Christifulli: Consolidation Triggers Market Share Race Rather Than Profitability

John Wolz

The rental industry was traditionally dominated by mom & pop companies. Five years ago the national chains were practicaly nonexistent. Today the chains account for 25% of the U.S. equipment rental market.
But the trend is changing, Dave Christifulli told the Specialty Tools & Fasteners Distributors Association 25th annual convention.
Last year Wall Street investors �began to give a cold shoulder to the rental industry.�
�Now that the era of acquisitions has passed, the big players have a more challenging assignment � to show they can make a profit and compete in the day-to-day grind of managing rental fleets, repairing equipment and satisfying customers on the job,� Christifulli forecast.
�Judging by the cutbacks some have been making, they�ve found it to be a challenging assignment,� Christifulli observed. �Some won�t make it, and we expect the strongest consolidators to acquire the weaker ones in the near future at rock-bottom prices.�
�The traditional independent distributor, written off by many the past few years, is making a comeback by expanding service and repair capabilities,� Christifulli explained.
Traditional distributors are forming relationships with Caterpillar, Komatsu, Deere and Case. Some added online catalogs and inventory information.
�Rate wars have always been part of the equipment rental business, but since consolidation the consequences have been magnified,� Christifulli said. �Bargaining is the order of the day.�
There are few owner/managers left who regularly use rate cards.
The result is a potential rate war in which �success is measured by market share rather than profitability.�
Pricing pressures extend to suppliers, as consolidators play one against the other, he added.
Inventory of aerial lifts is too high, and surplus equipment is being dumped at auction houses, resulting in the value of aerial products dropping to 30% of 1997 levels. Subsequently, some industry leaders are in serious financial trouble.
Buying Back from the Consolidator
Some of the post-World War II mom & pop operations were sold to consolidators, and now the entrepreneurs �still have the rental equipment business in their blood and are expected to make a comeback once their noncompete clause expires.
�The ultimate irony is that some may buy back their old companies at fire sale prices.�
STAFDA distributors viewed consolidation with �apprehension,� Christifulli said. �It looked like the home center problems all over again.�
�But it hasn�t turned out that way. The pressure is on branch managers to build rentals, for longer terms, especially on big equipment.�
Consequently, 70% of revenue is from rentals and only 15% from service, parts, insurance, used equipment and other sources. �In fact, they refer to tools and related products as the �toy department,�� Christifulli noted.
�Manufacturers selling into the rental market have always had a challenging time to do so and still be in compliance with their own distribution policy,� Christifulli explained. Rental operators are neither end users nor distributors. So many manufacturers reach the rental market by relying on STAFDA distributors at a split discount, though the trend is toward selling direct to rental dealers.
Consolidators buy directly from manufacturers, but that requires home office approval, sales and service support, training and coop advertising. �Consolidators are considered high-maintenance accounts because of the continuous turnover of their line management and field sales personnel.�
The number one chain is Greenwich, CT-based United Rentals, with 740 locations and volume of $3 billion. Following are Rental Service Corporation, Hertz Equipment Rental Corp., Nationsrent, National Equipment Services, Sunbelt Rentals, Maxim Crane Works, Neff, Brambles Equipment Services and ICM Equipment.
Home Depot has moved up to #13 with rentals in 350 of its stores.
Christifulli is vice president of sales & product support for Wacker Corp., a Germany-based company that manufactures 75% of its products in Menomonee Falls, WI. Wacker sells much of its rammers, vibratory plates, rollers, roto-hammers, breakers and other products to the equipment sales and rental market.
�For a while, it was like a gold rush as we watched consolidators buy companies or open branches in as many new markets as possible.
Christifulli termed some of the acquisitions �strategic, but others seemed haphazard.�
Major players acquired STAFDA members A&A Tool of Stockton, CA; Center Rents of Denver; Churchman Equipment, Indianapolis; Phillips Day & Maddock, Cleveland; Contractors Supply, Kansas City; Naples Rent-All; and Daley Corp., Geenville, SC.\ �2001 FastenerNews.com