Branching Out

Opening a new branch can be a make-or-break move for a distributorship. An array of factors must be considered before making a decision: Where will you locate the branch? Do you already have a presence in the market? Who will staff the branch? Can you afford to do it now? Can you afford not to do it now? Five GAWDA distributors who have opened new branches within the last two years wrestled with these very questions and emerged victorious. Here are some of the lessons they learned in the process.

Location, Location, Location
Mississippi Welders Supply Company (Winona, MN) opened its newest branch in Altoona, Wisconsin, in June 2006 after the last independent welding supply store in Altoona was acquired and consolidated into an existing Airgas store. “The biggest factor in our decision to locate a branch there was the loss of the independent distributor,” says Operations Manager Scott Myran. “But it also filled an existing void in our geographic coverage.”

AWISCO's Holbrook branch is the company's only location with a true retail presence.

The building Mississippi Welders Supply leased for its new branch is in a high-traffic area very close to the former location of the independent that had been acquired. The company did a “fair amount” of research before committing to the site. “We looked at a number of different buildings and thought this might be the right one, but we continued to do research in other geographic areas,” says Myran. “But we came back to this. The size of the building was right, the monthly lease payments were right, and the landlord's been a great guy to work with. Plus, the traffic count going by the store was good at the time, and a major highway has since opened that has brought even more traffic closer to us.”

The biggest question for Colorado Welding Supply (Colorado Springs, CO) President Eric Younger before opening his company's newest branch store in Pueblo, Colorado, in January 2006 was, “Where is the area growing the most?” Younger spent several months scouting the right building for the operation and looking at local growth patterns. “We positioned ourselves in the biggest growth market in that region, and there was no other store out in that area,” says Younger. “Another local distributor recently put in a branch across the street from a competitor, which I don't understand.”

By contrast, that's something AWISCO (Maspeth, NY) President Lloyd Robinson understands quite well. AWISCO opened its sixth branch in Holbrook, New York, in March 2006 as a complement to its four-year-old store in West Babylon. “It was our first real scratch-start, and it's our only location that has a true retail presence,” says Robinson. The store is located on a main road in an industrial area—and is directly across the street from a competitor. “We just try to offer a better mousetrap,” Robinson explains.

Mississippi Welders Supply Company's Altoona branch is located in a high-traffic area, close to a major highway.

What convinced Robinson to add the Holbrook store was the gap between AWISCO's other stores on Long Island. “The Holbrook store gives us a presence in a part of our sales area where we did not have a retail presence before,” he says. “Even though our stores were only 15 to 18 miles apart, it could take 30 to 45 minutes for people to travel to one of our other locations, depending on traffic. People aren't going to travel 45 minutes to see a welding distributor, especially if they're going to pass two or three others on the way.”

Red Ball Oxygen Co., Inc. (Shreveport, LA) opened its 14th and 15th branch stores in Buffalo and Lufkin, Texas, in March 2006 as part of an overall growth push in East Texas. “East Texas is our largest business area now in both sales volume and employee base,” says President Gary M. Kennedy. “Most of our branches have come through acquisitions of small companies, but Buffalo and Lufkin were scratch-starts. In both of those markets, we had some business, but we frankly didn't have enough business to warrant opening a store. We just took a shot at it because they're both such tremendous growth markets.”

In scouting locations for the Buffalo and Lufkin stores, Red Ball looked specifically for high-traffic areas that would feed a retail business. “In Lufkin, we wanted to be somewhere on the main loop, which is a highly traveled area that would bring a lot of walk-in traffic,” says Kennedy. “In Buffalo, we're located at the intersection of State Highway 79 and the Interstate, which is both a great location for distribution and a great retail location.”

Red Ball's Lufkin, Texas, branch is located in a highly traveled area that brings significant walk-in traffic.

Visibility was also a concern for Quimby Corporation (Portland, OR) when opening its branch store in east Portland in November 2006. “We looked at customer density, potential for new business and trucking considerations—that is, how easy it is to keep the branch supplied,” says Vice President and General Manager Joe Smith. Quimby undertook a number of facility changes as part of its 50th anniversary celebration in 2006, including relocating its headquarters and fill plant to separate locations, and the new branch was one element of this transition. “Our physical locations were all in northwest Portland, but we've had a lot of customers in northeast Portland for many years, so that was an area we wanted a better presence in that would allow us to better service our customers in that part of town,” says Smith.

Timing
How do distributors decide when the time is right to open a new branch location? For Quimby Corporation, it was a “perfect storm,” according to Smith. “We had outgrown our facility in northwest Portland, and real estate values were favorable, so the real estate holdings of the company were sold, which allowed reinvestment into the business. You might say that our celebration of our 50th year was that we reinvented ourselves, spreading from one location into three.”

Red Ball doesn't have a set formula for when to open a new branch. “We've done acquisitions, we've done scratch-starts, and we've started stores on routes that were full,” says Kennedy. “Our first scratch store in Carthage, Texas, came about because we couldn't load enough product on a truck to do service in that area, so we put a store there. That's been our most successful model.”

It was a similar situation that prompted Colorado Welding Supply to open its Pueblo store last year. “We had so many customers in the area that it was getting to be more of a burden not having a store there,” explains Younger. “We were actually turning customers away. So once we had the cash flow and found the right building for our operation, we put the store in. It was self-sufficient inside of a couple of months.”

Once distributors decide the timing is right to open a new branch, the amount of time it takes to get to opening day varies. For Quimby Corporation and Colorado Welding Supply, going from the decision stage to the day the doors opened took six months; for Mississippi Welders Supply Company, it was closer to four months. By contrast, Red Ball Oxygen, with the experience of opening more than a dozen branches under its belt, can have a new branch open in less than two months, and AWISCO's newest branch was up and running 45 days after the decision was made to open it. “I still can't believe we got it done in that timeframe,” marvels Robinson. “It was crazy.”

Mississippi Welders Supply Company designed the layout of its Altoona, Wisconsin, branch to be user-friendly, with everything within easy reach.

Lease or Buy?
All the distributors in this article leased property for their newest branches, although that isn't always the case. “We like to own the property,” says Red Ball's Kennedy. “Usually, if we make an acquisition, we'll have an option to buy, which we usually exercise, and if we lease the property, we try to have the same option.”

On Long Island, the situation is more complicated. “In the New York metropolitan area, land acquisition costs are sky-high,” explains AWISCO's Robinson, “and there were no parcels small enough for our purpose. Our Holbrook branch is about a 2,000-square-foot store, and that land does not exist in this area.”

Kennedy notes that one unintended consequence of buying and leasing different locations through various acquisitions and scratch-starts is that Red Ball has no set formula for setting up its branch stores. “In a way, it's both fortunate and unfortunate,” he notes. “It makes the stores more receptive to the needs of the market, which is what we want. But on the other hand, our stores aren't laid out in the same floor plan, which means there's no uniformity, which makes it harder to open new stores than it would be otherwise.”

Scratch-Start vs. Acquisition
The challenges of opening a scratch-start branch versus a store gained through an acquisition are different, note distributors with experience doing both. Three of AWISCO's branches were originally existing distributorships that AWISCO acquired or otherwise made an arrangement with. However, the company's newest branch was a scratch-start. “To me, it's much easier to do an acquisition than to scratch-start a store,” says Robinson. “With an acquisition, you have an existing base of operation, with a location that customers know. With a scratch-start, your costs may be lower, but how are you going to build that customer base? Is there enough of a customer base in that area to support the store? You can only do so much market research, and then, once you decide to open the store, you just hope all the research you've done is correct.”

Red Ball Oxygen's Buffalo, Texas, branch is designed for the traditional industrial market.

Red Ball President and his brother, co-owner Larry Kennedy, have found good and bad on both sides of the equation. Most of the acquisitions and scratch-starts have gone well, although Gary Kennedy concedes that “some acquisitions haven't gone as well as others.” “Acquisitions are certainly a good way to go if you're working with good people,” he observes. “But the single biggest problem from a business point of view is the proliferation of product lines when you buy someone's business. It can be a real money eater.” However, he notes that a scratch-start store can produce higher personnel expenses due to the need to build a quality sales force and support staff.

Staff Are #1
One of the most important steps in opening a new branch is making sure it is staffed properly. “Personnel was a key consideration,” says Mississippi Welders Supply Company President Brad Peterson. “We had a budget for equipment and remodeling, but we also had a budget for the personnel, because it's important to have the right people in place.”

“Finding the right personnel is number one,” agrees Colorado Welding Supply's Younger. “Opening a branch location and then trying to fill positions is going to be a nightmare. If you don't have reliable people you can trust, it would not be a worthwhile proposition.” Younger brought on board a new manager and salesperson for the Pueblo branch, both of whom trained at the company's Colorado Springs headquarters before moving to the new branch.

Quimby Corporation's new branch is staffed by a mix of new hires and veterans. “We brought some new people into our main location and took some veterans over to the new location,” says Smith. “We just added some personnel and moved some personnel around to accommodate the expansion.”

AWISCO located its Holbrook, New York, branch—the company's first scratch-start—in an industrial area on Long Island.

Getting the Word Out
Once distributors prepare to open a new branch, the next challenge is to draw customers. When AWISCO opens a branch store, the company does some marketing by mail, but the majority of new business comes from salespeople visiting potential customers in the new area. Similarly, Colorado Welding Supply has found success with newspaper and other print ads, which have drawn walk-in traffic. “But,” adds Younger, “in my opinion, the best money spent in this industry is on the right salesperson.”

Red Ball's Gary Kennedy echoes this sentiment. “We've used the traditional route, with our salespeople and store managers soliciting business, and then trusting to word of mouth,” he says. “I don't know if newspaper, television and radio ads are always appropriate. We have used them in the past—with some success—but it's a specialized business, and we've got to get in front of our customers or potential customers sooner or later, or we're not going to get their business.”

Other marketing methods don't seem to hurt, though. Mississippi Welders Supply advertised the opening of its Altoona, Wisconsin, branch using billboards and newspapers, as well as word of mouth. “When the building was under construction, we had signage out front announcing our arrival,” says Myran. “And we actually took a pickup truck with a sign and parked it in a couple of key locations in the Altoona-Eau Claire area.”

Quimby Corporation's branch in northeast Portland, Oregon, opened in November 2006 as part of the company's 50th anniversary celebration.

Quimby Corporation relied on mailers, local flyers and advertisements in trade magazines to publicize its new branch. The company also has found particular success advertising on cable television. “It allows us to pinpoint the demographics,” explains Smith. “Our customers are predominantly men, and there are certain programs that tend to be viewed by a predominance of male customers, such as Monster Garage and American Chopper.”

However, the traditional grand opening has not gone out of style. “We've always had a grand opening, which usually involves a few key vendors, a sales blitz in the surrounding area, giveaways and free food,” says AWISCO's Robinson. “At our Holbrook grand opening, which we pieced together pretty quickly, we had about 100 people show up, which was great.”

“Traditionally, we try to have an open house when we open a new branch,” says Kennedy. “We have a sales blitz in that market with salespeople from all the other locations, and we really concentrate on that area initially to make sure everybody knows we're there. Then we try to have a continuing focus in the weeks after that, until we feel like we've made our presence known.”

Plan Ahead, but Expect the Unexpected
When these distributors were asked what advice they would offer other GAWDA members who may be looking to add a new branch, several themes emerged: Make a plan. Learn from your mistakes. And expect the unexpected.

Prior to opening its northeast Portland branch, Quimby Corporation's facilities all had been located in northwest Portland, so the new branch helps to better serve existing customers and bring in new ones.

“Make sure that you have a strategy,” says Robinson. “Our strategy was following our customers. As our customers expand in the geography they cover, we feel the need to expand our capabilities to them.”

Kennedy observes that after opening 15 branch locations, he's made just about every mistake that can be made. “You will make mistakes,” he cautions. “Make sure you learn from them.”

“Do your homework,” advises Myran. “Think it through forward, backward, inside and out. And be sure to work with people in the community to make sure you're going about it right. Once you make the decision to do it, you're in with both feet. There's no turning back. You've got to foresee success.”

“Do a lot of planning,” says Younger. “Make sure you've got the right people and the right tools to make the move, because if you don't, it's going to wind up costing you a lot more than you expected.”

“You have to put a lot of planning up front, but still be cognizant of the fact that your plan will be changed by outside forces,” observes Smith. “Due to a situation beyond our control, we were unable to get a T1 line set up in time for the opening of our new branch, so we had to use Wi-Fi laptops. You have to be flexible, and you have to have employees who can jump in and make things happen as need be.”

Adds Peterson, “If you're opening a branch and have never done it before, give a call to someone who has.”