There are a thousand axioms to managing a business. One of my favorites is that during a downturn is the perfect time to grab market share. The construction industry isn’t necessarily in a downturn now. It has actually survived the global pandemic pretty well, and the residential side of the market has soared.
During uncertain times, companies should focus on gaining market share
It does seem, though, like lots of companies are leveraging the difficulties in the current market to grab market share. On the residential side, the largest home building companies are cornering more and more of the market. In a notoriously fragmented industry, the 10 largest home builders now control more than 30% of the market. Twenty years ago, their share was less than 10%, and eight years ago it was less than 25%.
A lot of that has to do with being able to leverage their financial strength into strong real estate positions. In other words, they can get the more desirable locations and lots because they have the ability to react and buy quickly.
The national market isn’t the only place where we’re seeing companies get more market share. It’s happening in the local and regional markets, too. Paul Lechiara, owner of East Coast Metal Roofing, saw his company revenues grow from $14 million in 2019 to $21 million last year. This year, they have already surpassed last year’s total and are on pace for doing more than $30 million in business. That’s about a 50% increase each year.
How? The global pandemic has created uncertainty in the industry and has especially upset supply chains. (See our report here.) When shipping ports in China shut down because of COVID and you park a large container ship in the middle of the Suez Canal, corking up a major shipping artery, shortages and delays are going occur. As a result, businesses that can manage the uncertainty caused by those and other disruptions, and still deliver quality products and services in a timely fashion are going to get a higher percentage of customers.
Lechiara has been aggressive about overcoming those obstacles. Instead of just letting the supply chain force him into price increases, material shortages, delivery delays or all of the above, he reached out to all of his suppliers and purchased as much of the materials that are in demand as he could, then stockpiled them in rented shipping containers. East Coast Metal Roofing can continue to serve its customers as if there were no disruptions in the supply chain.
Everyone we spoke with for our reporting on the supply chain mentioned that they’ve had to be more aggressive and flexible in their estimating and pricing. Managers can’t just assume that material they’ve been buying at a steady price for the last 10 years is going to remain at that price. In fact, it’s so volatile that estimators are checking on pricing for every product on every estimate.
Even with that kind of diligence, contracts still require escalation clauses because the change in prices are so steep. Iron and steel nearly doubled in price in the last year.
That kind of uncertainty and volatility can wreak havoc with businesses, and of all the tactics and strategies necessary to manage such a disruption, there is one that looms above all others: communication. Prices are escalating, so building owners would understandably be hesitant to move forward, but to some surprise, they continue to build. Why? Clear communication between contractors and owners. That communication goes all the way up the supply chain.
So, while Lechiara has been very aggressive in his tactics, his greatest attribute in achieving the growth he has is that he communicates constantly with his suppliers and his customers. Without that, none of the rest would be possible.