FEA­TURE IN­TER­VIEW

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

Australian Farmers & Dealers Journal - - News -

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.

COR­PO­RATE FARM­ING

“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

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