After rolling along empty for decades, everyone wants to climb aboard the green bandwagon. Some seats are still open for distributors. Part 1 of 2.
It should be obvious by now that the green market is no longer the exclusive domain of hippies off to save the world and disdainful of the profit motive. Energy efficiency has long been a concern in the electrical industry, particularly in the lighting market. Yet many distributors remain unconvinced that they can be a significant player in that market. The people in the interviews below — including some of the leading green thinkers in the electrical industry — say otherwise.
Can distributors make a difference in the energy-efficiency market? If so, how? To some extent, the market will push you in that direction whether you jump on or not — you'll end up with a more efficient package of products to sell just by sitting there, because that's the direction manufacturers' development efforts and end-users' priorities and government incentives are pushing things. But according to these leading-edge thinkers, distributors interested in pushing forward and establishing a differentiating identity based on energy-efficient technologies have plenty of opportunities to capture some higher-margin business than traditional electrical supply brings in.
Benya Lighting Design West Linn, Ore.
From the standpoint of most high-end lighting designers, distribution may be a necessary evil or an afterthought. But that's not true for all of them. Jim Benya, a lighting designer specializing in energy-efficient projects, sees a valuable and lucrative role for distributors in the green game.
“For right now, when it comes to the green market, the distributor's greatest impact is going to be in training, education, and having the equipment for contractors to become educated,” Benya says. “Small contractors as a group are not particularly interested in continuing education and constantly improving themselves. That's where they need the help of distributors to help them make better and more green choices. I think this is a good differentiator between a good electrical distributor or lighting wholesaler, versus a large, high-volume Home Depot or something like that.”
The key for distributors lies in education, Benya says. “Distributors need to be better educated, on average, and they should invest in that. The guy at the counter needs some knowledge of the techniques of applying lighting. Distributors should also have a really thorough understanding of the incentives available in their market — the utility rebates, federal, state and local tax incentives — so they can say, ‘You get $20 back if you use one of these,’ and say that to everyone who comes in the door. Now they have the knowledge to sell the more expensive products. If they do good job, if they know more than their competitors, they'll make more money. If know how and what to upsell, it's a piece of cake.”
The best lighting designers are always looking for a new product to solve a difficult problem. But a traditional electrical distributor or even a lighting specialist shouldn't expect to become a key advisor to lighting designers. “The average lighting designer is going to be well-informed. If he's not, he's just lazy.” Benya gets his information anywhere he can find it — e-mail from friends, web sites, direct mailers, trade shows, conferences, magazines, and constantly talking to a lot of people about the latest in lighting keeps him on the cutting edge.
Big contractors typically have engineers and designers on staff who have the same mission-critical mindset about staying up with the latest technology, and there's not a lot a distributor can teach them.
But below that top tier, in what is really the meat of the market for lighting and controls and other energy-efficient technologies, small to mid-sized contractors are busy with jobs that often never had a lighting designer involved. Benya estimates that lighting designers design only 3 Percent to 4 percent of the projects that get built. The rest should be giving off the rich scent of opportunity for you by now.
There, a distributor can provide a service with very real value, says Benya. “The average small contractor putting together a small project has a lot of discretion over what he installs. A contractor doing a buildout of 3,000 square feet of offices will be lucky to get a lighting plan. If he's lucky, he'll have a distributor who can tell him about the green options. And if the contractor is smart, he will go back to the customer and say, ‘We can put in regular stuff, but for another 20 percent I can put in green stuff, and a rebate will pay for half of it.’ It makes him look better and makes the customer happier. Some customers are thrilled to know they have a choice.”
Many customers are beginning to expect it. A growing number of municipalities, schools and institutions are requiring that any new construction meet LEED standards, and even if it's not required, they will have heard of it.
The LEED standards have been the tipping point in bringing green design to the broader market, Benya says. The thing the green market really needs now is a progressive energy policy.
“LEED took all our new construction and made it better,” he says. “But for every new building there's a thousand old ones. A cohesive energy policy would make it just as beneficial to retrofit an existing building, financially and politically.”
For an example of how far green awareness has come from the days when it was found only in high-end showplace commercial and residential buildings, Benya can point to his latest project. “I try to do projects with sustainability focus, a green bent. That's 90 percent of what I do. But I started a project Monday that's going to be one of the cheapest imaginable projects one could do. It's a homeless center in San Antonio. It needs to be done and it needs to be done well. We'll be using inexpensive stuff, but if you use it smart, you can do it cheap and still have good lighting. It's not a high-end university project, it's something far simpler, but with the same attributes.”
CEO, Square D/schneider Electric Palatine, Ill.
Worldwide growth in energy demand is almost certain to continue well into the future, driving up the cost of energy and making products that save energy a good bet for continued growth for decades to come, says Dave Petratis, chief executive of Square D/Schneider Electric, Palatine, Ill.
Energy conservation has become part of a major strategic push by Schneider Electric, both in terms of developing new markets and products and in reducing its own cost of doing business. As part of this effort, the company has subjected all its plants and offices to an energy makeover.
“You've got to be willing to drink your own tequila,” Petratis says. “We saw opportunities to reduce our own energy streams and waste streams, as part of the overall effort to drive productivity and continuous improvement. Our business can be a good laboratory to go out and develop new products and solutions to help not only understand our business but understand our clients' business and drive our bottom line.”
The company set an overall goal for annual energy reduction, then sent its operations people, working with the services team, from plant to plant to analyze what they were spending on energy, identify opportunities and develop corrective actions for reducing waste and energy consumption. They then installed a companywide SCADA system to track and manage daily usage. With a companywide energy bill of $5 billion annually, the teams found a lot of opportunity for savings.
“Now, you can go onto one of our Schneider SCADA systems and see energy efficiency at any one of our 47 plants here in North America. We were able to apply Juno Lighting, different types of timing apparatus, variable-speed drives, and we were able to save well over $100,000 just on one facility.”
Schneider has found that its own “tequila” tastes pretty good. The results have been apparent even from outside Schneider. WasteCap Nebraska, a non-profit organization that promotes recycling and resource conservation, recognized Square D's Lincoln, Neb., plant for its waste-reduction measures last year.
The technologies Schneider has used to capture the energy savings have been a combination of new acquisitions and long-time business lines. In 2005, Schneider acquired Power Management Inc., Columbia, B.C., Canada, and combined it with the PowerLogic business they had been building since the early 1990s to create a package of meters, software and firmware that can monitor and analyze energy consumption at any facility, from office buildings to factories. “That business for Schneider, globally, is growing better than 25 percent.”
In Schneider's own energy-conservation efforts, energy management systems that gather usage data down to the individual sensor has shown the most significant impact, Petratis says. “The systems give the electrical user the ability to read temperatures at 100,000 different points in a building if he wants. We can literally understand demand, usage, power quality and efficiency in a thousand points. Knowledge is power.”
The company's acquisition of Juno Lighting in 2005 also plays an important role in reducing the lighting load, as well as existing variable-speed drives that can go on any industrial motor and make it more efficient.
“Our overall goal here is to reduce our energy consumption at every plant on an annual basis, using our own products,” Petratis says. “We're also working on waste-stream reduction. All our facilities in North America are ISO-14001-recognized, which is a symbol of our commitment to a friendly environment. Our goal there, long term, is zero waste stream, zero landfill.”
Looking at global trends in economic growth and the increasing demand for energy of all kinds, Petratis expects green technologies to continue being one of the best opportunities in the industry over the next two decades, at least. This will mean good business for distributors, but they'll have to go out and get it, says Petratis. It won't just walk up to their counters.
“We think it's good business for our wholesale partners to go out and work with their customers on the energy challenge,” he says. “Distributors have got to be developing value propositions with companies like ours to provide energy audits, to go out and understand the energy spend of customers, understand their value streams and waste streams, in terms of the usage of energy.”
“It's a different selling proposition, and wholesalers need to prepare their people to be ready to offer that value proposition,” he adds. “That's taking these opportunities to the street. It's not one that's going to show up at the counter and say, ‘I need to reduce my energy load by 30 percent.’ It's going out and working with the plant engineer and the finance people, saying, ‘What are your energy bills doing?’ It's understanding the energy spend, conducting an energy audit, then putting in a corrective action plan to drive bottom-line savings.”
What's the incentive for distributors to break out of their traditional modes of operation and learn to sell this value proposition? Opportunity. Long-term growth. In other words, money.
“The business opportunity around energy efficiency is one of the best opportunities for next two decades,” Petratis says. “Think about how the world will change. Whether it's solar, wind, better utilization, new fuel platforms, fuel cells, battery powered cars — fossil fuels will become more complex whether politically or environmentally — we have to be more efficient. People want more power, and that's not changing. If I had to make one big bet, anywhere in electrical value stream, if you're leading in energy efficiency, that's got to be pretty good.”
Principal, Illuminating Technologies, Greensboro, N.C. President, National Association of Independent Lighting Distributors (Naild), Buffalo, N.Y.
If you're going to paint your business green, you'll need more than one color, according to Gordon Hunt, president of Illuminating Technologies, a lighting distributor based in Greensboro, N.C., and current president of the National Association of Independent Lighting Distributors (NAILD), Buffalo, N.Y.
“There are two shades of green that run through lighting — there's being environmentally responsible, and there's making a profit. If you take both those shades of green and you keep those forefront in your discussions with clients, then the client's interests will be well-protected,” Hunt says. “They're not mutually exclusive, for sure.”
Hunt's experience in the electrical industry includes time in full-line distribution before he jumped full-time into lighting. From his perspective, the keys to establishing a viable green business model lie in developing relationships with end users and devoting considerable resources to training and education.
“If you're involved in this part of the market, where you're influencing decisions and you're providing advice, and you're providing substantial support to the customer, you're working with their engineers, you're working with their architects, they may or may not have formal designers for their lighting, so you may be serving that role in some settings, and you really become part of the team,” he says. “If you're involved up front as part of that team, then you're well positioned to have a tremendous amount of influence by providing them the right information so they can make the right decisions. The potential is absolutely there.”
Being able to serve in that role requires a constant investment in education, Hunt says — education for which he has long turned to NAILD and which he hopes to expand during his term as the association's president.
That education needs to go far beyond the product and application training provided by your own vendors. “Depending on what your role is with the client — that relationship isn't determined by your vendors. I think it's really important to reach outside your vendors to get the full-industry scope. There may be five different solutions, and only one's going to get installed, so you need to know the best ones and the best ways. That education is about education, it's not about product.”
“Lighting has become so complex that to do it well takes a tremendous amount of effort to know your products and know emerging products,” he says. “NAILD's purpose is to fill a gap. It's not vendor-specific. It's not driven by the manufacturers. We have a lot of great vendors who provide training. All our presentations are nonspecific to the manufacturers.”
Non-manufacturer-specific training is so valuable because quality lighting is driven more by application than technology, Hunt says. “Everybody thought when T5s came out that they'd replace every fixture in every warehouse, but they're not always the right solution. Knowing when to use what technologies, that's what matters most. They all have inherent benefits and challenges. There's correct applications for almost everything.”
Hunt says he is seeing a lot more emphasis and marketing clout put behind green product introductions from the manufacturers. New products are rolled out with more fanfare, better information for the distributors and more frequent updates on what is coming in the months ahead. “The amount of effort they put behind it in marketing has gone up substantially every time they do it. They're putting more emphasis on the green parts of new technology because that's what's driving all the innovation. That's where the market is going.”
The opportunities of the green market are drawing in a lot of contractors seeking a point of differentiation from their competition and a beachhead against the residential market's slump. Hunt sees this bringing interesting changes in the market and lucrative opportunities for distributors who put themselves in a position to help these contractors make the transition.
“Some contractors are really banking on the fact that they're going to build a reputation for being green. We've seen a big shift of people looking for the best niche. People in residential are coming into the commercial market, and it requires an interesting change in mindset. Commercial relationships are more demanding on knowledge. Somebody building a home and picking their lighting is being shown a variety of selections, but they may only be shown a small part of what's out there and they don't know any different. People in commercial real estate are in this game 24/7, and they have to know everything that's out there. These contractors need to begin building a cumulative base of knowledge, and they're going to have to turn to somebody for the answers.”
This is where education for distributors becomes especially important, Hunt says. “A well-informed, education-invested distributor of any type is going to bring more value to the whole equation. It's incumbent on you to have the knowledge, because you certainly can't know it just well enough to fake it, and teach it to somebody else at the same time. That's why NAILD developed its training. The Lighting Specialist program trains employees on just lighting. Then they can field those calls, understand what light is, what color is, what the various sources are, so they know how to field those questions.”
“We want everybody operating at a higher level so they do a better job. If everybody's doing a better job, it's better for everybody in the marketplace. Then we're all operating in a much better environment — a better lighting environment, a better business environment, and a better environment as a whole.”
President The Lighting Company Irvine, Calif.
The Lighting Company's Steve Espinosa has a unique vantage point from which to view the electrical distributor's challenges in the green market. He grew up in his family's full-line electrical supply house, Orange Coast Electric Supply, and today operates a lighting distributorship, in Irvine, Calif., a region of the company where commercial/industrial customers have some of the greatest need to cut their energy usage, and some of the most intriguing utility-rebate programs and state-funded incentives to do so. He is an active member of the National Association of Independent Lighting Distributors (NAILD), Buffalo, N.Y., so he sees what other lighting specialists are doing in the green market, and he recently became an NAED member, so he can get a sense of where full-line distributors are at, too. Espinosa's company, the subject of an Electrical Wholesaling cover story in April, 2007, helps commercial/industrial customers retrofit their facilities in Southern California.
Espinosa believes full-line electrical distributors can become serious players in the green market if their salespeople have the technical knowledge to be a resource for customers. “Traditional electrical distributors have the ‘eyeballs’ (accounts and relationship),” he says. “To sell energy-efficient products, electrical distributors will need a value proposition and training. The best existing model is the Allen-Bradley model, in which Allen-Bradley distributors must have end-user specification people that bring value to the customer and have the knowledge. If electrical distributors adapted this model, they would own the energy-efficient market.”
He doesn't think most electrical contractors play a serious role in recommending which energy-efficient products are specified in new construction or used in retrofit projects. “I think they are too far down the food chain on a construction project to effectively recommend energy-efficient products,” he says. “On new construction, I think for the most part it needs to be designed into the job.”
He believes full-line electrical distributors have an excellent opportunity in the MRO market to sell energy-efficient products, and that electrical manufacturers will play a lead role in getting these products specified in new construction. Espinosa believes the LEED certification program is proving to be a major driver in the green market, and he believes this green building standard can create more demand for energy-efficient products than existing utility-rebate programs. Down the road, he says national advertising campaigns promoting the advantages of green electrical products could drive sales, and “create a change in habits.” “There is so much hype on solar and wind power,” he says. “If you run the numbers, lighting is a significantly better investment. Energy-efficient lighting on a national scale is still very small, but it could have a huge impact on reducing energy consumption.
“For example, if a low-cost energy state like Idaho reduces energy consumption locally using energy efficient light bulbs, the power company there could potentially resell that electricity to California for a huge profit that would more then off-set the rebates to create demand for the energy-efficient lighting. Thus markets with low power costs can still create programs that affect energy efficiency.”
Facility Solutions Group Perth Amboy, N.J.
You won't find another electrical distributor in the United States with a better grip on the green market than Bernie Erickson, now a senior executive with Facility Solution Group, which bought his company, O.K Electric Supply, in September 2006. Based in Austin, Texas, Facility Solutions Group is a one-stop source for wholesale lighting and electrical products, lighting design support, electrical services, electrical construction and energy management services for building owners, managers and retailers.
The subject of two Electrical Wholesaling cover stories, (most recently in July 2006), Erickson has retrofitted hundreds if not thousands of buildings and uncovered millions of rebate dollars for his customers. Instead of worrying about competing with ESCOs, he considers many of them good customers. He has even become an ESCO himself, through the company's Energy Solutions division.
Erickson is always more than willing to tell other electrical distributors why they should get into the green market. If more electrical distributors took this market as seriously as he does, ESCOs might not have gotten to be quite as big a factor in lighting retrofit work, he says.
“For many years, I have preached that if distributors do not take an active role in the specification and marketing of new energy-efficient technologies, then they create a market for someone else to come in and serve,” he says. “The ESCO market flourished for just this very reason. When relegated to a supply-only role, products become commoditized, resulting in lower margins for both distributors and manufacturers.”
He says if distributors are going to get serious about the green market, they must learn how to sell the energy-efficient products as a package, and not just as individual product lines. “With the energy sale, we are creating demand and subsequently have to invest a much greater amount of time in the sale, he says. Often the process can take just as long for a $5,000 sale as for a $100,000 sale,” “It simply makes more sense to take a more comprehensive approach and offer a total package. This is what an ESCO would do. If you cannot offer the whole package, you can end up on the outside looking in. That is why we developed our own software that allows us to bundle multiple technologies.”
He agrees with other sources in the green market that electrical contractors struggle with creating demand for energy-efficient products. “Contractors are even less accustomed to creating demand than distributors,” he says. “They are very focused on price, and the energy sale is more about ROI. They also often lack the resources and understanding to do the audit and design resources to package a credible proposal to a customer. We have offered these services to several contractors for years, helping to establish some great relationships.
“Electrical contractors realize that new technology is where the market is headed, and they don't want to be left behind. The problem is they are either not familiar with or aware of some of the products often found in energy jobs. They would be more likely to relamp and reballast a fixture than to install a reflector, for example. Lastly, energy projects require capital, and with rebates and payment delays that's something smaller contractors can find challenging.”
Erickson believes electrical distributors can be a source of supply for ESCOs, and that major fixture and lamp manufacturers still have strong ties to electrical distributors as a key channel to market. But he says dozens of manufacturers of high-efficiency lighting fixtures and reflectors, as well as some lesser known lamp and ballast manufacturers, now bypass electrical distributors sell directly to ESCOs.”Manufacturers and distributors left this door open and it will be hard to close,” he says. “I have heard the comment from several ESCOs that they only purchase through distribution because they have to. We as distributors have to bring some value to the equation.”