[State of the Industry Report] A New Guard

Features - PCT News

With more startups offering a wider range of services, today’s pest control industry is more diverse than ever.

Subscribe
October 10, 2003

ABOUT THIS REPORT

In March and April of this year, PCT mailed a random survey to 1,000 of its readers. There was no indication given in the mailings to show for whom the survey was being conducted. We received 433 responses to the survey, for a response rate of 44.2 percent (this takes into account surveys not delivered, etc.). The data were analyzed over the summer and are used throughout this report and online at www.pctonline.com. Unless otherwise noted, the charts used in this report were taken from this research. About 92 percent of the survey respondents were male. Respondents represented states from all areas of the country, with the largest number located in the states of Texas, Florida, California and New York. About three-fourths of respondents were the owner of the business and 15.7 percent were presidents. Most others held various management positions. This State of the Industry report was written by Lisa McKenna, a former managing editor of PCT and a frequent contributor to the magazine. She can be reached at lmkenna@pctonline.com. PCT would like to thank Gary Curl of Specialty Products Consultants, Mendham, N.J., for use of several charts featured in this report. See pages 14 and 15 for his research. PCT also would like to thank Jean Seawright, Seawright & Associates, Winter Park, Fla., and the National Pest Management Association, Dunn Loring, Va., for use of two charts on page 19. The research was conducted by Seawright in conjunction with NPMA.

In a recovering but still troubled economy, the pest control industry looks to be holding its own, especially when compared with other service industries. Contributing to the industry’s strong position has been a healthy market for new and existing homes. And while today’s professional pest control tools are more effective than ever, pests are still a force to be reckoned with.

A related issue is consumers’ heightened interest in taking care of their No. 1 investment: their homes. While that’s always been important, in this post 9/11 economy, it’s become even more relevant to many people. Eliminating pests is part of that concern. So it’s no surprise that most pest management professionals are finding business to be solid, even in this soft economy.

In spite of these changes and perhaps because of them, today’s pest control industry is notably different than yesterday’s. The average pest management professional is more likely to work for a small, independent operation, serving a smaller number of customers. He or she is also providing a broader range of services than ever before.

These and many other statistics were highlighted in PCT’s 2003 survey of the pest control industry. The survey, conducted this spring by an independent research firm, analyzed such issues as company size and age, services offered, growth opportunities, advertising and employee benefits.

For this comprehensive report, more than 400 PCOs in 43 states responded about everything from business opportunities to employee benefits. Results also were compared with those reached in a previous independent survey conducted in 2001. The findings, described here and in the pages that follow, suggest that today’s pest management businesses are on average, smaller, younger and more multi-faceted.


SMALLER, YOUNGER OPERATIONS. Today’s pest control industry is increasingly comprised of a larger number of smaller, younger operations, according to the PCT magazine survey. Almost 25 percent of pest control companies have been founded since 1995. That’s up from about 14 percent founded since 1995 just two years ago. Two-thirds of the industry’s companies have been founded since 1980. In the 2001 survey, just under half (48.5 percent) had been founded since 1980.

And as still more evidence that the industry is comprised of smaller, younger operations, the survey indicates that about 94 percent of operators characterize themselves as independent, privately held businesses. That compares to about three-quarters of operators in 2001.

One company that seems to characterize the industry’s large group of smaller, younger operations is 1st Choice Pest Services, based in Wichita, Kan. This one-man operation is owned by Jeff Ledford, a seasoned industry professional who has been performing pest control work since 1989. He founded his first business, Advantage Pest Control, several years ago. When he later sold it, staying on in a management capacity, he had to rethink his decision. "It’s hard to be an employee once you’ve been an owner," he says. So Ledford founded 1st Choice in August of 2002.

"I had been with a larger regional company and just didn’t really like the big business aspect of things," he says. "I preferred the smaller business where we could give the customer what we felt needed to be done instead of the company guideline."

Similarly, Don Clemons, owner of ClemTech Pest Control, based in Atlanta, started his business in early 2002. For the previous 15 years he had worked in management for another major company in the Atlanta area. "I needed to move beyond the direction I thought the industry was going at that time. It seemed that we were moving away from service," he said. "Everyone said service but productivity was the only thing that seemed to matter."

Clemons says he believes many startup business owners are simply driven by the desire for better opportunities for themselves. "If you are labor, there’s only a certain amount of upward mobility you’ll ever receive and some of these guys want to move beyond that," he says.

Clemons says his business was slow at first but has picked up and he’s had a very good year. "Those who still think that name recognition will allow you to run in and out of a place without doing a thorough job will lose customers and small independent companies like myself are there to pick those customers up and take care of them," he says.


MORE DIVERSE OPERATIONS. Although today’s companies appear to be smaller, they also appear to be more multi-faceted, offering a wider array of services than ever before. More than half of companies now offer ant, flea, rodent, perimeter, IPM, termite and flying insect control services. And nine out of 10 companies offer ant, flea and rodent control services. This wasn’t the case two years ago, when about eight of 10 offered ant and rodent control and seven out of 10 offered flea control.

Again, 1st Choice Pest Services is a prime example. The company offers general, perimeter, termite, rodent, flea, flying insect and mosquito control. Having so many years of experience in the industry means startups such as his can handle a variety of work comfortably.

Clemons also offers many different services, including general pests, termites, mosquitoes and bird control. "We haven’t tackled ’gators yet," he jokes.

Some of the services that appear to have shown big increases in availability are termite control: previously 63 percent, now 75 percent; perimeter services, previously 66 percent and now 85 percent; and flying insect control, previously 51 percent and now 67 percent. Surprisingly, the much-talked about service of mosquito control doesn’t appear to be any more common: About 23 percent of companies perform such work today compared with 25 percent in 2001. Furthermore, there are a few services that have apparently fallen out of favor with pest control companies. Perhaps due to its high cost and liability, fumigation is being offered by fewer companies today: about 13 percent, compared to 19 percent in 2001.

Today’s companies are also more heavily entrenched in the residential market than two years ago. An average of 70 percent of the service work comes from the residential market, pest management professionals said. In 2001, 64 percent was in the residential sector. This increase could be reflective of the fact that today’s younger companies are more comfortable working in the residential sector, an area that is perceived as more predictable and easier to handle than commercial pest control. In contrast, commercial customers often have less tolerance for pests, may be less loyal and tend to be more demanding, simply because of the impact that pests can have on their businesses. Also, smaller companies sometimes don’t go after commercial work that may be complicated and complex. Commercial work sometimes requires larger staffs, night-time work or other resources that a smaller firm may not have access to.

Ledford’s company is made up of 50 percent commercial business and 50 percent residential, but he agrees many independent operators tend to shy away from the commercial end. However with his experience in commercial work, he doesn’t. "Several of the commercial accounts that I’ve serviced are very stringent," he said. "You’re on a very tight schedule and you have to meet certain guidelines."

Meanwhile, Clemons has focused more on commercial business, partially because of the stagnant economy. "Certain accounts are required to have pest control, so it makes it a lot better for your survival if your focus is commercial." He says he built his business by making sales calls and being in the right place at the right time. "The first account I walked into was having some severe problems and almost facing closure because of an up-and-coming state inspection," he recalls. Clemons’ timing paid off: he gained the company’s business and after a week of service, Clemons had the account pest-free.

On the other hand, A-Active Termite & Pest Control of Virginia Beach, Va., has focused on the residential market since it was founded in 1967, says company Vice President Jeff Johnson. "Historically I think residential is more profitable for us," Johnson said. "It’s easier for us to service since we’re in neighborhoods." What’s more, Johnson notes that having a strong residential business has benefited the company commercially, via referrals to business owners who then hired the company.

Some companies are comfortable tapping into both markets, including some of the largest firms in the industry. About 8 percent say they have about a 50/50 mix. Michael Katz, president of Western Exterminator Company based in Anaheim, Calif., sees the benefits of a combination. "I feel both areas offer tremendous growth potential, especially when one considers the relatively low market penetration our industry has achieved across the board," he says. "I view residential as less volatile, but commercial business offers incrementally higher pricing."


PEST OPPORTUNITIES. When asked which service represented their largest growth market, PCOs have stayed consistent from 2001. Ants are even more popular as the most-frequently named growth pest (35 percent selected "ants" compared to 30 percent in 2001).

"Ants are really driving everyone nuts," said Richard Kramer, technical director of American Pest Management, Takoma Park, Md., and contributing technical editor to PCT. "And for this year it’s probably worse than any year in the past. There’s a lot of calls for them and they’ve become increasingly difficult to control."

PCOs across the country agree. "Ants are by far our No. 1 pest, so to me, that’s the area of pest management offering the greatest growth potential," says Western’s Katz.

Johnson says he attributes A-Active’s pest control growth largely to ant work. "It probably represents 85 percent of all of our new client pest control business," he said.

Termites remained a close second growth area, selected by 27 percent of PCOs as the top growth area. And the third growth area, perimeter service, seems to have gained some popularity: 11 percent selected it as their top growth market, compared to 7 percent in 2001. Another growth area appears to be Integrated Pest Management (IPM), named by 8 percent of pest management professionals compared to 2 percent in 2001. Incidentally, less than one percent of PCOs selected mosquito control as the top growth area.

In terms of service frequency, pest control companies continue to offer a variety of options. However, there appears to be a modest trend in service frequency. Many pest management professionals are reverting to the historically popular quarterly treatment schedule. Now about 40 percent of companies say visiting accounts four times each year is their primary treatment regimen, compared to about 26 percent of companies that said so in 2001. This trend also correlates with the finding that today’s companies have smaller, yet more knowledgeable workforces and perhaps are using more dependable tools.

As one example, Griffin Pest Control, based in Kalamazoo, Mich., recently switched its service schedule from monthly to quarterly, primarily to reduce costs, says company President Linden Griffin. He referred to the various costs involved in each service call, such as transportation, invoicing and insurance. "Let’s say you’ve got a $35 monthly service," Griffin says. "There are only so many expenses you can load into that $35 service fee." He argues that monthly service may be too frequent. However, Griffin does offer a "platinum" bimonthly service for those customers that want it.

Overall, the number of companies preferring a monthly treatment regimen, at 42 percent, hasn’t changed significantly. But the survey indicates visiting customers less than four times a year isn’t at all typical of the industry: Only 8 percent of companies use a primarily annual schedule.

Tom Hardin, owner of Hardin Services Pest Control, based in Rock Hill, S.C., is one operator who uses a quarterly schedule for most residential customers and a monthly schedule for commercial ones. He prefers quarterly for residential customers because it provides the right balance between good service and efficiency. "We can touch our customers in each of the four seasons," he says. And he adds, "we can actually serve more customers that way."

Meanwhile, 1st Choice Pest Services offers a unique service schedule for residential customers: an interior service once each year, then exterior power sprays every other month. 1st Choice’s Ledford says this program has been more popular with customers than quarterly service, as well as more effective. "It seems like they realize they’re getting some value because they’re seeing us out there on a regular basis," Ledford said. And he adds, "they’re not having the pest problems that they had previously."

Soft Economy, Strange Weather Affect Business

With the economy now showing signs of a turnaround, PCOs who were concerned can perhaps breathe a sigh of relief. Although many characterize the industry as somewhat recession-proof, a number of PCOs said they saw some softening in the market in recent months.

Some PCOs in the North said unseasonably cold weather, combined with economic factors, led to a so-so year for them. Syed Shah, president of Arab Termite & Pest Control, Indianapolis, said the economy, the war with Iraq and a cold spring all contributed to a lackluster year. "We never used to get as much price shopping as we’re getting now," he said. "I really don’t think there will be a turnaround this year."

Tom Evans, president of Southern Mill Creek Products of Ohio, a well-known product distributor based in Cleveland, agreed. "We got hit by the economy, the war and then the weather," he said. "We saw a lot of business decisions delayed. All of those add up to a disappointing year."

Of course not all PCOs were disappointed. Brent Boles, general manager with Schendel Services based in Topeka, Kan., says the economy has had a noticeable yet positive effect on commercial customers. "Overall, we’ve been pleasantly surprised by the pest control market this year," said Boles. "Specifically, our commercial market has been very strong." He explained that while commercial customers cannot afford not to have service, they do appear to be less loyal in the past year or two. That’s led to more business opportunities for Schendel. "We’ve retained our share and picked up some business," Boles said.

The soft economy had an effect in other ways too. "We have more bad debt this year than we’ve had, ever," Boles said. "And our customers are asking us to reduce and eliminate services. They’re really wanting us to come in and do less service." However, the company has been proactive by offering lower cost alternatives to these customers, according to Boles. "We’ve gone to our clients and tried to give them options and alternatives that would satisfy them," he said. "If that meant reducing our revenue from them, then that’s what we did."

PCOs Tolerate Rising Chemical Costs

Today’s more technologically advanced industry carries a higher price tag for most PCOs. PCT’s independent survey shows that chemical costs are eating up a larger chunk of service revenues. This is more apparent in the termite market, where termiticide costs now constitute an average 12 percent of service revenues, compared to 8 percent two years ago. Meanwhile, the cost of general pest control chemicals averages about 13 percent of service revenues, compared to 11 percent in 2001.

While PCOs feel the pinch of these increases, many understand the reasons behind the price hikes. "The cost of the chemical has risen so dramatically in the last two years that it definitely affects the bottom line," says Tom Hardin of Hardin Services Pest Control, Rock Hill, S.C. "I think the new nonrepellent types that are selling so great — they were very well marketed for one thing," he said. But he notes that the new products are also effective. "I think their costs have increased," he said of manufacturers.

Other PCOs agree, noting that the new nonrepellent chemicals for termites and general pests simply cost more to produce. The added benefits of not having to retreat make the new products affordable.

Tim Hulett, president of Hulett Environmental Services, Riviera Beach, Fla., says the industry’s new products have more science behind them. "Now we’re using products that I think are more geared to the insect and we can use a lot less of it, so it’s more expensive." With good reason, he adds: "It took a lot more research to do that."