[2004 State of the Industry Report] Happy Days Are Here Again

Both large and small pest control companies are forging ahead, despite concerns about an uncertain economy, rising business costs, recruitment issues or government regulation. Today’s companies are proactively seeking out the markets and customers they want to serve. They’re active in local and national government affairs. And, not surprisingly, they’re growing at a solid pace, offering more services, tapping into new markets and using an ever-wider array of new products. They’re also gaining more customers every day.

These are just a few of the trends revealed in this year’s independent industry survey, conducted on behalf of Pest Control Technology. Every year, PCT tracks business trends and statistics in the industry by surveying PCOs about their businesses and beliefs for the industry and the future. Through our specially commissioned research, conducted earlier this year, we heard from more than 500 pest control operators in 44 states. These professionals told us, among other things, how they run their companies, which business segments represent the most growth, which issues concern them and what they think about the future.

A VARIETY OF SERVICES. PCT’s survey shows that the variety of services offered by most pest control operators continues to increase, with more than 90 percent of all PCOs offering the combined services of ant, flea, rodent and perimeter pest control. More than three-fourths of all PCOs offer ant, flea, rodent and termite control, as well as perimeter pest control, IPM and inspection services. The percent of PCOs offering the six services of ant, flea, rodent, perimeter, termite and flying insect control was up significantly from the ratio of PCOs offering those services in 2001.

In addition to these industry staples, a few other services are also more commonly offered today. Flying insect control is now offered by about 72 percent of PCOs, compared to 67 percent of PCOs in 2003 and just more than half of PCOs in 2001. Wildlife management, offered by 30 percent, mosquito control, offered by 28 percent and moisture control, offered by 24 percent, also showed growth from previous years.

The industry’s largest growth market continues to be ant control, with 29 percent of PCOs selecting this service as their company’s largest growth market in 2003. In last year’s survey, close to 35 percent of PCOs selected ant control as their largest growth market.

However, while ants are still the industry’s most troublesome pest, their lead is becoming less marked and a greater variety of other pests and services are growing as a percent of revenues, many PCOs reported. A few of those growth areas include perimeter pest control, rodent control, mosquito control and inspection services.

Termite control is still the second most popular growth market, being named by 27 percent of PCOs as their largest growth area. A similar percentage selected termite control in last year’s survey. Furthermore, many PCOs interviewed for this report said the termite market has shown healthy growth this year throughout the country.

More companies are involved in the termite market today. The majority of PCOs — about 78 percent — are involved in this business and that proportion has increased in recent years. Last year, 75 percent said they were involved in the termite market and in 2001, only about 62 percent of PCOs said they were involved. Contributing to the growth of the termite market may be the continued availability of newer control technology. (For more on termite industry growth trends, see "Termite Market Outlook," on page 10 of this report.)

Perimeter pest control is also a growth market for more PCOs. It was selected by 13 percent of PCOs as their largest growth market in 2003. In the previous survey, 11 percent named perimeter work as their top growth market, while about 7 percent said so in 2001. Tommy Reeves, vice president, Oldham Chemicals Company Inc., Memphis, Tenn., said while perimeter treatments have been around for several years, they’ve grown in popularity since today’s perimeter treatments are more comprehensive and effective. "Over the last five years we’ve seen more people do more spraying on the outside and less on the inside," Reeves said. He explains the popularity of this treatment approach rests on the idea that the majority of all pests — 90 percent or more — invade the home from the outside. Another factor is that today’s perimeter treatments, which utilize products with longer residuals, are allowing more PCOs to use a quarterly treatment schedule as opposed to monthly.

"(PCOs) have always sprayed and used granulars outside," said Reeves, but previously, he explained, the elements broke down outdoor applications more quickly. "Nowadays we’re using better chemicals that will bind to the mulch and last longer, so it’s 90 days plus before you’d need to treat outside again." Today’s treatments, he explained, involve the use of microencapsulated products or suspended concentrates applied in a 3- to 5-foot band around the outside of a structure. Along with that, PCOs may also provide a granular application.

The many benefits of this treatment option also make perimeter service easier to sell, Reeves notes. He believes more PCOs are able to sell comprehensive year-round service based on perimeter treatments as opposed to as-needed service calls. Furthermore, this type of treatment is convenient for homeowners. "The homeowner does not have to be present," he said.

Ray Street, general manager of Turner Pest Control based in Jacksonville, Fla., said many customers perceive perimeter treatments as safer than treatments inside the home. "People don’t want you to spray inside their homes. They don’t even want baits inside if they can help it," he said. "People nowadays are trying to keep chemicals outside their homes." By using sprays, baits and granular applications outside, he says PCOs can take care of multiple issues: controlling pests, keeping them out and answering customers’ safety concerns.

About 9 percent of PCOs selected IPM as the top growth market in 2003. That was also up slightly from last year’s survey. And 5 percent of PCOs named rodent control as the top growth market, compared to 3 percent who selected it in last year’s survey.

Bill Mashek, co-owner of Northwest Termite and Pest Control based in Santa Rosa, Calif., believes IPM work is a top growth area in his region. "In Northern California there’s more and more of a demand for less toxins," he said, "so treatments should be more prescriptive, rather than one size fits all." He said IPM calls for less broadcast spraying and more baiting and monitoring with focused chemical applications as needed. This type of program requires more training for inspectors and applicators to pinpoint causes of pest problems. In addition, at Northwest, IPM involves providing client education on such things as sanitation, and habitat and structural modification around homes. "We feel a better relationship can be developed with the consumer as a result of this higher level of interaction and, hopefully, less cancellations," Mashek said.

The survey indicates that pest control services related to public health are another growth area for the industry. Just more than one-third of respondents (36 percent) said that their company’s revenue from public health-related pest control — i.e., mosquitoes, ticks and fire ants — has increased compared to three years ago. Meanwhile, about 57 percent said revenue in this category remained the same and only about 7 percent said revenue in this area has decreased. (More on this topic is discussed in "Public Health: An Emerging Market," on page 13 of this report.)

COMPANY STATISTICS. Most pest control companies (58 percent) have been founded in the years since 1980, however only about 1 percent have been founded in the last three years. About 92 percent of respondents say they work for an independent, privately held business, while 3 percent say they work for a chain and 2 percent say they are part of an independent publicly held business. Only about 1 percent characterizes their business as a franchise operation.

The survey indicates that more PCOs are serving larger numbers of customers, possibly indicating that today’s companies are on average, larger. The average number of accounts served in a typical year increased by about 30 percent from 2001, to 5,178 accounts. About 76 percent of PCOs serve fewer than 5,000 customers each year, as compared to 83 percent in 2001. Meanwhile, about 24 percent of the respondents said they serve 5,000 or more customers each year, compared to 17 percent who said so in 2001.

Possibly contributing to this finding of apparently larger companies is this year’s consolidation activity in the industry. In recent months, a number of high-profile acquisitions have made news in the industry, including the purchase of Parsippany, N.J.-based Western Pest Services by Orkin Pest Control of Atlanta, the purchase of Garden Plus Pest Control of Pittsburg, Calif., by HomeTeam Pest Defense of Dallas and a variety of acquisitions by Arrow Exterminators of Atlanta. These significant transactions, typically made by some of the largest companies in the industry, may have increased such numbers as the average amount of annual revenues, the average number of offices and average expected sales reported for the industry.

Adding further credence to the idea that consolidation in the industry will continue, the majority of business owners (59 percent) say they have been approached in the past three years to sell their business. And about 51 percent said they expect the number of companies being sold in the industry to increase in the next three years. Meanwhile, 45 percent said they expected the number would remain the same, while 4 percent said it would decrease.

Most companies — 79 percent — operate just one office. However, the industry’s firms collectively average 8.5 offices. This high average likely reflects the number of offices owned by the industry’s largest companies. In addition, companies now have an average of nine vehicles in their fleets.

The average level of 2003 gross sales among companies was $764,200, up 12 percent from 2001. Also in 2003, about 54 percent of PCOs grossed at least $250,000, compared to 51 percent of PCOs in 2001.

Average expected gross sales for the industry has also increased in recent years. Currently, the average amount of gross sales expected for 2004 is $769,300. That’s up by about 2 percent from the 2001 average. The survey also indicates that the majority of companies (58 percent) expect 2004 gross sales of $250,000 or more. In 2001, about 54 percent of PCOs expected their gross sales to be $250,000 or more.

In a related finding, about 80 percent of PCOs expect an increase in 2004 sales at their locations over 2003. That’s up significantly from both last year (63 percent) and 2001 (68 percent). Only about 2 percent of PCOs expect a decrease in 2004 sales. On average, PCOs who expect an increase expect to see about 13 percent growth. Those who expect a decrease said they expected to see sales fall by 17 percent.

SERVICE FREQUENCY AND MIX. Perhaps owing to the longer residual life of today’s newer control products, the quarterly service schedule may be growing in popularity among PCOs. About 37 percent of PCOs, up from 26 percent in 2001, prefer a quarterly frequency for general pest control. Meanwhile, almost 44 percent of PCOs now use a monthly service schedule as their primary treatment regimen.

Ned Ewart, owner and president of Bug Master Exterminating in Austin, Texas, always has used a quarterly schedule for residential customers. He said he believes a quarterly schedule, with its higher price per visit over a monthly service, allows the company to remain competitive while still earning a good profit. Another reason is the products he uses remain effective during that time.

However, Jeff Jones, vice president of Admiral Pest Control in Bellflower, Calif., said this spring he stopped offering quarterly service, in favor of bimonthly or monthly service. "We have more trouble keeping quarterlies on schedule," he said. "It’s not enough contact with the customer. They push you off."

Michael Warren, branch manager, Arrow Exterminators, Boca Raton, Fla., says the vast majority of his company’s work is monthly. "On this coast the population of insects is so heavy that you pretty much almost have to," he explained.

The survey also indicates that close to 13 percent of PCOs now use some other frequency besides quarterly, monthly or annually.

Mashek’s company, for example, oftentimes uses a bimonthly service schedule. He said this frequency helps keep service more consistent and satisfies customers’ concerns. "Quarterly service schedules often require intermittent calls," he said. "With a bimonthly schedule we know that we can be more effective in our pest control program."

The mix of residential to commercial customers stayed about the same throughout the industry since last year, with about 69 percent of the work coming from the residential side. However, that’s a slight increase from 2001, when 64 percent of the work was residential. Historically, more pest control companies have focused on residential work, however, for other companies, commercial work represents some of the most coveted business in the industry. One such company is Turner Pest Control in Jacksonville, Fla. With the city itself in a major growth spurt and Superbowl XXXIX headed to Jacksonville in 2005, the city is seeing its share of new business. And Turner has been able to capitalize on that, notes Susan Wright, manager of the company’s commercial division. "There’s a lot of work out there to be had," she said. "You just have to keep up with it." Especially in the Jacksonville market, Wright explained, pursuing commercial business is an exercise in relationship development and persistence, she said. "The commercial customers demand quality service today — immediate service — as fast as you can write the contract or you will miss out."

RECRUITING AND EMPLOYMENT. Recruiting and employment issues continue to be top concerns for PCOs. The survey indicates that companies now employ on average four general pest control technicians, two universal technicians and one termite technician, for a total of about seven technicians.

Technician turnover, at an average rate of 5.4 percent, appears to be up slightly from last year’s 4 percent rate. However, it’s down significantly from the rate of 6.5 percent reported in 2001. Ewart said he’s seen a definite decrease in turnover in the last couple of years. "I think the competition (for jobs) has diminished in the last couple of years," he said.

In a related finding, more PCOs, about 41 percent, say it’s more difficult to recruit employees than it was one year ago. In last year’s survey, only about 33 percent said it was more difficult than the previous year.

Jones points out that recruiting has been affected negatively as more young adults are attending college these days. "It’s hard to find people that want to do this type of work," he said. "Today, kids that graduate from high school don’t aspire to do anything except go to college." What makes recruiting even more difficult, Jones says, is that today’s customers demand exceptional customer service. "I think we’ve been trained by all the big companies that you have to go above and beyond for everyone," Jones observes. "It’s extremely hard to get that kind of caring from someone who’s on this pay scale."

Phillip Cooper, president of Cooper Pest Solutions in Lawrenceville, N.J., said while he believes the job market has eased up, he’s also encountered more difficulty in hiring. "It’s become harder and harder," he said. "The standard methods of recruiting people are becoming less and less effective." Cooper said he believes those out looking for jobs aren’t using the same old techniques of responding to classified ads or even tapping into large Internet job posting sites. He said these days, his company’s best source of employees is through internal referrals, however, he notes that’s only one small source. "We’re looking at new and innovative ways of recruiting," he said.

Like Cooper, many PCOs have become more proactive in their recruiting practices. Herb Field, chief operating officer at Lloyd Pest Control based in San Diego, said for him, both recruiting and turnover have actually been less problematic during the last year. He feels the difference may have something to do with the company’s new focus on hiring and retention. As part of this, the company recently hired a full-time human resources manager to assist in this area.

"Instead of just running classified ads, we’ve been attending more job fairs, we’ve approached the military, we’ve gone to colleges," he said. The company has also provided more training to its managers on proper interviewing techniques. "We’ve done job fairs all over Southern California and I think that has helped us bring in a different type of person," Field said. He admits though, there are still challenges. "It’s not the kind of business that sounds attractive and getting college graduates is tough," he said.

Ewart said recruiting has become easier in the last few years. He attributes this to a number of things, including a less competitive job market in his area and also his moving to a commission pay plan, which ultimately has allowed him to pay employees significantly more. "We get better applicants and more applicants when we advertise for a job," he said. What’s more, he added, "We’re able to hire the people we want more frequently."

Where wages are concerned, just more than 60 percent of respondents said they increased pest control technician wages in the past 12 months. The overall increase averaged about 9 percent. Bryan Houtchens, vice president and general manager of Team Too Termite and Pest Control in Corona, Calif., is one such PCO. He increased wages for some employees, based on their time and experience with the company. "The longer somebody’s with us, the more they’ll earn," he said.

Street said Turner also increased wages in the last year. "That’s the only way to retain good employees," he said. "In addition, and even more importantly, Turner has significantly enhanced its benefits package to attract and retain its best employees."

Meanwhile, Field said Lloyd has always raised its employees’ wages to keep up with the market. "Typically we will have some cost of living increase and sometimes we’ll raise the base salaries to make hiring easier," he said.

Regarding employee benefits, PCT’s survey indicates that the typical benefits profile for pest control employees continues to change, with companies offering a greater variety of employee benefits than in years past. Most pest control companies today offer paid vacations (73 percent), company vehicle (60 percent), medical benefits (59 percent) and sick pay (53 percent). However, there are fewer companies offering the top three benefits. Last year, close to 76 percent offered paid vacations, 67 percent offered company vehicles and 62 percent offered medical benefits. And in 2001, about 84 percent offered paid vacations and 80 percent offered medical.

Northwest’s Mashek said his company hasn’t decreased its benefit offerings, however, he says the package has become more expensive for the company, with health insurance and workers’ compensation costs doubling and tripling in the last three years.

Ewart says in the last few years he’s added a retirement plan as well as secondary insurance coverage such as disability insurance. "Ten years ago that would have been little valued by most of our employees," says Ewart. "Today our employees tend to value that more highly and it makes it more worthwhile to provide as a benefit." Ewart notes the company has in the last year started having employees contribute to their health-care costs, but it hasn’t been a problem. "What we found is most people in the workplace expect to contribute to their health plan so it really didn’t cost us much in terms of their good will."

Lloyd’s Field said the company has yet to pass on health insurance costs to its employees. "It’s really hard for us to give a raise and then turn around and take more from medical costs," Field said. "We’re trying to resist it." What’s more, he notes, "We’re in an industry where the average income of a route technician isn’t a ton of money, so I think it’s important to be sensitive to that in whatever way you can be."

MANAGEMENT TRENDS. A sizeable percent of the industry is thinking critically about its long and short-term objectives. About 40 percent of companies say they have a written strategic plan and about 41 percent have a written mission statement.

Field said both statements are important, as they provide focus and direction. Specifically, the strategic plan gives much needed direction for managers to be working toward the same targets. Similarly, the mission statement keeps people focused on what’s important to the company. "A mission statement helps focus all employees on who we are and what do we want to be known for," Field said. Lloyd’s mission statement, for example, talks about providing service above and beyond expectations and going the extra mile. It also discusses the qualities of employees that are most celebrated: integrity, high ethics and honesty.

Cooper Pest Solutions also has both the documents and the company’s mission statement copyrighted. "Everyone knows what it is," Cooper said. "To ‘wow’ clients, to ‘wow’ our teammates, to ‘wow’ our community, to ‘wow’ our service partners and to ‘wow’ the bottom line." Cooper added that all employees know that everything they do, every bit of the day, must fulfill that mission.

And Ewart said he’s written a strategic plan every year for the past decade. Having the plan, he said, tells him what his job for the year should be. "Particularly for the size that I’ve grown to, it’s very difficult to do the things that you want to do if you’re not real clear on what you intend to accomplish," he said. h

The author is a contributing editor to pct magazine.

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Chemical Prices Holding Steady

It appears the cost of pest control chemicals hasn’t risen for most pest management professionals. The amount of total service revenues spent on chemical products appears to be lower when it comes to general pest control chemicals, but about the same as last year for termiticides. PCOs spend on average 10.6 percent of service revenues on general chemicals, as compared to close to 13 percent last year.

For termiticides, PCOs are spending about 12 percent of total service revenues. While that’s about the same as one year ago, it’s up significantly from about 8 percent in 2001.

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Marketing Sophistication Grows

More pest control companies are advertising today than in previous years. The percent of those that did not advertise in the last year, at 8.5 percent, is down from one year ago, when 15.5 percent said they did not advertise. The top advertising mediums included Yellow Pages (used by 81 percent), newspaper (used by 29 percent), direct mail (used by 27 percent), Internet advertising (used by 21 percent) and radio (used by 20 percent).

PCOs said they spent on average 7.5 percent of total 2003 expenditures for advertising. That percentage did not change significantly from previous years.
Not surprisingly, the Web is a growing means of public relations for PCOs. About 42 percent of companies now have a Web site. That’s up from about one-third of companies last year. About 22 percent of those with a Web site say they offer customers the capability of scheduling a service visit on the Internet and 13 percent allow the customer to pay for services online as well.

Greg Augustine, president of Harbor Pest Control in San Diego, Calif., said it’s hard to pinpoint exactly how effective his company’s Web site is at advertising the company, but there are other advantages to consider. “It’s beneficial just in exchanging information and e-mail,” he said. “I just think it facilitates communication.”