Getting Your Funeral Home, Cemetery, and Crematory Operation the Heavyweight Treatment
“Competitive Advantage – the basis for superiority over competitors and thus hoping to claim certain customers.”
How a company competes – its competitive strategy – depends on the intensity of the competition in its industry, argues strategy expert Michael Porter. Of Porter’s five competitive forces, rivalry among existing competitors manifests itself in tactics such as price competition, advertising battles, and increased customer service.
Customer service is where independent funeral home, cemetery and crematory operators consistently shine. For generations, independent owners have been pillars in their communities and have taken pride in the way they have delivered upon their mission to car e for families at the very moment of consolation and grief. George Orwell said, “Each generation thinks it is more intelligent than the previous and wiser than the next.” Orwell’s claim can undermine a culture that continually looks to identify and pursue effective and efficient ideas for sustaining success, especially when faced with challenging times.
Today, independent funeral homes, cemeteries and crematoriums are experiencing increased pressure and a successful generational business model is under assault due to the changing end-of-life paradigm from burial to cremation coupled with having to compete for market share against publicly traded and national competition. Faced with these existing and growing challenges, it is important to learn through others’ experiences, and capitalize on proven methods that have helped independent operators not only to survive but thrive.
It is also important to remember that history repeats itself, so learning a bit of that history can help leaders avoid having to reinvent the wheel. One such historical reference relevant to today’s end-of-life professional looking to reposition their company to sustain success, regardless of the economic and competitive climate, is Ace Hardware Corporation.
“Ace is the place with the helpful hardware people”.
Many of us easily recognize the jingle — “Ace is the place with the helpful hardware people”. Founded in 1924 and named after the ace fighter pilots of World War I, who were able to overcome all odds, Ace Hardware Corporation today is the world’s largest home improvement company, with over 5,100 local hardware, home center, and lumber stores located in all fifty of the United States as well as in 65 foreign countries and territories. Together, these stores constitute the largest non-grocery American retail cooperative.
The Ace brand ranks among the top 100 most recognized brands in the world and is known as the place with the helpful hardware people; but how and ‘why’ did it begin?
In 1924, fiercely competitive entrepreneurs Richard Hess, E. Gunnard Lindquist, Frank Burke and Oscar Fisher united their hardware stores into “Ace Stores”. They realized they had a clear advantage as entrepreneurs bringing a deep knowledge of their local market, inventory fine-tuned to a neighborhood’s demographic and the sort of exacting customer service a typical big-box store with low pay and high employee turnover just can’t match.
However, despite these competitive attributes and despite how talented and hardworking they were as individual operators, they could not increase buying power and profits out of thin air. Once these entrepreneurs reconciled with the reality that business strategy, advertising, PR, excellent and customer service are not buying power —only Buying Power is Buying Power. They decided to unite their corner stores and ultimately with countless others into a $5 Billion Group Purchasing Co-Op.
Ace Hardware Corporation’s mission is to be a total retail support company, providing its dealer-owners with merchandise and service at the lowest possible front-end cost. Ace’s emphasis on service and modern retailing techniques has helped locally owned and operated Ace retail stores outperform the market and stay ahead of the competition. Countless owners of Ace Hardware report business as good; surprisingly good perhaps considering many are surrounded by Home Depot and Lowes big box locations. Ace’s co-op business model allows thousands of entrepreneurs to band together to:
Give members the competitive edge to maintain their prices and enjoy higher profits
Boost their collective buying power and reduce costs
Receive dividends based on purchases rather than equity
Modernize inventory management in small stores
Have each store kick in for activities that benefit the whole co-op, such as advertising and marketing (Ace’s annual ad budget is $100 million)
With its model, the Ace Hardware Organization successfully confronted major shifts in consumer preference and intense competition from otherwise category killers such as home improvement powerhouses Home Depot and Lowes.
In his book Management, Leading People and Organizations in the 21st Century, Garry Dessler poses the question, where does a 1,000-pound gorilla sit? A 1,000-pound gorilla sits wherever it wants to just like Home Depot, Lowe’s, Petco, and Office Depot. These Big Box stores rely on economies of scale and wide selections to drive down costs and prices and to attract huge numbers of buyers. Dessler argues that most small competitors -neighborhood hardware stores, stationery stores, and independently owned funeral homes, cemeteries and crematoriums for example -can’t get their costs or prices low enough to compete. Many are squeezed out of business by the relentless competition. These giant chains then grow their market by stealing existing businesses.
With their powerful centralized purchasing departments, publicly traded and national companies can also pressure manufacturers to lower their prices. When the manufacturers were dealing with dozens of smaller chains, it was easier to negotiate. But when one mammoth chain accounts for half of the company’s sales (or more), it’s much harder to resist. Manufactures are therefore squeezed to reduce their costs, and only the most efficient and best managed survive.
The most notable characteristic of this Big Box store model is that it works which is why it has spread so far and wide across our landscape. Part of why it works is that in addition to being able to undercut rivals, they invest deeply in process management to optimize service delivery. Most small businesses don’t have the resources to optimize, automate, co-source and more to continually push work down to lower costs while maintaining exceptional customer service. This resource management dilemma is where the smaller operator inevitably arrives and is the secret sauce of the Big Box model.
The bottom line is simple: You can’t beat them at their own game.
The pioneers of Ace Hardware realized they were stronger when unified within a group purchasing organization that created a level playing field for procurement. This enabled the independents to continue to compete based on delivering the most compelling customer experiences.
What is a Group Purchasing Organization?
A group purchasing organization (GPO) leverages the purchasing power of a group of businesses to obtain preferential pricing and other benefits from vendors based on the collective buying power of the GPO members. Consumer Cooperatives, such as the Oneota Community Food Co-op, are organized by individuals that seek to purchase “like” goods and services. Another version of a cooperative is a Purchasing and Shared Service Cooperative, of which Ace Hardware is a prime example. This model is designed to help the members of the cooperative that are typically smaller businesses join together to pool resources in order to compete with larger “big box” competitors.
The bargaining power of buyers is a critical competitive factor. A buying group is powerful if it represents a large percentage of the seller’s sales. There are multiple versions of group purchasing organizations or cooperatives; and in its basic form, a buying group is a membership-based organization in which dues pay for special programs and deals from vendors that are part of the group, so the members can make more money on the products they sell. Instead of relying on a single location with limited buying power, the buying power of the entire group is leveraged to get better pricing as well as other special treatment.
Should You Join a Group Purchasing Organization?
It’s hard to argue against the merits of joining a buying group. Still, if you are a small-business owner, you know it takes a lot of work to run a business. Many independent operators don’t have the time to spend researching buying groups, let alone becoming members. Yet, a purchasing group is a vital tool that enables you to grow your business and to stay competitive in your marketplace. Across a myriad of industries, group purchasing organizations have proven to help smaller operators improve their businesses both operationally and financially.
Some pluses of belonging to a buying group would be:
Help independents compete with national chains and publicly traded competition;
Improve the bottom line;
Increase cash flow;
Gain exclusive member-only access to vendor buying specials;
Access to additional buying services;
Networking opportunities with like-minded professionals;
Help manufacturers build their brands;
Improve data collection and reporting;
Market planning support;
Product promotion support.
Significant Gains Attainable: However, Change is Required
For a small business owner that needs sustainable competitive advantages, joining a group purchasing organization is a proven and sound strategy to improve margins and reduce operating costs. Obtaining these benefits requires incremental change. And change may be the most difficult challenge in business, especially successful businesses. Just ask the executives and operators of Sears, Toys R Us, Circuit City, HH Gregg, Kmart, J.Crew and countless others.
Sometimes resistance stems from the belief we don’t have the resources or don’t see the effort being worth the time or attention. Other common reasons for resisting change include fear of the unknown, lack of good information, fear of loss of security, no reasons to change, bad timing, and habit. Some even grow complacent with current processes and adopt a “If it’s not broke, don’t fix it” mentality. Time and again, companies fail to recognize the return on investment for maintaining best practices. Fortunately, there are many options available for dealing positively with resistance to change. Through education and communication, the logic of the change can better be understood as well as to foster participation and involvement.
Has the way your clientele purchases your services and products undergone a significant change? Has the Internet disrupted your business model? Has national competition forced you to lower your margins? What have you changed to respond?
Real change is not a campaign; it’s a commitment. More than ninety years ago, Richard Hess, E. Gunnard Lindquist, Frank Burke and Oscar Fisher made the bold decision to unite their hardware businesses to increase their collective buying power in the industry. Willing to change and to come together to create its group purchasing framework, Ace Hardware has now grown into the industry’s largest hardware cooperative on the planet.
Ace Hardware Sits Where It Wants! FBA
James Aitchison is a principal for Buyright Alliance, LLC, a national group purchasing organization dedicated to bringing together leading independent funeral home, crematorium and cemetery operators with key and valued suppliers to create competitive advantages unavailable from any other source. Prior, he spent 15 years formulating and directing growth activities designed to capture profit opportunities for a broad array of clientele from independent small-and-medium size enterprises to leading brands including The Home Depot, Shaw Industries Group, a Berkshire Hathaway Company, Saint-Gobain Group, and MS International. James can be reached by phone at (626) 627-1318 or by email at [email protected]