[2014 State of the Industry Report] Forecast 2014

Running a business is a lot like sailing a boat: You constantly must adjust the sails to avoid sitting in irons, ride fair winds or escape capsizing.

It is “my job to adjust and make sure we can accommodate all the new opportunities that will arise,” said Scott McGrath, owner of McGrath Pest Control in Houston. “If I don’t start planning now for the spring and our customer service suffers or customers have to wait too long before they can get service, then everything that I like about my customer reviews will be my downfall.”

To help pest management professionals navigate, PCT’s State of the Industry report explores major economic trends and how your peers are growing revenue, profit and a skilled workforce.
 

Economy & Markets.

Economists generally feel the U.S. economy will grow 3 percent in 2014. And with the Dow Jones Industrial Average advancing beyond 16,000 for a more than 20 percent gain last year, many feel optimistic. Private industry boasts healthy balance sheets. And, the ongoing housing recovery is expected to gain momentum in 2014 and 2015, reported the National Association of Home Builders. Consumer confidence is a mixed bag, depending on who is talking.

Thirty-four percent of PMPs expect 2014 to be a year of economic prosperity. Twenty-seven percent anticipate economic difficulty; thirty-nine percent aren’t sure.

Much depends on White House and Congressional cooperation to avert future government shutdowns. Rising insurance costs (including flood insurance) and interest rates, and new lending regulations could crimp housing markets. Another challenge: The U.S. Census Bureau reported real household income declined 8.3 percent between 2007 and 2012. A wealth gap is growing, and a disappearing middle class could reduce the number of potential pest control customers. More than half of PMPs said they face a high level of competition in their markets.

Soaring national debt concerns Chuck Russell, president of Eradico Services in Novi, Mich. As debt increases, government expands the money supply and the value of the dollar decreases, he said. Consumers will choose groceries over discretionary services as their buying power falls. As a result, Russell expects the number of pest control do-it-yourselfers to increase. “I hope I’m wrong,” he said.

PMPs are increasingly focused on profitability and selective about who stays on the books. Darrell Lee, president of Future Services in Snellville, Ga., now charges more upfront for services, which customers must pay annually or with a credit card on file.

Stuart Aust, president of Bug Doctor Termite & Pest Control in Paramus, N.J., is raising fees for commercial clients under a certain dollar threshold. Many clients are calling to negotiate annual renewal fees; detailed reports help Aust determine if accounts will remain profitable with a discount. “We won’t do it if it’s not profitable,” he said. A “different mindset” has emerged where no price is set in stone, said Aust. He’s used this tact, himself, to negotiate extra restaurant gift certificates and reduced insurance fees.
 

Internal growth offers the most significant growth opportunity in 2014, reported 43 percent of PMPs. Twelve percent plan to acquire a pest control business in the next three to five years; the same plan to sell their business during this period.

Kevin Pass, president of Action Pest Control in Evansville, Ind., expects to acquire more companies in 2014; the capital to do so is more readily available as the economy has improved. Banks are “playing ball real well with us right now,” which adds third-party credibility to the health of your company, he said.

Location counts. McGrath thanks his “lucky stars every day that I live in Houston,” where the oil and gas industry provides job security, housing markets are healthy and bugs require professional control. His company had another record breaking year in 2013; sales increased 50 percent for each of the past four years.
 

Fuel Costs.

Exorbitant gasoline prices may be a thing of the past, at least for the short term. Prices dropped in 2013 thanks to adjustments to the federal ethanol mandate, less demand due to the government shutdown and a quiet hurricane season. The average retail price of regular-grade gasoline for July through December 2013 was $3.38 per gallon, according to the U.S. Energy Information Administration (EIA).

This year looks a penny better: The average national retail price of gasoline is projected to be $3.37 per gallon, reported EIA. Some states likely will see below $3 a gallon prices. By comparison, gas averaged $3.60 a gallon in 2012, making it the most expensive year for motorists and small businesses on record, reported AAA.

PMPs aren’t banking on lower prices; they’ve improved efficiencies. Aust recalculates for tighter routes every six months. He’s targeting larger accounts that require longer service times so technicians don’t have as many stops that rack up fuel, tolls and parking costs. When gas prices were about $4 a gallon, he instituted a fuel surcharge, which he may shift into the service cost structure.

 

Employment.

Job growth should see gradual improvement as Gross Domestic Product growth picks up in 2014, reported Kiplinger. According to a survey by the Principal Financial Group, one-third of business owners plan to add staff in 2014; 14 percent will reduce staff.

Employment of pest control workers is expected to grow 26 percent from 2010 to 2020, faster than the average for all occupations, reported the Bureau of Labor Statistics.

But with employment rising, attracting top talent — especially young workers who have different workplace skills and needs — will become more difficult, reported PMPs.

Action Pest Control is adjusting hiring practices to be “more aggressive and proactive,” said Pass. The National Pest Management Association has unveiled a new career center for workforce development and is promoting pest control as a professional career opportunity, he said. To compete for talent, the industry must change its image and promote the ability for professionals to make money.

Baby boomers are nearing retirement and are being replaced by multi-cultural millennials. Retention will be an issue: The number of workers quitting increased 48 percent since a low point in September 2009, reported the Bureau of Labor Statistics. A 2013 Aflac study found nearly half of all workers are at least somewhat likely to look for a new job in the next 12 months, and 26 percent are very or extremely likely to move on to another opportunity this year.

Consider benefits, including flexible hours and those that appeal to working moms. According to the Aflac survey, benefits packages greatly influence whether a person accepts a job, remains on the job or refers others for jobs.

Rising health-care costs “have everyone on edge,” including potential hires who want to know your long-term plans, said Travis Swope, president of Griffin Pest Management in Santa Clara, Calif.. He’s offering paid vacation for straight commissioned employees so they can receive some kind of paid compensation in addition to wages. Developing his employee benefit plan “has become my No. 1 winter project,” he said.

Russell fears the nation’s growing dependence on government is “becoming quite harmful to us in private industry.” Finding employees is harder when people don’t have an incentive to work, he said. According to a 2013 study by the Cato Institute, welfare pays more than a minimum wage job in 35 states. In 13 states, it pays more than $15 per hour, the study reported.

In the past, Eradico relied on ads to recruit employees; now managers actively recruit, said Russell. If they’re impressed with a person’s customer service abilities, they reach out on the spot, he explained.

 

Environment/Regulations.

Expect greater scrutiny of pesticides — by consumers, government and anti-pesticide groups — in coming years. According to NPMA’s Vision 2020 report, consumers understand the risk of pesticide exposure and are concerned about air and water quality. Due to Washington gridlock, environmental groups are introducing legislation to state and local governments and getting it passed.

One-fifth of PMPs said government regulation is the most significant problem facing the pest management industry today. Sixty percent believe it does more harm than good, compared to 40 percent who believe it’s needed to protect consumers, workers or the environment.

Jason Wick in Duluth, Minn., anticipates more regulation. “Everything’s under a microscope,” said Wick, who experienced a year of panic following the pyrethroid label change until language was relaxed to allow modified control of fall invaders, a big part of his business. New pollinator protection labels are the next industry challenge, he said. Honey bee kills last year in Minneapolis brought this issue close to home.

“A misuse is the first way the EPA is going to start scrutinizing something,” said Wick, who advocates constant training and evaluating new approaches that limit pesticide use “so we can continue to use the products safely and effectively.”

Russell expects more regulation of bed bug services, especially landlord-tenant legislation, as control costs become unsustainable.

NPMA urged PMPs to be more transparent about the potential health effects of exposure to pest control solutions, as well as educate the public and actively advocate on behalf of the industry at the federal, state, local and online levels.
 

Technology & Science.

The future is mobile. From devices to apps, mobile technologies will transform how PMPs operate. Advances in smart device swiping will make mobile payments take off; wearable electronics like Google Glass and the Apple iWatch will change how technicians inspect structures and communicate with customers and the office. Expect to perform every task on the move.

Equipment with remote sensors will give PMPs greater control and the ability to audit systems from afar. Advanced construction materials and exclusion devices will prevent pest intrusions and reduce chemical use, reported NPMA. Cloud-based software programs and subscription services will cut upfront costs and assist with data backup and recovery.

Vic Palermo, president of Ultra Safe Pest Management in Canton, Mass., uses satellite images to gain early customer intel. Employees at Future Services use online maps and tools to investigate property history, identify red flags and provide over-the-phone, instant lawn care quotes.

New technology is “critical” for growth, said Swope, who started Griffin Pest Management as a virtual office in order to serve a large, four-county area. Most of his employees work from home using real-time software and in-field devices. This saves money and helps develop business where employees live, explains Swope.

On the science front, advances in DNA sequencing and RNA interference are helping researchers target insect genes with hyper-specific chemistries and even create genetically modified insects to crash populations, said Dr. Mike Scharf, Purdue University. Biotechnology offers huge promise for pest management. As costs drop, the approach will become competitive with chemical pesticides, but much depends on society’s acceptance.
 

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Ants and Bed Bugs Top the Service List

What pest services provided the most growth in the past year? Ants (21.5 percent) and bed bugs (16.5 percent), according to pest management professionals surveyed for PCT’s State of the Industry report.

Which pests were the most difficult to control? You guessed it: ants (32 percent) and bed bugs (34 percent), reported PMPs.

Bed bugs are “still going crazy,” said Stuart Aust, president of Bug Doctor Termite & Pest Control in Paramus, N.J. His company now offers pre-treatment prep service to “keep the revenue stream going.” It’s a good fit. The work is profitable and ensures the site is properly prepared for treatment, said Aust.

Jason Wick, president of Guardian Pest Solutions in Duluth, Minn., said bed bugs remain the No. 1 pest, but the 10-year revenue explosion has leveled off. Bed bugs are providing a “ton” of steady work, but purchasing new equipment or hiring new technicians wasn’t necessary, he said. Flea work is slightly higher than in years past, Wick added.

Scott McGrath, owner of McGrath Pest Control in Houston, had more customer calls in 2013 for American roaches in and around homes than in previous years.

Public health pests were good business: Nearly half of PMPs said revenue from controlling pests like mosquitoes, ticks, fire ants and bed bugs increased from three years ago.

 

Consumers Aging, Number of Minorities Continues to Grow

By 2060, the U.S. population will grow to 420 million, according to the U.S. Census Bureau. The number of people age 65 and older will more than double from 43 to 92 million, and for the first time outnumber the young. Experts say baby boomers’ income will fall over the next 15 years and their buying power and demand for services (except health care) will decrease.

Minorities will grow from 37 to 57 percent of the population, and account for much of the younger generation, the bureau reported. The biggest growth will come from the Hispanic population, expected to double to nearly 129 million. Tech-savvy millennials, who’ve had instant access to more information than any generation, will take the stage.

How PMPs communicate with consumers and employees will change. Standard social media channels will expand beyond Facebook, Twitter and LinkedIn. PMPs need to be adept at anticipating changing needs and instant communication. “People want to hear from you right away,” said PMP Stuart Aust, who uses a system to automatically confirm appointments and follow up completed work with before and after photos. A client should never have to contact you to get a status report; return every call or email the same day, he said.

Marketing will be driven by psychographic profiling, original and mobile-friendly content, visual images, clear and simple messaging, retargeting of online ads, integrating social media with search engine optimization, and big data to analyze and predict customer behavior. Swat Pest Management in Evansville, Ind., uses big data to align its services and messaging, as well as target its marketing spend at “more profitable” opportunities, said President Tim Runyon.

Focus marketing messages on protecting health, food and property, not killing bugs, suggested the NPMA’s Vision 2020 report.

 

Weathering the Weather

Weather often drives pest management revenue, for better or worse.

Guardian Pest Solutions in Duluth, Minn., was “significantly impacted” by record snow falls last spring, said President Jason Wick. Traditionally, May is one of the company’s biggest revenue months, but the snow prevented spring applications until June. “We never regained some of the lost revenue from May,” said Wick.

A warm winter made for an “extremely buggie” year in Houston, reported Scott McGrath, owner of McGrath Pest Control. An increase in American cockroach calls kept his crews particularly busy.

Sixty percent of PMPs believe climate change has had or likely will have an impact on the structural pest control industry, according to PCT’s State of the Industry report.

The National Pest Management Association, in its Vision 2020 report, urged PMPs to prepare for the emergence of new pests in various parts of the country, positioning themselves as local experts and viewing it as an opportunity to educate residential and commercial clients about pest control.

 

About This Survey

The data used in this report were collected via a direct mail survey and an online survey conducted August through October 2013.

All survey responses, both online and via mail, were sent directly to PCT’s third-party research partner, Research USA. Results in this report are shown for total respondents. The data are based on a computer tabulation of the 358 questionnaires that were received. Results are projectable (with 95 percent confidence).

More than four-fifths of respondents (84 percent) are the owners of their businesses and 10 percent more are presidents. Most others hold various management positions.

The largest number of firms (96 percent) are independent, privately held businesses.

Males comprised 89 percent of those responding with the average age of all respondents being 56.5 years.

Respondents represented states from all areas of the country with the largest number being located in Florida, Texas and California.

All of the data used in these SOI charts are from PCT’s research via Research USA unless otherwise indicated.

The articles in this SOI report were written by two contributors to PCT magazine. Anne Nagro is a writer based in the Chicago area. Email her at anagro@giemedia.com. Donna DeFranco is a writer based in Cleveland, Ohio. Email her at ddefranco@giemedia.com.