With 380 locations spread across 32 states, Watsco Inc. is the largest distributor of HVACR products in the United States. The company, based in Coconut Grove, FL, has achieved this distinction in less than 20 years as a distributor, growing by acquiring distributors that are a good fit with Watsco's style of doing business.
Watsco has its roots in the HVACR manufacturing business going back almost 60 years. First known as Watsco Components, CEO Albert H. Nahmad got into the distribution business in 1989 when he was introduced to an HVACR distributor, Gemaire Distributors, that was for sale in nearby Ft. Lauderdale, FL. Nahmad visited the business, liked what he saw and put in a successful bid. A few years later, Watsco sold the manufacturing portion of its business to focus on and grow the distribution business.
Over the years, Watsco has employed its acquisition strategy from New England to California. It now has a total of four main subsidiary companies. Watsco conducts its acquisition strategy with great care, says Elizabeth Urban, manager of strategic projects. “It's always been one of growing by acquisition, but not the typical ivory tower, top-down approach that you would find on Wall Street,” she says. “Rather, we ask people in the industry who would be a good fit in this group, and then once they are part of the Watsco family, our job is to support them in any way they ask us.” This approach has led Watsco to some of the leading distributors in key markets across the country.
Although Watsco is large enough to be ranked 903rd in the Fortune 1000 with $1.8 billion in revenues nationwide, Nahmad and his executive management team understand that the HVACR distribution business is very much dependent on the relationships that the HVACR distributors have built in their local markets. That's why Watsco's subsidiaries maintain their business names. For example, Gemaire Distributors, Watsco's first acquisition, retained its name and has continued to build on its success as a local distributor in the Florida market. Keeping the subsidiary name keeps the familiarity and relationships between those distributors and their customers intact.
In fact, those distributors acquired by Watsco become the company's greatest advocates. Once they become part of the Watsco family, they see the tremendous value that comes from being part of a national organization. As new distributors within Watsco talk to their colleagues about their experiences, it only makes future acquisitions easier. That's how Watsco came to acquire Heating & Cooling Supply in California. In conversations with executives at Gemaire Distributors, they recommended reaching out to the Butler family. That led to a discussion with the Butlers, and that, in turn, brought Heating & Cooling Supply to Watsco.
“We're always looking to grow through acquisitions and to develop relationships with companies to help them grow and reach their full potential,” Urban says. “We have significant financial resources, not to mention we as a family are the largest customer of many of our vendors. That's one of our core strategies for growth, and that is the way that we are looking to grow.” It is a highly relational industry; Urban says Watsco is slow to develop new markets on its own. “We prefer to grow through acquisitions.”
Watsco's successful growth strategy has been maintaining its subsidiaries' local market knowledge while backing each one with the strength and power of a national organization. Each subsidiary is responsible for its branches and the products they carry. Watsco's corporate structure empowers each subsidiary to do what they think is best for their particular market. Says Urban: “We do not operate as though the corporate office has a better understanding than someone in the field who knows what's going on day to day.” The only centralized functions handled out of Watsco's corporate office are treasury management, commercial insurance and the 401(k) plan.
During 2004, the owners of East Coast Metal Distributors gave consideration to selling the 50-plus-year-old company to the Watsco organization. “While debating the reasons of why to sell and the ramifications of what happens to the dedicated personnel that would remain, we became convinced that being a part of the Watsco family of subsidiaries was the best choice for our organization,” says Jeff Files, chairman of the Board. “Now, more than two years have passed and all of the positive reasons that we chose to join Watsco continue to prevail. The Watsco company supports our management structure, our sales initiatives and our expansion plans, and encourages shared knowledge from all other Watsco subsidiaries as we strive to succeed. I would encourage any HVACR organization to explore becoming a part of the success story of Watsco.”
There's more than just the knowledge of local markets that Watsco's subsidiaries bring to the table. They also have their own management teams, each with a wide array of expertise on any number of issues related to the HVACR industry. Watsco makes sure to harness this knowledge. Four meetings a year are held with CFOs, for example, to share best practices and discuss common issues and solutions. “Everything is managed locally, but there's a central strategy for achieving our goals,” Urban says. Other management teams will meet regularly, and Urban says there are telephone calls every day about what's happening in the HVACR market so they can react and plan accordingly.
Watsco's buying power as a national distributor is also a benefit to its customers. Watsco offers competitive pricing and a wide range of products. So it has availability of many products. “Being such a large customer for so many suppliers, we've been able to leverage that relationship with our vendors to make sure that we get products first,” Urban says. It was certainly beneficial to Watsco's distributors and dealers last year during the 13 SEER transition. A great deal of planning went into the transition, and with the assistance of all of Watsco's subsidiaries, it went smoothly.
Watsco also developed its own private label, called GemTech. Urban says it is a value brand that is available at most of Watsco's branches. As a value brand, GemTech helps complete the “good-better-best” offering philosophy. Not only is it an important line but it's a grouping of competitively priced products under one name. “It's been a great success, and it's been very well-received by the contractors.” She credits the subsidiaries with GemTech's success, saying it was a product line piloted and managed by them. “Just like any other product, they have the right to review it and evaluate it and rally the market around it,” she adds.
Watsco attributes its ability to service the contractor customers as the key factor in its success. Each subsidiary has its own distribution system in place to ensure that products get to their locations on time. Each subsidiary also plans its own marketing promotions based on their market needs. “We try to help them grow their business. Our role at the corporate office is not to make them report to us, it's to facilitate their business development,” Urban says.
The subsidiaries developed Internet e-commerce capabilities and quickly became leaders in this online business environment. The goal is to offer a convenient way for contractors to conduct business when it is most convenient for them. Several subsidiaries now offer everything from pricing information, order placement and payment to scheduling for pickups and deliveries. Each subsidiary has its own website, which profiles its business and product offerings. There are links to each of the subsidiary homepages on the Watsco site, www.watsco.com.
ACDoctor.com enables homeowners and building owners to connect with licensed HVACR contractors. Watsco considers it a premier online resource for homeowners to learn about their air-conditioning and heating systems, providing an overview of the systems and an explanation of SEER ratings. With a ZIP code search, a consumer can locate one of Watsco's 14,000 contractor customers. Such a consumer-friendly website helps to create and cement relationships between customer and contractor. That loyalty benefits everyone within the supply chain.
With technical expertise such an important component of service, Watsco considers ongoing training to be of premium importance. Urban says many branches have training facilities, and Watsco's vendors provide ongoing training materials and sessions. “Our vendors will develop strategies with each subsidiary and do the implementation of the training on a subsidiary-by-subsidiary basis,” she says. “There's no blanket program, and each session is geared to the specific audience.”
While Watsco will continue to grow through acquisition, it does not see a flood of new consolidations. “People like running their businesses,” Urban says. “For many owners, the business is like the family china, and we try to provide the best of both worlds: the ability to operate with a large degree of autonomy in tandem with the largest, wealthiest partner they can imagine.”
The business is something that should be cherished and protected. Watsco's understanding of this dynamic has been critical to its success. Its subsidiaries became part of Watsco because they recognized that its management team shared the pride that each owner saw in their business. They, too, wanted to see its success continue. Together, they are making it happen.
Michael Maynard is a business writer based in Providence, RI. He writes frequently on HVACR, construction and architecture issues. Contact him at firstname.lastname@example.org.
Watsco has four main subsidiaries: Baker Distributing Co., Gemaire Distributors, Heating & Cooling Supply and East Coast Metal Distributors. Below is a brief description of each subsidiary.
Baker Distributing Co.
Baker Distributing Company, based in Jacksonville, FL, distributes air-conditioning, refrigeration and heating equipment, parts and supplies. Baker has more than 200 service centers throughout the South and California, and more than 60 years of experience in the HVACR and commercial refrigeration industries. Baker's large partners for refrigeration products include Manitowoc, Copeland, Mueller, Heatcraft and DuPont. Baker also distributes Whirlpool, Tempstar, Tappan, Frigidaire and Heil brand air-conditioning equipment products. It offers 24-hour emergency service for its customers. www.bakerdist.com
Gemaire Distributors was founded in 1969 in Ft. Lauderdale, FL, and now has a distribution chain of 62 showroom branches in Florida, Georgia, North Carolina, South Carolina, Virginia, Texas, western Louisiana and Mobile, AL. Gemaire is the sole Rheem distributor for Florida, Texas, western Louisiana, North Carolina, Virginia and southern Alabama. Within its footprint, Gemaire also stocks Frigidaire, Tappan, Westinghouse and Maytag HVACR equipment. Each Gemaire location has a full offering of supplies and accessories for any job. www.gemairegroup.com
East Coast Metal Distributors
East Coast Metal Distributors, based in Durham, NC, sells Goodman and Amana heating and air-conditioning equipment through its 27 locations in the Carolinas, Virginia, Georgia and east Tennessee. East Coast offers a complete line of supplies and accessories and also has an Engineered Products Division that provides products and services to the Plan & Spec arena. The Machinery Division offers a complete mix of sheet metal machinery and roll forming equipment. www.ecmdi.com
Heating & Cooling Supply LLC
Heating & Cooling Supply LLC was founded in 1960 with one location in San Diego, CA. Today, the company has 26 branch warehouses throughout California, Arizona and southern Nevada to serve small, medium and large licensed HVACR contractors.?It sells Rheem, Weatherking and Comfortmaker equipment and the complete line of accompanying supplies and accessories. www.heatingandcooling.com
Definition and Example: Multicategory product offering. Watsco offers contractors, through it subsidiaries, equipment and supplies to fit each of the good-better-best product categories.
Significance: Distributors have traditionally been unable to offer a good-better-best portfolio of products to contractors. As a result, contractors must make multiple stops to get the equipment and supplies to meet the quality and feature points of different jobs.
Benefits: The diverse product offering creates a one-stop shop for contractors and enables them to get back to the job site faster.
Procedure: Subsidiaries choose the equipment and supplies that best meet the needs of their customers in a market area. Watsco facilitates the process but does not mandate any product offerings.
People involved: Subsidiary and branch management work together to make sure that the ideal product offering is in the right place at the right time at the right price.
Timing: We carry the products year round and are readily available to meet customers' needs.
|President & CEO:||Albert H. Nahmad|
|Vice President:||Barry S. Logan|
|Headquarters:||2665 South Bayshore Drive Coconut Grove, FL|
|Operations:||380 locations operated by four subsidiaries: Baker Distributing Co., East Coast Metal Distributors, Gemaire Distributors and Heating and Cooling Supply.|
|Major Product Lines:||Residential air conditioning and heating equipment, light commercial equipment, refrigeration equipment and supplies, accessories, parts, controls and cold-side food service.|
|Annual Sales:||$1.8 billion|