2014 HVAC & Hydronics Distribution Industry Forecast with the Experts

Daikin Industries

As we celebrated the first year anniversary of the Goodman acquisition by Daikin Industries, LTD in November 2013, it set the stage for continued positive growth and success for all our distributors and dealers across North America. We anticipate continued market growth for our HVAC products, distributors and dealers during 2014. After the tough, challenging economic times our entire industry experienced over the past several years, it appears that we are returning to a market with more robust and reliable growth opportunities.

Our forecast for 2014 reflects growth in all market segments, from ductless to commercial packaged products and VRV systems. Ductless continues to be a fast growing segment. We are helping to fuel this growth by offering ductless products in nearly all of our distributor locations. As the full ductless product line becomes more accessible and dealers become more familiar with its ease of installation, ductless products will experience more growth potential in both the residential and commercial market segments. Commercial packaged products growth will follow the market expansion for replacement units coupled with new commercial construction. Daikin brand commercial packaged products offer benefits coupled with accessories that dealers and contractors expect from a market leader. We expect steady growth in this market segment throughout 2014.

With the recent launch of the Daikin unitary product line through a network of select dealers, growth in 2014 will continue due to market growth coupled with several new product attributes. Inverter technology is scheduled to be available on many of our unitary products. This will bring another opportunity for sales growth through our independent and company-operated distributors and their customers. The introduction of the Daikin VRV product line in 2014 will represent the first time that this product has been manufactured in North America. This is an exciting opportunity for our dealers and reflects our unending commitment to being the best provider of high efficiency products in the marketplace. This is truly a milestone for our organization and will be remembered well beyond 2014 as this product becomes entrenched in the North American commercial and residential market segments.

I like to remind dealers and distributors that the HVAC marketplace has inherent strengths not found in other industries. I’ve been a member of leading companies in several other industries and I can attest that the stability and growth potential of the HVAC marketplace is outstanding and quite possibly unmatched. As a testament to that statement, I know of no other industry that could weather a 40 percent drop in total business without catastrophic results. That is the roller coaster that the HVAC industry has experienced beginning in 2008 and hopefully rebounded from in 2013.

Beyond the Daikin brand, growth opportunities for the Goodman and Amana brands are expected for 2014. We will be introducing an enhancement to our gas furnace products that will offer additional benefits for HVAC dealers and homeowners alike. We’ve added several new models to the Amana brand line and it continues to grow. Rumors have circulated that the Goodman brand would be going through changes or revisions during 2014. I can report today that, as a leading brand in the HVAC marketplace, the Goodman brand will remain as strong and solid as it has for more than 30 years.

Regardless of the year, our success is directly attributed to the shared success of our independent and company-operated distributors and a large, loyal group of independent HVAC dealers. We will continue to do whatever is necessary to make certain that we provide this growing group with the best products and support tools to make certain that we are the best option for their business success. Several years ago, we defined this strategy with our DealerFirst™ initiatives. The majority of HVAC dealers know this, but it bears repeating. Market leaders always adapt to changing market conditions whether the market experiences negative or positive growth. By being flexible and adjusting to market trends, HVAC dealers always find a way to improve their position in the local market. Control what you can and adjust for the conditions that you cannot control are how successful dealers grow every year. And since our company was founded by an HVAC dealer, it should be no surprise that we hold the same business philosophy.

Dave Swift is president and CEO of Daikin North America LLC. Vist www.daikin.com.

Emerson Climate Technologies

The Smart Bet is on Smart Systems

The industry has been talking about smart systems for several years, but in 2014, a number of factors come together to make this the year that smart systems see widespread adoption.

When we look at the overall HVAC market, we see our growing cloud-based infrastructure, the demand for high-end controls, sales of high-efficiency heating and cooling systems and growing interest from homeowners and facility managers all driving the adoption of smart systems.

Smart Market. Coming off good growth in 2013 with unitary, furnace, water heater and appliance markets up high single or low double digits, 2014 should continue to strengthen in the mid-single digits. U.S. residential fixed investment is forecast to grow again for the third straight year and single family housing starts should be at roughly a 1 million unit rate this year. As I write this article, the first strong winter front is rolling through the Midwest and with a normal weather year, we should also see some increase over prior years on the service side of our industry. From a market standpoint, our industry should have overall underlying strength in 2014, which is a key foundation to ensuring the growth and development of smart systems.

Smart Infrastructure. In the past few years, there have been some important steps made in technology that we believe are going to drive faster adoption of connected homes and increase the ability to remotely manage a residential home or a retail facility. Certainly, Wi-Fi capability and reliability have driven a lot of that. But another key factor is the ability to now build very cost-effective cloud architectures by which we can remotely manage lots of data, which allows us to optimize the reliability and efficiency of all types of facilities. This capability is generating more focus on enabling technologies such as distributed controls, wireless thermostats and remote monitoring capabilities.

Smart Controls. The ability to remotely control an HVACR system has been around for many years, but the cost to do it is dropping, and the number of companies offering connected solutions is increasing dramatically. This year, we are going to see more sophisticated ways to integrate energy efficiency, demand response or variable rate energy costs and system control into personal devices like phones and tablets.

The limit to what a thermostat will become is not a factor of the hardware on the wall, but the cloud solution behind it. Thermostats and controls don’t need to become much smarter, but the way we use data from the thermostat and the system to engage the homeowner or facility manager will define the smart system of the future.

Smart Efficiency. As the construction market improves and home values are returning, we are starting to see the rise in communicating systems and high-efficiency residential systems at 16-18 SEER and beyond. With both homeowners and businesses investing in efficiency, we are starting to see business models that allow both contractors and owners to remotely track the performance of the HVACR systems and dispatch contractors if there is an issue.

Smart Business Models. As we move forward with smart systems in 2014, contractors are going to need to be comfortable working with consumers and facility managers to connect and use these technologies. For manufacturers, creating simple step-by-step instruction, using mobile apps and video, will be important to support contractors and ensure the confidence of smart system owners.

Homeowners and facility managers need to be informed on both the availability and benefit of information coming from their HVACR systems. Contractors need to help their customers understand that smart systems can help notify them of the warning signs of system failure.

Contractors are used to fixing systems or selling service contracts for potential issues. This year, they will need to move to a model where they can show their customers that real, actionable information can be available from their system to save them money and keep them comfortable.

Geoff Godwin is vice president of Marketing, White-Rodgers. Visit www.emersonclimate.com.

Nest Labs Inc.

2014 and the Tech-Focused Customer

I’m not a fortune teller and I have no tea leaves to read. That said, some HVAC trends are worth noting. To start, tech-savvy consumers are paying much more attention to their heating and cooling. They are looking for innovations that can help them save money and energy. Their love of smartphones and smart TVs gives them incredibly high expectations. Everything should be connected. Everything should just work. And consumers aren’t the only ones paying more attention. The home-automation opportunity is so big, new tech players are jumping into the market. So, consumers will look to the HVAC professionals for guidance while also having their own well-researched ideas. And in 2014, we believe the HVAC community needs to embrace innovation like never before.

In recent years, the economy has been unkind to wholesalers, contractors and the industry at large. It’s been some of the most challenging times that I’ve ever seen. This is clearly changing. Equipment orders are up, particularly for high-efficiency systems and controls. These high-efficiency systems also tend to be more advanced. In addition, there is a trend toward adding advanced controls to existing systems to try to pull extra efficiency and savings out of them. Both trends are good for our industry. And both trends are the result of smarter, savvier customers.

Innovations such as apps, smartphones and tablets have combined powerful functionality with powerful simplicity. It’s now easier to do more. And consumers’ desire for powerful yet simple technology will require the industry to be just as up-to-date as our customers. This presents new challenges for wholesalers and contractors. We have to create the energy efficient systems that match their demand for simplicity, convenience and instant connectivity.

All of this technology also leads to an expectation of integration. Customers expect their phone to talk to their car. They expect their tablet to talk to their TV. Consumers expect everything to just work regardless of who made each device. And those expectations are impacting HVAC. Quickly. This is one of the reasons Nest announced the opening of our application program interface in September. We’re already working with home automation companies like Control4 and numerous other manufacturers that make other devices for the home. We believe the customer experience comes first and we’re actively working with companies to create a seamless interaction between their products and ours. 

Thankfully, these growing expectations also represent an incredible opportunity. The cable, telecommunications and home security industries are all innovating new ways to connect the home. And they’re all marketing their solutions to customers. They all have their own point of view and their own way of incorporating our HVAC business. This will likely lead to some fragmentation. But the HVAC pros who talk directly with consumers have an advantage. They have a one-to-one relationship and a better understanding of what customers really want in their systems. And what they don’t. I’m predicting this one-on-one relationship will become increasingly important as people look for help with the flood of options.

As industry leaders, we have to match the pace of change. Your customers are more informed than they’ve ever been. Innovation is pushing the expansion of the HVAC industry, and more and more companies want to participate in it. By embracing the latest technology and matching the right systems with customer needs, our businesses can expand right along with the industry. Integrating new technology and products that match well with core competencies will be one of the biggest challenges of 2014 and beyond. It will require new ways of thinking. New approaches to installation and system design. New cooperation between wholesalers and installers. And listening to customers who are researching more than ever. The faster we can embrace the innovation that consumers are demanding, the better we will be able to serve them. In some cases, we’ll have to leave behind old ways of thinking and see the opportunity for doing more than we did yesterday. This will lead to more profitability and the happiest, most loyal customers we’ve ever had. If we aren’t willing to embrace our customers’ changing needs, others will.

Gene LaNois is general manager/Pro Channel, Nest Labs Inc. Visit www.nest.com.

Ritchie Engineering

When I was first approached by the editors of HVACR/Hydronics Distribution Business for comments on this topic, it felt like a daunting task. But I soon realized this was a great opportunity to perform a mini “SWOT” analysis on the industry from our company’s perspective by considering some issues and then determining … are they opportunities or threats?

The Generation Gap and Continued Evolution of Technology. Let’s face it. This is a very mature industry. Many of our customers have been very successful performing their trade without having to adopt all the new gadgets and “bells and whistles” flooding the market. But what about the desire of the current generation for instant gratification with the latest technology? Imagine all your analog gauges being replaced by iPhones (yes, there will be an app for that). This is not limited to physical product but also web- and application-based support. Should we view this as a threat or opportunity? As manufacturers, we should focus on designing and building products that make the technician more efficient – regardless of the generation. This being the case, one of our challenges is to determine with what and how (product, services, etc.) to implement technology. It’s also a challenge in how we do our jobs, due to the immediacy it causes.

New Talent Entering the HVACR Industry. Speaking of the next generation, there appears to be a potential shortage of trades people entering this industry – specifically field service techs and installers. It strikes me that our industry is not doing enough at a number of levels to promote the notion that learning the HVACR trade in a proper manner can be a path to fulfillment and success.

Building Codes, Refrigerants and the EPA. How will stricter building codes, the focus on green energy and green products and recycling of products affect our industry and business moving forward? And what about the uncertainty of refrigerants? HFCs have largely enabled us to move past the ozone-depletion era. However, there is some uncertainty around which HFC-based refrigerants will enter and/or stay in the mainstream. This has a bearing on product development and innovation. Longer term, greenhouse gas initiatives are looming as the next environmental issue facing our industry. The uncertainty is even greater as the market seeks LGWP (lower global warming potential) refrigerants. Natural refrigerants such as hydrocarbons or CO2 are a possibility, as are HFOs. The direction of the marketplace could have significant impact on how we develop products moving forward.

Channel Conflict. There are more ways for consumers to source and purchase product today than ever before. E-commerce is growing exponentially and has found its way into nearly every industry. Although ours is a very traditional industry, manufacturers and wholesalers alike cannot ignore this topic and will need to determine how to get products to market in the most efficient and value-added way possible. This is a challenge, but as long as we rationally evaluate channels to market, it can be an opportunity to reach more users.

Competition and Consolidation. Several factors will continue to create pricing pressures: new players entering the market; globalization, which offers a totally interconnected marketplace, unhampered by time zones or national boundaries; and the trend we see in the consolidation of the smaller, independent wholesaler, which most likely will continue through acquisitions, attrition and expanding market channels. We cannot let these challenges compromise our quality or service. We will need to be more creative while holding true to our genetic makeup.

This year, Ritchie Engineering will celebrate its 65th year of servicing this great industry. Like everyone else, we need to be cognizant of these and every other issue that we face on a daily basis and ask ourselves, “Are these issues opportunities, challenges or threats? Is the glass half empty or half full?” I believe each challenge presents an opportunity.  

Mike Lanners is vice president of Domestic Sales and Marketing. Visit www.yellow jacket.com.

Taco

2014 Will Be A Year to Build On

I’d like to meet the person with 100 percent clarity in their crystal ball. I mean, really. As much as I’d like to say that there’s increased certainty to market conditions here in the U.S. – whether strength or weakness – there’s instead a lot of factors that haven’t yet settled in for the New Year. We step into 2014 with so many unknowns that my crystal ball looks like a newly shaken snow globe.

One of the obvious factors that influences conditions here are the macroeconomic trends. Through this giant swirl of change – including factors that tie closely to the global market – we’re seeing modest gains in both the residential and commercial markets here in North America. In the U.S., things are gradually improving. In Canada, the market is actually trimming back somewhat but is still quite strong.

I just don’t see us returning to those boom years any time soon. Instead, this slow but steady pace is the new normal.

In 2013, we saw strong growth in multifamily construction and the hospitality business. For 2014, we hope and expect to see an increase in single-family home construction, retrofit business and the institutional segment.

There’s also good news in that Washington, D.C. battled through its deadlock with a budget deal in place. With greater stability in D.C., there’s improved confidence in business and consumer markets, which helps drive private sector spending in efficiency upgrades, building systems, retrofits and construction. Building owners and investors who were standing on the sidelines may now be ready to jump back into the market in 2014.

Yet, there are challenges, too. Chief among these are rising costs, including healthcare. With so many unanswered questions, the full impact of the Affordable Healthcare Act still needs to play out. Also, there are increases in material costs, taxes, regulatory mandates, fuel and other inflationary costs that are pulling us in the other direction.

My world here at Taco is tied to all of this – but it’s hard not to be upbeat when we’ve seen so many good things arise from 2013 that favorably affect our lives and the market.

There’s a giant push for greater efficiency within the residential and commercial markets. Commercial owners strive for LEED Gold, and homeowners are investing in systems that will allow them to spend less on fuel for heating and cooling.

There’s the search for greater comfort within living and work spaces at a lower cost. Fortunately, in the wonderful world of hydronics, comfort is not the victim of efficiency.

At Taco, we’re driven to develop and invest in new technologies that improve operational efficiency at every level – through our high efficiency ECM Viridian and Bumble Bee pumps, our SelfSensing ProBalance pumps with integrated variable speed drives and Taco’s iWorx web-capable building management platform that puts total HVAC building control into one advanced yet easy-to-install package.

Today, all manufacturers in the industry are faced with the need to make hefty investments just to keep pace with the increasingly escalating rate of technology. Hopefully, the rate of adoption of these new technologies by the market will allow manufacturers to see a return on their R&D investments so they and the industry can remain financially secure.

There’s a human side to the equation that’s very rewarding for me, personally. Our 500+ employees are my family, and they’re the ones who are the very root of our existence.

For things to look good at Taco, they must also look good for my employees and staff. As a responsible corporation, Taco must provide them with good benefits, a good standard of living and stability. We’re constantly asking them how we can help them here on the job and at home. An engaged and happy employee is one who lives and breathes our mantra of quality across the board, and because of this, we can react faster when there are changes in the market. Our employees allow us to remain competitive in a global marketplace while engaging in our local communities to make them stronger, too.

Another facet of our strength is our training. More people are taking advantage of the technical support provided by our FloPro University (residential) and Taco University (commercial). We see this trend increasing as it also ties to our value-added contributions.

There’s the impact of the support we offer to design and control complete hydronic commercial systems. We call it total project support – availing a team of people who work with customers so they can achieve the system performance they’re looking for.

A challenge we see are new multinational entrants into the North American HVAC market, touting technology with new delivery methods. A question I have: Are these systems delivering as promised? We believe that if a building owner is really looking for comfort, efficiency and life cycle cost advantage, hydronics is still the way to go. Through education and design support, we can show them the way.

As you can see, Taco isn’t just a manufacturer of products. Our role and responsibilities are far more than that. We learned long ago the importance of substantive involvement in our markets at many different levels.

System design expertise and engineering, steadily nurtured relationships with wholesalers and system installers and outreach among consulting-specifying engineers, building owners and local communities: It’s all part of what we do, every day. And this plays a very important role in our ability to positively influence our own destiny and the HVAC industry in 2014.

John Hazen White, Jr. is president of Taco. Visit www.taco-hvac.com.

Tom Peric´ is the editor of HVACR/Hydronics Distribution Business. Contact him at 856/874-0049 or [email protected].