Category: Under $50 Million in Annual Revenue
No one is discounting the fortunate set of circumstances that resulted in Kennedy Implement nearly doubling (+98.5%) its revenues between 2010 and 2011, least of all Mark and Kent Buchholz. On the other hand, credit for managing those circumstances to best advantage falls directly on the shoulders of owner Mark with more than a little support from his son Kent and nine other dealership employees.
Kennedy Implement & Auto
Founded: Howard and Wayne “Duck” Kennedy founded Kennedy Implement & Auto in 1943. Dennis Kennedy purchased the dealership in 2005. Mark Buchholz purchased the dealership in 2010.
Location(s): 1 (Philip, S.D.)
Major Line(s): New Holland, McCormick
Shortlines: Woods, Westfield, Wheatheart, Brandt, Walinga, SnoBlast/TeamCo, Grasshopper, Vermeer and others
2011 Employment: 11
2011 Revenues: Gross Revenue – $13,722,855.67; Wholegoods – $9,997,250.99; Parts: $1,747,408.62; Service: $474,279.00; Other: $1,528,657.79
3-Year Revenue Growth:
2009 – $5.3 million (34.2%)
2010 – $6.9 million (23.4%)
2011 – $13.7 million (98.5%)
2011 ROA: 22%
2011 Market Share: 57%
2011 Parts & Service Absorption: 88%
Together, these 11 employees last year produced revenues of $13.7 million, and it wasn’t by selling high priced combines and high horsepower tractors.
“I told my son that we’ll probably never see another year like 2011,” Mark says. “We had an exceptional year for moisture in the region and commodity prices. We also gambled at the right time by ordering more inventory than we usually do.”
The high commodity prices, he says, also allowed dealership customers to make purchases that they had been putting off.
Another facet of having a large inventory that played well last year was how the dealership adapted its loaner program. “We loaded up on tractors, balers and self-propelled units. When a customer had equipment go down, instead of loaning them used units like we had in the past, we loaned them new equipment. We got seven or eight sales because they had money they needed to spend and they liked the new equipment so much, they just bought it instead of returning it when they were done using it,” Kent says.
Everything fell into place for Kennedy Implement: high commodity prices, good moisture levels, low interest rates, pent-up demand and healthy inventories of new and used machines. And the Buchholz’s took full advantage of it.
Regardless of the circumstances, it was their overall 2011 performance and results that earned Kennedy Farm Equipment’s 2012 Dealership of the Year in the under $50 million in annual revenues category from nearly 100 nominees.
“You could take our best two years previously and we would have not matched what we saw last year,” says Kent. “I don’t think we ever expected to have a year like this. My dad says, ‘We got lucky.’ But I also believe we made it happen.”
Revenue Per Employee
The judges who selected Kennedy Implement as the top dealer in its category made a special point of noting the dealership’s high dollar revenue per employee, which in 2011 amounted to $1,247,532 each. Most North American farm equipment dealers would consider this outstanding. But it’s even more so when you consider that Kennedy Implement sold only one four-wheel drive tractor and no combines in 2011.
Being in hay country, their bread and butter market is hay tools and tractors in the 80-140 horsepower range. “Besides the one four-wheel drive unit, the most expensive tractor we sold last year was $105,000,” says Kent.
So unlike dealers in the major row-crop regions of the country that specialize in high horsepower tractors and combines, Kennedy derived its high revenue per employee by unit volume vs. dollar volume. In other words, they did a lot of selling.
“That’s the thing,” says Mark. “It would be really nice to sell one combine and eliminate 10 balers because you would have nine less headaches. But that’s not our market.”
He describes the dealership’s customer base as mostly mid-size farmers. “We do a little bit of business with construction and a few utilities, but 99% of our customers are farmers and ranchers.”
Wheat remains the major crop in the west central part of South Dakota, but there has been a marked increase in corn and sunflower production in recent years. “Last year, the last of the dairies went out of business here, so there’s no dairies in our trade area. There’s no poultry, very few sheep and we have one hog farm left. We’re about 99% beef cows. The average cow herd is about 300 head,” says Mark. As farmers in the region escalate their production of corn, there’s been a gradual increase in the use of large tractors and combines.
New Holland describes Kennedy’s trade area as 100 miles north and south of the Philip, S.D., and 20 miles east and west of the dealership. However, Mark figures, “We can take care of a 70-mile radius around Phillip. We can service that area and do a very good job of it.”
Mark has been with Kennedy Implement & Auto since 1983, but he didn’t buy the dealership until two years ago in 2010. Directly out of high school he began working at the Kennedy Ranch, which was part of a bigger business that also owned the dealership. At the time, they sold International Harvester farm machinery as well as Buick automobiles and GMC pickup trucks.
When a salesman at the dealership was looking to retire, Mark asked owner Howard Kennedy to consider him for the job. In retrospect, he says, “How many people would bring a 20-year-old kid into sales? But Howard told me he’d give me a chance. He said, ‘You can try it and if you like it, you can stay. If not, you can go back to the ranch,’” Mark says. “I like being around people and I thought, ‘Let’s give it a try.’”
Like many farm equipment dealers, Kennedy Implement has experienced a string of big sales years recently, but few have seen their sales double from one year to the next. “I don’t think we ever expected to have a year like 2011,” says Kent Buchholz. “My dad says, ‘We got lucky.’”
In his early years with Kennedy, in addition to learning how to sell wholegoods, he also developed the capability of setting up equipment, sold parts and took in everything he possibly could. “I wanted to know all facets of the business,” he says.
In 2005, Howard Kennedy turned the business over to his son, Dennis. Shortly thereafter, Dennis developed some severe health issues and Mark was left to oversee the dealership’s operations. They had dropped the auto and truck lines by then, but Mark was left to run the business on his own. “I managed the dealership by the seat of my pants for 15 or 18 months, doing everything myself, from driving the truck to the sales paperwork. I finally went to the family and told them, ‘I can’t keep doing this because it’s killing me.’ I didn’t even know what the boss expected of me at that point. In the end, I ended up buying the dealership from them.”
By that time, Kennedy Implement had also lost its Case IH contract, but maintained a five-year extension to handle parts. When Mark bought the business, he says he had to “battle” to renew the parts contract, but eventually threw in the towel and decided to focus on the New Holland business.
‘It’s Easy to Sell’
A natural born salesman, Mark says he loves to sell farm equipment, but realizes that selling is only a small part of the dealership business.
“It’s easy to sell, but it’s tough to service.” He says this is the biggest and best lesson learned as he heads toward 30 years in the business. “Kennedy started this business in 1943 and built it up through parts and service. We’re trying to do the same thing,” he says.
Kennedy Implement’s 2011 parts and absorption rate was 88%. That’s not too bad, but not at all where Mark says it will be. “This is well below what we did last year, but with some new hires and capital investments, the numbers were skewed slightly. Our year-to-year goal is 115%.”
To emphasize Kennedy Implement’s commitment to service, Mark talks about the dealership’s next “big move,” and it won’t be more salespeople or a new showroom.
“We could hire more salesmen, but if we can’t service what we have, we’re shooting ourselves in the foot. Everybody loves the thought of the sale, but I’ll tell you what, for me the thought of a customer coming in for service with a smile because he knows he’ll be taken care of, beats the sale any day. We’re selling the service end of this business, and if we can keep our sales up, the first thing we’ll do is put up a new building to expand our service area and hire another tech. We can’t forget the core, the parts and the service. That’s what’s tough, and right now we’re utilizing everybody to their fullest capacity. With the labor we have at this point, we’re probably about maxed out for the time being until we take that next step up.”
When it comes to new maintenance and repair parts, Kent Buchholz says dealership suppliers suggested that a store of Kennedy’s size should carry about $300,000 in inventory. “I’m pretty sure other dealers would say it’s stupid, but we maintain about $900,000 worth of new parts in our inventory.”
Is ‘Inventory’ a Dirty Word?
Maintaining a healthy inventory, whether it’s parts or new and used machinery, is something that Mark believes in — for the most part.
At first glance, driving around Kennedy Implement’s lots adjacent to the dealership, it appears the dealer is sitting on far more used inventory than most dealers would consider wise. Kent says Howard Kennedy, who passed away a few years ago, is probably “rolling over in his grave” to see how much inventory we’re carrying. “Mark believes if you don’t have it in inventory, you can’t sell it.”
“Used inventory is a dirty word,” says Mark Buchholz of Kennedy Implement. “But you need to have it for the customers who can’t afford new and we have a lot of those customers.” In 2011, the dealership turned over nearly 600 units. The goal called for selling 400 pieces of equipment.
Mark’s resolve to have a variety of equipment on hand is based on lessons he’s learned during his 30-year career.
On new equipment, he says, “Howard Kennedy lived through the Depression in the 1930s and then we went through the recession in agriculture in the 1980s, so he always kept inventory at a minimum.”
In 1992, Mark was allowed to order equipment and he decided not to necessarily follow his mentor’s example. “In ’92, I ordered more tractors than we’d typically order. I was told at that point I’d never order equipment again because we had like 15 new tractors on the lot. But, we sold every one of them without paying any interest.” This may have been one of the first signs that Mark was willing to go out on a limb and challenge conventional wisdom.
“Today interest is cheap, so we’re doing the opposite of what a lot of dealers are doing. We’re gambling that we can handle more inventory and get it sold quickly. But I’ll be the first to say that when the interest rates go back up, inventory’s going to go down.”
Again, he reiterates his philosophy about maintaining higher levels of inventory than most would advise. “You don’t go to a shoe store to buy shoes if there’s only one pair on the shelf. So we’re doing the opposite of what the big boys tell us we’re supposed to be doing.”
He adds that he’s lost a couple deals this year because he couldn’t get new equipment. “A lot of my guys don’t want to wait. We have a few bigger customers that will order and wait for their equipment, but most of our customer base out here is impulsive. Once they decide to buy, they want it now.”
What may be contributing to his customers’ impulsiveness is Kennedy Implement’s location. Situated directly next door and sharing a driveway with the local sales barn makes it a simple matter of stopping into the dealership after their morning trek to the Philip stockyard.
Mark explains: “Before they leave home, they’ll say, ‘Mom, if the calves sell good, we’re going to see Mark on a new tractor.’ The calves sold good, they walk out, and they come see me.”
Inventory Turnover is ‘Huge’
When it comes to used equipment, the Buchholz’s pretty much maintain the same outlook. Have it on hand, but move it as quickly as possible.
What the Judges Say About Kennedy Implement
“The staff consists of 11 employees that really produce. The dealership had the highest ‘dollars generated per employee’ at $1,247,532. This is a very strong number when you consider the smaller size staff”
“Their ROA was the highest of all nominees at 22%. They had the highest market share and their absorption rate was also the highest of all nominees in the ‘under $50 million revenue’ category”
“The staff believes in a team concept: ... ‘If one fails, we all fail.’ This concept helped them earn the number one market share in South Dakota for ag tractors and hay tools.”
“Used inventory is a dirty word,” says Mark, “but you need to have it for the customers who can’t afford new and we have a lot of those customers. Unit wise, I’ll admit we’re very heavy, but because we don’t have a bunch of combines or four-wheel drive tractors, dollar-wise we can afford to carry more of the smaller equipment. I know it probably looks outlandish to a lot of dealers because we’re just one small dealership with a lot of inventory, but we cover a vast sales area.
“The way our lots are located, a lot of people make it a point to drive through regularly and they’ll call us when they see something they’re interested in. If we don’t have much on the lot, they’ll drive through and never stop or call about it,” Mark says.
The Kennedy Implement — B&B Connection
If you go to the Kennedy Implement website, you might be surprised to see that it shares its home page with another equipment dealership — B&B Sales.
Mark Buchholz, owner of both Kennedy Implement and B&B Sales in Philip, S.D., says before he acquired Kennedy Implement the connection between the two equipment businesses was “kind of an odd working relationship.”
As Mark tells it, he began selling for Kennedy Implement in 1983. After a few years of excelling at his sales job, owner Howard Kennedy, decided to give Buchholz an incentive to stay at the dealership, offered him “a percentage of the business” at some point in time.
“I never did get it in writing,” says Mark. After waiting for a few years, he got word that the Vermeer dealer west of town was looking to get out of the business. “I stepped up to the plate and bought the dealership in 1994,” says Buchholz. He fully well expected that Kennedy would fire him once he got word of his purchase. And that’s what he was told initially, anyway.
Eventually, they worked out a working arrangement where Mark would own and operate the Vermeer dealership, but he promised to give his full attention to sales at Kennedy Implement. “After a while, Howard was very good about it,” he recalls.
In addition to the Vermeer hay equipment line, he added other livestock-type of equipment, such as pens, panels and feeders.
Mark says the name B&B Sales was initially a joke referring to him as the “Broke Boy,” but he explains, “Nobody can spell Buchholz. We made it B&B to make writing a check easy.”
Since purchasing Kennedy Implement, the two businesses have been merged and incorporated. Kent Buchholz explains that they’ve also reorganized which products both will carry. “Every piece of equipment with a serial number, including the Vermeer product line, will be carried by Kennedy Implement. Anything without a serial number, like cattle pens and feeders, will be sold through B&B Sales.”
Because of the dealership’s reputation for carrying a lot of used units, Kent says this has greatly enhanced Kennedy’s telephone and Internet sales.
Whereas many dealerships these days treat used equipment inventory as a liability, Kent says Kennedy Implement see it as an asset and attributes much of the dealership’s 22% return on assets to getting it turned.
“We’re averaging about 75 days on turns,” says Kent. “We set a goal last year to move 400 used units, which would be double what we had ever done before. Well, we turned 400 units by October 1, so we set our sights on moving 600 units by the end of the year. We didn’t quite make 600, but at one point we had it down to 100 used units. Inventory turnover is huge for us and it’s one of our strengths. I believe we do well because of our reputation.”
He says that reputation is serving the dealership well and has helped expand their Internet sales. Then they run down recent sales they’ve made across from their website: a $25,000 used tractor to a farmer in Pennsylvania; a “nothing special, nothing pretty” $3,000 tub grinder to a customer in Georgia who drove 2,200 miles to pick it up; a bat-wing mower to a farmer from southern Kansas.
In the case of the $3,000 tub grinder, the Georgia farmer said he couldn’t touch a similar unit in his area for less than $7,000. They only made 4-5% margin on the tractor they sent to Pennsylvania because “it got a Case tractor out of our area.”
The Kansas farmer had just taken a used mower he purchased back to his local dealer because he believed the dealership had misrepresented the equipment. “In that case,” Mark explains, “I told him to come up and see what we had and if it wasn’t what I said it was, I promised to pay for the fuel to get him back home.
“He drove 700 miles, looked it over and said, ‘Mark, it’s not what you said it was. It’s better.’ We make it a point of not overselling our used machines. On a scale of one to 10, if we believe it’s a five, we’ll tell the customer it’s a four. Our reputation is more important than a few extra dollars we might make on a sale,” Mark says.
Stay Flexible, Be Honest
When it comes to used equipment Kent says his father has taught him to be flexible when selling and honest when taking in a trade. Mark adds he learned his lessons the hard way.
“Four years ago we had an auction. That night I was sick because of all of the money we left on the table. When I went back to trading the next week, I knew I had to be a lot tougher. I had to tell customers, ‘I know you want $1,500 for your machine, but last week that same machine only brought $200 at the auction.’ I told our guys we can absorb only so much of that and we have to relay that to the customers without telling them their stuff is junk. We’ll never insult a customer that way, but our customers are very intelligent. They understand when you’re shooting straight,” says Mark.
Practicing what he preaches about customer service, dealership owner, Mark Buchholz, in the bed of a customer’s pickup truck, took a break during his interview with Farm Equipment to help the customer load up an auger.
In early June, it was evident that Kennedy Implement was sitting on “a lot” of self-propelled mower-conditioners. “I think there are 19 of them out there, so we know we have to scale back,” Mark says. “That’s pretty huge for one little dealership in the middle of a drought. We also have 25 used balers and we haven’t had one call on them. It’s high and dry out there. We’re just not getting the moisture we had last year.”
To move them, Kent says, “We were hoping for a wet year, but it isn’t happening. We’re doing things like special interest rates to move them. If somebody comes in and offers us a fair price, we’ll swallow our pride and cut the margin we were looking for. Some of them might have to go to the bone pile. But we have to stay flexible. We can’t just say, ‘We want this much’ and sit back and wait until we get it.”
The dealership adjusts on the move, doing whatever it takes to move inventory regardless of the original plan.
Dealership vs. Brand
Mark Buchholz, owner of Kennedy Implement in Philip, S.D., has been known to challenge conventional wisdom from time to time. In talking about one of his dealership’s biggest challenges, he says as dealers are expected to cover a bigger area, they have to figure out how to make their technicians’ time more productive. “We’ll have to have more techs on the road, but how do we reduce their windshield time. It limits how much they can get done in any given day.”
How About “Dealership Alliances?”
“I know that the current thinking is big is better. But on the other side, when is big too big? I can’t tell you, but instead of just buying dealerships, I think we need to form dealer alliances.”
Buchholz’s thinking is if dealers could work out a system to utilize each other’s technicians rather than having them drive long distances for service calls, it could benefit everyone involved — especially the customer. “Instead of just buying people and hiring managers, maybe an alliance would be more of a viable option,” he says.
His idea is probably a stretch in this highly competitive industry, but outside the box thinking often leads to innovative solutions.
“Whatever we do, it should be aimed at making it easier to do business with dealers and not so much of a chore,” Buchholz adds.
When asked what sets Kennedy Implement apart from its competitors, Mark responds immediately. “First of all, I don’t think we’re unique. We just treat our customers the way we would like to be treated ourselves. We don’t talk customer service. We give customer service.”
In preparation for the interview with Farm Equipment, Mark says he asked a couple of people why they do business with the dealership or what sets Kennedy Implement apart from competing dealerships.
“The number one answer I got back is they like the fact that we’re locally owned and operated. They said if there’s a problem, they can come in, shut the door and talk it over. That door stays shut until the problem is resolved. In our rural area the people put a lot of importance on this. That’s probably what sets us apart more than anything,” Mark says.
With the growth of multi-store dealerships sweeping the industry, Mark doesn’t see that happening with Kennedy Implement, at least in the near term. “We’re not scared of competition. The thing is we have a good product at a fair price, and we pride ourselves in our service. We don’t sell Kennedy Implement. Kennedy Implement is only the name of the business. It’s the people inside that count and that’s what we’re striving to be on top with. We don’t need to be on top of the ladder, we just need to be on the ladder and moving forward.”
To further bolster his belief that it’s the dealership people not the brand that sells, Mark talks about selling tractors to two different customers. “Both guys said, ‘Mark I wish you were selling John Deere because that’s what I really want.’
“I told them John Deere has a good product, but do you think I would have bought a New Holland dealership if I wasn’t proud of it? One guy turned to his wife and said, ‘Here’s my dilemma. We know the service and the parts that Kennedy Implements gives. We know where Mark is, but I like John Deere.’ I said, ‘You got to make your decision, and I’m not going to pressure you one way or another. But if you want my parts and my service, I sell New Holland equipment.’”
Talking about customer service at Kennedy Implement, Kent Buchholz says, “Mark and I make the first sale, but it’s the guys in back that make the second and third sales.” Owner Mark Buchholz makes it clear that everything the dealership achieves is a joint effort: “If one fails, we all fail,” he says.
Asked about a succession plan, Mark say he’s only owned the dealership for two years and doesn’t have a formal succession plan, however, he’s been advised to do so. While his son joined the dealership only three years ago, he’s already demonstrating the drive and attitude about customer service that has made his father successful.
Mark says, now, it’s likely the business will stay in the Buchholz family.
Kent says he’s learned a lot in his short time in the farm equipment business. But maybe the most important lesson he’s learned from his father is to never be satisfied. After graduating from South Dakota Univ. with a triple major in ag business, ag economics and economics with a business specialization and a marketing minor, his goal was to be a banker. But life brought him back to Philip and the farm equipment business.
Kennedy Implement owner, Mark Buchholz, attributes much of the success the dealership has seen to the experience and dedication to service of his technicians: (l-r) Mike Miller, 35 years; Roger Williams, 39 years; and Darin Naescher, 10 years.
He says the toughest thing about his new career was helping his wife understand why he gets up at 5:00 AM and puts in at least 10 hours a day. He says it’s a “lifestyle” and banker’s hours aren’t part of an equipment dealer’s workday.
Another part of that lifestyle is to keep growing and not resting on your successes.
“I sold a four-wheel drive tractor and for us that’s a big machine. There was no time to celebrate. I got the contract signed and I was off to see another customer, so I didn’t dwell on it too much. It seems that if you start thinking about things like this you can become content. But I’ve learned already that the day you’re satisfied is the day you should get out. And if you ever quit learning you’re done.”
It appears that he’s learned much from his father’s experience and guidance. This bodes well for Kennedy Implement’s future.