Irrigation Notebook: Oct. 1998

The nature of irrigation distribution is experiencing what many believe is just the beginning in a structural overhaul that will yield fewer companies serving larger portions of the market. That alone doesn’t sound any different than the end result of consolidation in any industry. But what makes the irrigation distribution industry unique among consolidating groups is the evolving presence of the mass merchandisers, chains such as Home Depot and Lowe’s Home Improvement Warehouse, and the unknown impact they will have on the distribution chain.

“I think the mass merchandisers’ presence in irrigation distribution is pretty significant right now, and it’s a trend we saw coming about 10 years ago,” noted Mark Agnew, president, United Green Mark, Novato, Calif.

In particular, Agnew believes the smaller irrigation contractors are the mass merchandisers’ primary irrigation customers right now. “I’m in a mass merchandiser’s store at least once a week, and they definitely have breadth of product going for them,” he recognized. “The other thing working in their favor is their number of locations and the convenience that can offer a contractor. But while a lot of contractors may be buying product from the mass merchandiser, I don’t think they’re buying a lot of product from them – their market presence hasn’t translated into market penetration thus far.”

Wayne Miller, president of Century Rain Aid, Madison Heights, Mich., agreed with Agnew, and said mass merchandisers can, in fact, have a positive effect on distributors’ businesses. “I think there are a lot of other businesses such as plumbing and electrical that represent bigger opportunities for the mass merchandisers,” he said. “What irrigation customers they do get are primarily homeowners, do-it-yourselfers and smaller contractors, which can let distributors focus more on the larger contractors.”

As a result, Agnew explained that United Green Mark has shifted its customer focus to some degree. “We’ve tried to slide up the food chain to work with the larger contractors on the larger jobs,” he noted.

Where distributors’ real challenge will lie in the future is in being able to offer the breadth of services that led to their success in the first place.

“Our service, automated billing, technical advice and so on are what will continue to differentiate us from the mass merchandiser,” pointed out Miller, whose company now has 88 locations.

“We’ve recently added product managers to our organization and we may add customer segment managers to specialize in different groups of customers,” added Agnew, who noted that United Green Mark now has 27 stores.

But both Agnew and Miller recognized that some distributors may be unable to add these services and be able to compete against larger distributors such as their companies and mass merchandisers at the same time.

“Margin dollars have gone down for everyone for two reasons,” Miller explained. “Product prices are dropping as there’s more competition among manufacturers and distributors, so even if margin percents were constant the dollars would be down. But the competition has driven margin percents down as well.

“As a result, additional services such as job lead tracking for contractors tend to be dropped,” he continued.

“There are some markets where there is a premium charged to the contractor for products where the smaller distributor isn’t necessarily adding any significant value to the transaction,” added Agnew. “So whether I or Home Depot or whomever enters that market, that distributor will have to make some changes in terms of their prices.”