There are few bigger names in the Australian agricultural machinery landscape, and with a more impressive CV, than Landpower’s Merv George. In this first part of a two-part interview with Mandy Parry-Jones he has some stern warnings and strong advice for
MERV George started his time in ag machinery in his native New Zealand, working as a management trainee in the late 1960s for the Claas importer. Like most people in those days you worked up the ranks training under various bosses and various departments. The company was AM Bisley, a privately owned importing business. “It had some retail businesses and some owned dealerships so we had retail stores and separate dealers,” George said. “It’s the way the model worked, because that’s the way it was." “I worked my way through that business and then became South Island manager. We had four retail stores and an independent wholesale business, so that's the way the model was; we were able to sell products to dealers.” Very few dealers at that time had a full line up of product so ingenuity became the mother of invention and dealers cross-pollinated." “I’d like to describe it like a cuckoo; it doesn’t make its own nest it lives in someone else’s,” George said. “What we did was we were able to sell our combine harvesters and round balers through competing dealers that didn’t have our product." “For example you could have a John Deere or Case dealer or New Holland dealer that didn’t have a combine and they could sell a Claas combine beside a John Deere tractor.” "By far this was the most straightforward way to get everything done and dusted and that’s how it worked for quite some time, right through the ’70s and ’80s." It was a time when dealers were more connected and less competitive, more open and co-operative but that changed. An ambitious bloke, George was given the chance to move further up the ranks but it meant moving away from New Zealand and across the ditch to Australia. “In terms of my personal growth I took a job I was offered, the sales manager’s role for Claas Australia based in Albury,” he said. “So in 1984 I moved my family and came across to Australia and was exposed to the Australian market.” Through the period 1984 to 1989 George lived in Australia where the Claas product was going through distribution channels that were mixed. Some were Claas dealers but most dealers had to have a mix of different brands in order to survive. “We weren’t seen as an enemy to each other,” George said. “We would have shared a dealership. That happened through the 1980s but later in the ’80s it became more difficult because manufacturers demanded exclusivity.” So if dealer had say John Deere then he couldn’t sell any other brands; then to add a little complexity a lot of companies started to merge and the results were initially confusing. “When David Brown existed it made just tractors then it married into the Case network and it became Case IH. Then the Case network became CNH – you ended up with multiple brands all coming under the one manufacturing conglomerate. “The Italians bought Case and New Holland and rolled it into one big group and had two distribution networks. One would have Case tractors and Case combines; the other would have sold … New Holland and New Holland combines and then you were excluded from those businesses” George said. Australia throughout the late 1980s and the 1990s had dealerships directed to become exclusive regardless of their personal preferences. If you took on
a brand you couldn’t sell a competing brand. It changed the dealership landscape forever. “I was then offered a job in the UK in 1989, so while my family had just settled and become Australians, we then all moved again,” George said. “I was offered the sales director’s job for Claas UK, and when I arrived there Claas UK had independent dealers who were dealing with Case and all the competitors and there was a mixture of things." “What happened quite quickly was that we were thrown out of a lot of those dealers – like the cuckoo again – because they had competing products and the manufacturers would say you can’t sell the Claas combine because you've got a Case combine. “We ended up with having to set-up a network of dealers that were our own.” Finding new dealerships was very difficult because there weren’t any around to buy up, so George was forced to start them from scratch. “We had to start our own,” George said. “We had to start a new distribution channel, which in the early ’90s had fewer dealers. We didn’t want to recreate the old model with a dealership in every town because they fought each other and the biggest competition was the same brand in the next town." “We ended up establishing about 20 dealers throughout the UK and Ireland that were Claas focused dealerships, that didn’t compete with each other and were different in that they had big territories. We had one or two outlets that would cover the whole of a county.” Previously there had been almost 200 dealers covering the UK and when George finally left in 2002 there were just 30.
“I’d seen that whole change occur,” he said. “What I’d also seen in that time was the migration of, and it’s happened a lot faster there than it has here, the growth of corporate farming … so there’s large farming companies that exist in Europe.” In Europe the corporations come in and rent farming land allowing the farmer to remain in his house. They simply rent the land and manage it; in fact they manage a whole raft of farming properties; it’s all about profit and loss, there’s no tie with the land or emotional attachment.
There’ll be fewer customers, underneath that there’ll be fewer dealers so that means in itself the service for the customer will be further away. There will not be a dealer in every town in Australia in the future.
George said then was that once the large companies took over there was less demand for used equipment. “We ended up with used combines everywhere and when you live in a land mass like Europe you’ve got potential to sell somewhere else,” George said. “So I set up a business in the mid ’90s which is known in Australia now as Combine World. “I created that business because we had a need to sell our used combines around the rest of world. We exported used combines out of Britain to 36 different countries around the world. “We were the first company to go to the farm machinery show in the UK offering secondhand equipment.” This light bulb moment turned out to be very successful and worked a treat in Europe where could be sold secondhand equipment to less well-endowed countries such as Russia, the Ukraine and Greece. When George moved back to Australia in the early 2000s, this country was going through the same developments. “I came back to work for Landpower, who is the Australasian importer for a range of products – a house of brands. Landpower is the Claas importer but also Amazone and a range of other products. “It put a house of brands together and it wanted to establish its own distribution network in Australia”, he said. Landpower has been doing that around Australia and New Zealand since that time with 35 company-owned or privately owned dealerships that are based on the same model as in the UK – Harvest Centres. All they do is sell Landpower products. While the Australasian operation has utilised the same model as the UK, the land masses that make up Australasia are very different. New Zealand is perhaps closer in both land size and climate to the Continent. “I think the challenges in Australia are the climate of the country; and it is so variable, there’s a drought somewhere in Australia all the time, and distance because it’s so different to all other markets I’ve worked in because distance is a real issue,” George said. “The size of the industry is about $2b in sales and all the main manufacturers are here." “What’s happened however, from 1994 until today, the dealership numbers of retail outlets has come from over 2000 to about 600. “So it’s dropped dramatically and I can see that continuing, but probably not at the same pace. “There’s no question the number of dealers in Australia is going to continue to drop.” George quesitioned what this means from the farmer’s point of view? "The farm in Australia is clearly getting bigger so there will be fewer farmers but bigger farms and larger arable farms." He said there will be fewer farms in private hands and more in the hands of corporate farmers. "That’s already occurring in the cattle industry but it’s also occurring in the dairy industry with private investors as well as Chinese investors." "That’s happening big time right now in the Victorian market and the growth in that sector is enormous." “There’ll be fewer customers, so there’ll be fewer dealers and that means in itself the service for the customer will be further away,”
There will be substantially fewer dealers and I think it could lower to half the number we have today it could come down to 300.
George said. “There will not be a dealer in every town in Australia in the future." “Let’s use Horsham as an example, or Ballarat; those service centres in the future will have to cover a 150km radius. They’ll be distant. The farmer will not see the flagpole of service at the end of his driveway.” Dealerships in Australia have been privately owned by individual entrepreneurs and have evolved over a time span of some 50 or 60 years. That evolution was during a time when dealerships started with out a lot of money. "Now owners are getting towards retirement age, or even past it, and are looking for new owners to sell their business to," George said. “They face two challenges. One is finding an owner to fund the business and many of the businesses are $10m or bigger and you need about 30 per cent of the revenue of the business as a credit line." “So in an average business in a small town that’s turning over $10m you need $3m to actually be able to fund it. There’s very few buyers for these businesses." “The other problem they have is that not very many of them would have invested in new technology to manage their business because they can’t afford it, as it’s a low margin business." “So computer systems when we looked at individual dealers don’t exist in the way they should.” According to George dealerships that are at most risk are single branch businesses, have not implemented the infrastructure changes needed to keep abreast of current technology and advances in business practices. The owners have been so busy keeping their business afloat that they have failed to even up-skill themselves, not keeping up with computer literacy or even with accounts. “They can’t find a buyer because they’ve got to find someone with $3-4m worth of credit even if they give the business to them with no goodwill,” George said. Selling a long-term business without a portion of the price being for goodwill is a big ask. However, the real challenge in most of these businesses is in the back room, in the spare parts bins. “They all like to give the best possible service and end up with a spare parts inventory that’s grown, and grown, and the stock is never written down because it’s that old,” George said. “That’s a time bomb in there with 3-4-5 hundred thousand dollars worth of parts that are probably worth $6 a tonne." “Selling those dealerships is a problem,” he said. Over the past two or three years large conglomerates like Rocky Mountain and Titan have bought these dealerships. These companies have Case or John Deere franchises or other franchises in Canada and America and they have expanded into New Zealand and Australia, buying strategically. “These people would come in and buy several stores and run them as part of their own businesses and they might own 200 retail stores in Canada, America, New Zealand or Australia,” George said. “The whole management – they can bring computer systems they can bring finance – and the local people are no longer the entrepreneur; the local man becomes the store manager who works for a big conglomerate and the idea of entrepreneurial 24/7 service is probably diminishing", he said. “I see that as significant change. Those people that can’t sell, their only buyer would be these offshore buyers or shut the doors and walk away but for the farmer it will be a different animal.” George said the big corporate farmer of the future will be dealing with a company that is owned by publicly listed companies in America. As with all publicly listed companies they will be at the mercy of shareholders and have demands for return on shares. “They buy in bulk from the suppliers and they will be leveraging the suppliers,” George said. “So for the farmer we can talk about significant shifts in our industry – there will be substantially fewer dealers and I think it could lower to half the number we have today; it could come down to 300." “The company I’m employed by as a director has established 35 dealers across Australasia, and it’s brought its key products of Claas, Grimme potato harvesters and Amazone cultivation equipment here." “We’ve created dealerships; some are privately owned by us, some of them are owned individually by entrepreneurs and what we’ve tried to do is make sure our business’ ERP systems go into every one of those dealers," he said. “We’ve tried to make sure even with the private entrepreneur he has the latest and best business management systems; that he applies a certain range of KPIs (key performance indicators), and that he writes down his spare parts stock.” George said Landpower works hand-inhand with the dealers to ensure they have the latest management skills and business systems, and to make sure the territory they have affords a viable business. “There’s a finite amount of revenue for a business that’s operating in a broadacre market – it needs to be at $25m to $35m at least,” George said. “One operating in a hay machinery market could be $15m or $20m. “They’ll invariably be multi-branch, they’ll have our tools of management and we also finance them. “We give them management skills, we train them and we do the management accounts for them.We bring finance to them and we train the managers to try to make them the best we can, to really focus on the needs of today.”
Next issue Merv George talks about the value of education in agricultural Australia.
Merv George is pictured at Landpower’s Claas HQ with Catriona Claas. Photo: Mandy Parry-Jones