Terms like “The New Normal” and “The Road to Recovery” are mantras business owners have lived by over these past few years. But ears to the ground paint a clearer and even more optimistic 2015. Even if the consensus is that the path is accelerating – albeit like a souped-up Prius – it is moving forward, nonetheless. And if this new sense of optimism is any indication for sustained growth in the short term, we'll take it.
According to thought leaders and industry movers and shakers, some of the drivers for 2015 are standards and regulations, evolving technology and eCommerce, and continued training. We had a chance to talk with five top industry executives about the new year – from positive trends to company direction – and here are their own words.
Emerson Climate Technologies
2014 was an interesting year for our industry. How many people had heard of a Polar Vortex? Then we had a mild summer in the Midwest, and while the golf season was nice, the HVAC replacement season was a bit slow. Now we have wholesalers and OEMs stocking up on 13 SEER equipment ahead of changing regulations. In all, we saw the underlying HVAC market up mid-single digits, and as we head into this winter, next year is shaping up to be about the same.
From an economic standpoint, housing starts continue a slow recovery, inflation and interest rates are expected to be similar to last year, Gross Fixed Investment and unemployment rates continue to improve. The biggest wildcard this year will not be the economy.
2015 should be a generally positive business climate for wholesalers. Distributors should use this year as a year of planning and investment to meet the coming industry changes, whether new refrigerants, regional standards or the proposed increases in refrigeration equipment efficiency levels.
Finally, we are in the early stages in our industry of changes due to the “digital revolution.” Challenge yourself and your business to learn and master the exciting dynamics in this area, from integrating eCommerce tools to social media.
2015 should be a generally positive business climate for wholesalers, so I would suggest distributors use this year as a year of planning and investment to meet the coming industry changes, whether new refrigerants, regional standards or the proposed increases in refrigeration equipment efficiency levels. Finally, we are in the early stages in our industry of changes due to the digital revolution. Challenge yourself and your business to learn and master the exciting dynamics in this area, from integrating eCommerce tools to social media.
We see four key opportunities for the industry in the next few years:
- The potential positive impact of improved controls and connectivity on the marketplace. Adoption is slow, but we feel it will accelerate in the near term.
- The importance of modulation, including but not limited to variable speed technology, to provide meaningful solutions for efficiency and comfort in many of our markets.
- The need to continue to develop new technologies that provide more efficient/cost-effective options that will be demanded in the future.
- The need to resolve the complicated global challenge of selecting the right refrigerants for the right application and development of cost-effective, sustainable solutions.
The market will change dramatically in the next decade and competitors and players will also change. To remain an industry leader, companies like Emerson must adapt and in many cases change what we are and what we’re good at to remain competitive in the future.
Emerson’s most recent consumer survey shows that close to 40% of all thermostats purchased in the past year had Wi-Fi capability, and 75% of people that own Wi-Fi thermostats purchased them in the past year.
We launched three products this past year for various parts of the connected home. The Sensi thermostat is our first Wi-Fi thermostat and it joins several Zigbee and radio enabled thermostats we have produced for the past several years. We also launched a Zigbee Water Heater control for Utilities interested in managing Water Heater energy consumption as part of their Residential Demand Response programs. Finally, we launched a monitoring and diagnostics business called ComfortGuard. This business enables Contractors and Homeowners to see current system performance and specific issues that can cause system problems in the future.
Shortages of qualified technicians have been an industry topic for many years. Now, the work force is aging and unless something is done, the situation is not likely to get better. Therefore, the industry needs to support ACCA, AHRI and NATE in looking to find ways to attract talented people to fulfill the tech shortage.
Within Emerson, there are three things that we’re doing:
- For many years we have been an industry leader and partner in providing training to contractors. Our intent is to continue and accelerate our leadership in this space.
- Recently, we have developed and launched several new product platforms that help make equipment diagnostics easier. The application of this kind of technology will help provide important solutions that will allow technicians to diagnose system issues faster and easier.
- We are developing new business models to enhance the service capability provided by contractors. We recently launched a new ComfortGuard Monitoring Service that allows homeowners, in partnership with a contractor, to manage their heating and cooling equipment by providing real-time information that predicts problems, prevents energy waste, and protects HVAC systems around-the-clock.
Air-Conditioning, Heating, and Refrigeration Institute (AHRI)
In 2014, AHRI championed the Energy Savings and Industrial Competitiveness Act, otherwise known as the Shaheen-Portman bill, named after its sponsors. The bill continues to enjoy industry consensus and bipartisan support, but political roadblocks have delayed its passage in the Senate.
Additionally, there are a number of provisions within the bill that make its path even more difficult in the House, whether in the 113th Congress or the upcoming 114th. It remains to be seen if this issue will be a priority for the next Congress. However, energy efficiency, reducing regulations and agency oversight remain top priorities for AHRI and its members. We look forward to working with Senators Shaheen and Portman and their respective party leaders to achieve our goals through thoughtful, smart and effective legislation.
We are meeting with legislators and staff and waiting, along with everyone else, to see what the House and the new Senate leadership’s approach to governing will be. We are particularly interested to see if they will move an energy bill and also to see if they will conduct more oversight over the regulatory activities of the federal agencies, particularly the Department of Energy.
AHRI is concerned with the pace and scope of regulations affecting the HVACR and water heating industry. We have looked to Congress for improved oversight of regulatory agencies, but to date, have been unsuccessful. While we are hopeful that Congress, in general, will become a more effective legislative body, we understand the complexities of Senate procedures and the veto power of the President. While a difficult political environment will continue, especially with the Presidential campaign looming, we are hopeful that the new leadership will vigorously exercise its role of oversight over federal agencies.
Our advice would be to continue to be active in the federal and state policy arenas and to pay close attention to new regulations emanating from the EPA and DOE that affect the products and equipment they distribute and install.
There are a number of economic indicators we use to forecast growth. The three most applicable and reliable are:
- Overall gross domestic product (GDP) as a proxy for the economy and overall growth.
- The Leading Indicator of Remodeling Activity (LIRA) as a proxy for non-repair retrofit and
- Residential New Construction (RNC) outlook as a proxy for new installs.
In all cases there is a healthy, mid to high single digit growth rate expected for 2015. We are also beginning to track the growth of non-entertainment Internet connected home products and appliances as a proxy for the consumer shift towards Internet connected products. In this case, the growth rate is nicely in the double digits.
I am extremely excited about 2015. Honeywell is very well positioned to continue to drive growth across the home comfort, indoor air quality and energy efficiency sector. We are making more of our product portfolio internet connectable all of the time, allowing contractors and consumers to stay connected with their homes and their businesses. And our ability to connect homeowners with service professionals and utilities is unrivaled in the industry.
Honeywell is driving tremendous growth in comfort controls, zoning, and indoor air quality. We are leveraging explosive growth in our Internet connected products and service offerings. Using the latest technologies, Honeywell is connecting millions of homeowners to their Honeywell products. We are enabling utilities to provide energy efficiency and demand response options to their customers. And we are providing consumers with the ability to access professional expertise 24/7 through remote diagnostics.
We believe smart is not just about making people aware of something, but allowing them to take action. Honeywell’s legacy of controls expertise has allowed us to turn information into opportunities for homeowners and contractors to improve their living environment — from energy efficiency to improved air quality. From alerts to diagnostics and even remote repair, Honeywell’s smart offerings allow consumers to make changes locally and remotely that improve lives.
Competing in the “smart” technology space is about constant innovation. It takes staying in close contact with consumer and contractor needs and then iteratively developing new offerings while improving those offerings that are already available.
Honeywell has focused on a three-prong approach to education. Our sales professionals are spending a considerable amount of time at the distributor with business and technological training and at the contractor with product, application and business training. And Honeywell is expanding its ability to educate consumers about what offerings might best suit their needs and how to access a professional to help with installation.
Like the migration from film to digital cameras, from corded to cordless phones, from DVD and Blu-ray players to streaming video, the HVAC industry is in the beginning of a major technology shift. Where Internet-connected thermostats were once a “nice to have,” the industry is moving toward having Internet connectivity become the standard offering. Those distributors and contractors who get it are moving at light-speed to get out in front and establish themselves as “trusted connected advisors.” This shift will come with an unprecedented level of relationship between professionals and their customers whether they are renters, homeowners, landlords or small business owners. The key during an industry transformation like this is to stay nimble and be ready to adapt.
The world is changing rapidly. And that rapid change is impacting every industry. The prevalence of smart phones. The ubiquity of WiFi and Internet connectivity. The rapidly deceasing cost of computing, data processing and data storage. Distributors are going to have to stay on top of the newest technologies. Consumers are demanding it and pulling that technology through all of the available channels. Contractors rely on distributors to help them keep up to date and to have the expertise to help them choose what offerings are right for the application. Distributors will continue to have to rely on the right partners to help them stay ahead of the curve.
We are counting on continued slow growth for the U.S. economy, and we are excited about the potential for 2015, but believe we will have to take market share to outpace the overall growth of the U.S. economy and our industry. Our vision is to make it easy for our customer, which is the HVACR contractor. By delivering solutions to help them be successful, we will grow.
In doing so, targeting customer segments, i.e. refrigeration and light commercial and eCommerce solutions is key.
HVAC equipment sales are trending up, indicating that consumers are spending more. There is pent-up demand from the slow economy of the last few years. As equipment breaks, consumers will eventually need to repair or replace. The trend that is most worrisome to us is the increasing margin pressures that have developed over recent years with the depressed number of units sold in the industry.
We are partnering with suppliers to roll out new technologies and provide training for contractors. With this new technology, we partner with suppliers and third parties to bring high quality training courses and material, technical and sales.
Our focus should be on the customer and adding value, rather than chasing low margin business.
We are cautiously optimistic about the economy as we head into 2015. Like most businesses, we look at the typical economic indicators such as GDP growth, interest rates, unemployment figures, the various consumer confidence indices and certain housing data. Together, those economic indicators present a relatively optimistic view of 2015; however, we are keeping our eye on relatively unstable global economic indicators as well.
Both the HVAC and water heating industries will face some major regulatory changes in 2015. On the HVAC side, as of January 1, 2015, the U.S. Department of Energy will mandate different minimum energy efficiency standards for cooling products based upon the region where the product is installed: Southwest, Southeast and North. The most pressing change is the fact that 13-SEER split system air conditioners can only be sold in the North region. In the Southeast and Southwest, the new minimum efficiency level is 14 SEER.
The water heating industry is preparing for the National Appliance Energy Conservation Act (NAECA), which takes effect on April 15, 2015. NAECA will mandate new minimum efficiency standards on all residential water heaters made today.
With all of these changes, it’ll be more important than ever for distributors and manufacturers to stay in sync so that we can both ensure that contractors are armed with the right resources and products to be successful in the field.
Unlike our cautious optimism about the overall economy, we are very excited about Rheem’s prospects for the upcoming years. We have had an aggressive new product launch schedule throughout 2014, and it continues into 2015:
- Rheem has started launching an entirely new line of air conditioners and heat pumps, and additional products will launch throughout 2015. Available under the Rheem and Ruud brands, Rheem designed this new product platform to provide substantially greater efficiencies in cooling and heating. Specifically, cooling efficiencies in this line are 54 percent higher than traditional designs, and heating efficiencies are 58 percent higher.
- We also recently introduced the new Rheem and Ruud 80% and 90% gas furnace platforms. These product lines have been engineered to facilitate better installations and service calls for contractors, while giving homeowners the best performance and user experience.
- In the spring, Rheem will roll out a number of new water heaters, which will meet the NAECA 2015 energy efficiency standards. At Rheem, we currently have more than 40 products that are already NAECA compliant, including our hybrid electric heat pump water heater, condensing tankless, high-efficiency condensing gas storage water heater and our induced draft XR90 water heater.
- Finally, we will continue the evolution of several industry-first Rheem innovations, such as the Rheem EcoNet system, the Rheem H2AC Rooftop Unit featuring eSync Integration Technology, the Rheem high-efficiency condensing power direct vent water heater, as well as our full line of tankless water heaters.
We will continue the evolution of several industry-first Rheem innovations, such as the Rheem EcoNet system, the Rheem H2AC Rooftop Unit featuring eSync Integration Technology, the Rheem high-efficiency condensing power direct vent water heater, as well as our full line of tankless water heaters.
We are excited to launch the second-generation of our EcoNet platform in the first quarter, which allows Rheem heating, cooling and water heating products to communicate with each other on one integrated network, and to the world through an innovative cloud-based interface.
Contractors benefit from several unique innovations that are designed to help facilitate faster installations and service calls:
- Simple 4/3 wiring for easy installation.
- Advanced set up tools that automatically recognize when new EcoNet-enabled equipment is installed.
- System alarms and service alerts displayed in concise sentences.
- Remote diagnostics and troubleshooting capabilities.
From a homeowner’s perceptive, EcoNet allows them to set operating schedules for their HVAC and water heating systems based on their lifestyles and usage needs, monitor systems using advanced diagnostics, get automated service alerts and reminders, and wirelessly control their EcoNet using the free mobile app and web portal. EcoNet features automatic configuration, one-touch mode selection, one-touch vacation mode, automatic switching between heating and cooling modes, and can control connected HVAC accessories including humidifiers, air filters, UV lights and ventilators.
EcoNet is also designed to support connection with other home automation systems so homeowners can take advantage of advancements in whole home control. Rheem already has a partnership with Wink (www.WinkApp.com), a progressive home automation company whose strategy is to provide consumers management of multiple products from multiple brands in a single app.
Rheem has some new programs coming out next year to help our HVAC customers better understand the new regional cooling standards, as well as the new Rheem cooling products. While this regulation takes effect in January, it will be important to keep training customers on it leading up to the 2015 cooling season. There are similar programs planned on the water heating side so that Rheem is educating these customers about the changes coming as a result of NAECA 2015, and new Rheem products that meet these standards.