There might not be another topic that has incited such a range of emotions as the downward pressures being experienced—not only in national contracts, but also at the local level. Many contractors are understandably angry at having lost business because of perceived "low-ball" tactics. Our goal was to take a step back, remove emotion from the equation and look at it from a business perspective.
Customers' demands are changing, and companies are faced with tough choices to adapt or become expendable. We are hopeful that this ongoing discussion will help you make the best choice for your company.
SIMA and Snow Business welcome your input. If you are interested in contributing, e-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it or contact Editor Cheryl Higley at 216-706-3765.
By Cheryl Higley
Corporate America is tightening its belt, and snow and ice professionals have found themselves in a difficult position. Some have lost long-time clients to national service management companies, hired by major retailers to streamline processes and cut costs. Others tell of profit margins decimated by unrealistic pricing as companies try to grab market share or from local accounts slashing budgets.
Whether the stories are rooted in truth or in sour grapes, or whether a combination is at play, what isn't in doubt is that the industry has experienced a paradigm shift. The national service procurement model—bolstered by corporate America's budget-tightening epiphany—is playing an integral role in steering the industry. According to national company representatives and industry professionals, who are working for and against the national model, how the trend ultimately takes shape will rest with those who can adapt their businesses accordingly.
A trickle-down effect
At the recent Snow & Ice Symposium in Providence, RI, a standing-room-only crowd attended a panel discussion focusing on the national trend. Among the panelists was Grant Mitchell, vice president of Divisions, Inc., who shed light on the driving forces behind the tighter pricing.
Contrary to popular belief, he says, it's not to cheat private contractors. Rather, "our clients are demanding lower costs, consistent scopes of service, improved efficiencies, and for its provider—not local store managers—to deal with the headaches of the winter season."
Panelist, Sean Hartnett, CSP, sales and development executive for USM, said that the higher up the corporate chain, the more it becomes strictly about price.
"From the CFOs' perspective, snow and ice management is an indirect expense that takes away from their bottom line. You cost them money. They can't go to their shareholders and say, 'We didn't hit our earnings target because it snowed.' Our customers hire us because we can provide a wide geographic reach, and as a single-source vendor, we can streamline their processes, bring efficiencies and allow them to focus on being more profitable."
Jose Rivera, owner of Ohio-based Choice 1 Management, Inc., says the apathy of corporate America has hurt the industry.
"I enjoyed plowing snow, and I worked hard to make my business successful," says Rivera, who previously owned Riverascapes, LLC, which had about 10 trucks, 15 employees and a $400,000 payroll. As national companies began infiltrating his market, Rivera says the shift toward outsourcing forced him to shake up his business focus. He adopted an "if you can't beat 'em, join 'em" mentality to survive—and now operates more successfully as a regionally based management company.
"There is plenty of work out there, but the majority is driven by corporate outsourcing," he says. "Corporate America doesn't want excuses, and they don't want to deal with the drama. As contractors, we pay great attention to detail and want our sites to look perfect, but these clients don't care about that. They care about the bottom line."
Will low prices prevail?
At the end of the day, national retail clients are saving millions by outsourcing their snow and ice management needs. But some say the contractors in the trenches are paying too high a price.
Keith Kirby, president of Michigan-based Curbco, Inc., is a 25-year industry veteran. In recent years, he has seen companies in his market sell contracts with less than 5% markup. That tight margin gets even tighter once the management company takes its cut, leaving the contractors performing the service little—if anything—in the way of profit.
"There are national providers that are trying to do a quality job, but most are just wagging price. They are selling snow and ice on volume, and that just doesn't work. When you cut prices 40% to 60%, it is unrealistic to expect the same level of service and professionalism that is promised," he says. "If it's going to be about the lowest price, and these companies don't qualify their subcontractors, they shouldn't be disappointed when the contractor they hired shows up in sweatpants and a ripped T-shirt, and guys are in the back of a truck slinging salt with coffee cans."
The national procurement model certainly can help control costs, Kirby says, but he questions its value in the snow and ice industry.
"When you're buying materials for 25 stores, the profit comes in the buying power. But a piece of equipment can only do so much per hour—I don't care how efficient you are. Costs are costs. Selling on nothing but price, and selling it on Mother Nature's back? What a dangerous game of Russian roulette."
In fact, national companies such as Dentco and Brickman Facility Solutions say they aren't immune to the challenges, finding it difficult to compete in some markets because of deep-discount pricing.
"I see some stupid things taking place with how companies are pricing work. I struggle with how some of the national companies, who have never self-performed snow work, can bid on these contracts without seeing the sites," says Kevin Dent, founder of Dentco. "It makes no sense and it hurts our industry."
Margie Holly, communications manager for Brickman, says the company strives to find the right clients, where price isn't always the end-all.
"If a customer is only interested in the lowest price, they're probably not the customer for us—and we have walked away from prospects," she says. "If they are interested in partnering with us to come up with solutions that meet their needs, within their budget, we can almost always find a mutually beneficial relationship."
Shouldering some of the blame
With downward pricing pressures taking hold across North America, it's easy to foist the blame onto the shoulders of corporate CFOs and the national service companies. But that, according to some snow and ice professionals, is a shortsighted approach. In fact, they say a fair amount of blame should be placed squarely on the shoulders of the enablers—contractors who know the price is faulty and take the work anyway, either because they need the cash or because they don't know the true costs of doing snow and ice work.
"If your job with a national company is to put together the lowest possible qualified bid, you are going to bid what that market will bear. It's business," says Michael Merrill, CEO of North Country Snow & Ice Management in Glens Falls, NY. "The blame for this problem rests 100% with the contractors who are willing to cut each others' throats because they don't know their numbers, so they're working for cash flow. They are willing to take less just to get the business to cover their overhead."
Divisions' Mitchell, who has been in the industry for more than 10 years, agrees. "People are accepting pricing that is unrealistic. I see some of these contracts, and I know they are unattainable. We want to achieve sustainable pricing for our customers, and our service providers. It's a hard balance to find in this industry."
Also at work, according to North Dakota-based Glacier Snow Management President Don Nelson, is contractor complacency.
"For all the venom and zeal we hear of pricing being slashed, contractors helped cause it. For a long time, a lot of contractors looked at these big-box stores as an open checkbook," he says. "When the economy crashed and these companies needed to start cutting budgets, it was the perfect opportunity for national service providers to come in and tell them they could save millions by going with a single-source provider."
What to do?
Corporate America isn't going to change, so it's up to private snow and ice management professionals to take the fate of their success into their own hands.
Streamline your business. Use your network of colleagues and SIMA resources to learn to become as efficient as possible. "I have learned how to become more efficient, so I can be cheaper but still be profitable," Merrill says.
Diversify your portfolio. Determine what type of work makes the most sense for your business. Don't discount the value of small to mid-size accounts, where price may not always be the driving factors. Keep an eye on your market for properties where service is subpar, and target those as potential clients.
Calculate how much of a hit your budget can stand. During an economic downturn, it can be tempting to settle for less. Know the sacrifice your company's bottom line is able to absorb, Kirby says. "If they offer me five stores that I know I should get $43,000 for each, but they offer me $30,000 each—and I can get paid in 30 days—can I afford to walk away from $150,000?"
The only way you will know the answer is to know your numbers. "So many contractors don't know the true costs of doing business," Kirby says.
Owners and managers seem ready to hold their colleagues and competitors accountable. During the Symposium panel, their voices were loud and clear. If you're doing it right, and the pricing just doesn't add up, you have the power to walk away.
Merrill agrees. "Until contractors educate themselves on their costs and their markets, nothing will change."
Cheryl Higley is editor of Snow Business. Contact her at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or 216-706-3765.
