Times are a-changin' in the HVAC industry (part I)
Independent HVAC service contractors are losing market share to competitors that didn't exist a decade ago.
I was reminded recently of the consolidation storm that hit the HVAC industry in the late 1990s. We all know what happened. Without exception, the consolidated companies and utility spin-offs ended up flopping around the marketplace without fulfilling their vaunted potential.
This has brought with it a certain smugness among many service contractors in the HVAC industry. Their thought process is along the lines of: "We're hot stuff. The MBAs can't figure out this business. Only we who grew up in the trade know what it's all about. Now let's get back to business as usual."
That is the wrong message to take from the consolidation fiasco. It wasn't the HVAC industry's inherent strength that caused the consolidators to fail as much as it was their own mistakes. The neighborhood shops that form the backbone of the residential service sector still exhibit the same weaknesses that led the consolidators to take a run at this industry in the first place.
Unsophisticated operationsProbably 90 percent of the U.S. companies delivering residential HVAC and plumbing services are small, unsophisticated shops trapped in an operational time warp. Answering machines still take calls. Service technicians (still called "plumbers" by the most people) arrive in dilapidated trucks without receiving a minute of customer-service training. Meantime, anxious homeowners cross their fingers wondering if the employee will show up at all - which is why some feel compelled to call two or three companies and give the job to the first one that arrives.
If you're not the owner, working in the HVAC business usually means inferior pay and benefits. The only advancement opportunity is to open your own shop and steal business by offering lower rates than the company you just left. The consolidators failed to keep their promise of tackling these shortcomings. Nonetheless, significant changes have taken place in the residential service industry compared with 10 years ago.
The consolidators failed to capitalize on it, but give them credit for recognizing genuine opportunities in the HVAC business. There are now competitors that didn't exist a decade ago. These include remnants of the utility subsidiaries, "big-box" stores, home-warranty providers, home-repair franchises, and a handful of progressive powerhouses at the local and regional levels.
Market shiftsThis market shift is taking place without a lot of fanfare. That's because there is no behemoth like a Wal-Mart or Home Depot that can devour competitors virtually overnight. Instead, the service market diminishes a salami slice at a time. A utility cherry picks some business by giving away water heaters, a big-box store hires its own installation and repair crews, jobs that used to go to neighborhood shops now get done by a handyman under a home warranty, a savvy local contractor builds a strong following through TV advertising and more people request a plumber or furnace repair on the Internet.
The market for such services is so vast, no single one of these rumbles registers much on the industry's seismograph. Yet, during the last few years I've heard more and more service contractors tell me the phones don't ring like they used to. Their Yellow Pages ads aren't working as well. They have to do more and more marketing just to stay even. Business is down a little to a lot, and they can't put a finger on exactly why.
The loss of market share will only get worse for the small independent service firms. That's because most of them are standing still while the world around them is changing faster than ever.
Next month's column will look at some of the factors driving this market shift.