job because it calls for a system that the contractor is not trained to install.

CB: What are the major technology trends affecting your HVACR business?
Wolf: The devices used to analyze systems in field: the electronic, computerized gauges for measuring superheat and performing other field diagnostic work, and combustion analyzing equipment. These products are making a big difference in our ability to promptly diagnose problems, which results in faster problem resolution, which controls the repair cost, and makes the customer happier.

Erickson: Communicating thermostats that access wifi in customers’ homes are requiring us to provide training in Internet and wireless communication that we haven’t had to do in the past.

Lomas: Major trends for us are communication and interoperability, meaning our ability to freely collect, integrate, disseminate, and communicate data to protect our clients’ assets and increase collaboration with them. The problem isn’t getting the data; it’s using the latest technology to effectively disseminate and communicate good information more quickly than anyone else.

Ironically, technology is a threat. Many people now depend solely on emails and text messages to grow their business. But there is just nothing like face-to-face service. I don’t ever see building a warm and trusting relationship on LinkedIn or email. You still have to live this business to be successful.

CB:What are the major business trends affecting your HVACR business?
Campbell: Service and retrofit. New construction is volatile, and with the events in Europe, residential customers get skittish and their confidence declines. But service and repair have always been there, and like other companies, we really try to focus on being the best we can be in that area.

Wolf: The first major trend is managing customer expectations. Commercial customers want us to provide a high level of service, and also to be their partner. They want us to take ownership and partnership in the responsibility of maintaining and servicing equipment. This brings the cost factor into the game. We’ve become more involved in the way customers run their businesses, and more proactive in helping them save money. We’re also more creative in contract language. For example, rather than strictly semi-annual or quarterly payments, we are letting them pay monthly.

The other big factor is to constantly monitor and control our costs. For example, setting up schedules with close attention to the route technicians travel to eliminate redundancies and costs. In addition, we’re more demanding with vendors in terms of getting their best price.

Mattos: For us, a major trend is the consolidating customer base in the supermarket industry. Contractors must learn how to broaden their marketing footprint. Unfortunately, we’re also seeing a decline and loss of independent supermarket operators.

CB: How can contractors best capitalize on these trends?
Training, training, training. Staying ahead of the changing technology and embracing it, instead of waiting for it to affect you.

Wolf: Customer education. Many contractors are afraid to give the customer too much information. I believe an educated customer is the best customer. The customer has to know how to effectively spend his or her money.

CB: What is the biggest opportunity for HVACR contractors?
Mattos: With any challenge, we find opportunity. And with new trends being taken into account, we now have the opportunity through the focus on green technologies to promote and upsell energy management solutions, such as more efficient systems, retrofits, and commissioning.

Wolf: Opportunities abound in terms of developing long-term relationships with customers. Most of our customers have had to tighten their budgets, which means they need help knowing and understanding their repair/replace options. You need to establish long-term relationships. Customers are looking for contractors who are experienced, who have a good track record, and are fair.

CB: Have you found it necessary to expand into new services to remain profitable?
No. The fact that business has gotten more competitive doesn’t mean that we were “pushed” into new markets. We go into other markets not because it’s getting tougher out there, but because we want to and because it makes business sense to do so.

Erickson: We’ve been trying to offer new services, but we’re finding that our core services are the most pertinent. We’re looking for possibilities of expanding and doing more plumbing in the future, but venturing into new business that’s not your core strength is not real smart when there’s a recession.

Campbell: We started doing electrical service a few years ago and now we’ve just added our second truck. Electrical complements heating and cooling very well, and to add a very similar line of service isn’t that tough to pull off.

CB: What are some of the major developments that will impact the HVACR industry in the next three to five years?
Meyers: One regulatory development that will impact the residential HVAC industry is the anticipated Department of Energy (DOE) regional minimum efficiency standards. One of the primary tenets of these standards is to reduce overall energy consumption and save consumers money on utility bills through the use of high-efficiency products, so it is a step in the right direction for the industry.

Peel: It’s worth noting that the regulatory complexity that we’re facing in the U.S. is not unique. Canada has imposed its own federal minimum standards, which in some cases, vary by province. For manufacturers like Rheem that sell products in the U.S. and Canada, the lack of harmonization between these countries is causing concern. Previously, when test standards aligned between the two countries, we benefited from a streamlined export approach. Now, the regional and provincial rules create a much more complex supply chain.

With all of these regulatory changes, it’s imperative that manufacturers, distributors, and contractors initiate open dialogue about the consequences of these regulations. We’ll all need to work together—along with our respective trade associations—to continue urging for progress that will support our industry and position us better for growth.

Swift: The issue of efficiency certification could directly impact the entire HVAC industry. If product and system efficiency must be certified, the question becomes who does the certification. I prefer that HVAC contractors be the certifiers, rather than outside groups who don’t fully understand the complexities of an HVAC system. Currently, we are actively working with governmental, non-governmental organizations and HVAC industry associations to help shape this program so that it’s a positive opportunity for HVAC contractors.

Bellanger: We are seeing new control demands and capabilities built largely around ease-of-use and web functionality, such as smart phone interfaces, remote product support, and the swing towards smart energy grids and smart metering. We are aware of and are looking at ways to integrate our systems into this environment.

Purvis: We’re going to see more and more of our industry move towards electronics and communicating technology. From a manufacturer’s point of view, this allows us to better optimize performance, provide better maintenance capability, and provide remote diagnostics.

In addition, smartphones will let customers remotely see — and to varying degrees control — their systems. People want the ability to control their HVAC systems remotely. They ask, “Why can’t I turn my air conditioning up or down when I’m heading home from work?” And the answer is that technology is absolutely available and that desire will be absolutely filled.

CB: Are you doing anything (i.e. promotion through social media, incentive programs) to boost interest in the products you sell?
Smith: Mitsubishi Electric is constantly engaging in sparking open conversation with its contractors through social media. The adoption and use of social media tools such as Facebook, Twitter, and YouTube have allowed us to create a two-way dialogue with contractors on a more personal basis. By establishing our brand and products through social media channels, we are enabling customers to make more informed decisions when they purchase our products.

Byrne: We are doing several things in the social media space to help boost interest in our brand, products, and dealers. We are very active on Facebook and we recently launched a new advertising campaign called “Unstoppable” where we will ask homeowners to share stories about unstoppable Trane units and unstoppable Trane Comfort Specialist dealers. We’ll then showcase them on Trane’s YouTube channel. We will also launch the Trane Social Club, which is another way for us to connect the Trane brand with homeowners and our dealers. We understand the importance of being out in front in the social media space.

Bellanger: Daikin just rolled out our new 3D Dealer Program, which includes a much stronger set of interactive offerings for our dealers, including website development, analytics, search engine optimization, paid search assistance, and web sales leads. We’ve also expanded the materials available for print and radio that dealers can use to build their outreach to local markets, and boost interest in our products.

Young: The power of social networks cannot be ignored. There are already HVAC conversations happening in those channels, and we believe that Lennox is playing a role in shaping and better informing that conversation to help homeowners better understand HVAC in general, and Lennox’s unique position as an HVAC innovation leader in particular. Lennox is active via social widgets on our website, YouTube, and Facebook.

Purvis: Over the last few years, Emerson has taken the next steps into contemporary social media solutions— things such as blogs and YouTube and Twitter. We have 165 videos on YouTube now, and many of those are built around education and training, We’ve had more than a quarter of a million views of those videos, which to me is just a spectacular example of how this technology can begin to deal with some of the fundamental issues the industry is facing. We have six mobile apps that we’ve launched on everything from compressor cross-references to refrigerant selection, and we’ve had thousands of download of those applications.

An increasing portion of our contractor and technician workforce is now using these contemporary technologies. For us, it’s a brand-building and industry-effectiveness model that’s driving us to invest in these resources. It allows us to get closer to contractors, provide more value, and be more collaborative.

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Swift: Goodman has launched a web-based mobile platform, DealerFirst Mobile, which offers HVAC contractors tools and assistance with both the Goodman and Amana brands. It’s designed to allow flexibility regardless of the brand of device or operating system that the contract may employ.

Baker: With our value-added philosophy of distribution, we tend to focus more on long-term business partnership than short-term temporary incentives. We do participate aggressively in social media for communication purposes, and with manufacturer-sponsored promotions.

CB: If you had to choose the single most prominent threat to either the existence or profitability of HVACR wholesalers over the next two to three years, what would it be?
Bellanger: We’re concerned about HVAC systems of any type being sold directly over the web to untrained buyers. Even though our products are much closer to “plug and play” than anything that has gone before, we understand the value of having established, reputable, and highly trained distribution to stock and sell an engineered product into the right application, and being able to support the product through its entire life. You can buy some pretty cheap equipment on the web, but then what? If you can find a contractor to install it, will it work? Where do you get parts or service? Will the installation be to code? What about warranty?

Purvis: I think it’s harder being a wholesaler now than it was 20 or 30 years ago. Twenty years ago, being very good at relationships with contractors and understanding your market was enough. It’s not enough anymore. Distributors must stay up-to-speed on new technologies, learn all the changes going on with equipment, and avail themselves of tools such as IT solutions to improve their business models.

Young: Good wholesalers will continue to exist, so we don’t have to worry about that. However, the profitability in the channel continues to be a source of concern. Without a differentiated product or service-related offering, you can only compete on price. A failure to deliver real sustainable value through the chain to the consumer is a significant threat to HVACR wholesalers. They need to be able to offer differentiated products, services and programs to their customers, but that becomes increasingly difficult as OEMs expand their offerings, driving less and less differentiation. We see this today where products look and feel very similar despite having a different badge on them.

CB: If you could leave one message with HVAC contractors, what would it be?

Baker: Your competition is not necessarily other HVAC contractors, it’s auto dealerships, furniture stores, electronics stores, and other retailers. We must embrace true retail sales skills and start aggressively promoting the value we offer. That will help everyone in our industry, and your customers.

Bellanger: Develop the skills to present and sell based on total cost of ownership. We think most contractors understand this, and we know not every opportunity will allow it. But this is how we elevate our industry, maximize our value, and ultimately serve our customers in the best way.

Meier: Work hard to get better at every aspect of your business and set your company apart from your competition

Byrne: Continue to invest in the development of your most important asset, your people.

Smith: Embrace the consumer retail mindset. Sell your solutions, not your equipment. Engage in social media and stay current on HVAC technology trends.

Meyers: I would encourage residential HVAC contractors to continue to innovate, remain competitive, and never lose focus on the end users’ expectations. We deal with very complex technology and consumers are looking to contractors to translate these complexities into something that they can easily understand.

Purvis: There is a sub-segment of contractors who I’ll call the “enlightened” contractors. These contractors recognize that there are unmet needs in their customer base and understand that they have an opportunity to sell value. I think there’s a very strong correlation between the enlightened contractors who understand this, and the ones who are making money and growing.

Swift: Thanks for your past loyalty. We work hard to earn your business by providing you with the best products, distribution network, and support programs necessary to help make your company as profitable as you desire. Our entire organization is dedicated to helping HVAC contractors become successful, profitable, and the recognized HVAC expert in their communities.

Young: Being successful in the future will be more difficult than it has in the past. Contractors must strategically pick their partners and not get left behind as the pace of change ramps up. As the regulatory agenda drives higher and more challenging standards, contractors will have to contend with issues and opportunities they haven’t in the past. They need to create an edge in their markets, a value proposition that establishes them as being better and different.

There you have it. Fifteen leaders representing a cross-section of channels that have shared some of their thoughts, insights, and opinions on the state of the HVACR industry today and into the near future. There are plenty of things in here to think about and your success is only limited by your imagination and ability to evolve as the world evolves around us.

READERS: Please feel free to add your comments there or at [email protected].