Chipotle, Starbucks, and the Huge Construction Machinery Dealers

Chipotle, Starbucks, and the Huge Construction Machinery Dealers

Guest writer Andy Fanter dives into the cross-industry pool with today’s blog post: “Chipotle, Starbucks, and the Huge Construction Machinery Dealers.”

Starbucks has been struggling. Plenty of national chains and local competitors are offering coffee and related snacks. Chipotle has been growing for years with a simple model. Come make your burrito or bowl and order a high margin drink. We are not cheap, and do not study the calories and sodium too much. Fresh ingredients taste good, and people come to get it for lunch and dinner. Starbucks hired CEO Brian Niccol from Chipotle to fix the problem. His solution:  reduce the menu and make stores less chaotic. Sell hot and cold coffee drinks and related snacks—and be faster. The best products….faster.

 

How does this apply to the construction machinery dealer? I have been in this business 30 years, and around it since the late 1970s. Consolidation has made dealers excessively big; billion dollars in revenue surprises no one anymore. Smaller competitors chip away at market shares—sound familiar, Starbucks. Dealer reaction, flat forecasts to stay big. The US economy and construction are expanding 85% of the time. Why not order more of the best 10 to 15 products expecting to grow those sales by 10% next year?

 

Here is what I am seeing with flat forecasts. Get into spring and dealer needs more machines—months from manufacturer, standard. Neighboring dealer-takes top management time to negotiate a deal. Buy used equipment for rental fleet and sell from rental fleet. Now the used division is not happy having to add to the rental fleet instead of to customers. Product support starts to get busier and trying to get used machines ready for rental fleet. The rental reps are not happy because good machines are being sold. Finally, the regular field sales force is unhappy because there are not enough of the best machines to go around. A year spent holding, or likely slipping in market share. The sales force does best when they have the best items to offer customers.

 

The machinery dealer needs to be a mix of Starbucks and Chipotle. Manufacturers and customers insist on a wide range of products, and locations—a little chaotic like Starbucks. Dealers know the hot models that their customers prefer. Have plenty of those, new, and ready to go—Chipotle model. 

 

It is much easier for the reps to get more deals for a variety of products when they do not have to account for long delays on the best products. What happens if you order too much? Dealer trades and adds to the rental fleet.

 

Just like Starbucks manages through the chaos.

 

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People…

People…

Guest writer Andy Fanter returns tonight with a blog about people…not to worry, it’s a good thing. Connections and relationships with people matter, at work or outside of it.

Back in 2018 I hunted with a friend who manages thousands of acres for non-resident landowners. This involves mowing, planting food plots, building duck and deer blinds, airport transportation, caring for homes clients buy in area. My friend needed a strong number two, and I convinced him to hire a friend in the business that was looking to make a move. This year, my friend fired my friend—not surprised the guy he hired is good with people and good with the field work, and my friend hiring was more interested in “ labor” not a leader. I had not talked to my “ hired friend “ since 2020, but when his wife texted me the news that he was fired last week—I responded, “  Can I fix it? “  I was willing to make a two-hour drive to see if I could repair it—the consultant in me. My skilled friend already has another management job, so my offer was not needed.

Last week had me driving to take care of some business. I passed a recent ex-client headquarters enroute, but coming back I was passing it at 10 minutes before noon. I know my ex-client pretty well, we are even friends, I stopped and asked the front desk if he was around. She said “maybe,” and a successful hunt for him started. She was shocked that I just took a chance to see if he was around, but I have known this person 25 years. My friend was happy to see me, bought lunch, and our business relationship mended. We got caught up on 18 months of news. Some may know the name of the client—yes, we are both Gen X and more than a little opinionated!

Well great Andy—there are three people on earth who do not use a cuss word before your name….what does this have to do with construction machinery business and dealers? Never get too big, too mad, or too distant to try and help people. I say it often; the toughest clients to get are the ones you lost. But have you tried getting them back?

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Data Data Data

Data Data Data

Guest writer Andy Fanter writes this week’s blog post on the topic every business owner needs, “Data Data Data!”

I have worked for construction machinery dealers for 30 years now. They send me their sales data and make forecasts. They thrive on year to date, are we doing better than last year?   

Sometimes there are anomalies: maybe they sold a big package to a quarry, mine, or highway project that is not repeated often, or the service department had a number of large rebuilds. They happen, but not often, and this year over last year continues to rule.

Then there is construction data important to the dealers, and retail sales data, consumer spending, it is important to the lift truck dealers. For some reason both of these categories end up in this month versus last month’s comparisons. The latest example, US construction put in place—analysis of seasonally adjusted numbers—that makes me cringe and month over month comparisons. It had one of my great clients nervous. I dove into the data; US construction put in place is not my usual study. Find not seasonally adjusted data…first quarter adds up to $461 billion, first quarter 2023 adds up to $416 billion…10.8% over 2023. Client is up around +5% over 2023, too.

Retail sales:  all kinds of consumer confidence reports, month to month comparisons, stock market selling off retailers, has dealers worried, too. Unadjusted retail sales in Q1 2024 vs Q1 2023 are up 3%. This is a respectable number in a good economy. Consumers spent more in January sales, Valentine’s Day month, and Easter month than last year.

Fanter summary:  you operate your business on year-to-date comparisons, with no seasonal adjustments, and a rare “one time” occurrence anomaly. Why do you look at adjusted data with no year-to-date comparison?

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My Perspective from Kansas

My Perspective from Kansas

Brace yourselves! Guest writer Andy Fanter is ready to challenge prevailing behavior with “My Perspective from Kansas.”

I want to establish my “street creds” before I make 18% of the US unhappy.  I have lived most of my 50+ years in Kansas:  Wichita, Kansas City, Lawrence, Baldwin City, Hartford, Great Bend, and Marion.  Oh, so now you have heard of “that Marion, Kansas”.  Trust me; I have seen worse in my eight years living in Marion.  

 

The attempt to save old buildings and rural America is a waste of time and energy.  There is an old building that has seen 18 months of renovations, $200k+ spent, grants, and the barbeque restaurant still not ready to move in and start cooking.  Meanwhile, two miles away on well-traveled US Highway 56, complete with semi-truck parking sits the closed Pizza Hut. Rumor has it the current owner, a farmer using it to store machinery in the parking lot, would sell for $50k or less.   The old buildings across the US have bad roofs, wiring, plumbing, heating/air, asbestos, etc.   The buildings need demolition and a metal building in place to give a business a chance to survive.

 

You want to come to Marion and debate rural America over—breakfast.  We can get a coffee and a donut at Casey’s convenience store and eat in the park.  Four diners have come and gone in Marion in my eight years living here.  3 of 4 were in old buildings, one tried Pizza Hut—but covid hurt it.   Marion has industrial land for cheap, some cities have it for free—they attract Dollar General.  You could build a nice manufacturing plant for 50 employees.  Marion is a mini big metro across the US—inventory of good housing is low, and if one is for sale it sells in a week.

 

You think visiting Kansas would be great to try the fishing and hunting opportunities.   The lakes have big problems with blue green algae blooms.  The last 15 years have seen a huge surge in nonresident hunting on public land, and private land being bought by non-residents to be used for hunting in the fall and winter.  The same nonresidents buy nice homes in the small towns to use during the hunting season.  I have a friend who manages over 600k acres for out of state residents who own the land.  The same nonresidents own 6 homes in a small town.  If you want to enjoy the outdoors in Kansas, better to write a big check for your own land, and hope no one trespasses.

 

So, what is this Fanter rant?   Good people live in rural areas, and you need to help them get closer to larger population areas to help your business.    Expanding rural broadband is more about corporate agriculture needing the services to control equipment.   None of these issues are unique to Kansas.  Texas would say it saw these issues 30 years ago.   Your future employees are likely in a rural area or working in a restaurant.  They need help seeing a better future working in your business.  For my part of the world, construction and construction machinery offer opportunity over a broad spectrum of dirty jobs to office jobs.  18% of people in the US are living in rural areas—it is time to squeeze that down to 15%.

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Open Eyes on the Road

Open Eyes on the Road

Guest writer Andy Fanter takes us through the drive he made today in his blog post, “Open Eyes on the Road.” There are hopeful signs everywhere.

I want to tell you about the 100-mile drive on US HWY 56 I made today, Marion to Great Bend, went through McPherson population 14 000, and ending in Great Bend population 14.500.  You may have heard of McPherson, home of McPherson College with largest endowment for a college at $1.5 billion. It is known for old car restoration. Great Bend, if you are a duck hunter or bird watcher, is famous for Cheyenne Bottoms and thirty miles south Quivira National Wildlife Refuge.

Here is the summary of construction that I saw today:  new building McPherson College, new RV park, new pipeline at natural gas facility, finishing of a 30 acre pond, two major concrete parking lot projects, new Starbucks, new Wendy’s, miles of pavement work on 56, a new hospital, two building demolition jobs, a 5000 square foot slab waiting for a building.   This is what I saw today in nowhere—not Wichita or KC or the Topeka-Lawrence-KC corridor.

I saw several trucks with a variety of machines in both directions. I saw more windmill parts heading to sites. I saw everything from a CAT scraper to a wheeled skid steer. I also saw six reasonably new RVs for sale in people’s yards—it looks like the toys from 2020 got expensive to keep, and people got too busy to use them. The weather up until now has been great for the outdoors in Kansas.

What does this mean to the dealer, the personnel, and the manufacturer—-everywhere is busy, nowhere included. You cannot forget your smaller, more rural accounts. I am seeing billions of dollars per week on the construction sites about big jobs in big places. My drive today confirmed the construction industry is busy, record high busy. It should continue with infrastructure dollars, CHIP plants, and EV plants. I saw smaller plants announced near the Ford Blue Facility near Memphis. Buying a home to be built or under construction is now easier than buying a house in the US. The builders are doing well, buying more land, land that will need machines now and through 2024 and beyond—only 2 to 4 million houses short in the US.

I doubt the major manufacturers can catch up during this cycle, but that is not an excuse to quit trying.

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Employment – Wages – Inflation

Employment – Wages – Inflation

Guest writer Andy Fanter tackles the topic of economics in his blog post for this week: Employment – Wages – Inflation.

A little over halfway through construction machine unit deliveries by state, Ron messaged me about another blog.   I have done the big states, and the numbers are up!!   The topic for this blog:  employment, wages, and inflation—most know general economic stuff is not my favorite, but this will be fun.

Employment:  We are in the 3s, unlikely to get much lower, and unlikely to go much higher for years.   The construction industry needs people, and if you think Gen Y and Z will suddenly want to operate machinery or tools you will be mistaken.  Immigration, we need it for construction, food processing and the restaurant business.  If the banks would tighten the lending requirements for restaurants, like they did for housing after the GFC, it would help a little.  People from all over the world would enjoy working our “dirty jobs” so they can have a good roof, water, sewer, and low chances for tanks in the streets.  Friendly reminder, most of us do not have roots dating back to early America—it is a melting pot.  Even agriculture is back up, so getting people from rural America just got tougher! 

Wages:  Choice is simple:  pay people well, treat people well, have some meals and snacks at work or they will leave.   Looking back over the last 20 years, you needed to make 3 to 5% to stay ahead of inflation.  I know the companies that overwork, underpay, and have more respect for laptop computers.  There are ex-employees from those dealers all over the US working at other dealers.

Inflation:  Oh yay, natural gas and eggs are way down.  Housing and autos, no easier way to say it welcome to “screwedville”.  Home prices are not going to make a big drop, not enough inventory.   Builders are trying—but back to employment issue.  Autos:  new inventory is increasing but nowhere near 2019 levels.  Used auto prices are dropping some, but how much of that was post-graduation, post wedding season?   High interest rates making auto payments $1000+ a month, but this is the 1980s mentality again and new auto sales are on track for 8% to 10% growth. Next few years expect the CPI to be in high 2s, FED would like low 2s, so back to interest rates sitting around 5%.   The consumer can make a bigger dent with inflation by going back to the smart phone and shopping for a better price!  It worked from 2010 to 2019; it drove the FED and Phillip’s Curve people nuts, good employment, low inflation.  Big ticket items, not much change but builders have incentives and so do auto manufacturers.  

Tune in later for more.

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Economic Data and Dealerships

Economic Data and Dealerships

Our new guest writer Andy Fanter joins us at Learning Without Scars with his inaugural blog post: Economic Data and Dealerships. Andy Fanter started Intercast in 1994. The company is a division of Cyclcast, created in 1978 by Dick Fanter. Dick retired in 2019. Andy currently forecasts for over thirty dealers across the US. In his free time, Andy enjoys the stock market and fishing.

In the world of motivational speakers and team builders—the economic data is still important for the construction machinery dealer. I am not a fan of GDP; I rarely discuss it. Employment data lags too much—anything in the fours or lower is good. National retail sales (consumer spending) there is a favorite. Never underestimate the US consumer because we are stupid. Single family housing permits are another great indicator to follow. The current economy is something some of us can remember from long ago:  the 1980s. People want stuff now whether it is a home, car, vacation, fishing pole, golf club, shirt, restaurant meal. 

The smart phone was great for controlling inflation after the GFC of 2008/2009. Now the smart phone is used to find an item—forget price, who has the item in stock, where is an empty airline seat, 20-ton excavator, car in the color in I want. 

The infrastructure dollars are flowing and so are the EV plants and CHIP plants. Not everything is equal in this economy. In the north, Ohio and Indiana are doing well—but this boom is concentrated in the south. From Arizona over to Virginia and down to Florida—that zone is ripping! Texas and Florida account for 30% of the construction activity in the US. There is your competition—not another dealer but losing people and machines to two rapidly growing states.

Everyone is waiting around the Federal Reserve to cut rates:  you might be waiting a long time, years. Inflation will slowly drift down into the twos, but the Federal Reserve will likely stay around 5% on Fed Fund Rates. There are not enough single-family homes, 2 to 4 million shorts. Lower mortgage rates would heat up the housing market again. Unemployment is under four, so it is tough to find more labor for homes and nonresidential side of construction in double digit growths. The stock market is having a hot start to 2023. Low rates for a decade caused too many problems.

INTERCAST

Andy Fanter
15 Lois Ln
Marion, KS 66861
MOBILE 316-371-3688
EMAIL: cafanter@gmail.com

 

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