2004 Industry Forecast- The Industry Heats UP
The recovery has begun. So say many Distributors. In our Second Annual Business Forecast, Welding & Gases Today randomly polled, by telephone, GAWDA Distributors located across the country. We found them optimistic, for reasons ranging from increased demand to technological advancements to new sales methods. Many believe that the days of giving product away are coming to an end, and that the increased emphasis on price-cutting is coming to a close. On the other hand, no one believes that the downward pressure on pricing will change in the near future. Distributors are likely to continue to face increased costs to doing business. Double digit increases in insurance premiums — health, property and casualty — and budgeting for increased overhead associated in maintaining long-tenured employees will force the winner in 2004’s race for improved margins to keep his or her eye on the bottom line.
It is unlike GAWDA members to let a few challenges deter them. Over 89% of those interviewed predict a sales increase, some by as much as 22%. The overall average increase is about 8%. Let the Distributors themselves tell you how they plan to accomplish such high goals.
Guarded Optimism for Distributors in the SOUTH
All of the distributors interviewed from the Southern region of the United States expect their business activity to be up, anywhere from 2% to 20%. Most were guarded in their optimism, holding the average increase to 8.3%.
Zane Lee, president, Sidney Lee Welding Supply (Hampton, GA), is one who is careful with his enthusiasm. Lee notices that his customers’ business is starting to come out of the doldrums. As their business returns, he expects to realize a 3-5% increase after three straight flat years. Difficulty in maintaining margins won’t make it easy, though, notes Lee. Beyond that, he is focused on improving customer productivity, and has upgraded some products, such as different wire so they can weld faster. “We’re not trying to sell something for a nickel less; we’re trying to find something that will benefit the customer and we can still make a profit. That way we both can win.” Despite his positive outlook, Lee knows there are still challenges ahead, particularly the disappearance of manufacturing jobs across America. “We’ve lost customers that either went out of business completely or consolidated their operations away from us,” he notes. Another challenge is balancing the interests of both large and small customers. “Larger customers want us to bring them new ideas on a regular basis, so they know we’re looking after their interests. Smaller businesses are satisfied as long as we treat them right and are responsive when they need help. We don’t have to show them a miracle every month,” he explains. Lee and his team enjoy finding new solutions that make his company a valuable partner to customers.
“This industry has lost sight of the fact that it takes a gross profit to make it attractive for reinvestment, and I think too much emphasis has been on maintaining or growing market share at the expense of maintaining proer margins.”
Bill Vaughn, President
“We must deal with the reality that manufacturing companies are faced with jobs going abroad and intense pressure to reduce costs. This will be a challenging business segment to serve in 2004.”
Kirk Duffy, President
Southern Welding Supply
At Wayne Oxygen & Welding Supply (Waynesboro, VA), President Ronald Brower expects a similar gain of 2-3%. “We will accomplish this by increasing service to our customer base and pursuing an additional niche market.” This market is made up of customers who take one or two cylinders at a time. Brower explains, “This is a market that our competitors don’t want, and one to which we pay very special attention.” He points to his company’s strong knowledge of products and solutions, coupled with expertise in providing customer service, as things that will distinguish Wayne Oxygen & Welding Supply from the competition. Brower sees government regulations as the biggest area of concern in the year ahead, particularly when they result in cost increases. “We can only do one of two things: absorb these price increases or pass them on to customers.”
nexAir (Memphis, TN) President Bill Vaughn hopes to see a “true increase above inflation of 5-6%,” spurred primarily by sales activity from smaller customers. This marks a shift from previous years, when nexAir was more involved with large, metal fabrication businesses. “In the last few years, we’ve had to focus more of our attention on gas-related sectors like health care, laboratories and chemical plants to make up for the fabricators that have closed their doors.” He hopes that the addition of young talent will help the company achieve its goals. nexAir adds several new people a year, putting them through a two-year training program in a variety of departments, developing leadership skills in the process. “By the time they finish, we can identify their strengths and put them in a position to highlight those.” Vaughn is concerned about the ability to maintain margins. He will stay focused on this by featuring core products. “We’re not actively looking to broaden our product lines into areas where we don’t have some expertise. In the past, we tried and found that’s not what we’re best at.”
“We must remain focused on continuous improvement in terms of our operational efficiencies and maintaining overall quality.”
Michael DeDomenico, CEO
“The never-ending cycle of a competitor stealing our customer after we steal theirs does not lead to true growth.”
Thomas Dyal, President
On the other hand, Southern Welding Supply (Birmingham, AL) is aiming to diversify its product offerings. “We’re looking to diversify because we don’t feel that when welding comes back it’s ever going to be as strong as it was. Too many jobs are gone and plants are closed,” says Vice President Randy Puryear. He foresees that diversification will yield a 6-7% sales increase this year, and he would like to hire more employees: a purchasing agent, more sales staff and several drivers. Puryear also notes that, like every year, one challenge is to “keep up with the way business is changing,” citing examples like integrated suppliers and the Internet.
Gene Dennis, CEO and president of Dennis Welding Supply Co. (Montgomery, AL), hopes to see an increase of 10%, thanks to the upcoming construction of a Hyundai Motors plant that will bring contractors into the region. Dennis wants to get more business from the specialty gas market, and hopes to pump his own within a year or two. A big change at the company was the addition of EDI. “It will be a great service to our customers when they are able to order from us directly from their own computers, 24/7.” Although he saw a depressed market over the last few years, Dennis doesn’t think it made for an entirely bad experience. “We get lax sometimes, and I think these slow periods wake us up.”
Southern Welding Supply (Savannah, GA) projects a 6-8% sales increase in 2004, and Kirk Duffy, president, says this activity will be the result of “expanding our workforce and our capabilities at the same time as some of our competitors are restructuring and cutting back. We refigured the way the company operates to get more people in front of customers.” While equipment consumables were down at the end of last year, gas volumes were holding up well, and Duffy will concentrate on expanding these markets. His biggest obstacle in 2004 will be competition and pressure to reduce costs.
NuCO 2 (Stuart, FL) provides the restaurant industry with bulk CO 2 . The company has 103 depot locations and services approximately 77,000 customers in 45 states, many of them national restaurant chains. CEO Michael DeDomenico expects sales to increase 10-15% this year, due to the improving economy for food service, additional outlets for existing and new restaurant concepts, more interest from customers in bulk equipment management, and his company’s own internal improvements. “We’ve gone through an extensive rebuilding of the company, emphasizing our service capabilities. The traction we expect to get from our significantly improved service will help us to win more customers.” Other upgrades include improved billing and delivery, as well as better operator training for the company’s 24/7 call center. “Our operators are trained specifically on how to do ‘phone fix’ and respond to restaurant workers, i.e., the young supervisor on the nightshift at McDonald’s who calls with a question. This call may be a bit different than the one from the plant manager at Boeing. We are dedicated to our service capabilities, which helps differentiate us.”
Robert Sisemore, president of Welders Supply and Equipment (Nashville, TN), has a very positive outlook, forecasting a 15-20% sales increase this year, due mostly to aggressive marketing, new salespeople, good word of mouth and loyal customers still willing to deal with a local, family-owned business. Finding quality employees, price cutting and increasing insurance premiums are Sisemore’s challenges this year. Balancing those challenges, however, is the fact that Sisemore’s markets span a wide variety of customers. “When I started this business, I sold anything I could get, and spread the business as far as possible. That’s proven to be a good move, especially during the recent downturn.”
EASTERN Sales Show Signs of Strengthening
Distributors in the East expect sales to increase anywhere from 2% to 13.5%. There are few plans to add new people or products, and they cautiously keep their toes in the water, waiting for the tide to turn.
“The gross profit in hardgoods is not likely to experience a significant increase,” says Mary Shanaman, president, Commonwealth Supply Co. (York, PA). Although she doesn’t anticipate an influx of new manufacturers to move into the area, Shanaman does believe that the current climate for existing manufacturers will be better than it has been during the past two years, resulting in a 4-5% growth of her overall sales. “Our sales will continue to be supported by a sales force who have hands-on experience. Our sales personnel have all worked as welders at one time or another,” says Shanaman. “They know the industry and they understand our customers’ needs.”
Joseph (Bo) Martin III, president and CEO, Middlesex Gases & Technologies (Everett, MA), also believes that maintaining profitability in the face of double digit increases in the costs of health, property and casualty insurance will continue to be a challenge for all distributors. In light of positive numbers experienced during 4th Quarter 2003, Martin is more upbeat than he has been in the past. “As a small independent, we’ve been able to absorb the hits of the past and we are able to move quickly, jumping through hoops when necessary to support our customers as the economy recovers.” Martin expects the biotech and pharmaceutical industries to continue to do well, and his welding and equipment business will be the beneficiary of a welcome resurgence in activity. “I expect sales of gases to increase by as much as 5%, while equipment sales may increase only by 3%.” He adds, “We will continue to invest resources in our gas business serving the biotech and pharmaceutical business.” Martin looks forward to adding an additional store to better serve his customer base.
“Our focus has been and continues to be growing market share.”
Jim Muller, President
“Industry tool houses are carrying a broader product line, which allows our salespeople to provide customers with a broader range of products, which supplements the sales of our core line.”
Mary Shanaman, President
Commonwealth Supply Co.
Wayne Yakich, president of Praxair Distribution, Inc. (Danbury, CT), expects business to be up over last year, somewhere around 4-6%. Last year, the company implemented a new handheld computerized system to automate deliveries, and Yakich believes this will help reduce distribution costs through better fleet optimization. He also plans to add people and is always looking for expansion opportunities. “Our goal is to have 100% geographic coverage of the U.S. either directly or through a Praxair distributor, so we’re always looking to add branches, consolidate branches, and acquire some distributorships, while strengthening our relationships with distributors.”
A slow and steady upward climb in her industrial customers’ activity causes Laurie Waller, vice president, Vince’s Gas & Welding Supply Co. (Carnegie, PA), to predict a 4-5% overall growth in 2004 sales revenue. “Half of our gas business is medical, which, regardless of how the economy fares, grows by an average of 10-15% each year,” she says. “I expect our industrial business to grow by 2-3% in 2004.” Waller points to her company’s ability to stay close to the customer in the face of increased competition and a never-ending pressure to drive pricing downward.
Increased research and development activity will drive an increase in sales of as much as 12-15%, according to Thomas Dyal, president, Cryoweld Group (Poughkeepsie, NY). “New business may be coming into the area, and Cryoweld’s move into a new market is having an impact.” Dyal explains, “We recently established a foothold in a new niche, as a result of providing inspections, sales and service of fire extinguishers. We are getting a good response from our existing customer base, as well as a connection with customers we never had.”
“Being able to continue providing customers with the best quality service at the right price will be a challenge.”
Richard Nowell, President
Seaboard Welding Supply
“We will continue to offer training seminars in an effort to boost future sales. They draw customers and prospects into our store and add value to the relationship.”
John Brockway, President
Twin State Welding Supply
F. Russell Strate Jr., president of Strate Welding Supply Co. (Buffalo, NY), expects 2004 to remain level with 2003. Strate says, “We will keep doing what we do best and improve what needs to be improved.” Strate’s sales activity will be driven by an expansive range of services supported by an extensive equipment roster. The company’s western New York location has been continually impacted by a negative business climate, which, says Strate, discourages economic development. He comments, “While we will see little growth in western New York, our advantage is having locations in southeast Georgia and northeast Florida which offset any potential decline in New York State.”
Peter Giorgi, president, Tec-Con (Darby, PA), is projecting a growth in sales of 7%, predicated on a 2nd Quarter rebound. To Giorgi’s chagrin, more customers are relying on several suppliers as they make their price-driven decisions. “Right now, it seems that the level of expertise a distributor can offer does not carry the weight it used to.” To counteract this new wave of purchasing, Tec-Con is structuring services to be able to provide more services to more customers. Says Giorgi, “If a customer cannot afford a new piece of equipment, our goal is to competitively repair it, acting as a partner rather than as a supplier.” He anticipates adding another location in 2004.
“The pick up in sales activity experienced during the last four months of 2003 is sustainable,” says Jim Muller, president of Airgas East (Salem, NH), and he is targeting a 4% increase in sales this year. Muller notes that the performance of key customers, including those in manufacturing, construction and R&D, is changing as production rates rise and the customer prepares for an anticipated recovery. “There is a balancing act when we forecast a 4% growth in sales,” he says. “As we ramp up in terms of capacity to handle that growth, we must manage expenses as that growth builds. My biggest challenge is to know when and where to make incremental investments to build the capacity needed to serve the growth.”
“Price erosion is a serious problem in our industry. Selling the benefits and hanging onto our existing pricing structure are high priorities.”
Vince’s Gas & Welding Supply Co.
“We are always looking for better systems and better processes to improve the performance of our business. Many of our new hires are people with new skills, like logistics planners for gases distribution.”
Wayne Yakich, President
Praxair Distribution, Inc.
Three-year-old company Twin State Welding Supply (Lebanon, NH) will grow its sales by double digits in 2004, as it did in 2003, says John Brockway, president. “As a small company, we will explore other niche businesses in order to meet more of our customers’ needs. We are asking customers about products they would like to purchase locally, products they would like to be stocked locally, rather than buying from a catalog.” One of the company’s initiatives this year is to find and purchase a site to locate company headquarters and add a filling station.
A combination of sales to health care facilities and nursing homes and new R&D centers moving into the area will drive a 10% growth at Seaboard Welding Supply (Oakhurst, NJ), indicates President Richard Nowell. He says, though, “I’m anticipating a hefty price increase for a number of gases beginning with helium and possibly CO 2 because of a shortage.” Nowell also indicates that his company’s reputation for attentive service and the performance of his employees has helped him to capture increased market share.
2004 sales numbers are likely to be even with 2003 numbers, says Michael Smigen, president, United Welding Supply Co. (Amsterdam, NY). The customer is fairly diverse. Says Smigen, “We have a lot of smaller customers who have offset the difficulties we would have had if we were totally dependent on major manufacturers.” Smigen saw the purchase of capital equipment picking up as the new year began.
Small Distributorships across the United States expect sales activity to increase an average of 8% this year. Medium-Sized Distributorships expect it to increase at a similar rate of 8.1% , while Large Distributorships expect an increase of only 6% .
SOUTHWEST Distributors Prepare for Slow Growth
The Southwest region will pick up a bit, but will be a little slower than the rest of the country, as distributors here predicted an overall increase of 4%.
Three distributors indicate business would remain flat, including Robert Worthington, partner at Welders Supply (Childress, TX). As one of the only remaining independent distributors in his region, agricultural customers and small, rural shops primarily comprise his customer base. Worthington plans to focus on tending to customers and providing the weekly delivery service that separates Welders Supply from its competition, which usually delivers only every two weeks. “Our trucks carry everything that customers will likely need—electrodes, saw blades, hardgoods, gloves, tips and other materials,” he explains, “and our weekly deliveries are more convenient for our customers.”
The customer base of Plains Welding Supply (Carlsbad, NM) is primarily made up of oil and natural gas drillers. The steady prices of these two items lead President Randy Culver to forecast sales similar to last year’s. “I don’t see us doing anything different than we’ve been doing the last few years, just trying to maintain the customer base we have and continue doing what we do best,” he says. What the company does best is know what customers need and make sure they have it. He is looking to add one employee for pumping and hydro testing. Culver expresses a concern shared by many small business owners, saying, “Our biggest challenge will be controlling expenses, especially insurance.”
“Even when they’re not building drilling rigs in South Texas, we’re still busy because of the oil-based activity with worldwide customers in the China Sea and Venezuela.”
Bill Delcambre II, CEO
Welding Supply House
“Salespeople who know how to look for opportunities deserve much credit for a company’s success.”
Marty Kearns, CEO
Industrial Welding Supply
Another company expecting level sales volume is Chickasha Industrial & Welding Supply (Chickasha, OK). Judy Nelson, vice president, says the company will continue to keep a good inventory and remain focused on customer service to maximize the opportunities that do exist. After adding a few new products last year, Nelson does not intend to add any more in 2004. “We’re trying to run on a bare minimum of sales staff,” she says, “so our challenges will be maintaining a constant customer base and trying to keep up.”
At the opposite end of the spectrum is Chris Jennings, president of Ramsey Welding Supply (Glendale, AZ), who anticipates “double digit growth” in 2004. Jennings cites pent-up demand for commercial projects and continued infrastructure work in the Phoenix area as catalysts for growth, and he is encouraged by heightened activity at the end of 2003. Jennings hopes a change in sales approach will yield positive results. “The fairly rapid pace of the erosion of margins means that salespeople have been out there selling on price instead of value. So our sales approach has been to slow down the sales cycle in order to make it more relationship-oriented and make better decisions about what kind of customers to pursue. If we can truly save a customer in labor, overhead and productivity, those increases will be far greater than the nickel or dime we could save them on product.”
Eric Meyers, general manager at Vern Lewis Welding Supply (Phoenix, AZ), foresees a similar sales increase of 10%. “We’re taking a close look at what we’re doing to see if there are ways to improve,” he says, and he is concentrating on increasing employee expertise. “We take a no excuses approach to our customers, and we pride ourselves on our level of technical expertise.” Meyers believes that providing solutions for customers will make his company a strong value-added partner.
Welding Supply House (Lafayette, LA) business is almost wholly dependent on the price of oil and worldwide events in the oil-producing countries. CEO Bill Delcambre II says this makes it difficult to predict sales a year ahead for his company, whose major market is oilfield service companies. Judging by what he is seeing now, though, Delcambre expects a 6-8% increase in 2004. Other than trying to forecast petroleum costs, Delcambre says the biggest challenges facing his company are government regulations and liability insurance costs.
Marty Kearns, CEO, Industrial Welding Supply (Baton Rouge, LA), predicts an increase of 3%, coming from the petroleum supply side of the business, as well as more drilling of natural gas. Kearns was able to deflect some of the previous years’ hardship by offering a wide range of products. “Customers want to pare their supplier lists and buy more products from fewer suppliers,” he notes. Many customers, from large companies to individuals, are not paying off their accounts as quickly as they once did, which will present a challenge in the coming year. “People have extended their payment schedules and it’s not a very comfortable position,” says Kearns. “You accept it, or they’ll do business elsewhere.”
“We are recruiting drivers from Brink’s. With experience driving armored trucks, they already possess a Class B license with airbrake and only have to get a hazmat endorsement.”
Erin Beckley, President
“We will never see the glory days of the mid-1990s, yet those who have survived the recent recession will see a real upturn.”
Extended payment schedules are also complications for General Welding Supply (Lovington, NM). “Collecting all the money people owe us will be a challenge,” says David Green, vice president. He acknowledges that some of the newer technologies and industry trends reach his region more slowly, and he will work hard to stay on the front end of things in order to provide the best solutions for his customers. A host of new opportunities in the area are available to spur business, including a new horse racing track being built in the county, along with hotels and a uranium enrichment plant. All this leads Green to predict business to be up, although he doesn’t venture a guess at a percentage.
According to President Jeffrey Ellis, Union Industrial Gases Group (Irving, TX) will experience a sales increase of 4-6%. Ellis expects diversification of products to continue to pay dividends. “We focused a lot of effort on expanding our traditional welding supply network into medical gases and specialty gases, especially when the manufacturing economy became weak.” Another major area of growth will be in propylene sales. However, Ellis admits that expansion comes with challenges, particularly maintaining enough capital requirements to keep pace with the growth. “We’ll need more cylinders, pallets, trucks and everything else,” he says, “but operating again in a growth economy will be a good challenge compared to operating in a down time.”
Only 12% of distributors expect sales activity to be the same this year as it was in 2003. 88% expect it to increase.
Distributors in WEST Look for Strong Recovery
There is a lot of activity in the West as more distributors than anywhere else in the country add new lines, additional drivers, sales staff and mixing plants to their mix.
A resurgence in manufacturing will impact sales at Central Welding Supply (Lynnwood, WA), and Dale Wilton, vice president, has targeted an increase of 5-7%. The region is beginning to show signs of flourishing with new construction, refineries that are rebuilding, new co-generation plants, and shipyards starting to build high-speed aluminum boats as well as larger ships. This activity will have a trickle-down effect on Central Welding Supply. Internet sales are also expected to increase from 2003’s $1.1 million to $1.5-1.6 million. Wilton is focusing on a continual drive to lower operational costs and improve efficiencies by instituting better inventory utilization. A 4,000 square foot fill plant is being built to support efforts to add new gas products to the lineup. Says Wilton, “Our expansion will allow us to fill a larger portion of our specialty gas business; eventually, we will be able to service 25,000 cylinders each month.”
For smaller distributors like Don Fox, operations manager at Willett Bros. (Lewiston, ID), the continual pressure to meet new regulations pertaining to medical gases is an ongoing challenge. Fox explains, “We are not large enough to employ a full-time specialist, and the costs associated with compliance tend to add a dollar here and a dollar there, eating away at our profit margins.” Still, Fox looks forward to a 10% increase in sales in 2004. In order to support the pressured profit margins, Fox will continue to manage his inventory with an eye towards better turnover on products that remain in stock.
“A customized order sheet listing the products they typically purchase from us is faxed to each customer weekly. All the customer needs to do is check off the items they need and fax it back to us.”
Gary Caddell, VP of Sales
Welders Supply &
“Getting the customer to understand that the gas is under-priced and has been for a long time does not seem possible. As soon as the price is raised, someone else will undercut it.”
and Welding Supplies
Welders Supply & Equipment Co. (Chula Vista, CA) is positioned well. “We can run lean and mean anytime we want to,” says Vice President of Sales Gary Caddell. “We don’t have a big machine to feed, and we’ve been fortunate to have several key customers who have remained active.” Caddell points out that the trickle-down effect of naval ships returning to port after being in the Gulf is very positive. An emphasis on paying attention to his customer base will lead to a 10% increase in sales in 2004. To further support sales, the company will delve deeper into specialty gases and will perform its own mixing.
The timber industry will drive a sales increase of at least 15% at Coastal Containment and Welding Supplies (Aberdeen, WA). Jerry Thompson, president, says his location’s lack of a manufacturing base has forced the company to diversify products and services and to pay more attention to the details of what customers require. “If the customer calls asking for CO 2 for a wire feed, we need to know that the individual customer is actually using argon/ CO 2 .” The largest percentage of sales for Thompson’s company is oxygen, and his goal in 2004 is to begin filling his own cylinders.
The business climate in the territory covered by WESCO Redwood (Redwood City, CA) varies, as do projections for 2004 sales activity. Michael Beckley, president, says, “In the San Francisco Bay area, a new power plant is being built in addition to several high-rises, which will support an increase in sales of 8-10%. We are smaller in the Sacramento area and should realize an increase of close to 20%. A focus on medical gases in the Reno area will drive an increase in sales of 30-40%.” Despite the variations, two things are constant. “We continue to oil our chain, and we continue to provide service,” says Beckley. In 2004, WESCO Redwood will pursue more beverage CO 2 business, while the biggest challenge remains the recruitment of qualified personnel. The company is looking to develop a three-year, in-house apprentice program. Beckley also plans to add a safety training program and a security manager who will be responsible for training company personnel and customers.
“We want to partner with suppliers who are driven by sales and not by accountants.”
Barry Nanz, President
Trade & Industrial Supply
“We’re adding more SKUs to service the accounts that are cutting back on vendors.”
Steve Christoph, President
Steve Carpenter, president of DC Welding Supply (Sacramento, CA), believes that a 10% increase in sales is achievable. “My construction customers tell me that 2004 will come back with a roar. Also, capital equipment purchases are increasing.” Carpenter points to heavy discounting by larger distributors as a challenge. He responds to his customers with, “Instead of asking us to cut our margins, why don’t we show you how to make more money with what you are purchasing from us? Often, we can teach our customers a new process which will help them to be more profitable.”
California Tool & Welding Supply (Riverside, CA) is focusing more on the bulk gas business as the smokestack industry in California continues to erode. Robert Craig, partner, expects sales to increase by 5-10% in 2004. He says, “We will see the most growth as we sell more CO 2 to the beverage industry and nitrogen to the food industry.” Until April 2003, the company outsourced the delivery of CO 2 to ten food and beverage customers. A new subsidiary company employing four trucks is now servicing 450 customers. Also contributing to growth in 2004 are universities, energy customers and several cement plants.
Laurie Rasmussen, co-owner of Christensen Welders Supply (Ogden, UT), expects sales activity to remain level in 2004. In the price-competitive environment that is impacting all distributors, Rasmussen says, “Our customers may be able to find a lower price, but the delivery of product is still an issue.” She acknowledges the difficulty for a small independent distributor to compete with large corporations on price, but her company gives customers something these corporations often can’t. “We make customers feel like they are the most important thing in the world to us, and they are. We will do everything we can to meet their needs.”
“Keeping up with training on government regulations is a never-ending challenge.”
National Welding Supply Company
“Being in this industry is like running in front of a train. If you want to survive, you can never slow down. If you want to slow down and walk, or take it easy, or not work so hard, get off the railroad tracks, because you will get run over. You have to stay on your toes and take advantage of every opportunity.”
Marvin E. Lampton
Lampton Welding Supply Co.
The biotech, food and beverage industries will contribute to a growth of 5-10%, says Erin Beckley, president, Air/Arc Supply (West Sacramento, CA). “Many businesses are relocating from the Bay area, and we are seeing more activity from the construction industry, laboratories and medical facilities.”
Hearing less “doom and gloom” comments from his customers, Ron Adkins, president of Valley Welders Supply (Billings, MT), indicates that his 2004 sales will increase by 3%. Valley Welders Supply’s diverse customer base is made up of oil refineries, coal mines, power plants, farmers, ranchers, fabrication shops and medical facilities. Recruiting qualified personnel remains a challenge. “We are now seeing a younger applicant who does not want to work his way up from the bottom,” Adkins notes. He has hired a few of them but finds the retention rates dismal. To increase efficiencies, the company is instituting several operational improvements. For instance, by better managing the delivery of CO 2 products, overtime costs for drivers were reduced; and by developing a more efficient order-picking system, the number of warehouse personnel was reduced by one.
“The industry has learned that we cannot make money by continually slashing prices,” says Eric Younger, president, The Younger Group, dba Colorado Welding Supply (Colorado Springs, CO). Younger will continue a push towards getting back to basics in an effort to grow his sales by 20-25% in 2004. The three-year-old company is targeting specialty and medical gases in order to realize this projected growth.
Lynn Cook, president of Humphries Incorporated (American Fork, UT), anticipates an increase in sales of 10% as a result of capturing increased market share. The company is picking up business from customers who are not happy with the competition. Says Cook, “Sometimes, absorbing the cost of a hazardous materials charge or a document fee can make a difference for a potential customer.” Cook has noticed that customers are taking longer to pay their bills, and in some cases, Cook insists on COD. The company is exploring the possibility of adding a new store in 2004.
Distributors who expect their sales to increase in 2004 project an increase ranging from 2.5% to 58%, with the average increase at 8.9%.
Expect Success in the MIDWEST, but Exercise Caution
Distributors in the Midwestern part of the country have the widest range of projected increases, from 2.5% to 58%. This group expressed the most non-traditional forms of doing business in 2004: exclusive online sales, and the use of a logistics specialist. s
Perry Johnson Jr., president of Hohenschild Welders Supply Co. (Kansas City, MO), notes that the Midwest is still in the throes of an economic recession, and while the end of 2003 was one of the worst times in 20 years, Johnson hopes his sales will be on the upswing in 2004, at least by 4-5%. “The region is coming out of it slowly, and while things are picking up on the coasts, it will not work its way into the Midwest until at least the spring.” This is especially hard on distributors in the Midwest, notes Johnson. “Manufacturers have held off increasing prices for so long that they now are starting to increase them. This could potentially kill any recovery for us, and poses a big challenge.” Johnson will continue to work hard to keep expenses down, particularly health, property and casualty insurance.
Barry Nanz, president of Trade & Industrial Supply (Lawrenceburg, IN), is looking to expand his business on many fronts: new industrial supply products, additional employees, and a potential acquisition in Indiana, Ohio or Kentucky. He projects a 10-15% sales increase this year. Despite the expansion plans, Nanz’s customer-centered strategy will not change. “The customer still pays the bills,” he says, “and as a small distributor, we’re flexible enough to react to their needs.”
“We work hard to make sure employees are secure and confident in their jobs. This translates to the customer.”
Stacey Budae, President
Flint Welding Supply Co.
“While looking for ways to control rising insurance costs, we found that incentive pay brings results. We offer it to drivers for appropriate forms generation and doing safety inspections on their vehicles, as well as to employees who attend safety meetings held after work.”
J. Carter Frick, President
Wichita Welding Supply
Bruce Nuttall, sales manager at Mississippi Welders Supply Company (Winona, MN), expects to experience a similar sales rise of 10-15%, citing increased order volume as an indicator. He knows, however, that higher sales won’t necessarily translate into higher profits. “Sales are up, but other expenses like insurance and fuel have gone up so much that it is quite a challenge to keep our heads above water.” Nuttall is enthusiastic about the construction of a new facility, a fill plant for gases. “We’re going to have some capabilities that we haven’t had before, which will make us more profitable on some items,” he says. The new plant will be about 20,000 square feet with some warehouse space included, and it will create a need for at least two or three new employees.
Increased efficiency from a new filling facility is a reason for Superior Welding Supply Co. (Waterloo, IA) to expect better results in 2004, too. President Steve Christoph also sees production schedules going up, which should result in 3-4% growth. However, he is concerned about finding qualified people as he looks to add several positions. Christoph has no definite plans to add specific products, but will remain flexible. “As customers request, we’ll pick up different items, and we’re looking to offer more industrial items, such as construction supplies,” he says.
At Lampton Welding Supply Co. (Wichita, KS), Marvin E. Lampton, president, anticipates a 3-5% sales increase, fueled by increased industrial and construction activity and an upturn in the general economy. As people spend more money, the biggest threat of 2004 will be increased competition, a challenge for which Lampton is prepared. “We are concentrating on finding customers for whom we can outperform their existing suppliers, and for whom we can do a good job, and then we work hard to convince them we are the right supplier.” In the process, the company is developing long-term contracts with these customers. As the company experiences the growth Lampton is forecasting, he will look to hire a store manager, an outside salesperson and a delivery driver to handle the workload.
Fred Schoening, president, National Welding Supply Company (Bloomington, IL), expects a 5% sales gain. “Fabricators are buying equipment, and they wouldn’t be doing that if they weren’t seeing something on the horizon,” he notes. One big challenge for Schoening is keeping abreast of constantly changing government regulations and making sure employees understand the rules. A recovering economy means Schoening will likely add some workers, including a salesperson, a service person and a driver.
“While still trying to give as much service as possible, we are working hard to strip as much overhead as we can out of the business operations.”
Mark Falconer, President
Minneapolis Oxygen Company
“If you can’t offer competitive health care for your employees, then you’re not going to get good employees, and that’s the key for all business: good people.”
Rick Thompson, President
Thompson Brothers Supplies
The president of Flint Welding Supply Company (Flint, MI), Stacey Budae, hopes for a similar improvement of 3-5%. “I am encouraged that our sales will go up because I don’t think they can go down anymore,” she says. Budae assumed the presidency of the company last December, at a time when several large customers were closing their doors. Not one for selling gimmicks, Budae plans to focus on essentials and concentrate on managing the company’s growth, doing more with less. She also is looking very carefully at employee skills, and moving positions to take advantage of talent.
In an area hit hard by manufacturing losses, J. Carter Frick, president of Wichita Welding Supply (Wichita, KS), still expects business to increase around 5% this year, due to strong agricultural, specialty and medical gas markets. He has seen an uptick in recent months spurred by his company’s reputation for customer service. “Certainly we can’t be out of range with the marketplace, but price is not always the issue,” he says. Frick hopes to combat rising insurance costs by emphasizing safety with his employees. “Our safety consultant meets with us on a regular basis to go over safety issues, and our safety record has shown an improvement since we started these meetings.”
The strengthening of agriculture, along with improvements in the high-tech and electronics sectors, lead Richard Hollowell, president of Kanox (Hutchinson, KS), to forecast a 7-10% sales escalation. Kanox recently expanded into the Oklahoma City market, and Hollowell hopes that bolstering its presence there will contribute to success in 2004. Personnel consistency is another reason to feel confident. “During the downturn, we did not disturb our sales force,” he notes.
At Thompson Brothers Supplies (Coffeyville, KS), President Rick Thompson is guarded in his projection of a 2-3% increase. Part of his uncertainty is based on a change in customer mix. “Smaller agricultural customers, farm accounts, smaller manufacturing and small businesses are becoming more of a customer base for us because we’re in a rural area,” he says. The changing market makes competition fierce. “Diversification is always the key. We’ve always been tied to the industrial marketplace and we’re actively pursuing more of that as well.” Regardless of the customer, Thompson’s strategy is still the same. “Try to sell everything to each customer, from welding supplies to paint.” It allows customers to consolidate all their shopping to one source, but it also requires employees to be knowledgeable on a wide array of subjects and products, which Thompson acknowledges as a challenge.
Top 5 Challenges Facing Distributors in 2004
1. Maintaining margins while rampant price-cutting occurs
2. Rising insurance premiums: health, product and liability
3. Finding and hiring qualified employees
4. Government regulations
Growth in the sale of medical gases is a priority for Minneapolis Oxygen Co. (Minneapolis, MN). “That’s a tough market, so we’re trying to do it in a strategic fashion,” says President Mark Falconer, “going after laboratories, clinics and medical device companies that we can service and still receive a reasonable margin.” Falconer is seeking a 4-6% overall increase in sales driven by some new business practices, including equipment maintenance, electronic billing and ordering. “It shows our customer base that we are a progressive player in the marketplace, and we’re not afraid to update and change as technology moves forward.”
One company that has already taken advantage of the shift in technology is WeldingMart (Appleton, WI). Daniel Kossel, president, expects growth of 58% this year for his four-year-old exclusively e-commerce business. “Our success isn’t based on price, since we’re not the lowest price out there. It’s based on value and good customer service. Customers who are finding that their service needs aren’t being met are opting to use the Internet as a tool for research and purchase.” As the company grows, Kossel will add staff in customer service and online support. He estimates that the company has served 15,000 customers in all parts of the world. In order to keep up with the heavy demand, WeldingMart is constantly adding more products to its mix, and its biggest challenge in 2004 is maintaining manufacturers and suppliers who can keep up with his demand.
The Experts have spoken. It’s clear that GAWDA Distributors have what it takes to survive and thrive, and we are ready to turn that corner.
Airgas Revitalizes Strategy and Returns to Core Business
Glenn Fischer, president and COO of Airgas Inc., is in a good position to look at national trends for the gases and welding industry, since Airgas spans nearly 800 locations in 12 regional companies. Overall, Fischer expects Airgas business to grow by 3 to 5% this year.
Driving this growth is Airgas’ objective to “outpace” the rate of market growth, according to Fischer. Airgas took advantage of the slowdown of the past two years, when the market was soft and the manufacturing segment of the business was weak, to strengthen its infrastructure and further develop capabilities in several strategic growth initiatives, including increasing sales of specialty gases, growing the medical business, strengthening its bulk business, supporting a strategic accounts initiative (which serves larger customers with multiple locations) and using safety products to achieve further account penetration.
As Airgas enters 2004, it is refocusing on its core business. “One of our major strategic thrusts for the coming year is to refocus on our core business – growing sales to small and medium-sized welding and metal fabrication customers,” says Fischer. Airgas is launching new merchandise and inventory stocking programs, adding products to its Radnor private-label brand, implementing a new training curriculum for all customer-facing employees designed to help them serve core customers, and rolling out a new branch incentive plan to focus on profitable growth at the local level. “We also will identify opportunities to open new scratch starts in markets we want to strengthen, and will look for opportunities to add resources in select geographies to strengthen our market position.”
Airgas has done over 300 acquisitions during the last 20 years. “Doing successful acquisitions is one of our core competencies,” Fischer acknowledges, “and we intend to take advantage of it going forward.”
Fischer says that earlier in its history, Airgas grew by acquisition as it expanded its footprint or acquired a capability in a certain product line. “Those needs don’t exist any more, and there is no reason why we have to do acquisitions. We’ve built up our national network, we have the full product scope we want, and our distribution channels are in place. Now we are pursuing acquisition opportunities that fill in the gaps.”
Fischer believes that Airgas’ strongest competition comes from the independent distributor. “There are thousands of them, and on a day-to-day basis, the independent distributors are very good at what they do, they have a lot of staying power, and they are our toughest competitors in the market.”