[Cover Story] Are We Really Over It?

Features - Cover Story

How do you really feel about the economy and the state of the housing market today? With a seven-year recessionary fog gradually clearing, owners talk about how the tough times have impacted their businesses and what they’re forecasting for the next 12 months.

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July 21, 2015
Kristen Hampshire

Joe Wilson has operated through three major recessions in his 50-year pest control career, but the one that struck in 2008 with the dual housing and stock market crash has been long in duration and slow in recovery. “This has dragged on for seven years now,” says the CEO of PermaTreat (sold to Rollins, Inc. in 2014) in Fredericksburg, Va., adding that it “sneaked up on us.”

Looking back, Wilson calls the 1974 recession “a killer” because of losing big-name companies like Woolworth’s and Railway Express. He recalls the early 1980s recession in a similar way — a deep dive with a fast economic revival. The downturn in the mid-1990s resulted in significant job losses for lots of Americans, he says. “It put an abundance of labor on the market.”

But this last recession has been like walking through a desert of quicksand. Some companies trudged forward, but most everyone lost their tread. Owners felt stuck because of uncontrollable market forces; stressed out because of the uncertainty some businesses got swallowed whole, while others muscled through. But that desert has seemed to have no end in sight...for seven years.

“I think our worry a year ago was that we would slip back into a recession, and now that worry I think is sort of off the table,” Wilson says.

Wilson’s concern has shifted from local economics to global unrest. How long will these cheap oil prices really last? “And what is happening in the Middle East can very easily create a serious impact on our economy,” he says, digressing into the potential for large-scale disasters to suddenly unplug the American Dream. Like what if one of the world’s most important waterways, the Suez Canal in Egypt, was stopped up completely?

At home in the Washington, D.C., metro area, Wilson says recovery is “slower than what we are used to” because of an up-and-down real estate market, but there’s movement in a positive direction. Restaurants are busier at dinnertime. Wilson’s real estate development company — he manages 40 properties in his area — is thriving, and it’s easier to fill tenant vacancies. And, following the only flat year in PermaTreat history last year, the first quarter of 2015 showed a near 20-percent revenue increase, he reports.

“When you’re having increased revenue, everyone feels better,” Wilson says.

Also, hiring good people is tougher, another sign pointing toward a stronger economy, says Donnie Blake, president, OPC Services, Louisville, Ky. “You have to work much harder to get quality employees than you did three years ago, and that is an indication that the economy is taking a turn,” he says.

So, how are business owners really feeling about the economy — are we better off now than last year, or five years ago? The pest control operators PCT spoke to said, for the most part, yes. The economy is looking up, and we’ve been waiting a while for this to happen. In fact, 32 percent of pest control business owners surveyed by PCT said they feel “excellent” about pest control business prospects in the next 12 months. And, 50 percent of respondents feel “good” about what’s to come this year (see chart below). “We feel like everyone is much more comfortable than in 2008,” says Dauphin Ewart, president, The Bug Master, relating that his Texas market does not necessarily reflect what’s going on nationwide, but “Austin feels incredibly vibrant right now.”

 

Measuring the Comeback

Business owners in the pest control industry headed into 2015 feeling cautiously optimistic about the economy and expecting an uptick in revenues from previous years. PCT conducted a survey via Readex Research to gauge pest control operators’ feelings about the economy today compared to last year, and five years ago. We’ve also cited the results of an Inc. magazine survey asking the same or similar questions to determine how PMPs and executives at the Inc. 5000 fastest-growing companies perceive various economic issues impacting small business.


 

Staying the Course.

“Old reliable” could be a nickname for the pest control industry. People don’t like pests, so demand for services never evaporates, though new construction halts certainly impact termite work.

“My grandfather got into the pest control business during the Great Depression,” says Jamie Ogle, president and CEO of Lloyd Pest Control based in Southern California. “Someone told him it would be a reliable source of employment and income for his family, and that has continued to be true to this day for our employees and our company.”

Ogle said once the economy got slower, consumers were noticeably tighter with dollars, and real estate dropped “significantly,” so termite business took a hit. “Growth was a bit harder,” he says, “so we stayed steady. We went a couple of years where we didn’t give raises, but we didn’t lay anyone off or cut benefits, and we still made contributions to our profit sharing plan.”

As owner, Ogle made the same sacrifices. “We made sure we were all walking in the same shoes,” he says. Ogle is like a lot of PCOs, including those surveyed by PCT (see chart below), who said personal sacrifices to support their pest control business included reducing salary (30 percent), limiting personal purchases (40 percent), tapping savings (24 percent) and postponing vacations (40 percent).

“We did the same kind of belt-tightening in our business that people did in their homes — reviewing the things we spent money on and whether they were truly necessary,” Ogle relates.

The good news for Lloyd Pest Control was diversification in services and in customer mix helped keep the operation steady. The company services all structural markets, Ogle says, adding that different SoCal counties were affected by the recession in different ways. For example, the Palm Springs office “had a harder time” than the San Diego branch. Meanwhile, hiring employees has been more difficult lately in Anaheim than in Riverside. “There is more competition in the Los Angeles market for jobs,” he explains. “The good part about our pest control business is that we have a lot of accounts that are smaller-dollar clients, and that diversification and lack of reliance on single customers makes it easier to find your way through a downturn.”

Meanwhile, Lloyd Pest Control adjusted its service options to accommodate residential clients’ concern about spending money by offering more cost-effective options — a rung lower than the standard program. “Or, if customers wanted to skip a service and come back the next month or quarter, we were more understanding of that than, perhaps, we would have been in the past,” Ogle says.

Blake says in terms of customer mix, OPC Services was relatively protected by the amount of multi-family business it does. “When the building industry was down, we were seeing the new construction drop off dramatically and people weren’t buying new homes, but multi-family occupancy was through the roof and [property owners] had more disposable income,” he says.


 

Seeking Expansion.

Growth at OPC held a steady 4- to 5-percent rate from 2008 to 2013, which is slightly less than the normal 4- to 8-percent annual revenue increases Blake likes to see. In general, the Louisville market doesn’t spike up and down like other areas of the country, he says. But, as chairman of the Metro Louisville Planning Commission, Blake says that the city was actually cancelling meetings after the housing crash because there were no plans to review. Growth really wasn’t happening for a while.

Meanwhile, Blake and OPC are capturing opportunity in the remodeling sector as investors picking up multi-family properties are demanding renovation services (along with pest control), and residents continue to update their homes.

Also, the company branched out into Indianapolis, Ind., and is “being very aggressive” in the Lexington, Ky., market. The remodeling and handyman business is based in Louisville, where OPC’s customer base is primarily residential compared to Lexington and Indianapolis. “We are focusing more on multi-family and high-profit commercial in that market,” Blake says, referencing health care facilities and food industry businesses.

OPC Services will continue to tap a growing customer base of Boomers who want to “retire” from dealing with home maintenance and improvement tasks, so they seek out professionals including pest control services. “That 50-plus age group does not want to do their own pest control, and now they are in a financial situation to [hire out] so we are focusing on that segment of the marketplace,” Blake says of this ongoing market opportunity.
 


 
 

Staffing Up.

Expansion, even in a modest sense, translates to needing a larger labor force. In the next 12 months, optimistic about continued consumer spending, OPC Services will continue its market expansion and hiring efforts, which Blake says are a challenge because of the lower unemployment rate.

It’s the same hiring story in Austin, Texas, Ewart says. The standard application response rate for a technician position is 50 to 80 candidates for a single job opening. “Now, we are seeing 20 or less applications,” he says. And because the sales industry, in general, is so competitive in his market, Ewart hardly sees unsolicited applicants for those jobs. “I attribute that to low unemployment,” he says.

With many pest control firms planning to increase head count in the next 12 months — 39 percent according to the PCT survey (see above) — lower unemployment and a smaller pool of qualified and high-quality applicants will continue to make hiring a challenge. “It’s always tough to find good people, and to find the type of person who can represent our company and keep our customers feeling comfortable,” Wilson says.

Blake adds that hiring inexperienced employees for technician roles is fine because the company’s robust training program gives people the tools they need to do the job. But for the remodeling side of the business, experience is required and a “master” level tradesperson is best.

“What we are seeing in the building business, and proof of how well it has been doing in the last couple of years, is that there are less opportunities to bring on good folks for that side of the business,” Blake says.

So the good news is, growth looks good in the next 12 months for many PCOs. And, only 23 percent of businesses surveyed say they are very worried about the value of their operations. (Fifty-eight percent of respondents rated their concern about value as neutral to not at all concerned.) The challenge will continue to be finding good people.

However, customers are showing a true loosening of the purse strings, and Blake says residential clients seem less concerned about price and more interested in reputation and references. “The residential segment of our business is growing dramatically with little resistance to reasonable pricing models,” he reports.

Strong companies that succeed in good times and bad hold on to profit margins to sustain their operations. “We have not lowered our prices through the recent recession and have in fact increased some prices for specific customers,” Wilson says, adding that there has always been price pressure in the pest control market due to mom-and-pops that enter and exit the market.

Wilson is looking at the first quarter’s double-digit growth, feeling optimistic that 2015 will bring a return to the type of growth PermaTreat experienced before 2008. In Austin, Ewart says that the oil industry may be a “wild card,” but the general business climate in Texas is positive for his commercially focused business. And Ogle says he’s “cautiously optimistic” about the economy now. “If you’re too optimistic you could get knocked over,” he says, relating that a high comfort level is not always a good thing. “We have to be smart.”



About the author: Kristen Hampshire is a Cleveland-based freelancer and a frequent contributor to PCT magazine.