Big cats: as large production builders prowl for growth opportunities, dealers must learn to supply their increasing volume needs without sacrificing smaller customers

Prosales, Feb, 2003 by Chris Wood

When it comes to home building, 2003 might as well be dubbed the year of the tiger, according to BIG BUILDER magazine. "The industry's dozen largest players are expected to produce more, more, more" says Roberta Maynard in the opening editorial of Strategies 2003, BIG BUILDER'S special December 2002 issue.

How much more? With most of the industry's top 12 players driving for growth increases of 20 percent, expect big builders to stake claim to 263,130 of an estimated 1.3 million single-family starts next year. "That's good news for suppliers to building companies," Maynard says. "It's not so good for smaller builders competing with these giants."

Good news for suppliers because an increasing number of pro dealers are partnering with these production titans as they expand their market share toward a commanding one of every five U.S. single family home starts. Bad news for smaller builders because consolidation is likely to continue unabated--which not only threatens to squeeze markets but also to refocus the pro dealers' sales efforts primarily on the big cats.

While most big builders still have acquisition plans on the table, a surprising majority also are planning to focus on internal growth in 2003. "We want to dominate our markets [and] we have prepared to grow organically," Mark O'Brien, CEO of Bloomfield Hills, Mich.-based Pulte tells BIG BUILDER in a roundup of strategies from 10 of the nation's largest home builders.

And he's not alone. Other builders participating in the issue's report "From the Top," including Calabasas, Calif.-based Ryland CEO R. Chad Dreier, Ara Hovnanian, CEO of Red Bank, N.J.-based K Hovnanian, and Hollywood, Fla.-based Technical Olympic CEO Antonio Mon, all point specifically to organic growth as a major focus for the year. And the internal focus leads them directly toward improving efficiencies, most notably in purchasing, as they attempt to strength en the bottom line in fortress markets across the country.

In parallel, pro dealers may become increasingly consumed with calls from new best friends who, despite an expectedly slower national market, still have plenty of spending dollars and many active projects. Indeed, heading into 2003, Maynard identifies the key dynamics that big builders have in their favor when it comes to hitting growth targets: competitive drive, a steady fixation on efficiency, cash on hand, and--most importantly--growing purchasing clout.

But smaller builders, or those representing the other four out of five homes built today, still claim close to 80 percent of national LBM purchases; their penchant for market speed can often translate into an equally demanding need for pro customer service. Some smaller builders even have organized into purchasing collectives to wield the volume power of their accounts against big builders at the contractor checkout. And don't expect these groups to shy away from collective service demands either.

The market tigers may be strong, but you can bet that many small and nimble players will emerge standing on equal ground. The successful dealers will be the ones that can balance an ever-increasing focus on service, overhead, and efficiency across the board--regardless of who claims to be king of the jungle.