Greg Embury says the farm equipment market today "feels a little bit like the '80s when I started in the tractor business." Those were tough times for farmers, equipment manufacturers and dealers.
He was with Case back then and recalls the ordeal of going through the Case-International Harvester merger and that tumultuous decade for agriculture in the U.S. After 20 years with the company, he left Case IH in late 2000 to take over Kubota Tractor's U.S. operations as vice president of sales and marketing.
It's a different world these days for Embury, making and selling tractors whose bread-and-butter market has traditionally been in the under 40-horsepower range compared to row-crop units where 100-400 horsepower is the norm.
At the same time, considering that historically 90% of all tractors sold in American are less than 100 horsepower, Embury says, "being in that 90% isn't a bad place to be."
Unfortunately, the financial crisis that the country now finds itself in has taken a toll on the small tractor market that is heavily dependent on new housing and easy credit. And one, where Kubota, which practically owned the market, sees escalating competition that makes it increasingly difficult to gain share. Today, 15-20 rival brands vie for the same customers.
Peaking at 134,000 under-40-horsepower units sold in 2004, total sales of compact tractors had fallen to 115,849 by the end of 2007. The first 10 months of 2008 are also down 14% when compared with the first 10 months of the peak year 2005.
While the Kubota customer base spans an enormous range of consumers, "Our core customers are estate owners," says Embury. "So we're impacted by home building volumes, unemployment numbers and consumer confidence. All these things play hard on our business."
Despite these challenges, a tough economy and increasingly competitive sales arena, Embury says that Kubota has no intention of changing the business model that has underpinned its success for the past three decades.
The basis of that philosophy is that "the dealer is our customer."
Living the 'Kubota Creed'
According to Embury the "Kubota Creed" dates back to the early 1980s and it hangs on his office wall as well as that of Kubota's president. While it has a number of lines, he says that it can be boiled down to those five words: the dealer is our customer.
"As long as we keep thinking of the dealer as our customer, it changes the whole relationship between the supplier and retailer," says. "We don't think of them as our supply chain. He's not our partner, he's not our distribution channel and he's sure as heck not our franchisee. The dealer is our customer and looking at it this way really changes the relationship."
The bottom line of what it changes, says Embury, is that Kubota believes it needs to earn its dealers' business. In fact, that's how he defines his chief responsibility and believes that if he succeeds, Kubota will prosper by taking business away from other lines that his dealers now carry.
"My job is to earn more of our dealers' business. Something around 50% of our dealers still carry a competitive tractor line. About 80% of them carry brands that compete with our lawn and turf products. And nearly 90% have lines that compete with our construction equipment," he says.
"I chase dealer share - not market share - and I have to earn that. I can't demand it; I can't get it any other way than to earn it from our dealers. We've got 1,100 dealers today and we had 1,100 dealers 15 years ago so we've been earning a lot more of their business. When you consider how much we've grown in that time, you might think we would have added a lot more dealers, but we haven't."
Like other manufacturers, Embury's goal is for Kubota dealers to carry only Kubota equipment. "My vision of tomorrow's Kubota dealers is for a majority of our dealers to have Kubota only, with no competing lines. I want them all to make good money to support their families and employees selling just Kubota. That would be my dream. But I'm not demanding it. I just want to earn it."
If attendance at the company's dealer meeting in Charlotte, N.C., last September is any indication of how its retailers feel about their supplier, then it looks as if Kubota is earning their business, especially when you consider that 2008 was hardly a banner year for small tractor sales.
"We had almost 100% of our dealers attend, which is amazing. It was just unbelievable because we don't pay their way to the meeting." Embury says.
Responding to Dealer Needs
Embury credits Kubota's willingness to listen to its dealers as a crucial factor in sustaining their loyalty. While the company doesn't manufacture all of the implements that its dealers may need, the company has responded through strategic alliances and by introducing other products to help them grow their sales.
Coming from the "big" equipment side of farm equipment business, Embury says he has a great affection for the production farmer and doesn't forget that they like to buy tillage, seeding and harvesting equipment from the same dealer.
He says he often dreams of what it would take to be a full-line supplier. "I'd love to be able to have more product breadth for Kubota dealers and customers, but it's a bit of a challenge to dream that."
At the request of Kubota dealers and customers, in the last 2 years the company has rolled out both 125 and 135 horsepower tractors that he says "gets us a little closer to the farm."
Kubota made big news in 2007 when it announced a strategic alliance with Land Pride, which Embury calls a "sister company," to supply its dealers with a wide variety of implements. Land Pride is a division of Great Plains Manufacturing based in Salina, Kan., and specializes in landscape and turf-related tractor-mounted equipment. It provides the Kubota dealers with 3-point implements, including rotary cutters, grooming mowers, rotary tillers and rear blades.
"It's been a good strategic alliance. It has allowed us to provide a full line of implements other than the loaders and backhoes that we make ourselves. Now we have some control over the color they're painted, fit and match and engineering integrity," Embury says. "A number of our dealers have signed up for the contract, but a lot of them were already handling Land Pride equipment."
Growing New Markets
Not only has Kubota broadened its tractor line during the last decade, but it has also introduced new products that allow its dealers to expand into new markets beyond agriculture. Embury points out that in addition to adding tractors at both the top and bottom ends of its horsepower range, the company continues to grow its lawn and turf business, as well as light construction.
Recently Kubota introduced a line of gas zero-turn mowers and moved into the utility vehicle market, which, he says, is proving to be one of the few current growth markets.
But where Kubota dealers have made their most market penetration is in the light construction equipment market with its mini-excavators and wheel loaders, which according to Yengst and Assoc. is currently rated number one in sales volume.
"Dollar-wise, the mini-excavators are our highest dollar valued product and the industry's annual sales have ranged between 15,000-20,000 units. Right now we're outselling Bobcat in this category," Embury says.
In addition, Kubota has also moved into markets that require larger excavators. "We're moving into the Caterpillar and Komatsu world a little bit more. And we just announced a compact track loader that will be introduced in late '09. So we'll be in direct competition with the Cases and the Bobcats. Continually introducing new products for new markets has been our business model all along. It's been one of our great strengths and we don't change strategies casually."
Consolidation Not an Issue
Unlike the move by other ag equipment makers to "streamline distribution channels" during the past few years, Kubota has not leaned in that direction.
"We'll continue to see fewer owners and more multiple outlet dealerships. I also believe there will be fewer brands as result of this recent down cycle. I just don't think we're all going to make it through," he says.
"Our dealers have certainly gotten much bigger with most of them going from selling a few tractors a year to selling a few hundred. Like everyone else, we're getting a few less owners as people retire. In those cases, we encourage dealers to acquire the neighboring dealer. But in no way are we pushing consolidation. We don't mind having big dealer meetings. We enjoy having a couple thousand dealers come and get together once a year with us," Embury says.
And as Kubota expands its product range, he adds that "we may have to look at a few more dealers in the upper Midwest where the big tractors are dominant. As we get closer to the farm, maybe we'll need a few more up in the farm country."
More to It Than Sales
Embury concedes that sales volume is usually viewed as the most significant factor when it comes to the determining the viability of a dealership, but he doesn't accept that a preconceived "number" that someone comes up with has much to do with the health of a business.
"There's a lot more to viability than sales numbers. A dealership's viability can just as easily be improved by getting rid of a bunch of debt or increasing equity levels by investing more money in the business, changing sales patterns and training salesmen to sell more attachments with every tractor instead of one," he says.
"Don't get me wrong, I'm a salesman and I would not be doing my job if I didn't encourage every dealer to maximize his sales volume. But a dealership can improve its overall position more by increasing margins and selling more value through its support and service than by increasing its volume. Viability has less to do with volume than with managing your balance sheet.
"I could introduce you to dealers that sell a million dollars a year and make great money, and I can introduce you to dealers that sell $10 million a year that are having trouble paying their bills," he says.
Branding the Dealership
Just as Kubota has developed its brand as a high-quality manufacturer of farm, turf and light construction equipment, it expects its dealers to do the same. If the company pushes its dealers in any single direction, it's that they need to develop their own local brand.
"This is absolutely the one thing we encourage our dealers to do," says Embury. "We don't have a standards program where we want every dealer to look like a McDonald's franchise. We encourage independent branding because we believe it's one of the strongest local community marketing strategies they can have. We want our dealers to have a strong brand that local people identify with. They know our dealer's name because it's hanging at the local hockey rink and baseball field."
And with the influx of the big box stores and their ability to cut into the lawn and garden market, Embury says branding has become increasingly important for dealerships. "Of course, we've felt the effects of the Home Depots and Lowes. But that's something that Kubota dealers won't have worry about. We have a great faith in the independent, entrepreneurial local dealer. We're sticking with that model and we're not going near the big box stores."
Moving into 2009
Embury says he's not sure how deep the U.S. recession will go or how long it will last. The best advice he can offer his dealers going into 2009 is to hold on. "We're trying to hold our market share and gain a little bit. This seems to be the only target to chase in this market. If the economy continues on its current course, it will be another tough year for small tractors, and probably impossible to sell more than we did last year. We'll just be chasing the wind."
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