Precasters are advancing the industry by expanding their product lines and reaching new customers.
By Bridget McCrea
There comes a time for every business when its leaders need to ask themselves if it’s time to branch out into different products, production methods or completely new lines of business. By branding multiple product lines under the same business or employing new manufacturing methods, companies can gain access to new customer bases that they wouldn’t previously have been able to serve.
Of course, with new ideas, products and services comes the challenge of folding these innovations into an existing plant, hiring new expertise, investing in new equipment and determining how best to serve a new customer base. This can take work, time and financial investment, but the payoff can be well worth it.
That’s what Garden State Precast learned when it decided to break the mold and started casting customized concrete products six years ago. Knowing that about 90% of all projects incorporate cast-in-place concrete, Kirby O’Malley, president of the Wall Township, N.J.-based manufacturer, reasoned that a double-digit increase in his precast output represents a small amount of the cast-in-place concrete industry.
“If we can increase our market share by 10%, it just reduces everyone else by 1%,” O’Malley said. “We’ve been around long enough to know that 1% erosion doesn’t amount to much for our competition in the market. So why not go where the real opportunities are?”
The fact that many standard precast products are commoditized was also pushing Garden State Precast to explore its diversification options. O’Malley counted 21 different companies offering standard precast products in his local market.
“That’s a lot of competition,” he said. “A commodity item fetches a commodity price, but a custom piece gets a custom price. When you compete with commodity items, you’re up against other precasters.
“But when you compete against a custom product that’s been drawn for cast-in-place, your competition is actually the cast-in-place industry.”
Tired of beating themselves up over lost bids – and realizing that all contractors know the price of standard precast products – Garden State’s team added custom products to its lineup. It required expanding an existing 100,000-pound craneway to three times its size, adding more quality control employees and hiring engineers to manage the design process.
“We had to gear up our QC and engineering, and get our head of engineering certified in cranes and lifting and everything else that’s involved with picking up and handling a much larger product,” O’Malley said.
Garden State works closely with an outside trucking company that has its own specialty equipment to ensure a smooth delivery process.
For example, at press time, the company was delivering 20 custom pieces that weighed about 80,000 pounds each. The delivery window was just two days, and required a number of different cranes and other types of equipment.
“This is just one example of the specific details you have to pay attention to when you make large custom precast units,” said O’Malley, who estimates that roughly 50% of the firm’s projects now incorporate precast replacement for previously cast-in-place jobs. “There’s a lot more coordination, as opposed to just loading a normal precast product onto a truck.”
Three years ago, company veteran Paul Heidt was promoted from engineering manager to vice president of specialty precast. His sole responsibility is to oversee projects the company can convert from cast-in-place to precast – a move that helps the manufacturer enhance its traditional revenues while also exposing it to new opportunities.
Acknowledging that any major business shift can be scary, especially for the first few products, O’Malley tells other precasters to explore their options in today’s competitive marketplace.
“ cast-in-place is more profitable as long as you don’t mess it up,” O’Malley said. “But if you don’t do it the right way, you’ll lose your shirt.”
Staying out of the race to the bottom
Garden State Precast isn’t alone in its desire to branch out, enhance its revenues and improve its bottom line. In fact, precasters nationwide are learning to compete by manufacturing custom products versus manufacturing solely commodity products.
“Commodity products are a race to the bottom,” said leadership and business strategy expert Heidi Pozzo, president at Pozzo Consulting in Vancouver, Wash.
To avoid getting into this race, she tells manufacturers to drill down to discover their customers’ key pain points, and then try to solve those issues. In some cases, a standard precast concrete product can do the trick. In other situations, a custom product could be a better option.
By expanding a product line to include more of those choices, a precaster can become more relevant on more jobs while also expanding its customer base and its own revenue base.
“Get out into the field and watch your products being installed and talk to the people who are installing them,” Pozzo said. “You’ll likely find a pain point in either how the installation takes place, how you can upgrade the products, or the role that precast can play in items that aren’t being precast right now.”
The latter point hits home for John Lendrum, president at Norwalk Concrete Industries in Norwalk, Ohio. In fact, he sees product line diversification as the perfect segue for precasters that want to offer precast as a viable alternative to other materials. He tells precasters not to be afraid of a cast-in-place specification. If precast is a viable option, submit it as a voluntary alternate and emphasize its advantages.
“The precast advantage is lower installed cost, increased speed of erection, limiting job site safety hazards with open excavations, and the flexibility that it gives a contractor,” Lendrum said. “Most plant-produced concrete is done at a lower per-unit cost than job site labor wages, so by the time you do the additional engineering, build the product and ship it to the job site, a lot of times you could have an in-place cost that’s lower than cast-in-place.”
Obviously not every cast-in-place project can become precast, but Lendrum said many of them can. The problem is that designers haven’t been exposed to precast.
“They went to school where they used cast-in-place in design, and they just figure that certain projects are just too big to precast,” Lendrum said. “They don’t really stop and look at how they can use multiple pieces.”
When it comes to getting out of the “race to the bottom” on the commodity side of the concrete manufacturing industry, Lendrum said that as a general rule, profit margins are going to be higher on specialty products versus standard products anyone can make. With this in mind, he tells companies to seek out opportunities that produce better returns and higher margins, and help to boost the bottom line.
“If you have the choice of making a product with a higher profit margin versus a commodity product like a septic tank or a set of steps then you have the ability to get in there and make a little more per yard produced,” Lendrum said.
Look before you leap
To stay in business, manufacturers across all sectors have to consider strategies that improve revenues on existing products while also diversifying into new markets with either new or existing products. Using a viable product diversification strategy that breaks out of the “commodity mold,” those manufacturers can compete more effectively, grow their sales with existing customers and open up avenues to entirely new customer bases.
Before jumping in, Pozzo tells precasters to define their objectives, choose an approach, hire and train the right experts, and evaluate the potential risks. Remember that all new innovations came about because of a customer need – including precast itself.
“Precast wasn’t always there; it came about because of a need,” Pozzo said. “That means it’s either going to evolve or something else is going to come along that will displace it. When you start to see a lot of consolidation and commoditization, that sector is probably getting ready to be disrupted.”
Tom Heraty, vice president of sales and engineering at Utility Concrete Products in Morris, Ill., said diversification is important because public projects don’t necessarily fall in line with private work.
“Being in both markets can help when one of the two is slow,” said Heraty, noting that the current funding levels for infrastructure from the local, state and federal government are yet another reason to diversify into new markets and products.
“That increases the importance of having products in a market that is not tied to the public sector,” said Heraty, who tells precasters to use National Precast Concrete Association and other resources to learn what products are being made around the country.
“Plan ahead and be cautious when estimating new products since there will be an inevitable learning curve,” Heraty said. “Each new product can open doors to more opportunities, but new products also require new processes.”
Bridget McCrea is a freelance writer who covers manufacturing, industry and technology. She is a winner of the Florida Magazine Association’s Gold Award for best trade-technical feature statewide