[State of the Industry 2007] Defining Your Competitive Edge

It may not be another barnburner, but this year’s pest control season highlights the many business pressures that are forcing pest control operators to rethink their strategies.

As far as pests go, some things have changed, while others remain the same. Ants remain a strong presence, while the termite market continues to be problematic. Bed bug business is on the rise. Meanwhile, the costs of doing business is becoming more concerning, prompting even the shrewdest companies to eliminate waste and put more focus on productivity.

These are just some of the major trends identified in PCT’s latest independent survey of pest control professionals, along with in-depth interviews about the state of the industry. For the survey, 378 respondents in 44 states were queried on everything from pest pressures to management concerns. The majority of all respondents (96 percent) work for an independent privately held business, and most (88 percent) have just one office. Gross sales at each location ranged anywhere from $100,000 or less to $2.5 million or more.

In combination with the survey, follow-up interviews with other PCOs helped PCT understand the survey results, creating a clearer picture of how today’s PCOs are making their business decisions. Here’s what we found...

AN AVERAGE PEST SEASON. This year’s summer weather was average but not outstanding in terms of pest pressures. Hot and dry conditions on the East and West Coasts, along with cooler temperatures and more rainfall in the midsection of the country, led to average levels of pests, several PCOs said.

John Bolanos, Univar’s vice president for professional products and services, described a disappointing spring but a decent summer pest season. “It’s been very dry in Florida and the Southeast, and Texas has had a lot of moisture,” Bolanos said. The moisture, he explained, was conducive for more yard pests. However, in dry areas, pests were less active. “Where it’s really dry we’ve seen customers telling us that their business has been slow.”

PCOs continue to offer a wide variety of services. The vast majority of companies offer control of ants, rodents, perimeter pests and fleas. More than half also offer Integrated Pest Management and termite control.

Ant control remains a top growth area for most PCOs. About 29 percent of companies said ant control represented their largest growth market in 2006. Bob Wanzer, chief executive officer of HomeTeam Pest Defense, based in Dallas, said ants have been his company’s No. 1 growth pest. “It’s a huge opportunity area for us,” Wanzer said, “(but) it’s also our biggest challenge.”

“Ants are probably one of the No. 1 reasons why our customers call us,” said Chris Arne, technical director for Ehrlich/Rentokil based in Reading, Pa. Arne agrees that ants are also a top callback pest, but adds, “I don’t necessarily see that as a problem.” He admits customers might get a reinfestation after an initial treatment for ants, but said, “we are dedicated to taking care of our customers and provide a pretty generous warranty on service like this. Sometimes that reinforces the value of the ongoing service program so that we can prevent problems rather than react to them.”

Another top growth area, despite the repeated lack of swarms, was termite control. This segment was selected by 21 percent of companies surveyed as their largest growth market. However, that percentage represents a decrease from previous years. In 2005, 30 percent of companies selected termite control as their largest growth market.

Another downward trend involves the number of companies now offering termite control. PCT’s annual surveys indicate that percentage has fallen in recent years to 65 percent.

And despite the recent media coverage about the resurgence of bed bugs, this marketing segment was selected as the top growth area by only 4 percent of companies. One such organization is American Pest Control of Montgomery County, based in Rockville, Md. Vice President Becky Wade has seen the company’s bed bug revenue increase 12-fold in the past two years. Her company is often called in to solve bed bug problems other companies could not. “We get them after somebody’s been out there three times and failed,” she said. Besides knowing how to effectively control bed bugs, Wade said her company’s strategy rests on proving an account actually has bed bugs and not something else. “We don’t treat until we confirm that there are bed bugs,” she said. Wade cited situations where clients were actually being bitten by fleas, or worse, were suffering from scabies.

Along with American Pest Control’s focus in this area, the firm is marketing its bed bug services using its Web site, brochures, flyers and press releases. “We’re doing everything we can to get noticed in this area,” Wade said.

Arne agrees bed bug control is a great opportunity for his company but he acknowledges there are some pitfalls. “There are times despite our best efforts that we’ve got problems controlling bed bugs,” he said. Another issue, Arne noted, is that customers may not be aware of how involved a bed bug treatment is. “I think a lot of times the customers expect immediate results. We work very hard to educate our customers to ensure they understand their role in preventing a recurrence, as well as what they can reasonably expect from our service. For some companies, bed bugs present too much risk, too much liability,” Arne said. “They are not going to want to pursue bed bug work.”

About 45 percent of PCOs surveyed said ants are proving to be the hardest pest to control in their market. No other pest scored higher in that arena, however bed bugs and fleas were also cited as challenging, being selected by 16 percent and 12 percent respectively. The callback rate on general pest control work averaged about 8 percent.

HIRING IS A HOT BUTTON. Attracting and recruiting good employees remains one of the industry’s biggest headaches. In an industry that is painfully aware of its public image, increasing the professionalism of employees is also critical today, making effective hiring that much more critical.

In the survey, 45 percent of respondents said compared to a year ago, they find it more difficult to recruit employees today. “I think most business owners are finding to get good people they are having to compete with industries that have historically paid more than we do, so I think we are having to compete with that,” said Paul Felker, president of Bug Out Service, Jacksonville, Fla.
“It’s hard to find good applicants,” Wade said. “It’s not viewed as a high value job for people who are looking for jobs.”

Gerry Weitz, president of Hearts Pest Management, San Diego, agrees. “The hardest part of the job is people management and managing the dynamics of a growing staff,” he said. “A good company will focus very heavily on recruiting, developing and creating the right blend of staffing.”

Just more than half of companies surveyed (54 percent) said they increased technician wages in the past 12 months. The average increase was about 8 percent. Felker said that part of the increase in technician salaries may also result from other changes put in place to help make technicians more productive. Such changes include better routing and scheduling, better use of such technology, including hand-held computers, and less paperwork. “In the same number of hours they are producing more dollars,” he said, “so that gives us the ability to pay them more.”

When it comes to technician pay, the average starting salary of an entry-level service technician is $23,350. And about 80 percent of companies perform background checks, such as a driving record check, drug testing and personality profiling, during the hiring process.

Keeping good employees is just as important as hiring well, so today’s benefits structure is also a big concern for PCOs. Eighty percent of companies offer one or more benefits to employees. The most common benefits offered are paid vacations (61 percent), company vehicle (52 percent) and medical benefits (43 percent). Just more than half of those offering benefits require service personnel to pay for part or all of their benefit costs.

As far as technician tools, the majority of companies provide technicians with flashlights and cell phones. Some less common tools given to technicians are vacuums, moisture meters and digital cameras.

BUSINESS STRATEGIES. Ninety percent of companies invested in some form of advertising in the past 12 months, with Yellow Pages advertising being used by 80 percent of companies. Other methods used were door hangers/cloverleafing, used by 31 percent, Internet advertising, used by 27 percent, newspapers used by 26 percent and direct mail by 22 percent.

Weitz, who uses just about all methods of advertising other than TV and radio, prides himself on blending his print and Internet advertising to portray a common, coherent theme. “People want to see more than just an entry in the Yellow Pages,” he said.  

On average, companies spent about 8 percent of total expenditures on advertising. Currently 38 percent of companies have a Web site.
According to the survey, the average price charged for a residential service call is $85, however that number can vary widely. Close to half charge $75 or more, while half charge less than $75. Weitz points out every company has its own strategy when it comes to pricing. “That’s one of the more interesting things about being an owner is determining price strategy,” he said.

About half of companies said they raised their service prices in 2006, with the average increase being about 7 percent. Felker said his company increased prices in 2006, but decided not to do so this year so as not to risk losing customers. “We just felt like the economy was a little softer this year and it would be best for us not to do that,” he said.

Meanwhile, the majority of companies, 79 percent, said 2006 expenses increased over 2005. The cost of chemical (at about 11 percent of total service revenue for both termiticides and general pest control chemicals) has not changed significantly in recent years. Three-quarters of respondents said the primary cause of that increase was the cost of gas. Although in recent months PCOs have gotten some relief from high gas prices, most PCOs expect this expense to remain significant. “I would say that the last two years it’s been a concern and I don’t see any real relief on the horizon,” Felker said. “There’s nowhere to turn except internally to be more efficient with our scheduling and routing.”

Close to 60 percent of respondents said they expect the level of “green” marketing being performed in the industry to increase in the coming year. In fact, many PCOs already market themselves as “green” in the way they provide pest control services.

Bolanos agrees there’s a growing trend among consumers looking for green products and services, but, he said this could pose some challenges to the industry. “The term ‘green’ means different things to different people,” he said. “I think the industry is struggling with that.”

Along with the drive to market environmentally responsible services, PCOs also are encountering better-informed customers. “They are going to ask intelligent questions. They want to know about what you are going to do in their home, will it impact their pets and children,” Bolanos said. “Therefore they are going to ask more questions, instead of just writing a check and not worrying about it.”

Arne agrees that customers are asking more questions about the pests and the materials being used. “What this means is technicians are being challenged and rightfully so,” said Arne. “I think that’s requiring us to make sure we are up to speed on our training and that our technicians know what they are doing.”

INDUSTRY CONSOLIDATION. Sales and acquisitions have been a major feature of the industry in recent years, and that trend seems to be continuing. About 30 percent of PCOs say they plan to either acquire a pest control business or sell their pest control business in the next three to five years.

Wanzer points out that due to all the consolidation that has and is occurring, the industry composition is changing somewhat. “There are many more larger companies than we’ve seen in the past,” he said. “The top 12 companies now represent more than 50 percent market share.”

Arne said larger companies in the industry may be better equipped to handle the increased regulatory demands of some larger commercial customers, such as insurance requirements. But, he said, smaller companies can adapt more quickly to meet the changing needs of customers.

Wanzer said it’s not just the largest companies making acquisitions. “It’s even the small guy buying the small guy,” he said. “It’s the quickest way to really grow your business, and if you have the capital and you leverage the overhead, it becomes very profitable.”

Wanzer said increasing gas prices also are making acquisitions more appealing for many companies, as they look for a speedy way to increase their route densities. “This business is all about density,” he said. “The denser your routes, the more profitable you are.” And companies can quickly increase their route densities both by acquiring new customers and keeping the old ones, he said.

Having a high density also helps companies pay their technicians more, Wanzer said, since in most cases technicians are paid a percentage of what they produce.

OPTIMISTIC OUTLOOK. Even considering all these challenges, the vast majority of PCOs surveyed (about 90 percent) said they are optimistic about the future of the pest control industry. They cite untapped market potential, a more professional way of doing business and better management tools as just a few of the reasons.

Billy Blasingame, vice president, Arrow Exterminators in Atlanta, is one of those who sees a promising future ahead. “We are now just scratching the surface in technology, better materials, and I don’t see it doing anything but get better,” he said. Furthermore, he added, “the pest control industry as a whole has just become 180 degrees more professional than certainly we were 20 or 30 years ago, and I see that constantly improving.”

Treatment Frequencies

Forty percent of PCOs say quarterly service is their primary treatment regimen, while about 37 percent say monthly service is their main offering. But there are other nontraditional arrangements, too. Robert Ruiz, owner of Shield Pest Control, Torrance, Calif., said he prefers to visit his accounts monthly from May through October, and then make two more visits in fall and winter. “They get eight (visits) a year,” he said. “It works well for people on a budget and who don’t want pesticides applied in their homes every month.”