The Price Is Right?

The Price is Right?

For many compressed gas and welding equipment distributors, pricing pressures are taking more of a toll now than at any other time in recent memory. GAWDA members interviewed for the 2006 Business Forecast expressed concerns about the rising costs of oil and gas, insurance, steel and a number of other factors that will affect their bottom line in the coming year. A majority of distributors, 86%, indicated that they will raise prices this year, and many said they are raising prices more frequently now than in the past. When is the right time to level a price increase, and what is the best way to help customers accept it?

“If I don’t stay on top of pricing on a daily or order-by-order basis, especially with metal products, I’m falling behind,” says Noel’s Inc. (Farmington, NM) President Greg Noel. “We had a major gas increase in September, and my supplier told me to expect another one, depending on market conditions.” Noel’s supplier met him for lunch one day and explained how the hurricanes in the Gulf affected him more than he might have realized. “For example, Katrina took out a lot of hydrogen production, which caused shortages in argon,” explains Noel. “Two of the three refineries in the coastal areas that produce acetylene gas were knocked out, which caused an acetylene shortage, and with the steel industry hoarding calcium carbide, acetylene prices have gone up. It was quite a lesson on how things are intermingled.”

“I’m changing prices almost every day lately,” says A-1 Welding Products (Dickinson, ND) President Donn Lang. It used to be that suppliers would introduce a 3-5% increase about once a year, Lang says, but now he’s receiving increases much more frequently. “I don’t even like to put a price on some of the products in my store anymore because the changes come so fast. So now we just product code many of our items.”

“I’d be kidding everybody if I said there weren’t going to be price changes based on what’s happening with energy costs, molecule costs and steel costs,” says Economy Welding and Industrial Supply (Sewickley, PA) President Donald Rosenthal. For certain products, the company now prices them according to the price in effect at the time of shipment, but for customers who buy on a regular basis, Economy Welding and Industrial Supply tries to keep that price fairly constant for as long as possible. To introduce price increases, the company sends letters to customers and contacts larger contract customers directly.

Evergreen Supply (Aberdeen, SD) is raising prices more frequently now than ever before. How does the company introduce them to customers? “Politely put, here it is,” says President Ryan Siefkes. “Nowadays, most people understand what’s going on with raw materials and all the expenses that go along with that.”

With fuel surcharges and cryogenic surcharges, pricing is changing on almost a daily basis, notes WSI Gas & Equipment (Fort Wayne, IN) President Daniel T. Mulhern. “Anything we price along those lines is on a per-order basis. But it’s been a pretty easy sell to our customers. They buy fuel to heat their homes, so they understand the rising costs.”

Seaboard Welding Supply (Oakhurst, NJ) is looking at price increases for every gas it sells this year. “Propane’s the main one that’s going crazy right now, and acetylene’s another one,” says Vice President Richard J. Nowell. “When we set a price increase, initially we tell our sales staff to try and walk on eggshells. We have a meeting when we get the notification from the supplier, and then my salespeople go to each individual customer and tell them what we’re doing.”

Abbott Welding Supply Co. (Olean, NY) doesn’t have a regular price review in place, but tends to raise prices on an as-needed basis. “If fuel costs stay where they are, we’ll definitely have to raise prices this year,” says President Michael Higgins. “I’m starting to look at implementing an annual price increase so that we introduce smaller price increases rather than less frequent larger ones.”

In the past, Indusco Corporation (Portsmouth, VA) raised prices a maximum of once a year, but the company has at times gone through periods of three to four years between price increases. Not anymore. “Now we’re basically quoting everything based on what our cost is, so some items have gone up dramatically and some have not,” says President Bill Clark. The main thing the company has increased is delivery charges to try to offset higher fuel charges. When it comes to introducing price increases, “We tell our sales staff, but we ‘ask’ our customers,” Clark admits. “But it’s pretty commonplace now that people realize that there will be increases, so it’s not as hard to raise prices anymore.”

It’s been several years since Welding & Therapy Service (Louisville, KY) last introduced a price increase, but with the cost of fuel and rising prices from the company’s suppliers, that has changed this year. Says President Paul Greiling. “I’ve done the old mea culpa many times when it’s time to tell customers about a price increase. We’re in the process of doing that right now, going door-to-door with our larger customers and sending a letter out to everybody. But it’s like any sales job. You’ve got to explain why you’re doing it and the rationale for it, or else you put your business at risk.”

“We raise prices on a monthly basis now,” says Scott Bell, president of American Gases Corp. (Gurnee, IL). “For example, since Katrina, propane is only being guaranteed for two weeks, and by late October, the price had gone up by 25% and is expected to go up another 40-70% this year.” Steel prices have gone through the roof as well. For one item American Gases Corp. carries, a $17 product now carries a $9 surcharge. “It’s pretty hard not to verify prices before we quote somebody,” says Bell. “It just takes more work and time.”

“We’re reviewing everything on a six-month basis,” says Port Huron Welding Supply (Port Huron, MI) President Dennis E. Nicholson. “It used to be that manufacturers could give us a year before raising prices, but now there are commodities’ shortages, so we get surcharges we have to pass along.” The difference, says Nicholson, is while in the past surcharges would be rolled back eventually, he isn’t seeing that happening this time, so the surcharge becomes the new price by default. But Nicholson says customers understand as long as Port Huron Welding Supply maintains documentation from the manufacturer and can show why prices are going up.

More than increases in the actual price of products, what Modesto Welding Products (Modesto, CA) finds itself passing on to customers are surcharges the company receives from suppliers. “Insurance goes up, fuel goes up, energy costs go up, and they have historically, though not to the same extent as they have recently,” says President James Rasmussen. “But I think that should be reflected in the price, rather than the supplier unbundling it and saying, ‘Here’s a special charge because the hand soap we use went up 20%.’”

In September 2005, Argyle Welding Supply Co. (Albuquerque, NM) leveled a substantial price increase on virtually all of its accounts. “We looked at the impact of fuel costs, insurance, and what we were receiving from our suppliers, and said, ‘It’s time for us to grab the bull by the horns,’” says President James Wright. The company held a meeting to inform sales staff, and sent a letter to all contracted customers.

Last fall, Melo’s Gas & Gear (Bakersfield, CA) issued its first price increase in three years. “We don’t knee-jerk react to things that happen,” says President David Melo. “Although maybe we need to exercise our knee a little more.” When Melo’s Gas & Gear introduces a price increase, the company usually does so across the board, rather than making lots of exemptions. Customers are sent a letter to notify them of the increase, and the company’s salespeople meet with their customers to advise them.

Welders Supply & Equipment Company (Montgomery, AL) raised its prices in mid-2005 and likely will do so again soon, especially because in the past the company generally waited a long time to issue a price increase. “With the price of steel and fuel and everything else, we definitely have to adjust,” says Vice President Joe Beale. “In the past, with competition in the welding equipment market, we haven’t been able to. But now everyone’s in the same predicament.”

Gases and Welding Distributors Association