All aspects of the ag industry have been consolidating over the last several years, and it seems to have picked up recently. This is no different for farm equipment dealerships. Some of the consolidation is being led by the major equipment manufacturers, some of it is in response to farm consolidation (see “Farms Shrinking in Number, Growing in Size”), and still some is due to dealer owners exiting the industry.

Dealer consolidation is taking place across all brands of farm equipment, but perhaps the strongest push has come from John Deere. In 2002, Deere introduced its “Dealer of Tomorrow” plan.

In a memo that former Farm Equipment editor Bill Fogarty obtained at the time, Deere stated, “How do we get to the point that makes sense and will lead to high performance? We believe the answer in many locations is through continued dealer consolidation. This new dealer structure may consist of 3-5 stores in contiguous trade areas and sales over $50 million.”

In the 16 years since, Deere has perhaps exceeded those original plans. According to Ag Equipment Intelligence’s 2018 Big Dealer Report, 83% of John Deere’s 1,522 ag equipment stores were part of large dealer groups (those that own 5 or more ag stores). That was up from 74% just the year before. In 2011, John Deere had 24 dealers with 10-plus farm equipment stores. Today, there are 61 green dealers with 10-plus stores.

“They didn’t really know if it was going to work. Is this going to be a good idea or not,” says Don Van Houweling, owner of Van Wall Equipment, a 24-store John Deere dealership group. “As they got into it, they found two things: customer satisfaction went up, and market share went up. And at the same time, dealer profitability went up. So, all the things that should drive change are driving change, and that is customer support, dealer strength and profitability, so they can have sustainable businesses.”

Since 2011, the number of John Deere dealers with 10 or more stores has grown from 24 to 61.

Source: Ag Equipment Intelligence

While the most noticeable dealer consolidation has been among the John Deere dealer network, it is happening across all brands to some extent. For Case IH, 53%, or 431 of its 815 stores are owned by big dealers. AGCO’s big dealers account for 32% of its 650 stores. Of New Holland’s 875 stores, 21% are operated by big dealers and 13% of Kubota’s 1,260 stores are owned by big dealers.

When you remove Case IH and New Holland’s 2 largest dealers, it changes the picture, says George Russell, one of the founders of the Machinery Advisors Consortium, who collaborates with Ag Equipment Intelligence on the Big Dealer Report.

“The interesting thing to do is to take out Case IH and New Holland’s 2 largest dealers in terms of number of stores, which are Titan Machinery and Rocky Mountain Equipment. When those 2 dealers are taken out, the Case IH percentage goes from 53% to 45%. New Holland goes from 21% to 14%,” he says.

Looking at the AGCO dealer network Russell says, “A large part of those big stores are Cat dealers that are carrying Challenger and maybe some other brands and have that big dealer mentality. Of course many of those Cat dealers with the transfer of the Challenger brand to AGCO chose to drop ag. But those that have stayed in are increasing their number of locations and are aggressive about the ag business.”

Since 2011, the number of big dealers has increased by 11%. During that same time, the largest dealers — those with 20 or more stores — grew by 88%. “The group between 15 and 19 locations is where the real explosion of big dealers is most apparent. This group grew by more than 400% during this 8-year period,” says Dave Kanicki, editor/publisher of Ag Equipment Intelligence.

The number of dealers with 5-9 stores has gotten smaller, as they are being consolidated. Big dealers are acquiring other big dealers, which Russell describes as the second phase of dealer consolidation.

“The reason why I’m interested in this phenomenon of consolidation is because when a dealership gets to 5-7 stores, this is typically when one entrepreneur may need to add some additional structure or people to manage that level of operation. So the challenge is presented to the types of services we provide are in that range of 5-9 stores,” Russell says.

Ag Equipment Intelligence considers a “big dealer” to be those that operate at least 5 ag stores. Of John Deere’s 1,522 stores, 83% of them are operated by big dealers. For Case IH, 53% are operated by big dealers, and 21% of New Holland stores are run by big dealers.

Source: Ag Equipment Intelligence

Click to enlarge

Why Get Bigger?

One of the main drivers of dealer consolidation has been farm consolidation, Russell says. In 1982, 23% of farm revenue was generated by farms with over $1 million in revenue. As of the 2012 U.S. ag census, 66% of farm revenue is generated by $1 million farms. “That producer consolidation drives dealer consolidation and also manufacturer consolidation,” he says.

Garrett Ganden, CEO of Rocky Mountain Equipment, echoes Russell’s sentiment. He says farmers, particularly in Western Canada where Rocky Mountain operates, have been consolidating so much that the dealers had to follow suit in order to meet the needs of these increasingly larger farmers.

“The farms are getting bigger and bigger and managing land in multiple provinces, multiple jurisdictions. It’s not like in the good old days 40 or 50 years ago when if a farmer was living in Camrose County all the land he farmed was in Cameron County too. Today that farmer might have 1,000 acres in Camrose, 1,500 acres in Wetaskiwin, 2,000 acres in Statler,” Ganden says.

“All of a sudden you need to have that dealer support when you’re making a decision about what product you want to be able to use because it is ultimately customer service that is the key differentiator. Farmers want to make sure they have a network of dealer support that’s going to be there when struggles arise — and they will.”

He goes on to say that being able to offer the level of support those large farmers need with a single location gets tough.

“As the farmers have consolidated and then continue to become more and more sophisticated, the dealer groups have needed to respond. And the dealer groups are still actually behind where the farmers themselves actually are in Western Canada,” Ganden says.

As farmers have gotten larger, Van Houweling says, their expectations have gotten higher. “If we don’t get better as we consolidate, then we’ll lose. The expectations are significantly higher today than they were 5 years ago. The farmers are larger than they were 5 years ago. We have to be able to perform at a higher level. We couldn’t do that if we didn’t have scale,” he says.

The other driver, according to Ganden, is the price of machinery and the capital requirements for the dealer that come along with those high prices.

In 2015, 38% of dealer-principals were 61 years or older and 75% were 51 years and older. A lack of a successor is one contributor to dealer consolidation.

Source: Farm Equipment poll

“The capital requirements that dealer groups need is staggering. And when you’ve only got 1-3 stores, it’s really tough to make sure that you’ve got the products available to meet those customers’ needs,” he says. “We’ve got 36 locations across Western Canada, and at any point in time — especially during harvest and seeding — we’ve got $50 million worth of parts.

“So how on earth do you expect a group that has a million or two in parts to be able to help take care of those urgent needs?”

Ganden adds the increase in capital requirements became particularly apparent with the switch from Tier 3 to Tier 4 engines. He says these types of issues require consolidation to happen. “You need to have bigger stores to make sure that you have the right expertise to be able to take care of the customers regardless of what their needs are,” he says.

Van Houweling has a similar point of view on the need to grow. “Every business that’s out there is trying to figure out a way to be more sustainable. The bottom line is we’re investing dollars, and we’re trying to get a return on that balance sheet. At the same time, we’re wanting to be sustainable.

“And here’s the secret: you’ve got to be able to run at these larger scales. So it also changes the profile of the people running the business, doesn’t it?”

As a result, Van Houweling says Van Wall’s staff has improved. “We have significantly, more professional people on our team than we did 5 or 10 years ago. It requires a higher level of capability and expertise to do this.”

Both Van Houweling and Ganden agree that serving the customer better is a driving factor in consolidation and scale helps improve the dealer’s ability to serve the customer.

“From a dealer’s perspective, it’s all about the customer. Every part of this has to be about the customer. They have four weeks to be able to harvest, or six weeks if we’re lucky depending on weather, and they need you to be there,” says Ganden. “If a piece of equipment breaks down on a farmer, it’s really tough as a standalone location to have the capital and the ability to lone equipment, to have the right piece of used equipment on-hand to sell, to have the parts on-hand required for the repair, and the professional technicians on staff to complete the repair.”

Succession Through Consolidation

Some consolidation among farm equipment dealers is a form of succession planning, or rather a lack of a succession plan. A 2015 Farm Equipment study showed 38% of dealer principals were 61 years or older and 75% were 51 years and older. Often times when a larger dealership acquires a store it’s not necessarily because they were looking to expand but rather the smaller dealer came to them looking for a way to exit the business.

In many cases these dealers don’t have a family member to sell the business to or some other succession plan in place.

Staying Local

As dealerships grow into larger, more corporate organizations, the question of how to stay connected to the local community arises. Dealers say centralizing certain services — accounting for example — should happen but the “on-the-ground in the field work” and building relationships with the customers, understanding their needs takes place locally. “It has to happen person to person, department by department. And if you don’t do that, you lose touch with the customer and that’s a deathblow,” Ganden says.

Van Houweling adds that you need to have local people you trust running the stores, with certain parameters in place. He shares this example from Van Wall’s Carroll, Iowa, store: “They wanted some money for the library. I said, ‘Calvin, what do you think we should do here?’ And he got back to me and said, ‘Well, this is what I think we should do, and this is what the community needs.’ We worked out a solution to do that over a 5-year period of time. But it was Calvin that was driving that decision. He’s my location manager at Carroll. I wouldn’t have known anything about that, other than probably receiving a letter, had Calvin not been part of that community.”

While much of the relationship building gets moved to the local store level, both dealers stress the importance of management staying connected as best they can, traveling to the individual store locations. “My vision is family ownership, local management,” Van Houweling says.

“As you get bigger, it is harder and harder for the head office people to keep those connections with the end user, but you need to understand that, and it’s tough, it’s really tough. But that’s what has to happen. You need to have strong branch leadership and relationships with those customers,” says Ganden.

“The reality of it is as you go through and consolidate, it doesn’t matter if you consolidate to get 4 stores, or 6 stores, or 8 stores, it’s understanding what has to stay in the branches and what doesn’t have to stay in the branches. How can you make sure that you can support it? How do you have the branches work together? You’ve got that underlying challenge of getting the branches to work together between wholegoods, parts, service.

“Now you have a compounding issue, that if branch A is in desperate need of an 8240 combine, they don’t have any for whatever reason, but branch B has it, you’ve got to make sure that there’s a relationship, a process, and a way to be able to get that machine into the customer’s hands because at the end of the day it’s all about the customer. If you don’t have customers you don’t have a business.”

A Place for the Single Store?

With the consolidation happening in the industry, is there a place for the single store dealer in the future? Van Houweling says there are places a single store can still serve the customer. However, he adds that is somewhat geographically driven.

“When we start dealing with large-scale agricultural operations, like what we have in Iowa, there isn’t [a place for single store dealers]. They can’t deliver the level of expertise,” he says.

“Let’s just take precision ag and robotic ag and all the things that are going to be required to support that capability. A single store is not going to be able to do that. They’re just going to require too much expertise and too much scale to support the knowledge to drive that solution and also to be able to support it in terms of inventory and 24/7 services. You can’t do it with a single store. There’s not enough people to do it.”

While Ganden would like to see the single store survive, he doesn’t see it happening.

“The honest answer is I’d love to see them because I like to see the single store locations in the communities, but the reality of it is I don’t know how they survive.

“So I think that’s just part of how the industry and the business is evolving,” he says.

Van Houweling adds that the consolidation trend will continue.

“Yes I feel that it will, since the same dynamics that started the change are still there and the results have been positive for both the customer, the dealer body, as well as the manufacturers,” he says.

And as the consolidation continues, Ganden advises that dealers take the time to do the necessary prep work.

“It doesn’t matter what your size is if you’re 4 stores, 1 store, 10 stores. If you are looking to merge with somebody else, or you’re looking to have somebody acquire you, or you’re looking to acquire somebody, there is preparatory work that needs to be done.

“And the vast majority [of dealers] that I have seen don’t fully understand the time and the process that it takes,” he says.

“It is a lot of work. It’s worth it at the end of the day if you find the right partner where you’re going to be able to work together and join forces so that you can meet customers’ needs over the long term, it’s worth it.

“But just make sure that expectations are reasonable, that you’ve gone and done some of the preparatory work so you truly do understand what you’re going to have to do in what
timeframe.

“Everybody always thinks their business is worth X, and to them it probably is because they’ve got all the blood, sweat and tears in it over a multitude of years. But the reality of it is they’re not always
worth that.”

Dealer consolidation doesn’t show any signs of slowing in the near future and how far it goes is yet to be seen. The trend begs the question, can a dealership get too big?

Part 1: Number of U.S. Farms Declines While Size of Farms Increases

Part 2: Manufacturer Consolidation Reshaping the Farm Equipment Marketplace

Part 3: What’s Driving Consolidation Among Farm Equipment Dealers?

September 2018 Issue Contents