Co-Ops Adding Farm Equipment to Their Offering

Concept: Co-operatives have always played a role in equipment distribution, including with the majors where the co-op is the machinery dealer in town, says Russell. The idea here is that a co-op, utilizing its existing infrastructure, could provide additional services to include parts and equipment to a greater extent, if they so desired.

Appeal: Glass notes that co-ops have been very successful in some cases as alternatives for shortline dealers. He recalled several examples, including one in Tennessee that was doing several millions in sales for Woods Equipment each year. They tend to be well-funded and not present credit concerns, he says.

Russell says it's an interesting discussion because of their histories of serving member farmers and the technical service capabilities inherent through maintaining their sprayers and other equipment, which is one of the most limiting factors of all other potential models. Russell believes the progressive co-ops will continue to seek value-adding services, evidenced by the greater attention on precision ag.

"We've already started discussions with seed, feed, fertilizer, herbicide dealers, precision farming dealers and even agronomy organizations," says Boak. "They're just discussions at this point, but I would say we're seeing an encouraging level of interest. Again, it would be similar to the shortline super store idea except they'd only be looking at a haying partner or a self-propelled sprayer company. There'd be no one size fits all, and it would be negotiated region by region."

The co-ops Salford has spoken with, seem to have some interest, but nothing has gone beyond the discussion stage. "Of course, anything can happen once you drag money and the bankers into it, but they seem to be reasonably receptive to the idea."

Boak says the upside is the common interests between the co-ops and machine manufacturers and the attraction of being a one-stop shop in terms of, say, seeding and tillage. "We'd bring in a hay guy where appropriate and a sprayer guy. There'd be a lot of locations, lots of outlets because we find that - especially if there's an agronomist tied in with feed, seed and fertilizer - they work with fairly small areas and maybe only 200 or 400 customers. But everybody shops with them," he says.

He also points out that the co-ops already have experienced staff especially on the administration side and the sales side. Obviously, parts and service would need to be developed.

For a company like Monosem that manufactures planting equipment, co-ops could prove to be an ideal partner, says Bakker. "Seed and fertilizer goes very well hand in hand with planters," he says. The only issue is we would need to supply technical support. The advantage is these people are much more focused on your product because they don't have to think about 25 or 30 other products that they need to sell."

Limitations: While the extension into machinery sales and service is possible, it's not necessary for the co-op. "You'd have to convince the co-op management of some profitable opportunities that they're overlooking," says Glass.

Despite the fact that co-ops served his business well ("we had a guy that did nothing but call on co-ops"), Glass notes that the reality of sales in a co-op tends to be a 'look it up in the book' approach. "Equipment involves in-depth discussions about function, operation, how and where to use a machine. Training can address it, but it's a much different dialog to retail equipment than the other items you find in co-ops."

Boak recognizes that selling inputs and equipment are two different animals. "It's extremely rare to find a salesperson who's able to walk in both worlds. And that is one of the cons. There's a bit of a disconnect between the machinery and the input side, one doesn't necessarily understand the other. The infrastructure would have to be developed because their buildings wouldn't be appropriate and some investment would be needed."

Conclusion: Farm Equipment went to two large co-op groups to see if extending into equipment to meet members increasing machinery demands was at all possible. You never say never, but there doesn't appear to be any worry about co-ops encroaching on dealers' business.

Brent Wiesenburger, precision ag manager of the 26-location South Dakota Wheat Growers (SDWG) says, "Machinery has never been in our core competency, which was all about forming buyer's groups and ensuring crop input availability.

"Our shops are just big enough to get the equipment we own up and running for the next season. In fact, we lease facilities at local producers so we can handle facility demands. Finding people to do all the things we currently offer is a problem, too."

While SDWG offers an array of precision farming equipment and services (SDWG was Precision Farming Dealer's Most Valuable Dealership for 2014), the only iron they currently sell to farmers are spreaders (which are not inventoried). Tiling, strip-till and disc-injection fertilizer applicators are getting a look, however, because their use is very technical and variable to local conditions.

Jeff Doll, equipment sales and marketing manager, Winfield, Shoreview, Minn., echoed Wiesenburger's view. Winfield is wholly owned by Land O'Lakes Co-op, and distributes crop protection products and seed to co-ops.

"Our expertise is crop inputs," Doll says. "With the strong market, iron dealers are doing well and doing everything they can to service the customer. It's better to let them be the experts." Due to volume pricing equipment dealers see, co-ops wouldn't be able to promise any real pricing advantage, he says.

"Fortunately, there are lots of dealers we can partner with - that's where the opportunity exists," Doll says.

Wiesenburger adds that a co-op has a lot to lose by going outside of its core, which is where the machinery-selling discussion screeches to a halt. "In a large co-op situation like ours, everything you do has to significantly exceed your farmer-members' expectations. If it does not, you risk their entire seed, chemical and fertilizer purchases - they hold it over your heads and it can escalate quickly. You can end up sacrificing a $100,000 margin on your core products with a product sold that only brought you a $1,000 margin."

But Boak remains encouraged about this concept, especially teaming with co-ops that offer agronomy services. While exhibiting at an equipment show recently, he says they were introduced to a number of agronomists who had been sent by their clients to discuss his equipment. "Their questions were actually much more direct and much more focused than the farmers' questions and they leave the price out of it. They talk about what will this machine do and what else can we do with it. So I think there'd be a lot of value in that type of partnership."

Direct to Farmer Sales; Subdealer Model for Service

Concept: This idea consists of the manufacturer utilizing the Internet, equipment shows and direct personnel to make the initial sale, and making some other subcontract arrangement for parts, service and repair. According to Russell, this is similar to how equipment is distributed in some countries in Europe, where sales and service are functions handled by different dealers.

Appeal: The Internet has changed behaviors about equipment buying today. Any and all sales support information can be posted to the web and could bring the buying process very near to online execution in some cases.

Bakker of Monosem can envision a model in which an "agent" works as an independent contractor directly with the manufacturer to perform the sales function and make customer connections locally. "This is the way many people started companies way back and it's still being used sometimes. It could also be done by a local agent, not a distributor, who knows the farmers, and the manufacturer could sell direct to through the agent."

He says this would probably work best with big operators that buy a big amount of equipment. Once the contact is made and qualified, the company would move in and take it from there and provide all technical support and whatever else is required to close the deal. The agent would receive a commission on the sale.

This type of arrangement would work particularly well for companies like Monosem, Bakker says. "This is pretty much what happens now anyway because most of our equipment is customized. Even if a farmer goes to a dealer, the dealer basically calls us, our engineers figure out what the customer needs, makes a blueprint of it, and sends it to the farmer. When he OKs it, we build the equipment.

"The agent could handle other equipment as long as it doesn't compete with our equipment, as long as it is compatible. He could sell a tillage tool, for example. It's basically the same as we do right now with reps. The difference is that reps right now call on the dealers and this agent would basically call on the farmers. You see some of these farmers are getting so big right now and the dollar amounts are getting so large that they can afford to do that. If a farmer buys 2 planters for $300,000, then you can afford to have somebody go to him and support it," Bakker explains.

Boak says he understands why some manufacturers pursue this "direct to dealer" model. "They simply cut out the dealer in our normal distribution channel. Some of the reasons they do it is certainly higher margins and there's lot fewer people to train; it can simplify things."

Limitations: The trade-in continues to be a problem with this model, says Glass, acknowledging that subsequent efforts involving jockeys, set-ups and auctions could clear this hurdle. But another problem, he says, is safety and liability. "It's easy to post videos on the web about safety dos/don'ts but there's no easy way to document that the buyer watched it. The best part of the dealer-sale paperwork is proof that they went through the safety information.

There are a lot of products - rotary cutters, stump grinders, rock pickers to name a few - that would not be worth selling online due to potential liability concerns if misused, he says. DR Equipment, a manufacturer of outdoor power equipment, is one that appears to be having luck selling direct online, although with relatively inexpensive product.

"There are only so many cuts you can take on margin," says Russell, "so the equipment value would need to be high to make it work with a separate dealer-and sub-dealer model. The Internet and bricks and mortar is mostly complementary; people still want to kick tires."

"But as purity pushed in, and with John Deere starting Frontier, it brought the Internet to the forefront," says Glass. "When all this started, most people were reluctant to do direct Internet-sales because they already had a dealer organization set up; you don't want to do anything that jeopardizes a dealer who's attempting to support you."

Another variation of this model is seldom talked about, and that's a major-line deploying its own direct sales team. Imagine an OEM position similar to a territory manager that calls on farmers instead of dealers.

"There's nothing that would prevent them from doing it," says Glass. The major could put the attention of its field people to call on farmers instead of dealers, and could use a combination of Internet and shows to attract interest and go out and work the sale out, with jockeys standing ready to buy the used.

"This model relies heavily on trade shows," he says, noting that some shortline manufacturers already attend up to 80 shows per year and could focus efforts more on direct sales in areas where good dealer representation doesn't exist.

Great Plain's Evans doesn't believe this would be an effective way to distribute his company's complex equipment. "Not too long ago somebody suggested that maybe we need to sell direct. There's no way that this will work with our lines.