COVER STORY: Pre-Treats: A Changing Marketplace

For years the pre-treat market remained relatively unchanged. Chlordane, the closest thing to a “silver bullet” ever developed for the structural pest control industry, provided 30 years of control on treated structures, even at less-than-label rates, making it the quintessential pre-treat product. Pest control companies in the Southeast and Gulf Coast states, as well as termite “hot spots” throughout the country (i.e., Long Island, N.Y), were more than willing to grow their market position – and bottom line – by offering pre-treats at artificially low prices, secure in the knowledge they would make a tidy profit on the “back-end” of their contracts by servicing thousands of annual termite renewals. It’s a business model that worked well throughout the 1950s, 60s and 70s, making millionaires of PCOs who got in on the “ground floor” of this trend and creating some of the largest, most successful pest control companies in the United States.

With the demise of chlordane in the mid-1980s, as well as increasingly burdensome regulatory requirements – not to mention the ever-present threat of liability – the number of pest control companies involved in the pre-treat market declined dramatically. Many PCOs simply said the payoff wasn’t worth the aggravation ... or the financial risk. “In the early 1970s we did about 75 percent of all the pre-treats in our county,” observed Herman Moxey, president of Fidelity Exterminating Specialists. Aberdeen, Md. “However, as competition built and pre-treat pricing became a joke, we did fewer and fewer. That’s because some of our competitors are still doing so called pre-treats for about half of what the chemical alone should cost.”

“I have a company in my area doing pre-treatments for as low as 6 cents (per square foot),” said Spencer Rains, a manager of Critter Getters Pest Control, Salisbury, Md. “And, of course, they are always done at full label rate. Yea, right,” he says sarcastically.

Ron Schwalb, a former PCO who now serves as technical services manager for Nisus Corporation, said, “A lot of people pulled out of the market because of pricing concerns. They could not apply the product the way they wanted to apply the product and still compete, making a reasonable profit off of their applications.”

Still, cutthroat pricing wasn’t the only factor that caused PCOs to abandon the pre-treat market in growing numbers in the 1980s and 90s. Increasingly aggressive regulatory oversight, including several high-profile Federal Trade Commission (FTC) investigations, prompted numerous PCOs to dramatically enhance their pre-treatment programs, while others simply stopped offering pre-construction termite services altogether. “Greater enforcement activity in Florida and the Gulf Coast caused some folks to reevaluate the market,” observed Dr. George Rambo, president of GR Consulting Services, Herndon, Va. “Interestingly, there were increased termiticide sales once the FTC started seriously investigating the industry, so that tells you something about the pre-treat market.”

While the FTC’s sudden interest in the pre-construction termite market scared some unscrupulous PCOs “straight,” others raised their prices to more accurately reflect their actual chemical costs, leveling the playing field and making the pre-treat market increasingly attractive to companies interested in expanding their service offerings.
 
THE WINDS OF CHANGE. The pre-construction market, under constant pressure by builders demanding the cheapest treatment possible, is by its very nature extremely price-sensitive. However, new product introductions and innovative treatment techniques – as well as the recent recession that has caused some PCOs to consider expanding their service offerings to generate additional cash – are prompting a growing number of PCOs to take a fresh look at this important pest control market. “There certainly are more ways to go about performing pre-treats than at any time in our industry’s history,” observed Dr. Michael Potter, an extension entomologist at the University of Kentucky and one of the country’s leading termite experts.

“As technologies change and new products and even non-traditional methods such as baits and borates prove themselves, innovative pest management professionals will jump back into the market,” predicted Greg Baumann, president of Pro-Tech Pest Management, Inc., Raleigh, N.C. “Sharp business managers today must look at all sources of revenue and the ignored pre-treat market is a good target.”

Exactly how good remains to be seen, but clearly PCOs have a growing number of control options from which to choose when developing a pre-treat program they hope will resonate with customers. A review of some of those control options follows.

TRADITIONAL TREATMENTS. PCOs have a wide range of liquid termiticides from which to choose when designing a pre-treat program. As mentioned previously, because of the historically price-sensitive nature of the pre-construction market, the most popular products are those that provide termite control at the lowest cost per finished gallon (i.e., Prevail FT, Demon TC, Cyren TC, and Dursban TC). These products, not surprisingly, are among the most mature in the category, hence their lower price.

The recent introduction of non-repellent termiticides – including Premise (imidacloprid), Termidor (fipronil), and most recently Phantom (chlorfenapyr) – has created even more product options for PCOs. “I’m fascinated by the conversations about Premise as a pre-treat product, but I’m interested in seeing more data,” said Bert Putterman, manager of Arizona Exterminating Co., Phoenix, Ariz. “I don’t know a lot of people who are using Termidor and Premise on pre-treats because of the cost of these products, but people are starting to talk about it,” he said. “Most people are still using Dursban and the pyrethroids in order to control their costs.”

However, with the enhanced performance of this newest generation of termiticides, some industry observers predict the day in the not too distant future when a home will undergo a perimeter treatment with a non-repellent termiticide, followed by the installation of baits to knock down the surrounding termite population and serve as an “early warning” system for future termite activity.

“Some people are saying why pre-treat a home at all,” says one industry veteran with deep termite market knowledge. “It might make sense to wait until the house is built and then do a perimeter ‘wrap’ with a non-repellent termiticide…I think that’s where we may eventually be headed.” Others aren’t so sure, arguing that such a proposed treatment raises as many questions as it answers, resulting a wide range of labeling and efficacy discussions among PCOs, manufacturers and the regulatory community, with no real consensus.
 In addition to new chemistry and a multi-discipline approach to termite control, modern-day construction practices are also impacting the pre-treat market, according to Pro-Tech’s Greg Baumann. “Some building technologies such as foam below grade and drain tile against the foundation actually hinder the liquid pre-treat market,” Baumann observed. “New termite control products and treatments such as baits, physical barriers and borates – if the data shows success and are accepted by regulators – will drive the pre-treat market (in the years ahead) if the pricing issues can be resolved by showing the builder that disruption with these systems is less likely and thus less costly to them.”

Speaking of baits, without question the most dramatic change in the termite market in the past decade has been the introduction of the Sentricon Colony Elimination System by Dow AgroSciences, an example of “out-of-the-box” thinking that was viewed with widespread skepticism when it was introduced in 1995. Yet it’s been one of the industry’s great success stories.

The growing use of baits resulted in a paradigm shift for the industry, expanding the market for termite control services, raising consumer awareness about wood-destroying insect problems and spawning an entire generation of new products, including FirstLine from FMC Corporation; the Exterra Termite Interception and Baiting System from Ensystex; and Outpost TBR, a strategic partnership between Whitmire Micro-Gen Research Laboratories and Bayer Corporation. In January, BASF Corporation announced the introduction of Subterfuge Termite Bait, a delayed-action termiticide featuring the active ingredient hydramethylnon. “Subterfuge has a highly attractive bait matrix that not only results in termites quickly detecting the bait,” said David Davies, senior marketing manager for the BASF Professional Pest Control group, “but it promises significant recruitment, in effect, resulting in the termites sharing the bait and accelerating population reduction.”

“The baiting and monitoring scenario is a concept more and more pest control operators are embracing,” consultant George Rambo observed, although it’s had the greatest impact on the post-construction market where public interest continues to grow. “If they do it right, PCOs can make a nice profit and their customers seem to like it as well.”

BARRIER TREATMENTS. While liquids and baits are clearly the two most popular product categories in the termite market, a number of barrier-type treatments also are in various stages of development. The best known of these products is the Termimesh System, a chemical-free, stainless steel physical barrier designed to prevent termites from entering structures.

“The product is like a screen,” said Mike Boyd, vice-president of Termi Mesh USA, Houston, Texas.  “The holes are so tight in the mesh the termites can’t get their heads through it.  Our technicians work closely with the architect and builder to design and install the system to seal off all concealed termite entry points.  We have developed a comprehensive and proven range of installation specifications to cover all types of construction.”

Developed overseas, the Termimesh System has been installed in more than 180,000 homes and public buildings in Australia, including the Sydney Olympic Village. Last year, Termimesh Australia partnered with ABC Pest and Lawn Services – an Austin, Texas-based pest control company owned by incoming NPMA President Bobby Jenkins – to become the sole marketer of the product in the United States. Since signing the agreement, the company has spent most of its time educating builders in and around Austin about the product, promoting its environmentally friendly characteristics.

Manny Martinez, general manager of Termimesh LLC, said the product has been installed in more than 50 homes in the Austin area, in addition to several large commercial complexes. “We’ve worked with the local builder associations to educate them about the product,” Martinez said. “Since builders aren’t required to perform pre-treatments in Texas, it’s not something at the top of their mind. It requires education, so we’re gradually getting the word out.”

Several technicians at ABC Pest & Lawn Services have been trained in the proper installation of the Termimesh System, with one technician traveling to Australia to receive hands-on training at the company’s headquarters in Perth. Termimesh LLC eventually hopes to offer the system to companies throughout the “termite belt,” offering exclusive sales territories to interested PCOs. “We would like to select a handful of companies in individual markets and designate them official Termimesh installers,” Martinez said. The Termimesh System is currently available in Central Texas with future expansion plans in Dallas and Houston, as well as other high-termite activity markets in the United States. The product also has been installed in structures in Hawaii and Florida as a result of previous Termimesh licensing agreements.

While Termimesh is currently being used in several states, one of the more interesting “barrier” products still in the development stage is Impasse, a cutting-edge product from Syngenta Professional Products that is designed specifically for the pre-construction termite market. Although Syngenta officials can’t comment on the product until it is registered by the EPA, Impasse is expected to be introduced later this year.

Impasse is a termite barrier that locks in the active ingredient lambda-cyhalothrin between a multi-laminated film for long-lasting termite control. Installed under concrete slabs during construction, the film creates a contiguous, impervious barrier to termites with virtually no insecticide exposure to installers or release into the environment. The EPA granted an Experimental Use Permit for Impasse on June 1, 2001, and it has received “reduced risk” review status at the EPA.

“It sounds like an interesting product,” said veteran PCO Bert Putterman, but he’s holding judgment about Impasse’s likely impact on the pre-construction market until it develops a use history in the pest control industry.

BORATES. Arguably, the product category that has had the greatest impact this past year in changing the way PCOs perceive the pre-treat market are the borates, a technology that has been widely used by pest management professionals for decades, but only recently began making significant inroads into the termite market. 

That’s because Nisus Corporation, a Tennessee-based manufacturer of pest control products, has been working closely with PCOs throughout the country to market its borate-based products, including Bora-Care termiticide, to builders. “The old mindset of pumping hundreds of gallons of termiticide into the ground is changing,” said Ron Schwalb, technical services manager for the company. “This product is sprayed directly on to the wood and eliminates the wood as a food source.”

According to Kevin Kirkland, president of Nisus, “Most companies are using Bora-Care as a stand-alone pretreatment. A few pest management professionals are using it in conjunction with other treatments and our warranty will cover the home either way.”

“The way the warranty is structured it provides the pest management professional protection if he is using Bora-Care as the primary tool or as one tool in a comprehensive termite control program,” Schwalb added.
Several factors are driving the industry’s interest in the product, including convenience, ease of use and the environmental-friendly nature of borates. Joey Edwards, vice-president of corporate development for Arrow Exterminators, Atlanta, Ga., said his company considered a variety of options when reevaluating its pre-treat program, including liquid soil barriers, borate treatments and baiting systems. “Borates quickly became the clear choice for Arrow,” he said. “There are fewer scheduling hassles, the odor is almost non-existent, treatment application is relatively simple, equipment cost is substantially less, inclement weather conditions are not as much of an obstacle, and there are less interruptions and down time for the builder’s work force.”

The company uses Bora-Care exclusively on freestanding residential structures, with the goal of providing pre-construction services to at least 25 percent of the Atlanta metro market in the next two years, an aggressive goal that Edwards is confident the company will achieve. “In less than a year we’ve made tremendous progress in shifting our existing builders to utilizing this service,” he said. “We go directly to the building sites. We talk to site supervisors, project managers, building superintendents and purchasing managers in an attempt to educate anyone that can provide input on making the final decision. We also support the building industry as sponsors of various trade shows.”

In marketing materials presented to builders, Arrow sales and technical personnel point out the product’s environmentally friendly characteristics, efficacy and competitive pricing. In addition, they point out that Bora-Care is listed in the SBCCI as a suitable alternative for pre-construction treatment of termites.

“The only disadvantage that we currently see is the fact that a lot of individuals in the building industry don’t know a lot about the borates,” Edwards said, but that’s changing as more and more PCOs familiarize themselves – and their customers – with the technology. Palmetto Exterminators, a family-owned business based in Charleston, S.C., has had modest success convincing builders to give borates a try.

Although the second-generation company had cut back its pre-treat business in the 1980s and 90s due to pricing/profit concerns, they retained some custom builders that were willing to pay a higher price for superior service. “The price for pre-treats had dropped so much that you had to give the service away or not do it right to compete,” according to Sammy Baker, regional sales manager for Palmetto Exterminators. “We weren’t willing to do that, but this technology allowed us to get back into the pre-treat market and make a profit.”

Palmetto was one of the first companies in South Carolina to promote borate treatments as a pre-treat option. “It was so new and so different that we had to train the builders, site supervisors and building inspectors in our market area,” General Manager Bert Snyder said. “We also helped in the training of regulatory personnel, but it’s becoming more and more accepted. I’m confident that builders who are on the fence will eventually come on board.” Regardless of how long it takes, Snyder said he’s willing to be patient. “We’re not looking for short-term profitability, we’re looking for a long-term business relationship with our customers.”

It’s a message that has resonated with several builders in the Charleston area, a port city with significant subterranean termite pressure, including Formosan termite activity. Charles Watson, vice-president of purchasing for Baezer Homes, a high-end builder in the region, said he “researched” both Palmetto Exterminators and borates before committing to the program. “Palmetto is an honest company. They’re very reputable. And I did research on borates,” he said. “We’ve been treating homes with borates a year and a half and we’ve had excellent results. We’ve had no complaints.”

Watson particularly likes the convenience offered by borate treatments. “To do a ground treatment properly takes four to five hours, so if you’re planning to pour concrete at 7:30 in the morning, you better get it done the day before and hope it doesn’t rain,” he said. “With borates you have a five-day window to complete the job because you’re only spraying the exposed wood; the pest control company can come and spray any time.”

Steve Pendley, president of Pendley Construction, also likes the convenience offered by borates, but that’s not the only reason he hired Palmetto Exterminators to treat his new homes. “I like the fact it can be applied any time during the rough-in stage rather than that half-day or one-day window.” It’s also less expensive than a traditional treatment, Pendley said, although the price of the service was not his primary motivation for choosing Palmetto. “In the past, I didn’t feel comfortable that I was purchasing a treatment that was going to last. Now I feel like I’m not only giving my customers a better treated house, but it’s less expensive.”

CONCLUSION. Despite the ongoing changes in the pre-construction termite market during the past decade, a significant number of PCOs remain wary of this notoriously price-sensitive market. “The pre-treat market in Arizona is not for the faint of heart,” warned Arizona Exterminating’s Bert Putterman. “It’s still very price driven and I’m in the business to make money.”

Others say it’s hard to predict if recent new product introductions will forever altar the landscape of the pre-treat market. “I think it’s too soon to tell whether the new products that are available will have an impact on the pre-treat market, but it’s something that should be watched,” observed Joseph Giaimo, president of Crest Termite Control, East Haven, Conn., and a member of NPMA’s Wood-Destroying Organisms Committee. “The newer non-repellent termiticides are performing admirably and I feel they have some definite advantages over the repellent materials. Whether or not their actual residual activity will extend much beyond the five-year mark remains to be seen,” he said. “The recent increase in the use of borates also needs to be monitored to see if it is a viable alternative.”

Unlike some of his colleagues, Giaimo doesn’t view bait technology as a legitimate pre-treat product since “the bait and/or monitoring stations are installed after the house is completely finished, actually making it a preventative post-construction treatment, not a pretreat,” he said. The feeling is shared by Pro-Tech’s Greg Baumann. “Some of these technologies are not ‘pretreats’ as we historically define them,” he said.

 Nonetheless, both PCOs admit this is an exciting era for the termite market. “I’m uncertain of the impact all of this will have on the pre-treat market,” Giaimo said, “but I’m very optimistic about the future of termite control in general.”

As the industry stands on the threshold of a new era in termite control, perhaps Baumann said it best: “We need to look at our role as protectors of new structures and not limit ourselves to “pretreats.” I’m very optimistic about the termite control market overall if we as an industry can provide what the customer wants – control with exceptional customer service.”

The author is Publisher of PCT magazine and can be contacted via email at dmoreland@pctonline.com.