“A lot of what we do as a rep firm, and have been very successful at, is problem-solving, helping contractors out on the job,” saysMatt Rodamer, president of New Berlin, Wis.-basedMidwest Sales & Marketing. “They have to feel that they’re not on an island, that they have somebody to call when they have a problem on the jobsite.”
It used to be that a manufacturer representative’s job was to call on wholesale distributors and get them to stock the lines he represented. But the rep role has been evolving over the last 15 to 20 years; a rep has to do so much more for each product line he sells.
“Our role as a rep agency has expanded tenfold,” Rodamer notes. “We have to bring to the table many things to support the manufacturer, the distributor and the contractor because that’s the only way that we can be successful. The contractor isn’t going to buy the product if we don’t support him, the wholesaler is not going to buy it if we’re not standing by that contractor and helping him out, and if we’re not selling, we’re not going to get the support of the manufacturer.”
The recent economic downturn made those changes more pronounced. As new construction work dried up, everyone in the supply chain - manufacturers, wholesale distributors, contractors and manufacturers reps - was laying off workers. Midwest Sales & Marketing saw its workforce go from 20 to 10 and now to eight.
“The manufacturer has fewer people to help out on technical issues, so we have to become more knowledgeable about the products we’re selling,” Rodamer explains. “The wholesaler is not going to stock your product unless he sees a demand, so we have to go out to the contractor and create the demand. But the contractor isn’t just going to install your products, so then we have to go the engineer to start creating the demand at that level to get the products specified.”
Rodamer estimates that the six salespeople at Midwest go to nearly four jobsites a week to confer with contractors on any of the different product lines that it represents.
“We are the advocate for the contractor out in the field,” statesMike Malesa, Midwest Sales & Marketing’s sales manager. “We go to the jobsite and understand that there really is an issue and that we need to help this contractor resolve the problem, whatever that may be.”
On a commercial job, reps need to go to the engineer to create demand. “When we’re assisting engineers, helping them do some of these projects, we can get the plans specced our way,” saysBill Panfil, a Midwest sales rep who works with engineers.
Another strength for Midwest is the makeup of its sales team.
“Our salesforce comes from either a wholesale background or a manufacturing background,” saysDave Skindelien, Midwest’s vice president. “So they know who the engineers are, who the contractors are. They understand what a wholesaler wants from a manufacturers rep.”
For example, Midwest’s technical support person,Darren Haslbeck, used to work for a successful local wholesaler. Now he does heat-loss calculations and design work for Midwest’s hydronic heating customers.
Skindelien worked for his dad,Julian Skindelien, for awhile in Scottsdale, Ariz., where the senior Skindelien had retired in 1970. He died in 1975; in 1977, Dave Skindelien sold the agency to an employee and went back to Minneapolis to work for another agency. He opened his own agency, Midwest R/HVAC Sales, in 1982.
Rodamer had been working for a rep agency and and bought the company in 1991. In 1993, the name was changed to R.H. Sales, which had three partners, including Matt Rodamer and his father,Ron Rodamer. The senior Rodamer retired in 1999, and the other partner left to start his own firm in 2008.
Today, the agency is headquartered in the Milwaukee area with a satellite office in the Minneapolis area. It has expanded its territory to seven states: Wisconsin, Minnesota, North Dakota, South Dakota, Nebraska, Iowa and Michigan’s Upper Peninsula. Rodamer manages sales for the eastern territory out of the main office and Skindelien manages sales for the western territory out of the Minneapolis office.
While Midwest Sales & Marketing skewed 65% residential, 35% commercial before the recession began, it is about a 50/50 split now, primarily in multifamily construction, residential remodeling, boiler change-outs in apartment buildings and commercial projects, Rodamer notes.
In the beginning, the agency had plumbing, heating (forced-air and hydronic) and commercial refrigeration lines. In 2008, the company made the decision to focus on heating, particularly hydronic heating. Today those lines include: Beacon Morris; Burnham residential and commercial cast-iron boilers; Caleffi; Heat Controller; M&G DuraVent; New Yorker; Quietflex; Raywal; Schwank/Infrasave; Sterling HVAC and hydronics; Triangle Tube; Uponor and Zonefirst.
“One of reasons for our success is the fact that we’ve become experts in hydronic heating. We seem to be the go-to people on hydronics projects in our market,” Rodamer says. “But we haven’t done it alone. We’ve had a lot of help from our manufacturers. We’ve got some really good manufacturers with really good people who are extremely helpful.”
Midwest handles solar thermal and geothermal lines. While geothermal seems to be growing for the rep firm in states such as Nebraska and Iowa, solar thermal has not fared as well. Skindelien says the firm was hoping for better returns on solar sales that didn’t materialize - primarily because of the economy. Incentives for solar and geothermal continue through 2016, but it’s all about priorities.
“Residentially, because of the economy, only so much in personal funds is available for homeowners to spend,” Rodamer explains. “With those personal funds drying up, people are using it for other things. And there’s still a pretty large payback for solar thermal installations.”
Skindelien adds: “If you’ve got money and you’re green, you’ll probably do it. But in this area, those projects are few and far between. There’s been a realignment of funds allotted for solar. It’s not nearly as much as it was.”
In Wisconsin, the 34% drop in the high-efficiency boiler market can be attributed to the expiration in 2010 of federal incentives for the installation of high-efficiency heating equipment, Malesa says. It has directly affected Midwest’s sales.
One niche area that Midwest is having success with in the Minneapolis market is water-source heat pumps.
“Water-source heat pumps tie into a boiler loop or a cooling tower in a commercial property,” Skindelien explains. “They’re horizontal so they can go above the false ceiling and drop down into ceiling diffusers. They cool and heat via the water loop. You get rid of the condensor heat from the compressor to cool or use the heat from the compressor for heat. We have yet to reproduce this niche in the Milwaukee market.”
Since hydronic heating systems are installed by both plumbing and heating contractors, Rodamer and Skindelien believe that diversifying and adding back some plumbing lines to Midwest Sales & Marketing will add to the health of the company’s bottom line.
Creating loyaltyThe supply chain continues to face challenges as the U.S. construction industry struggles to recover from the Great Recession.
“I believe the biggest challenge in the industry - all the way up from the contractor to the distributor to the rep - is finding out a way to make a profit,” Rodamer states. “Contractors are having a difficult time not only staying in business, but actually making money. With less and less jobs out there, distributors are calling on the same contractors, and their margins are shrinking. The manufacturer sees his market shrinking, which in turn affects us as a manufacturers rep firm with commission deductions or commission changes.”
The shrinking of promotional funds from manufacturers hinders Midwest Sales & Marketing’s efforts to assist contractors and wholesalers. The agency relies heavily on marketing to increase its market share, Skindelien explains; today, those funds have diminished about 50%.
“One of the keys to our success has always been the ability to market, to put programs in front of the contractor and distributor,” Rodamer adds. “With those funds drying up, it’s been a challenge.”
A large part of what a manufacturers rep does is create loyalty for the lines it sells - from engineers, wholesalers and contractors on the job.
“Many times when the contractor gets us involved on a homeowner job, everybody is so upset already,” Rodamer says. “The contractor wants to solve the problem on his own but sometimes realizes he can’t. When he goes to the distributor, the distributor tries to help him out but realizes he can’t. By the time we get involved, everybody is very upset. And that’s where sometimes we live between a rock and a hard place - trying to enforce the manufacturers’ rules and yet keep everybody happy.”
Discretionary funds from manufacturers have gone the way of marketing dollars. Rep firms use these funds to help solve problems, to “smooth things over.” Midwest Sales & Marketing has used its own commission dollars over the years to supplement what it receives from manufacturers, but not as much as it used to.
“We feel it is important; it’s hard to get an unhappy contractor to buy products from the manufacturer,” Rodamer says.
Midwest’s relationships with plumbing and hydronic heating contractors do help create the loyalty that manufacturers require, which in turn creates the demand that wholesalers require. “We believe it is very important to work with the distributor to create demand for our product at the contractor level,” he adds. One way to bolster those contractor relationships is through training.
“We provide a lot of training opportunites for contractors, mostly in conjunction with a wholesaler that handles that particular product,” Malesa notes. “Sometimes on jobsites but a lot of classroom training. And many of our manufacturers hold training classes at their facilities.”
However, it can be difficult to get contractors in the area to participate in training classes, Rodamer adds. Contractors believe they can’t spare the manpower for training when they need to increase billable hours. Wholesalers understand the value of training, but at times overwhelm the contractor with too many options.
Midwest Sales is moving its headquarters in September to another building in the Milwaukee area and will include an area to hold training classes for contractors. This “new” office is in a building the agency happens to own. Before the economy went south, the rep agency had reinvented itself as a stocking rep.
“We bought a warehouse and inventory, but we were trying to do some different things to create large amounts of inventory in the area - bringing containers in from overseas on different products,” Rodamer explains. “However, in this market area, wholesale distributors don’t trust stocking manufacturers reps. If you have a large amount of inventory, they realize you have to turn it.”
Midwest didn’t want to jeopardize its relationships with its distributor customers, so it went back to its original business model as a nonstocking rep. The firm moved to a smaller location and rented out its building. Now it is moving back, but not changing its business model - it has achieved too much success by working with its distributors to endanger those relationships again.
“In most cases, going back to a nonstocking rep creates another level of support for contractors - a distributor with local inventory, local tech support, a local salesman,” Malesa notes.
Relationships are also built through nonbusiness activities such as fishing trips, golf outings, pheasant shoots and baseball games. Midwest Sales has given away cars, boats and motorcycles.
“I think we do a good job driving the dollars we do get from manufacturers down to the contractor level so they are the ones we’re supporting with our promotional efforts,” Malesa adds.
Internet pricing squeezeA complaint that Midwest Sales hears frequently from its contractor customers is about Internet pricing.
“The Internet is a great thing for research, but right now we’re seeing it drive pricing down for the contractor,” Rodamer says. “Contractors are having to match online pricing, regardless of what the manufacturer says. If the manufacturer is not going to honor the warranty on a product bought online, it’s still the contractor’s margins that are dropping because of pricing on the Internet.”
Malesa adds that one of his contractor customers is quoting his labor and material back down to 2008 levels. “And he still can’t get work because of the squeeze Matt mentioned with pricing. It’s not solely because of the Internet, it’s just how competitive it’s gotten because the market is so bad.”
But in the HVAC business, the contractor is the expert, Rodamer says. He should have the weight with the homeowner to steer him away from one product to another, to list the benefits of using lines he is loyal to and that will ultimately be better for that homeowner.
“The question always is, who’s the customer?” Rodamer asks. “Ultimately, we believe that in the HVAC industry, the contractor is the customer because he can decide what products he prefers to install.”