Sunny and Bright Industry Forecast

What kind of year will 1999 be for business? Bulls see a domestic economy with continued high employment, low inflation, low interest rates and strong consumer confidence and spending. Bears worry about global economic problems that could slow the U.S. economy or even produce a recession.

Add it all up and pest control operators believe 1999 will be a good year for the industry. Several that PCT spoke with agree that it would take a major recession to affect the pest control industry significantly this year. The year could be great if the economy keeps humming along with excellent housing starts, low interest and, of course, favorable weather.

Optimism about 1999 follows a strong business year in 1998. Despite regional droughts and flooding brought courtesy of an El Nino weather pattern, most PCOs said their business grew in 1998.

According to research conducted for PCT by Research USA, Inc., a whopping 73.3% of all PCOs said their final year-end sales in 1998 would be up from 1997 and 24.4% said their sales would at least match last year’s. Only 2.3% of the 413 PCOs who responded to the survey expected sales to be lower in 1998 than in 1997. The research commissioned by PCT allows for a 5% margin of error.

While sales were up, the degree of increase is also significant. PCT’s research showed that half of those responding expected final 1998 year-end sales to have increased 10-19%; one-third by 20-49%; and 4.8% by 50% or more.

LABOR SHORTAGE A CONCERN. Even if the U.S. economy does slow in 1999, several PCOs say the expected impact on the pest control industry will be minimal, and could possibly even be positive. Russ Ives, president of Rose Exterminator Co., Troy, Mich., says a slower economy could loosen up the job market and help pest control companies find the new employees needed to grow.

"Unemployment rates continue to be very low, so it is very difficult to find employees," Ives says. "I communicate regularly to other companies across the country, and many have not been able to do all the work possible because they could not find the people to do it."

Ives says Rose Exterminator had a good year in 1998 and believes 1999 will also be positive. Of all the variables that could make or break a great year, Ives says finding quality employees easily ranks number one. He rates the general economy number two and good weather third.

The good news is that finding and keeping employees is a business factor that companies can do something about, Ives says. Rose Exterminator has had a program in place to attract, train and retain employees for several years.

In contrast, Ives says there is little you can do about the global or U.S. economies. He doesn’t pay much attention to short-term economic ups and downs, preferring to monitor long-term trends in the prime rate, housing starts, mortgage rates and interest rates. The Kiplinger Newsletter and similar business publications help him monitor economic trends.

Weather is the third important variable because it often moves residential and termite sales up or down 15% in his area, Ives says. "Last year was the best termite season we’ve seen in the last five to seven years and while termite work is less than 10% of our total business, it had a positive impact on our year," Ives says. "If the weather is right it can really help sales. If it is not right, then you have to work harder at selling. It all comes back to your people. They are a company’s single most important resource for success."

PROVEN MARKET RESILIENCE. Jim Aycock, president of Cook’s Pest Control, Decatur, Ala., is even more emphatic on the importance of finding competent employees. Aycock says the top two variables for making 1999 an outstanding business success are finding good people and finding good people. A distant third factor would be the weather.

"You don’t have any control over the weather or the nation’s economy," Aycock says. "Weather is important to us because 40% of our company’s business is termite work, but even in a challenging year the attitude of your people can overcome the weather. It’s just easier to sell termite work when termites are swarming."

Aycock monitors the general economy by reading Kiplinger’s, the Wall Street Journal and USA Today. Typical day-to-day changes in the national economy have little effect on the pest control business, he says. "Economic indicators that are important to a manufacturing company are not important to a service business," he said. "A service business is more labor intensive and affected by the unemployment rates, especially in the metropolitan areas that we serve in Alabama, Tennessee and northern Georgia."

Aycock says his company’s strategy is to find good employees. "You can train a good person to be a good pest control technician," he says, "but it is difficult to teach an already trained technician to become dedicated."

Aycock says Cook’s retains employees by stressing honesty, training and opportunity. "It’s a different job market today but we are able to retain most of our 800-plus employees by treating them fairly and as a family."

CUSTOMER INPUT VALUED. In the Pacific Northwest, bumps in the global economy are felt earlier and stronger than in some other areas of the country, according to Alfie Treleven, CEO and president of Sprague Pest Control, Tacoma, Wash.

"The economy in the five northwestern states we service is significantly affected by the world economy and business confidence, especially in Asia," he says. "Our region ships computers, aircraft, apples, cherries, wheat, potatoes and more to the rest of the world, so our commercial customers are very sensitive to any changes in the global economy."

While the global economy is of major significance to his business, Treleven says employee hiring and retention still outranks it as a top business factor for success in 1999. People present the biggest company challenge and opportunity.

"We can grow as fast as we can find good people," he says. "I would rank finding employees as our top business objective in 1999. The global economy would be number two in potential impact, and there is no number three. Weather would be a concern for companies in our area that do a lot of residential work."

In planning for growth, Treleven says Sprague depends on direct customer contact. "I have friends in the Federal Reserve Bank of the Northwest, so I have excellent access to economic information. But by the time the government or media report economic news it is usually 60-90 days old. What I find works best is to get out and talk to customers directly. We tend to look at every separate industry to try to decide what to plan for and what to budget for growth in the coming months and year. We push hard to communicate what’s going on in the marketplace throughout our organization. That is the best source of information that means something."

TERMITE BUSINESS DRIVERS. Joe Wilson, president of PermaTreat in Fredericksburg, Va., says 1998 was a good year for his company and believes this year will be as well. Wilson’s company has 60 employees serving a 14-county area. His business is 40% commercial and 60% residential. Termite control is important in his area and the new federal law passed in 1998 that required full label rates on pretreats helped.

"Because of the new law we were able to increase our pricing on pretreats and that helped," Wilson says. "We are waiting to see if the FTC investigation will have an impact on us. If so, that could be positive if homeowners become more careful with whom they deal."

To have a great year, Wilson says he will push to expand his account base. That is somewhat dependent on the weather because people call when they experience a pest problem, but new business is also dependent on sales efforts. Keeping residential customers on service longer is another challenge.

A good termite season is also necessary and that is weather-related, Wilson says. Another factor would be a strong real estate market for existing homes. "We watch housing starts in our area, but we are not dependent upon them. When housing starts are down people tend to remodel and add-on to their existing homes. The sale of existing homes is more important for WDI inspections and termite treatments," he says.

To ensure profitability throughout the year, Wilson budgets quarterly and makes adjustments in pricing as needed. Usually he budgets an annual price increase that is tied to the Consumer Price Index, but any surprises in terms of higher expenses can be passed on when needed. "I’m still small enough to see all the bills payable and keep on top of profitability," he says.

While he can’t predict how good of a business year 1999 will be, Wilson says his experience is that good times and bad times don’t have that much effect on the pest control industry. What does matter is what you do during those times.

"I learned a long time ago that three things determine your business success. You have to give decent service. You have to get a decent price for your service. And, you have to work efficiently in terms of the number of employees and vehicles. If you do all three of those things, the rest takes care of itself." (Editor’s note: For more information on 1999 business trends, turn to page 32.)

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