From the refrigerant transition to the arrival of artificial intelligence (AI) to technological advances and a decarbonization push fueled by tax and rebate incentives, change is sweeping the HVACR industry.

Distributors are in the middle of that change. While preparing for a switch to equipment that uses lower-GWP refrigerants, and figuring out their place in the decarbonization movement, distributors are also employing AI in their work — or planning to do so — adjusting to market shifts, and coping with a multitude of other forces shaping the industry.

Earlier this year, Distribution Trends reached out via email to executives at four distributors to gather their thoughts on some of these changes.

Participating in the 2024 Distributors Roundtable were David Kesterton, president of Mingledorff's, based in Peachtree Corners, Georgia; Terry Tarantine, vice president of sales at Young Supply Co. in Chesterfield Township, Michigan; Sid Harvey, president of Sid Harvey Industries Inc. of Garden City, New York; and Doug Young, CEO of Behler-Young Co., based in Grand Rapids, Michigan.

Here is what they had to say:

How much is the transition to A2L refrigerants affecting your organization, in terms of the equipment you’re planning to stock and also in terms of the availability of refrigerants (if you carry them)?

Kesterton: Honestly, the transition is just beginning. We’ve been reviewing the transition plan with our major supplier and communicating specific product family/model plans with our clients over the past few months. …

We will continue to roll out and review the plans during the course of the year (Zoom/in-person) in addition to conducting technical service and installation training meetings on a continuous basis.

Tarantine: We are planning to sell R-410A for as long as possible. Contractors have shown a history of selling existing technologies for as long as possible. Additionally, there is a general fear of higher pricing and A2L hesitancy on the part of end users.

Harvey: We plan to stock the equipment that our customers request. We will have an overlap of HFC equipment and A2L equipment but do not foresee any issues. The A2L refrigerants are currently available. We have been selling A2Ls for refrigeration purposes for a few years now and are already stocking R-32 and R-454B.

Young: It is certainly an area of extreme focus for our team. The timing of eliminating the 410A products and the introduction of the 454B products is very strategic. If not done properly, there are many negative ramifications. In many ways, we are at the mercy of the manufacturer. If they have a good plan and we have a good plan, we all win with a seamless transition.

Thank goodness for the coalition of AHRI, HARDI, and others that have been able to work with the EPA (Environmental Protection Agency) for the additional year of sell-through of 410A product. If that was not accomplished, there could have been very serious problems throughout the industry, from supply in manufacturing to lost inventory value in distribution.

How are you collaborating with contractor customers so that you and they are ready for the A2L transition?

Kesterton: Again, like I mentioned, there is a good deal of education regarding installation and service that will take place during the 2024 year. Although A2L is different, it’s not our first rodeo, so to speak. I think the most difficult part of the transition compared to R-410 is the compressed timeline. We introduced R-410 (Puron) in 1998 with a transition date of 2010. This one is much more compressed.

Tarantine: We have already started training on the EPA and DOE (Department of Energy) regulatory landscape. Refrigeration will be more significantly impacted than HVAC, and we are running training sessions currently.

Harvey: Our sales team speaks to our customers often about the transition, and the feedback we get helps us prepare for the changes. We hold in-house training for our employees and for contractors on the transition, which will help smooth the process.

Young: Our equipment manufacturer developed online training for our dealer network to take at their leisure. On top of that, we are holding regional update meetings partnered with a vendor that sells tools impacted by the A2L change. And lastly, we will dedicate a breakout session to all things A2L in our annual dealer meeting.

Decarbonization and electrification are trends in the industry. Did you sell more heat pumps in 2023 than in other recent years?

Kesterton: Yes, and we have been trending towards more heat pumps for really the past decade-plus.

Tarantine: Yes. We have been very active with heat pumps, especially when it comes to multi-family and larger building renovations. We are still struggling to get our dealers to propose hybrid systems, but we believe we will be moving more going forward.

Harvey: Heat pumps have been a part of our business for many years now. We have seen an uptick in sales almost every year, and we believe this trend will continue as new legislation is passed.

Young: The northern market has never embraced the heat pump philosophy and continues to struggle moving it forward. Our increase is small and insignificant in the big picture. To put a number on it, less than a 50-unit increase for 2023.

Ductless applications are still strong but not necessarily as a primary source of comfort. These applications are ancillary to traditional forced-air products.

How about high-efficiency equipment, such as condensing furnaces? How have sales in 2023 compared to those in the recent past?

Kesterton: Condensing furnace sales have increased, but because of our location and minimal heating hours, 80% furnaces and high-efficiency heat pumps have been the systems of choice.

Tarantine: Our ratio of high-efficiency furnaces to 80% has been growing every year for over a decade.

Harvey: The geographic areas that offer the contractor and/or end-user incentives to install energy-efficient equipment are where we have seen the most growth in high-efficiency units. When the incentives are substantial it can really influence the buying habits in those states.

Young: Ironically, even with the decrease in 2023 unit sales, our high-efficiency furnaces remain at the same percentage of overall furnace sales as the prior year. That percentage has remained reasonably consistent year over year over year. We have seen no sharp increases or decreases.

There’s been more discussion lately about applying artificial intelligence and automation to HVACR wholesaling. What is your view of how these kinds of technological advances can be used in distribution?

Kesterton: Well, I think there will be many applications in the future for AI. Advances in system diagnosis will be much more prevalent in the coming years. That is a huge benefit for the consumer, distributor, and contractor in the future. Today, while BOTs are rules-based decision-making, as opposed to AI (adapt and learn), we have been using them for years. Some common applications are expediting credit approvals, and inventory distribution center remixing BOTs.

Tarantine: We are just starting to see AI entering our industry but as will all businesses, it's coming and will dramatically alter how we manage information when it gets here and I believe it will be sooner rather than later.

Harvey: Artificial intelligence is revolutionizing distribution in many organizations and will continue to do so. AI will be able to quickly recognize market trends, help to optimize inventory, and perform simple customer service tasks to provide even faster response times.

Young: We believe there are plenty of opportunities. We already use artificial intelligence in some of our firewall and cyber threat protections already. We are very close to selecting an emerging software provider to use this type of intelligence in optimizing our inventory and the management practices that go along with that (demand, balances, minimum/maximum, transfers, etc).

We also see opportunity in the pricing and sales and marketing areas. There is opportunity if you open your mind to what needs to get better. From an automation perspective, newer and emerging technologies and their reasonable cost entry points have allowed us to address our “small parts” through vertical lift machines at our distribution centers. We are also investigating autonomous mobile carts to streamline the travel through the distribution center.

There is also an opportunity in some of the back-office functions (accounts payable, accounts receivable, marketing promotions, product descriptions, and even code development) using some of the technological advances over the last few years.

So, the view is, you must continue to improve and get better to compete in the future, and many of these technological advances will be instrumental in doing that.

Overall, residential sales were down in 2023. Do you feel we are entering more of a repair-instead-of-replace market?

Kesterton: Hard to say right now. With so many new innovative systems being offered today, many consumers will still prefer to change out the entire system. If the retail salesperson offers the choices and explains the benefits (technology, benefits of new refrigerant, etc.) many consumers will decide to move forward with a new comfort system. On the standard end (minimum efficiency) of the spectrum, there may be some homeowners and commercial establishments who decide to repair rather than replace.

Tarantine: I have seen a slight trend towards repair versus replace, but I believe our exceptionally mild weather has been the primary culprit on lower AOR sales.

Harvey: It is hard to predict the future. We have seen the markets change over the last 93 years we have been in business. Our plan has always been, as a full-service wholesale distributor, to make sure we have all the right products to service the HVACR industry, whether it is for repair, add-on/replacement, or new construction.

Young: The repair-versus-replace transition took place last year for us. Unprecedented equipment price increases, overall inflation, and economic uncertainty have been huge contributors to this transition.

Are the supply chain issues that were so prevalent in the last few years behind us?

Kesterton: I would say most but not all. 2024 will be the year to hopefully put all of the past behind us for good!

Tarantine: There are still some crucial areas for shortage, 460V, and larger commercial units, but overall, the supply chain is approaching pre-COVID lead times.

Harvey: We have seen the supply chain getting better with most manufacturers. There are still some significant issues with rooftop units and other commercial products. Supply-chain reliability is a variable that will continue to change from time to time. Our job as a distributor is to be prepared for disruptions and act quickly to minimize the shortages and make sure we have the products our customers need. Lately, this has been more challenging, and the refrigerant and efficiency changes will affect the next several years. We look forward to partnering with our manufacturers and customers to ensure continuous improvement.

Young: For the most part the supply chain has normalized. The only significant exception we are still wrestling with is commercial equipment. Lead times have come down a bit, but they are a far cry from normal. This has been our most significant supply-chain pain point.