[State of the Industry] Termites: Kicked to the ‘B’ List?

Lately, termites have gotten a bum rap. Once a force to be reckoned with, termites are no longer considered to be the top growth market for the pest management industry, nor are they viewed as particularly difficult to control. And, for the last several years, this business segment has yielded disappointing returns for PCOs across the country.

It doesn’t help that the economy continues to be in a slump, homes sales have slowed to a crawl and many consumers have become increasingly price sensitive.

But there are bright spots in this changing segment. Weather patterns in some areas have restored some of the termite activity that seemed dormant in recent years. And new control strategies continue to provide more options and greener solutions for PCOs and their customers.

STILL A GROWTH AREA. Make no mistake: Termites still figure prominently as one of the industry’s top pests. Today about 70 percent of all pest control companies are involved in the termite control market, a number that has remained fairly consistent in the last few years.

And many PCOs still consider the termite market to be a source of growth for their businesses. In fact, 18 percent of respondents in PCT’s recent survey characterized termite control as their largest growth market. (Only ant control fared better, with about 32 percent choosing it as their largest growth market.) However, fewer PCOs are seeing termite control as the largest growth area. In 2005, 30 percent of respondents named termite control as the largest growth market, and that percentage has declined each year since.

What may be a related issue is that termites are no longer widely considered challenging to eradicate. These days, only 2 percent of PCOs are naming termites as the hardest to control in their market. That pales considerably with the control of ants, bed bugs, cockroaches and fleas, the survey shows. Many more PCOs said those pests were tougher to control.

A GOOD YEAR FOR SOME. The good news this year is that for some PCOs, the phones were ringing for termite control. About 61 percent characterized the 2008 season as either average or above average. Last year, only about half had the same finding.

It couldn’t come at a better time: Over the past few years termite treatment revenues have apparently fallen, with more PCOs saying revenues decreased in 2007 (31 percent compared to 9 percent in 2005) and fewer PCOs saying they’ve increased (40 percent, compared to 66 percent in 2005).

Lanny Allgood, president of Dublin, Ga.-based Allgood Services (which does business as Allgood Pest Solutions in Douglas, Savannah, Vidalia, Augusta, Statesboro and Waycross, Ga.) notes there were gains in some areas. For example, in the company’s emerging markets where Allgood is new and not yet a dominant player, “we have seen double-digit growth in new termite sales,” he said.

Meanwhile Paul Westby, owner of the Brown Exterminating Company franchise based in Lakeland, Tenn., also saw growth. He serves parts of western Tennessee and northern Mississippi, and termite work accounts for half of his revenue.

Swarm activity was moderate this season, Westby said, but business has been good. “This is the first year in five years that we’ve had normal rainfall,” he said. “Last year we had the worst drought in 100 years.” With termite activity being dependent upon moisture, Westby pointed out, its presence was crucial.

This year, in the peak month of May, Westby said, the company was up about 40 percent over the year before. “We’ve seen more activity this year than we have in years past,” he said.

Westby admits, though, that the local economy is in poor shape. Last year, he recalled, when the mortgage market tightened, “we lost 30 percent of our potential buyers overnight.” That had a cascading effect on a number of industries, including pest control.

He adds that the termite market is driven largely by real estate, and houses in the area have not been moving. “Inspection orders from real estate agents from sales of homes are way down,” Westby said. However, the lack of residential sales inspections has been offset at his company by an increase in inspections on properties in foreclosure.

Westby still believes the termite market is a growth market, in part because often, he says, “pretreats aren’t properly done, so they end up having problems with termites.” This typically occurs anywhere from five to 10 years later, Westby said. “That’s commonly where you get a lot of your new work,” he said.

A SLOWDOWN FOR OTHERS. Of course not all industry professionals felt this termite season was a good one. Roland Rhodes, president of industry distributor Rhodes Chemical Company, Kansas City, Kan., observes that, at least in the Midwest, 2008 termite business overall was down. “It wasn’t a good year, for several reasons,” Rhodes said. “The economy, the weather, the housing disaster. It hit from all sides.”

Rhodes said the dour economy left many consumers with difficult decisions to make. “The home-owners are just watching their dollars,” said Rhodes. “Many of them are not having the annual renewals in termite continued because they need that money for groceries and gas and other things.”

Dismal home sales also played a major role. “The homes aren’t being sold, so you don’t get a chance to inspect the home to see if they have termites,” Rhodes explained. Furthermore, Rhodes said this year’s flooding and heavy spring rains in the upper Midwest also likely contributed to the lack of swarming. “We’re not getting the swarming seasons like we used to get 15, 20, 30 years ago,” he said.

Brian Williams, owner of Brian Williams Pest Control Service in Goochland, Va., agrees that the economy has affected termite business, which is Williams’ biggest market segment. He serves the greater Richmond, Va., area.

“For me it’s been tough,” said Williams, explaining that many people just don’t seem to have the funds available to give the go-ahead on termite work, while last year deals were closed on the spot. “Now you go out and price the job and it seems they just don’t have the money right away.”

Fortunately, Williams added, a good portion of customers are actually calling him back one to four months later, “but it’s just that the market’s tight.” And, he adds, it’s very competitive.

Compared to last year, says Williams, this year rendered a major slowdown. Although he is receiving good referrals, he said with the sinking economy and higher costs all around, “trying to get a good margin is a lot tougher than it was (in the past).” The swarm season was also not great this year, Williams said. “Last year I got a lot of calls for swarms but this year there were very few compared to the past years.”

One bright spot for Williams actually has been the real estate market. “I’m fortunate to have a handful of Realtors that use me exclusively for all their work,” he said. And healthy refinancing activity in his area recently has translated into many WDI reports. But Williams noted home sales have slowed substantially from last year. He went from receiving 10 termite jobs a month, from one Realtor, to earning only a few every couple of months, he said.

And Jason Steinke, general manager of Bob Reed Pest Control, based in Roswell, N.M., also characterized this year as below average, both in calls and swarms. He blames two factors: the weather and the economy.

“This year our rainy season started very late,” Steinke said. “It was very dry through the beginning of spring and summer.” Further, he added, the high price tag of termite treatments also played a role, since more people are holding on to their hard-earned cash. In all, he said, termite business has been down by 20 to 30 percent this year, unlike the general pest control segment, where he’s seen a 15- to 20-percent increase.

Similarly, Allgood says, in the company’s mature markets where their market share is significant, “we have not had a good year in new termite sales. These locations have historically done well with new construction and real estate transaction treatments,” Allgood said. “We have seen very little movement in either of these segments this year.”

OPPORTUNITIES EXIST. Even with these lackluster reviews, termite control holds some untapped business potential. Steinke, for one, still believes termite control is a growth market, particularly since expanding his service area is one dependable way to do that.

Williams remains optimistic too. Business is cyclical in his area, he said, but not necessarily because of swarms. In the spring, large ad campaigns on the part of the national companies actually end up helping Williams’ business, when the public is alerted that termite season has begun. And inspections for other pests, such as rodents, may also reveal termite activity.

“Usually you can work it out and get it sold,” Williams says of those situations. “It all boils down to a thorough inspection, whether you’re there for termites or pest control.”

The Termite Revenue Pie

On average, just more than half of all termite revenues, or about 56 percent, come from post-construction treatments, while a quarter of termite revenues are attributed to renewal fees, and 11 percent are from pre-construction treatments.

While termite revenues overall were down in 2008, says Roland Rhodes, president of Rhodes Chemical Company, Kansas City, Kan., the distribution of certain types of post-construction treatment services also may be shifting somewhat. “I think within post-treatments, there will be a movement away from bait treatments and an increase in liquid treatments,” he said. “It is less costly to go to the liquid and the annual warranty than the bait treatment with quarterly monitoring and inspections.”

Meanwhile, Brian Williams of Brian Williams Pest Control Service, Goochland, Va., says most of his termite revenues come from homeowner inspections and WDI reports for real estate transactions. He said sometimes customers have moved in from another state and will request an inspection, even though the house was already cleared. “It’s the second-opinion aspect, and a lot of times you can actually stumble across some work that way.” Even if no termites are found, these inspections might lead to referrals, Williams said.

A Wide Variety of Control Strategies

PCT’s survey indicated termite treatment methods of choice also may be shifting modestly. Overall, it appears more PCOs are using a wider spectrum of control tools, including both traditional and non-traditional strategies, for managing this destructive pest.

Pest management professionals have at their disposal a wide range of baits, liquid termiticides, foams, granules and wood treatment products, and they are packaging these products and services in innovative ways, attempting to not only protect, but expand their market position in these challenging economic times.   

According to the PCT survey, slightly fewer PCOs are using only liquids: 53 percent, compared to 58 percent last year. Still, liquid termiticide treatments remain the treatment option of choice for many PCOs, including Nicholas Raschella, owner, Ace Exterminating, Belington, W. Va., who estimates 80 percent of his company’s treatments are liquid. “I like the fact that I know once the job is done, it’s done,” Raschella said. “The customer seems to like that, too. I get a higher renewal rate using liquids.”

But that’s not to say baits don’t have a place in Raschella’s tool box. “We’ll use (termite bait stations) when we run into situations when baiting is necessary or requested,” he said.

Jason Steinke of Bob Reed Pest Control, Roswell, N.M., uses two kinds of combination approaches. Steinke will use termite bait stations along with a direct, localized treatment with either a foam termiticide or a borate at the ground level. The localized treatments are used in those areas where there’s termite activity to provide immediate control, Steinke said. But, he adds, localized treatments are not always appropriate.

“The only time that we would not do a direct localized treatment is if the home was infested to a point where we would have to do a full conventional treatment,” he said. In those cases he prefers to let the bait system do the work and not risk counteracting its effectiveness with other products.

Meanwhile, Paul Westby, Brown Exterminating Company, Lakeland, Tenn., prefers liquid treatments primarily, but will also use a combination approach with baits depending on the customer. “Bait systems are generally going to be a better fit for people that are using pest control service in addition to termite control,” he said, “because if we’re doing both we can offer them a discount for the combined service.”

The struggling housing market, combined with another disappointing swarm season, have prompted more and more PCOs to take a critical look at their termite business model, identifying creative ways to not only close the sale, but expand their service offerings to protect their business long-term.

What PCT’s State of the Industry Report clearly illustrates is that the termite market remains dynamic, with progressive PCOs willing to  taking advantage of the innovative solutions that manufacturers bring to market.

Termite Prices: Still a Sticky Subject

Prices for termite control continue to take a beating. While PCOs say nearly all of their costs to run the business have increased, many can’t seem to pass that on in the area of termite control. In fact this year more PCOs — almost 9 percent — actually decreased their prices for termite treatment. Close to 40 percent did manage to increase their prices while about half maintained them. The average charge for a residential termite treatment has increased, but only modestly to $934 from $920 in 2007.

Brian Williams of Brian Williams Pest Control Service, Goochland, Va., increased his prices this year by 50 cents per linear foot, based on increases in his fuel, chemical and insurance costs. Meanwhile Paul Westby, Brown Exterminating Company, Lakeland, Tenn., didn’t increase termite prices “because this market is extremely competitive,” he said. “Most people are charging less than would be profitable to do full treatments on houses,” he said.

“The price issue, it’s very hard to deal with,” Westby added. “My pest control prices have gone up though.” He explained that with pest control services, people can readily see the difference in the service Brown offers compared to other companies. But when it comes to termite control, most people secure numerous bids and use price as a major factor in the decision. “If you try to be high, you are going to lose out on a lot of jobs, and we are high,” said Westby, explaining his prices are at least 30 percent higher than much of the competition.