Distributors raised the bar in HVACR wholesaling during the boom year of 2021, working in a vibrant and competitive overall marketplace but also creating a little more room at the top.

Four U.S. distributors recorded sales of $1 billion or more last year, according to the results of the latest Distribution Trends Top 30 Distributors survey; only three distributors reported 2020 sales of $1 billion or more in last year’s survey.

The vast majority of respondents reported double-digit sales increases for 2021, and most expect this year to bring another boom.

Distribution Trends annually surveys distributors to come up with a sales-based Top 30 list and glean insights about the state of the industry. Exact sales figures are kept confidential.

On Top Again, By the Numbers

Watsco Inc. headed the list this year, as it has every year since at least 2014. The Miami-based company reported 6,850 employees and 671 locations.

Ferguson Enterprises LLC of Newport News, Virginia; R.E. Michel Co. LLC of Glen Burnie, Maryland; and Winsupply Inc. of Dayton, Ohio; were the other companies with 2021 sales of $1 billion or more each. Ferguson moved from third place last year into second, R.E. Michel moved from fourth place into third, and Winsupply slipped from second to fourth.

The Top 30 were responsible for more than $17.8 billion in HVACR sales in 2021. The four companies in the $1 billion-plus club rang up a little more than $11.1 billion. The next six on the list — rounding out the top 10 — accounted for more than $3.14 billion, while the next 20 companies accounted for slightly more than $3.5 billion.

In addition, the threshold for breaking into the Top 30 jumped to more than $100 million, as all companies on the list reported sales somewhere above that mark. Last year’s Top 30 list included some distributors with sales of less than $100 million.

Most of this year’s Top 30 players also made last year’s list; Williams Distributing Co. of Grand Rapids, Michigan (12^th); Young Supply Co. of Chesterfield Township, Michigan (29^th); and Johnson Supply of Houston (30^th) were the three newcomers.

All 30 on the list claimed membership in Heating, Air-Conditioning & Refrigeration Distributors International (HARDI), and six reported American Supply Association (ASA) membership as well.

Industry Concerns

Inflation and supply chain kinks were among the major concerns distributors expressed in survey responses. Labor shortages, industry consolidation, and coming energy-efficiency and refrigerant requirements figured prominently, too.

Some pointed out how those interrelated issues are affecting their businesses and HVACR wholesaling in general.

“Inflation, commodity shortages, labor shortages, and upcoming efficiency requirements will all put additional strain on the supply chain and overall channel,” said Tim Brooks, president and CEO of Denver-based Lohmiller & Co., which was 21^st on the list.

“We have all experienced the challenges associated with supply chain issues and inflation. The volatility caused by these two issues impacts the HVAC contractors’ decision-making,” said Matt Bedard, CEO of S.G. Torrice, of Wilmington, Massachusetts, which came in at 25^th. “In an effort for them to serve their customers, brand loyalty can take a back seat to satisfying a customer.”

“We had an excellent year, but most of our ‘excess’ cash went to buy higher-priced inventory. Our inventory valuation is up 25%,” said one industry source who did not want to be identified.

“Supply chain challenges continue to stretch lead times and create large variances in lead times. Even for companies able to purchase in advance, warehouse space constraints create limitations for inventory investments,” said Renata Morgan, general manager of business administration at Century A/C & Air Management Supply in Houston, No. 19 on the list. “Combined with the upcoming transition to SEER2, it creates numerous challenges for distributors trying to balance high availability with the potential risk of millions of dollars of unsellable equipment in inventory at the end of the year.”

Market Changes?

Some foresee price increases and other factors leading to a change in consumer habits.

“With increasing inflation we are expecting homeowners to opt for repairs over replacements and create decrease in demand,” said Morgan, at Century.

“After unprecedented price increases on equipment and the impending increases due to efficiency minimums and refrigerant changes, I think the repair vs. replace dynamics are going to move the percentage toward repair,” said another industry source, who asked for anonymity.

“I believe that inflation will make most Americans pay more attention the rising price of energy and what they are doing to reduce consumption,” said Brooks, at Lohmiller. “Price and a sense of responsibility to begin the decarbonization process will drive a lot of change in our industry.”

Some Top 30 distributors said they worry about consolidation.

“Developing programs to satisfy the myriad requests from consolidators has its own set of challenges,” said Bedard, at S.G. Torrice. “It’s a constant balancing act for distributors and manufacturers to provide consistent pricing and value-added services.”

“The influx of private equity groups purchasing dealers is very concerning to all distribution and manufacturers,” said an official at another distributor, who asked not to be named.

However, Lanny Sigler, vice president of the Tolleson, Arizona-based Russell Sigler Inc. (No. 5), said the consolidation trend “seems to be slowing.” And one industry source who asked not to be named said consolidation means opportunities for wholesalers.

“Strong independent wholesalers have the opportunity to shine while acquired companies try to assimilate into new organizations and deal with new structures and new priorities,” she said.

At Hercules Industries in Denver, Patrick Newland, vice president of marketing and a member of the family that owns the company, said consolidation is prompting Hercules to double down on its investment in its employees.

“The more tenure we have going into the future will allow us the superior service that will set us apart from the larger firms that are growing through acquisition,” Newland said.