[State of the Industry Report] Not Such a Bad Year

Despite daily doom-and-gloom reports on the U.S. economy, most pest management professionals said 2007 was an OK year, and this year is looking pretty good, as well.

Professionals shared their insights in PCT’s annual, independent survey of the industry. In all, 373 respondents from 47 states commented on topics ranging from revenue to fuel costs. More than 80 percent of those surveyed were owners or presidents of privately held businesses (92 percent) with gross revenues of less than $25,000 to more than $2.5 million.

After compiling the survey, PCT magazine talked to professionals to get a clearer picture of what these numbers mean, as well as what they expect for 2008.
 
BETTER THAN EXPECTED. Compared to 2006, nearly 55 percent of professionals surveyed said 2007 service revenues increased, and 44 percent saw profits rise.

“2007 was an incredible year for us,” reported Chuck Payton, president of San Jose-based A-Pro Pest Control, which had its best year in its 24-year history. “2007 was an excellent year,” agreed Tony White, president, All Gone Termite & Pest Control, Cincinnati.

Other professionals saw more modest growth compared to years past. Craig Thomas of Craig Thomas Pest Control in Hyde Park, N.Y., said sales increased 14 percent in 2007, down from previous years that topped 30 percent growth. Last year was “decent” but a “different year from any other year that we’ve seen,” said Tommy Reeves, vice president of Oldham Chemicals, Memphis, Tenn.

Professionals remain cautiously optimistic as 2008 closes. According to PCT’s survey, more than 57 percent expected sales to increase this year. All Gone’s White said revenue is up 38 percent over last year — a jump he attributes to providing better customer service.

Sales are up 24 percent at Titan Termite & Pest Control in Charleston, S.C., said President Mark Drohlshagen. “We haven’t slowed down yet.” In Vienna, Ga., business is “doing great, even with the economy in the bad shape that it’s in,” reported Monty Milikin of Milikin Exterminating. Sales are “back on schedule,” reported Dale Nesbit, co-owner of Mountain Pest Control, Glenwood Springs, Colo.

Moving forward, professionals “cannot expect the same market that has delivered for the last 10 years consecutively,” said Reeves. Customers are changing, and services must change to meet their needs, he explained.

The economic climate requires professionals to re-evaluate their entire company, added Thomas. Determine what’s contributing to the bottom line and focus on providing consistent customer service, he said.

“We’ve been through this before,” recalled Jeremy Kreer, president of Advanced Pest Management, Elkton, Md., which was founded in 1964. “We’ve always had these moments where you have to either reinvent yourself or expand into different areas or just change things.”

Revenue remained steady because people maintain their homes in down markets, said Drohlshagen. Jack Frimple, assistant general manager of All Natural Pest Elimination in Medford, Ore., agreed. Homeowners aren’t flipping homes like they were a few years ago and realize they must solve pest problems or potentially lose their investment, he said.

TERMITE WOES CONTINUE. The sluggish economy, stagnant housing market and credit crunch continued to pinch the termite sector. Pretreatments, post treatments and structural fumigations are down significantly due to these factors, said John Bolanos, vice president of Univar USA in Austin. “2007 was a challenging year for the industry.” Pest management professionals agreed: Sixty percent said their termite revenue decreased or remained the same last year.

In Tuscaloosa, Ala., new construction is at a standstill, said John Leonard, owner of Dependable Termite & Pest Control. “Our termite business has really suffered.” A number of home builders he used to work with have closed shop. To help offset lost pretreat revenues, Leonard is installing more termite bait systems. “We’ve done more of that than we have in the past.”

The termite sector will continue to lag through 2009, Bolanos said. The single biggest industry that impacts pest management is the housing market and “I don’t see the housing market changing until well into ’09.”

Yet regional bright spots remained: Forty percent of professionals surveyed saw termite revenue increase in 2007. Such increases were concentrated in new construction pockets located inland from the coasts, like central Mississippi, Georgia and Alabama, said Oldham’s Reeves. Pretreats remained down, he said, in Florida, Texas, California, and over-built resort areas. Drohlshagen agreed. In his markets, housing starts slowed in Charleston, but his Anderson office in upstate South Carolina saw a building boom.

Overall, 46 percent of professionals said 2007 was an average termite year, and the majority (34 percent) charged $750 to $999 for an average residential termite treatment. Forty percent increased their fees for 2008, while 51 percent of professionals kept prices constant.

GENERAL PEST GROWTH. While the termite sector sagged, general pest control led sales growth at many firms. Compared to three years ago, revenue from controlling public health pests like mosquitoes, ticks, fire ants and bed bugs increased 43 percent, reported professionals.

When asked “Which one of these services represented your company’s largest growth market in 2007,” pest management professionals replied ants (32 percent), termites (18 percent), perimeter services (13 percent) and bed bugs (10 percent). Yet some of those same pests — ants (38 percent), bed bugs (27 percent) and cockroaches (11 percent) — were challenging for the industry and proved the most difficult to control.

While most pest management professionals didn’t add services in 2007, those who did (33 percent) expanded into “green” pest management (32 percent), bed bug (30 percent) and mosquito misting (15 percent) services.

Oldham’s Reeves saw “significant growth in other markets,” with small companies developing profitable niches in mosquito, residential perimeter and anti-microbial drain treatments.

Many professionals, like Mountain Pest Control’s Nesbit, added bird control. “Wildlife control has helped us out tremendously,” reported Advanced Pest Management’s Kreer. A-Pro’s Payton said his wildlife control service, which focuses primarily on skunks and possums, found its stride last year. “It’s going real well for us.”

Nesbit said bed bugs became “more of an issue” and a business opportunity in his tourist-heavy region. The pests were aided by transient laborers coming in to work in the natural gas industry, he said.

An ongoing bed bug epidemic in greater Cincinnati led All-Gone’s White to structure a complete bed bug division. The dedicated team lets technicians focus on customer satisfaction and doing the job right, without being pulled off regular routes.

Commercial business also was a boon, said Dependable’s Leonard. This segment continued to perform better than residential, he explained. Univar’s Bolanos agreed. He said commercial business grew in 2007 in response to the weak termite market.

Advanced Pest Management expanded into services originally not “a core part of our business,” said Kreer. These included crawlspace door installation and moisture control treatment. Thomas of Craig Thomas Pest Control added odor control and insulation services. Said Kreer, “We’re turning over every opportunity we have.”

GREEN MOVEMENT. Green pest management products and services continued to catch professionals’ attention. Sixty-six percent of professionals surveyed expect green marketing to increase, and most (76 percent) planned to increase or maintain their green services in 2008.

“The way the industry’s going, we’re trying to offer more and more,” said Nesbit. Mountain Pest Control and All Natural Pest Elimination have provided environmentally friendly services for 10 and 15 years, respectively.

Kreer is taking steps to achieve the National Pest Management Association’s QualityPro Green certification and is developing customer communications to better explain the firm’s green offerings. White, who’s evaluating green products, said the movement is going to “improve the industry” and “make it smarter.”

Being green goes beyond product use. Team Too Termite & Pest Control in Corona, Calif. undertook a company-wide green initiative in 2007 and was named a certified ECOWISE provider, said Vice President Bryan Houtchens. ECOWISE is a joint effort of the Association of Bay Area Governments and is funded by the California State Water Resources Control Board and the Rose Foundation for Communities and the Environment. The QualityPro firm significantly reduced its carbon footprint, power consumption, and water and paper use, Houtchens reported.

Thomas said green pest management is part of a larger trend: the shift from killing pests to protecting health and property through environmental management. This opens up a lot of creative add-on services, such as improving air quality through dehumidification, he said.

MANAGING INCREASED COSTS. While 2007 revenues increased, so did expenses, said 78 percent of professionals. Many took steps to reduce overhead expenses (51 percent), cut back advertising (40 percent) and delayed major purchases (38 percent). Most expected to pay more for payroll, vehicles and equipment, pesticides, insurance, fuel and employee benefits in 2008.

Chemical costs did not increase much in 2007, but 2008 was a different story, said Bolanos. “We’re seeing a lot of price increases on a variety of different products,” especially on petroleum-based chemicals and from rising transportation costs, he said. “Managing expenses is a major focus for all companies, including distribution.”

All Natural Pest Elimination, which makes its own NatureLine products from EPA 25b exempt oils and borates, saw the cost of botanical oils significantly increase, Frimple said.

Tough times forced companies to respond, said Kreer, who encouraged employees to get involved and find solutions. Employees once considered strictly technicians or office support now lead efforts to improve efficiency or grow the business, he explained. Because of this group effort, “the outlook for us is great.” White takes a similar approach to controlling expenses with employees’ help. “We’re all in this together.”

THE ‘F’ WORD. Reducing fuel costs was a major initiative of most pest management firms. In fact, fuel was cited by 74 percent of professionals surveyed as the biggest expense increase in 2007. Forty-four percent said the rising price of gas is the most important problem facing the professional pest management industry today.

How are pros responding? Some raised service prices to help cover fuel costs. Customers are “extremely understanding,” said Nesbit. Milikin agreed. “I have increased my prices and nobody has argued with it one bit.” Frimple asked customers to schedule service calls on specific days, depending on their location, to tighten up routes.

Most professionals made route scheduling a priority, and many installed GPS units in service trucks to optimize routes and save fuel.

With gas now 25 percent more of his budget, Payton stopped letting technicians take trucks home. Kreer purchased more fuel-efficient, mid-size trucks to replace his heavy-duty fleet. Team Too’s Houtchens switched to more fuel-efficient trucks, and replaced truck-mounted gasoline-powered sprayers with no-emission, no-noise, electric-powered sprayers. He also equipped trucks with a 65 MPH “governor” and electronic fuel controls to prevent gas-guzzling “hard starts.” The timing and speed governing changes increased fuel mileage on each vehicle by 15 percent or 2.25 miles per gallon, and reduced fuel bills by $1,000 per week, he said.

STAFFING STATUS QUO. Recruiting employees posed the same challenges in 2007 as in years past, said 55 percent of those polled. The energy industry in Colorado takes a lot of available workers, which could affect Mountain Pest Control’s growth plans in 2009, reported Nesbit.

But in Northern California, Payton has about one qualified person a week stopping by seeking employment. “We’re fortunate,” he said.

Employee turnover is a costly concern, one Drohlshagen stopped by sending customers reminder postcards. The postcards took the burden off technicians of setting up appointments, he explained. Not all technicians like scheduling their calls, Drohlshagen said. “You’ll have guys quit over it.” Better optimized routes also helped cross-trained technicians perform multiple services at one stop and increase their income, he said.

Building a strong team is essential in this economy, and poor performance cannot be tolerated, said Thomas. “Recruiting is not filling shoes when you need it,” rather it’s an every day, all-year effort, he said. White added, “Companies don’t make people, people make companies.”

Most professionals (74 percent) planned to maintain the same level of staffing in 2008. Fifty-nine percent kept 2007 wages at 2006 levels.

LOOKING AHEAD. Once again, pest management professionals proved they’re a resilient bunch. Most (59 percent) are satisfied with the way the industry’s headed, although 42 percent said it’s more difficult to maintain their standard of living compared to five years ago.

“I’m excited about 2009 and the future of this industry,” said Thomas of Craig Thomas Pest Control.

“I think the industry’s still strong,” said Nesbit. “We’ve always called ourselves ‘recession proof’ and it’s kind of testing it this year. I think we’re going to do just fine.”