The water lily technique: The dealerships growth secret

Big Dealers Get Bigger!

Source : agequipmentintelligence.com

According to Dave Kanicki and his Big Dealer Report “the dealers consolidation has progressed during the last decade with 171 Big Dealers [more than 5 stores] in the U.S. and Canada in 2011 to 191 Big Dealers groups in 2020. […] The groups with 15 to 19 stores has increased by 360% in the last 10 years.“

In an environment weakened by trade friction, the coronavirus epidemic and current low commodity prices, dealer groups have less security about the future. But, the strategy they can definitely count on, is dealer consolidation.

Where should they go to expand their boundaries?
How should they do to grow their dealership group?

The solution is probably nearby, a few miles from where they are. In fact, before thinking to conquer the world, think local! The most respected CEOs and the greatest strategists agree that companies shouldn’t disperse themselves throughout the world too quickly, especially with dealerships.

In fact, becoming a local leader in your market represents the most important step, and is a prerequisite for success among the surrounding markets.

Why? And by the way… what does this have to do with water lilies?

Detailed here is a strategy that follows the growth pattern of a local leader, demonstrating clustered growth that surprisingly, resembles the phenomenon of water lily propagation. The characteristics that influence the growth of each can be incorporated into your own growth strategy. Using a case study of one of the largest John Deere dealer groups in the US, we will illustrate how strong market share and profitability set the stage for acquiring competitive markets and growing them on the track of expertise, network sharing and relationship development.

Profitability: The fertilizer

Being a leader

The main objective, for most companies today, especially in the services industry, is to become a leader in their market, if the company has the intention of acquiring new markets.

The leader has the most significant market share, and often, sets the prices depending on the desired margin. Then, competitors have to adapt or even conform to them. With the domination of its price/value proposition, that company now has the necessary resources to expand and look at take-over opportunities.

The geographical expansion

Benefiting from the profitability and know-how developed in its first dealership, the leader has sufficient funds to make the investments needed to takeover a nearby competitive market (hiring people, marketing, etc.) to grow market share where it is not yet a leader.

Just like the water lily, the company has solid resources to gain share in markets that are geographically accessible thanks to its success in the first market.

Image, experience and more

In addition to providing the necessary resources for development, owning the leadership position brings a well-established reputation. The combination of business acumen and the experience of the relationship-building also add to the powerful new dealer package.

The focus and outcome of these efforts lead to economies of scale.

Considerations

Important to keep in mind:

1. A “price war” strategy is not considered in our thinking here in order to perpetuate the sector of activity.
2. An assumption that the quality of the services offered by the studied company and the competition, is substantially equivalent.

The water lilies development

Scientific literature explains that the area covered by the leaves of water lilies doubles, constantly, at regular intervals. This phenomenon leads, for some species, to cover the entire surface of a lake in just … a few weeks!
The time frame, is specific to each specie.

We see in this illustration that the leaves will grow all around the first water lily. It serves as a resource (water, nutrients, etc.) for the development and expansion of other leaves over time. They will create flowers and roots themselves later.

The expansion of water lilies compares well with the development of dealer groups. They both rely on the solid resources that constitute the “parent” element, that is, the root system from the first – water lily or dealership – to support growth in the immediate vicinity.

Example : C&B Operations

C&B Operations represents a dealership group that illustrates this perspective. It demonstrates the importance of customer relationships as well as impact on the local market. C&B Operations, sells agricultural machinery (tractors, combine harvesters, etc.) as well as maintenance and repair. As a respected, growing dealer group, C&B has expanded to become the Midwest’s Premier John Deere Dealer franchise.

This illustration demonstrates how C&B Operations has developed since its founding in 1988 to the latest acquisition in 2018. This geographical expansion closely resembles the water lily propagation phenomenon illustrated previously. It focuses on Minnesota, Iowa and South Dakota but C&B is in other states as well. This covers a portion of the overall footprint.

Acquisition of existing dealerships

The main growth strategy implemented was the takeover of competing, existing John Deere dealerships, making it possible to transform the competitor into the colors of C&B Operations. Locals were already accustomed to having a John Deere dealership in the market, so there is no sudden change. This store will now benefit from the support, organization and reputation of the consolidated retail group, C&B Operations. All these capabilities bring added value and a fresh retail environment to an existing operation.

The secret: The advantage of geographical proximity

John Deere has about 3000 dealerships in North America (United States & Canada). So, there’s considerable choice for expanding by acquiring existing dealerships. The strategy adopted by C&B Operations is a good illustration of the “water lily strategy” with the gradual conquest of neighboring markets as a key to success. This expansion strategy has generated the resources to expand in new markets located close to existing C&B stores

Conclusion

Growth strategy for dealer groups is extremely similar to the phenomenon of lily pad propagation. The starting point dictates having resources for expansion, whether it is the first stem of the water lily, or the company’s initial dealership in order to develop geographically. The secret of this expansion lies in building a strong local market share. The greater it is, the more profitable the company will be. And, the more likely it will be to combine the resources and business dynamics into a powerful package that conquers adjacent markets.