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Green acres?

The competitive, price-sensitive ag market is one in which you will reap what you know.
Tuesday, June 15, 2004 - 00:00

The automotive aftermarket usually isn’t associated with sprawling fields of vegetation, but agricultural customers make up a large part of some jobbers’ businesses. So, what kind of customers are farmers?  Can you grow your business by servicing them, or will you just spin your wheels in a field of mud? Frankly, it depends on what you know.

To help us understand the farm market, we spoke with three businessmen who routinely sell to that segment: Dave Kimbell, marketing manager of The Merrill Co., an Iowa-based WD some may know as Arnold Motor Supply; Ron Duff, owner of Denison Auto & Machine in Denison, Iowa; and Mark Klein, owner of Coopersville Auto Supply in Coopersville, Mich.

Being in nearly complete agreement with each other regarding the many aspects of this specialty market, they share the trends, troubles, distinctions and tricks of their trade.

Competition as culprit

One aspect that differentiates agricultural from automotive customers is product — and not only the types of products, but the quantity and prices at which they’re sold.

Merchandise mostly sold to farmers involves the maintaining of their tractors and other farm machinery: fluids, filters, bearings and belts, as well as parts. And farmers buy in bulk. Oil and air filters are bought by the case. Fluids, like oil, are commonly found in 55-gallon drums.

“The bigger farmers keep an inventory, just like any of my repair shops do,” says Duff. “We can go to a large farm account, and he’ll have $500 worth of filters on the shelf, $200 worth of bearings and $500 worth of belts. They keep inventory because, these days, they farm 24 hours a day when it’s either [planting or harvest season], so they have to have their inventory in stock.”

Duff also explains the spending character of farmers: “If a farmer makes money, we tend to make money,” he says. “If a farmer makes money, believe me, he’ll spend it; we just have to be there to take it. That’s just the history of farmers. They’re not as frugal as New Yorkers might think they are.”

And not only do farmers buy in bulk, but the products they purchase sell at a much higher price than automotive products. According to Kimbell, a filter for a John Deere tractor runs from $30 to $100, and a farmer may replace two or three of them at a time. In contrast, an automotive customer can buy a white-box version of a spin-on filter for $2 or $3.

Kimbell says they also sell a lot of irrigation components and pumps, which are 350 automotive engines that run on propane — sometimes 24 hours a day, seven days a week.

With the more expensive products being sold in larger quantities, one would think agricultural customers would cause jobbers’ bottom lines to sprout upwards, but their business isn’t as lucrative as you’d expect. Why?

According to Duff and Kimbell, profits generated by auto and farm customers are about the same. Competitive pricing with corporately owned stores, as in the automotive arena, is one reason. “Due to the competitive nature, there’s not a lot of margin left in our business anymore, period,” says Kimbell, who has sold filters at cost. “The margins are comparable to the automotive side, if not lower.”

In addition, farm-implement (equipment) dealers have now gotten into the fray, and Kimbell says they are “very, very competitive.” He explains that in addition to farm-implement dealers becoming more competitive with parts, bearings and filters prices, leasing is now playing a role as farm equipment reaches the $300,000 to $500,000 price range.

“They’ll lease [a combine or tractor] for a season or two, turn it back in and go lease another one,” Kimbell explains. “That’s affecting things because farmers who lease have a tendency to go back to the lessor for service and parts, so our market doesn’t see [the business the equipment produces] for five years.”

Kimbell says there’s also an abundance of jobbers, mail-order houses and Internet retailers to compete with in the industry. “Some of the OE-platform dealers sell remanned engines with a five-year warranty if their shop does all the work and sells all the parts,” he says.

Due to all of the competitive factors, it seems most independent jobbers selling to the farm market sell to these customers on more of a wholesale pricing basis.

It’s also competition that drives the need for service, such as having machine shops. In addition to having a machine shop, Duff has a hydraulic hose machine. “Denison is a town of 7,000 people,” he says. “There are five auto parts stores in this town, and all five of us would like to have that agricultural business. Some of the other stores don’t have the inventory to back it up nor the service we have, so that’s what’s put us in a good position.”

Duff says farmers use his services a lot for parts and radiator repairs, though he says, “A farmer can fix anything, or at least he believes he can, and many would prefer to save money by doing their own repairs.”

Kimbell agrees. “Farmers today aren’t much different than they were years ago in the fact that they do everything right there,” he says. “They’ll paint, repair, rebuild, manufacture — anything and everything.” He says farmers have their own machine shops and huge shops where they can fit in a combine and/or a 16-row head.

Because the science of farming is pretty intense today, every modern farmer has more than one type of vehicle for different types of things he must do, including a multitude of equipment and attachments, from small weed trimmers to massive combines. “So there’s a lot of maintenance these guys do,” says Kimbell.

However, since farmers need to be very careful with their expensive equipment investments, and since their time is at a premium, there are other customer-base/selling opportunities for jobbers. “You don’t fix things with a screwdriver on a farm anymore,” Kimbell says. “We have machine shops and do a lot of machine work for individual farms and implement dealers.”

In addition, Kimbell and Duff also sell to garages that specialize in tractor and farm-machinery repair. “Most farmers can do all [the aforementioned], but whether they will or not [is another issue],” says Kimbell. “Since many of them don’t have a lot of time, they’ll pay someone to [maintain or repair their equipment].”

As a matter of fact, Kimbell says farm-implement repair makes up a main industry in itself. “There are thousands of guys out there who are repairing for farmers,” he says. “They do tractor and implement repair, and we sell to them, too. There are still some farmers who [do their own repairs], but implement repair isn’t just a cottage industry.”

Service: they need it now

Another aspect that sets farmers apart from automotive mechanics is the type of customers they are. In addition to being a dwindling breed — due to large, corporate crop lands taking the place of many family farms — homesteaders are, again, diligent and very busy beings.

What does this mean for jobbers who embrace their business? Several things.

First and foremost, farmers won’t wait. That’s why inventory availability is a special consideration when selling to the farm market. “A farmer will not wait until the next day to get something for his piece of equipment,” says Duff. “If you don’t have it, you don’t sell it. It’s got to be on the shelf.”

This is one reason why it’s also important for jobbers to be located near their farm customers. “Typically,” says Klein, “if, say, they break a hydraulic hose or [need a jobber for] whatever reason, they want to come down, get the thing fixed [or purchased] now and go back to the field. They need it now, and that’s it.”

Klein, who estimates that a little more than 60 percent of his customers are farmers, says his farthest farm customer is located 10 miles from his one and only location, and that he occasionally delivers, “if circumstances call for it.”

Kimbell, on the other hand, has sales people who call on some of the larger farms. “If a fellow has a big fleet and he’s farming a lot of acres,” he says, “a lot of times a salesman will stop there because he has machine work, and our salesmen will haul iron.”

Kimbell also says the Internet has opened up a lot of avenues for Arnold Motor Supply as far as communicating with customers. He says customers may call, e-mail or order online, which result in product delivery — as well as the occasional, “I know you’re coming this way, so can you bring me...”

Duff’s three stores are positioned in county seats located in the middle of where his customers are and have 90-mile-radius sales routes. “You can go six blocks and find a farm field, and that’s true of all my stores,” he says.

While Duff says he thinks satellite locations with distribution is probably a possibility, he’s taken the other route: traveling his territory more frequently. “We actually call on farmers and deliver to them on a weekly, sometimes daily basis,” he says. “We might see some of these farmers three times a week or, at least, have a truck going by four to five times a week. If they want something, boom, we drop it off. If they haven’t called that morning, then we don’t stop.”

And while Duff aggressively calls on larger farm accounts, the smaller-outfitted farmers tend to come into his stores to do business.

“It’s still a business of relationship selling,” agrees Kimbell. “Even though the farm market is changing from small farmer to big farmer, selling to this segment requires developing a relationship with the buyer. Part of that means the seller has to be close to the buyer geographically. These customers use the Internet for checking price, but would prefer to buy locally. They aren’t dummies and understand local, national and international economics and politics better than many other businessmen and women.”

This is one area where jobbers actually have an advantage over corporate competition. Opposite his auto customers, Duff explains, “Usually farmers appreciate buying from someone who’s locally owned instead of corporate. People buy from us because if they have any questions or problems, they don’t have to call California or New York to talk to someone who can fix the problem; they just call and talk to my wife, who’s in the next room.”

Can’t know enough

When asked if there’s anything he does or if he has any tips on how to make more money when it comes to selling to the farm market — especially given the fact it’s so price competitive now — Kimbell replies, “Service, service, service.” What did he suggest for jobbers wanting to get into the farm market? “Research, research and research” — a sentiment echoed by Duff and Klein.

“You need to have counterpeople who are knowledgeable in agricultural-type bearings, and that’s a very difficult line to get into,” says Duff. “The specifications on those are really strange, so you have to be very familiar with ag-type products: tractors, wagons, loaders, things like that.”

Another specific example of something that’s unique to farm customers that jobbers must know about is the presence of tax variations. According to Kimbell, state and federal governments allow farmers to receive a tax break on certain items. “A farm account can be challenging for a store to determine what’s taxable and what isn’t,” he explains. “Government regulations create some interesting perameters. Our accounting people are constantly in touch with the state auditors.”

“The product mix is different, and you’ve got to have some people who understand the farm market who can actually talk the talk and understand what’s out there and not be afraid to go out and crawl in the mud, because that’s what you’re dealing with. It’s dirt. Our guys get dirty,” says Kimbell.

Anybody can sell it if they have the parts and low prices, but the key is understanding howa farmer operates. “Farmers are no different than mechanics,” he says. “They like a personal relationship, and they’re going to deal with somebody who has good knowledge about their business and about the products they use so they can come in and get the right part. You’ve got a guy who may drive 25 miles one way to get to your store to pick up a part, and he doesn’t want to make another trip because you gave him the wrong part.

“It’s a very price-sensitive market, so you have to be prepared for volume, and it’s tough. It’s a tough market. You really have to do your homework before you jump into it.”

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