[2006 State of the Industry] A Cooling Termite Market

The termite market certainly isn’t what it used to be. And suspicions of changing market factors in this segment were only confirmed by PCT’s annual readership survey.

Termite control remains one of the industry’s top growth areas, and is now provided by about 69 percent of companies. This, however, is an apparent drop from previous years: in last year’s survey, three-quarters of PCOs offered termite control.

One likely reason for the drop: termite swarms across the country have been consistently lackluster, even nonexistent, some PCOs say. According to the survey, the majority of PCOs (56 percent) said this year’s swarm season was below average. About 35 percent characterized it as average, while about 8 percent of PCOs found it to be above average.

Another factor not to be ignored is the nation’s cooling housing market, which spurred untold numbers of WDI inspections as well as termite jobs in recent years.

Lon Records, president, Target Specialty Products, headquartered in Santa Fe Springs, Calif., notes that in the Western U.S., termite and fumigation business have been off "in a double-digit fashion." He attributes that to the slowing housing market. "Whenever you have a slowdown in building and resales, you have a slowdown in fumigation and retreats," Records said.

HIGHS AND LOWS. Certainly there have been bright spots. This spring, Bob Caine, president, Pest Control Specialists, Sunrise, Fla., observed an increase in calls relating to Formosan termites in his area, Broward and Palm Beach Counties. Caine said he believes the increase may be one result from last year’s Hurricane Wilma that swept through the area in late October.

However, Caine said he has not been getting the calls due to subterranean termites that he did 10 to 15 years ago. Back then, he recalls, during swarming season, "it wouldn’t be uncommon to get 100 calls a day." He believes the change may have something to do with widespread use of the newer, nonrepellent termiticides, although others attribute it to the cyclical nature of the business.

Other factors that may have changed the Florida termite market include improved building practices and more enforcement concerning pretreatment practices, Caine said.

"We don’t do a lot of subterranean termite work anymore because it really seems that in Broward County, most everyone down here’s been treated at one time or another," Caine said.

Eric Melass, vice president, Killum Pest Control, Lake Jackson, Texas, also has seen termite work drop considerably. "In our areas, the swarms that we used to get during February, March and April just don’t seem to be there anymore," Melass said. Instead, he observed, people are finding termites when there is damage to their homes or when they are remodeling.

As a result of the termite slowdown, Melass said, "(PCOs) are having to be creative in the ways they keep people under service agreements." That may involve adding value via monitoring and other proactive efforts, he said. Nowadays, Melass says, if you want to stay ahead, you have to think of ways to protect homes from termites before they get inside.

However it’s not all bad news for the termite market: About 23 percent of PCOs say termites are their biggest growth pest. One such individual is Jim Dye, president, Border Pest Control, Deming, N.M. Dye says termites were his company’s biggest growth area for a couple of reasons. For one, many people are moving out of California and heading east. "New Mexico is the last frontier," he said. "We’ve got cheap land, lots of open space and clean water." The company also has marketed its termite services aggressively and licensed more termite technicians to back it up, Dye said. "It paid off. We are always looking at new services we can offer and when we do add a service, the payoff is usually good."

And Melass says the good news for his company is that real estate inspections are up, and up to 20 percent of the transactions result in some form of termite treatment.

Within the termite market, the majority of annual revenue (58 percent) is generated from post-construction treatments. Meanwhile, close to 20 percent comes from renewal fees, and about 13 percent is attributed to pretreats. Fumigation accounts for just less than 4 percent of termite revenue.

TREATMENT STRATEGIES. PCOs have more high-quality termite control options available to them than at any time in the industry’s history, including a wide range of liquid termiticides, baits and wood treatment products. In addition, a growing number of niche products are available to PCOs (i.e., heat/cold treatments, stainless steel mesh, termiticide-impregnated pre-construction barriers, etc.) as the industry develops new and inventive ways to control this voracious pest.

Nonetheless, PCOs are showing their preferences. Liquid treatments continue to be the control option of choice for the majority of PCOs throughout the country, although a significant number of companies offer both liquid and bait – or a combination of both – treatment regimens, indicating the industry’s desire to offer a range of options to consumers. When PCOs involved in the termite market were asked, "Does your company routinely use both conventional soil treatment and termite baits on the same structure?" 23 percent of respondents said yes, while 76 percent said no (one percent responded "don’t know). And those companies that do use both regularly say, on average, only about 35 percent of structures receive both soil treatments and termite baits.

Rick Rogers, vice president, Myers Pest & Termite Services, Bedford, Texas, says he prefers to use a combined approach with baits used around the exterior of a structure and foam on the interior walls in the areas of termite activity.

However, the company doesn’t generally treat the soil with liquids. The company is unique in that area of the country, Rogers says: most companies don’t do any baiting at all, he says, instead relying on liquid treatments.

"We just don’t have any retreats," says Rogers. "That’s the reason we keep doing it." Using baits, he says, also has increased the company’s productivity, and it’s more profitable.

Meanwhile, Bert Snyder, vice president, Palmetto Exterminators, Charleston, S.C., offers liquid treatments on post-construction and wood treatments with borates for new construction. Occasionally baits will be used in conjunction with a liquid treatment, he said. "Our experience has been that baits as a standalone treatment option are not that effective here in South Carolina, particularly on the coastline," said Snyder. "When we use a bait, we’ve already done a liquid treatment on the house as well." When they are used, Snyder explained, it’s usually to get rid of termites that may be in trees around the structure.

While Snyder admits the swarms seasons have been "odd" for the past couple of years, he says there’s plenty of termite activity out there. "A lot of companies look forward to the swarm season as getting new jobs," said Snyder. "Our focus is not on waiting on that. From a business perspective I just have never quite understood why people wait for the swarm season to hopefully get a whole lot of business."

Snyder notes in his area, termites are active all year long. "Where our growth has really been has been in the new construction," said Snyder. The company’s borate treatments are guaranteed for one year, at which point the termite agreement can be renewed with post-construction treatments. Snyder says of those whose structures Palmetto has pretreated, greater than 90 percent will go on to renew. And 30 to 40 percent will eventually purchase the company’s pest control service too.

Brett Duncan, partner of Duncan Exterminating, Dawsonville, Ga., says at his company, each house is treated individually when deciding which method(s) to use. "Say you’ve got a low crawlspace," he points out. "That house is going to require a bait system and maybe spot treatments with liquid," he says. However in his opinion, a soil treatment would not be warranted, because the crawl space is not fully accessible. "With the baits, I can treat some houses I wouldn’t try to treat a few years ago," he said. Duncan says about half of his post-construction jobs are liquid only, while 25 percent are bait only, and another 25 percent are bait-liquid combination.

While the termite industry continues to grow, the pace of this growth may be slowing. PCT’s survey indicated that fewer PCOs reported an increase in 2005 termite treatment revenues, while more PCOs reported a decrease, compared to the previous survey. About 56 percent said treatment revenues increased, compared to 66 percent last year; while 16 percent said treatment revenues decreased, compared to 9 percent last year.

Fewer PCOs also increased their prices this year. About 41 percent increased their termite treatment prices for 2006, compared to 51 percent who did so in 2005. Meanwhile, just more than half maintained their 2006 prices at the same level.

Duncan says he did raise his termite treatment prices this year, by about 10 percent, to cover increased product costs as well as fuel costs. "Everybody’s taken the increase just fine," he said.