Hydronics manufacturers navigate an uncertain future

The sky was falling in April and May. The outlook for the third and fourth quarters for the P-H-C industry looks like it will transition from horrible to merely bad



Editor’s note: This was a feature that I wrote for the heating startup issue of PHC News.

When the COVID-19 crisis began last March, a significant portion of the hydronic heating and HVAC market fell precipitously. A Chesapeake, Virginia, HVAC contractor told me in early April, “We are mainly residential, and our call volume has dropped 95%.”

Said Scott Butterfield, vice president strategic marketing and business development for Weil-McLain, “Several financial institutions have forecast a severe downturn for the U.S. in Q2, driven by significant increases in unemployment and severely reduced consumer spending as a result of the shelter-in-place response to COVID-19. Most of these forecasts show an upswing in economic activity during the back half of 2020 as some areas reopen and consumer spending rebounds. However, all of these forecasts predict that the U.S. economy will not reach the level of economic activity that we were at prior to the COVID-19 crisis until sometime after the end of 2020.”

Butterfield pointed out that the Federal Reserve has forecast that unemployment would still be above 9% at year end. On the plus side, though, he noted that the Fed has also forecast an upswing in economic activity during the back half of 2020.

The question on the mind of every businessperson, not just those in the industry, is how quickly the economy will revive in the third and fourth quarters of this year. What happens after federal assistance to individuals and businesses runs out? What if there’s a second spike in illnesses this fall?

A short-term drop?

There may be an economics lesson here from the 1918-1919 influenza pandemic. Thomas A. Garrett, assistant vice president and economist, Federal Reserve Bank of St. Louis, wrote a lengthy paper in November 2007 entitled, “Economic Effects of the 1918 Influenza Pandemic:

Implications for a Modern-day Pandemic.” Garrett’s research was prompted by the notion that another pandemic, most likely influenza, would inevitably take place.

Garrett discovered that there was extensive documentation on the disease itself, but precious little about the economic impact of the pandemic. So, Garrett scoured all the contemporaneous newspaper accounts that he could find on the topic.

“Most of the evidence indicates that the economic effects of the 1918 influenza pandemic were short-term,” Garrett wrote. “Many businesses, especially those in the service and entertainment industries, suffered double-digit losses in revenue. Other businesses that specialized in health care products experienced an increase in revenues. Some academic research suggests that the 1918 influenza pandemic caused a shortage of labor that resulted in higher wages (at least temporarily) for workers, though no reasonable argument can be made that this benefit outweighed the costs from the tremendous loss of life and overall economic activity.”

Heating Air-conditioning & Refrigeration Distributors International was not so sanguine in a webinar presented this spring entitled, “The Next Six Months: Scenario Planning for a Pandemic Economy,” which includes some frightening slides. Two of the slides, “Consumer Spending on Durable Goods & Wholesale Sales” and “Aggregate Contractor Hours & Implied Replacement Rate” show industry activity falling off a cliff in February and March. At the time of the webinar, HARDI noted that unemployment in the wholesale and retail trade was at 17.1% and construction was 16.6%.

Also worrying is HARDI’s forecast for the third and fourth quarters under three possible scenarios. Based on the best data available at the time, HARDI created statistical analyses for heating shipments if there was a second shutdown, a slow to moderate recovery or a moderate to fast recovery. All of them showed a significant sales decline, even the one for a moderate to fast recovery, which showed heating shipments off by nearly a third in the fourth quarter.

Emergencies can’t wait

As time has passed and the nation begins to haltingly reopen in June, industry marketers are cautiously optimistic because a heating or hot water emergency is an emergency, even if some nonessential remodeling or retrofit work is postponed.

“In the face of a pandemic such as COVID-19, hot water remains critical for sanitization and cleansing in homes as well as health care facilities such as doctors’ offices, nursing homes and hospitals,” said Carl Pinto Jr., senior director, marketing communications, Bradford White Corp. “It is also critical for the sanitization needs in other industries such as food processing, pharmaceuticals, travel and lodging, and more. More than 26,000 water heaters are installed every day in the United States. Nearly 90% of those installations are emergency replacements, and Bradford White is a significant part of the supply chain facilitating emergency installations.”

Lee J. Ensminger, national sales manager for Velocity Boiler Works, may be the most optimistic of the industry marketers that we contacted. “I believe that the recovery may be slower than we would like, but that we will return to near seasonal business levels as we head into the fall,” he said.

Also optimistic is Ann Woodard, director of marketing for Navien, who expects sales to be no worse than flat and perhaps even up slightly because of an existing sales backlog and long-term commercial projects pipeline.

All of the manufacturers we contacted emphasized that they have increased their communications with wholesalers and contractors to assure them that they can get equipment and repair parts. Early on in the COVID-19 crisis, factories and warehouses were closing to prevent transmission of the disease or because workers became ill.

Triangle Tube Marketing Manager Audrey Fish said her firm has emphasized communication about its supply chain to its distribution and rep partners. Triangle Tube assured them that it is able to meet their demands not only from delivery of product but also from a support standpoint.

Lochinvar has turned to Zoom meetings, online training sessions and podcasts, said Mike Lahti, vice president of sales, marketing and business development. “Over the past three months, our product management, sales and technical training teams conducted more than 100 online sessions with sales representatives, distributors, contractors and engineers,” Lahti said. “More than 3,000 guests were invited to attend these sessions, and we saw an overall 90% participation rate. This shows the need for online resources and training is more important than ever.”

“We have told our distributors that we are here to assist them through this,” said Velocity Boiler’s Ensminger. “That our inventory levels are good, and we do not anticipate any disruption in our ability to supply them equipment. Our distributors in turn our telling us that they are obviously seeing a slow-down in equipment sales at the current time, but they anticipate a surge in business as things open back up and the weather turns as contractors look to meet homeowner demands.”

As regions open up gradually and in different phases, the hydronics industry must ensure that it meets the needs of its customers in terms of delivering parts and equipment on time, said AERCO Product Solutions Manager Nery Hernandez. Businesses have been disrupted badly as it is and, “It falls on us to try and not contribute to that disruption as different sectors return to the newfound normalcy.”

Customer support is also top of mind at Navien with its emphasis on education, training, promotional support and assistance with projects. “Now more than ever, we need to increase our customer support and promotional efforts to maintain and increase sales,” said Woodard. “Our customers depend on local product and parts availability. Navien is working hard with wholesalers and distributors to ensure that the inventory levels are kept at the required levels. Navien has been investing in both human and physical assets. We continue hiring and expanding our sales force. Recently, Navien opened another distribution center on the East Coast to ensure that the boilers and their replacement parts are closer to where the East Coast customers are.”

Parts + resources

Butterfield said that Weil McLain distributors have told them that their contractor customers are getting back to servicing their customers, after adopting protective measures for service technicians and employees. To help that continue, Weil McLain is offering not just parts and equipment, but resources. The firm has identified and curated several important small business resources that are potentially valuable to them and provided links to them in the news section of its website under “Small Business Resources.” The links include resources on relevant Federal relief programs as well as relevant information for contractors and small businesses seeking to open and operate safely during the pandemic.

On the commercial side, in-person meetings with consulting engineers are virtually non-existent, said Hernandez. “Meetings have become increasingly more virtual. Consulting engineering firms are expected to limit office visits and enforce social distancing guidelines for the foreseeable future,” he noted. “This is the expected trend across the industry, not just with consulting engineers.”

“Our commercial sales dive into restaurants, hotels, schools and so on, so these facilities are either not open or are getting reduced wear,” noted Andrew Tran, marketing manager at Noritz America, “so the impact has yet to be seen. The engineers continue to spec what’s in the pipeline, and we will continue to work with what’s available.”

The view of Triangle Tube is that the commercial market does not appear to have been hit as hard as residential, Fish said, and the firm sees the commercial market coming back sooner. Triangle Tube’s commercial business is largely design build. Its rep agencies, Fish said, have gone to web-based sales and training in order to maintain their relationships with consulting engineers.

Training becomes virtual

Social distancing requirements ended in-person training for the foreseeable future. All of the manufacturers have moved to online or webinar-based training that is, in some cases, quite robust.

Bradford White has tried to replicate the look and feel of its hands-on training experiences to the web via live training broadcasts from its training center in Middleville, Michigan, Pinto said. Nearly 4,000 participants have joined the sessions as of mid-June.

“We have also increased the accessibility of our troubleshooting and installation tip information for all contractors that might work on our products, not just regular Bradford White customers registered in our ‘For The Pro’ program, Pinto explained. “Our Laars Pros have also been able to avail themselves of on-line training opportunities through the ‘Laars Academy Live,’ which consists of broadcasts from our Laars Heating Systems’ training facility in Rochester, New Hampshire. These broadcasts are a mix of both live and pre-recorded segments.”

Navien has switched all of its technical training to webinars, said National Training Manager David Hoskyn. “We have done many sales, technical product and system training webinars for consulting engineers, contractors, wholesalers and reps,” Hoskyn said. “The response was very positive, and we plan on continuing reaching out to customers remotely until the pandemic is under control and the travel restrictions are lifted. Not only are we doing webinars on a national level, our regional trainers are conducting more tailored online trainings for their territories. Our customers can view Navien webinars live and, since they are recorded, they can view all these webinars later at a time that is more convenient for them.”

Weil-McLain has launched an ongoing webinars series, “Weil-McLain Wednesdays,” which are webinars focused on residential and commercial training. The company has worked closely with its reps and distributors to provide the technical skills needed to install and maintain equipment, as well as application knowledge to ensure correct product selection. Attendance and engagement throughout the webinar series have remained strong, the company said, although it has noticed that attendance is starting to decline as contractors get back to work. The firm is evaluating ways to make this content available on-demand.

Lochinvar Commercial Product Manager Robert Wiseman pointed out that the company’s online training platform, Lochinvar U, offers training classes and videos, including real-time simulators and diagnostic tools. The boiler manufacturer’s training teams have established regular live training sessions that run Tuesdays and Thursdays every other week, and each show ends with a live Q&A with its technical experts. Recording of the training sessions, other training videos and online certifications are also available on the www.LochinvarU.com website.

“We have pivoted to virtual trainings and have started to do weekly trainings in response to the demand,” Tran said. “This has also spurred us to redo our training website in response to an influx of visitors to our website at training.noritz.com.”

Comparing residential with commercial

There are some differences between the residential and commercial markets. Ensminger noted that Velocity Boilers has seen a recent increase in commercial quoting. He believes that the economic impact of lost revenues will eventually impact the commercial market as budgets tighten, consequently delaying planned equipment replacement and upgrades and new construction projects.

Raypak Senior Marketing Manager Augusta Gohil noted that a lot of building managers had used the pause from the normal course of business to move forward with retrofit and improvement projects. But she also pointed out a source of business that nobody else had mentioned — retrofitting HVAC systems for advanced viral and bacterial control.

Commercial boiler sales tend to be driven by commercial construction, planned replacement and unplanned replacement, said Weil McLain’s Butterfield. His company believes that the longer-term outlook for commercial construction projects has remained stable, with some delays in starting projects and some projects already underway, especially in those markets most impacted by COVID-19. The firm has also seen some urgent orders as contractors are seeking to complete projects that are underway as quickly as possible.

“Residential business for boilers is primarily driven by replacement work,” said Laars Heating Systems Director of Marketing Chuck O’Donnell. “We expect this to decrease somewhat as homeowners opt for repairing units when possible vs. a full replacement. However, many units will be beyond their useful life and replacements will continue.

“On the commercial side of the business,” O’Donnell continued, “many new jobs have been placed on hold with construction schedules pushing out to later in the year or into next year. The expectation is that most of this business will eventually resume, [although] the timing as to when is still unclear.”

It’s Navien’s view that the typical 12-18 months sales cycle of commercial projects insulates them a bit from temporary downturns. Residential sales, on the other hand, have shorter sales cycles and can respond more quickly to social, economic and political events. “So far,” noted Woodard, “we have seen very little impact on our relationships with consulting engineers. We always go above and beyond while working with consulting engineers and they understand that we are here to support them in any way we can.” 

It’s the view of Triangle Tube that the commercial market does not appear to have been hit as hard as the residential market and that commercial work will come back sooner, Fish said.

Stars of the show

Customers have plenty to choose from in terms of wall-mounted or floor-mounted boilers, condensing or atmospherically fired, and with all kinds of user-friendly interfaces.

Triangle Tube has two brands, the Instinct and Prestige wall-hung condensing boilers, that are its current top sellers. It has also recently launched a combi version of the Instinct product line that it says is gaining market share. At the same time, the firm sees a demand for a floor standing product for both residential and commercial markets.

Velocity Boilers sees the market split between cast iron atmospheric and combi boilers, depending on the homeowner’s financial situation and rebate incentives within their market.

Navien is seeing the residential boiler market moving towards wall-hung condensing units vs. one-for-one floor-mounted replacements. The combi units are sometimes a preferred solution vs. a single boiler because wall-hung boilers save floor space and can deliver both space heating and domestic hot water.

Noritz sees wall-hung combi boilers to be the hottest product on the market right now because of the product’s versatility and high output in a small package.

For Raypak’s business, Gohil said that the industry continues to see a growth of condensing boilers in the residential and commercial market. She noted that government regulations for high-efficiency products is contributing to the growth of the condensing boiler market.

“In commercial applications, straight heating boilers are prevalent” said AERCO’s Hernandez. “To heat domestic water, engineers will either use separate hot water heaters or apply a combination system where the heating system provides boiler water to indirect-fired water heaters. Due to the size of the boilers in commercial heating, most of the units are floor mounted. Atmospheric boilers are seen in small commercial boilers; commercial sizes are mostly comprised of induced and forced-draft boilers. The condensing market in commercial heating is on an upward trend in the past decade as engineers continue to look for higher efficiency products.”

Due to the strong environmental push and drive toward greater energy efficiency, sustainable products will continue to be center stage, said Wiseman from Lochinvar. “Most customers will opt for condensing boilers, as they offer the highest efficiencies on the market,” he said. “Regarding wall- and floor-mount options, the choice is highly dependent on the respective mechanical room. … Today’s boilers are designed to be user-friendly, space-saving and much easier to install. Over the next few years, we will continue to see growth in energy efficiency, electric boilers and integrated technology that offers convenient control and monitoring.”

Better UI

Control systems and user interfaces have become friendlier as building owners and managers want better control over their buildings and as homeowners adopt smart home technology.

Triangle Tube has launched with a touch control interface that has a simple user setup that can also be custom configured for more complex applications. The company is also developing a standardized line of controls that will provide WiFi connectivity as well as cellular data technology.

Raypak has launched “Raymote,” an application available for desktops and smart devices for remotely monitoring a boiler. Raymote sends technicians real time service notifications of problems, suggested correct fixes, as well as a means to log those fixes. The app also broadcasts preventive maintenance reminders and offers historical data and performance reports. Technicians can adjust settings and monitor multiple sites.

Weil-McLain boiler control systems use a common software platform called Unity that integrates into smart home environments and commercial building management systems for all boilers between 70,000 Btuh and 3 million Btuh.

The firm has also launched a new Eco Tec line of residential, stainless-steel, fire-tube 95% AFUE condensing gas boilers, Butterfield said, in both heat-only and combi versions, ranging from 80,000 Btuh to 199,000 Btuh inputs.

“One of the innovative features is the touch screen display, which is text based, which means no codes to decipher,” Butterfield explained. “It includes an easy-to-use setup wizard with 10 preset applications, has a history log to provide quick access to view past operation, and features embedded advanced domestic hot water algorithms in the combi versions to help ensure homeowner comfort with no call-backs.”

At Noritz, the firm has seen a definite emphasis on the ability to integrate hydronic equipment into a smart home system, Tran said. Currently, Noritz boilers and controls don’t integrate with smart home systems, but the firm is working on it and hopes to have that capability available by this winter.

AERCO introduced its Edge Controller in 2018, and then extended it to its entire line of Benchmark Platinum boilers and Innovation water heaters in 2019. The Edge Controller makes startup and maintenance easier, and the Edge Mobile App enables full unit setup and control. The firm’s onAER Predictive Maintenance “health-of-system” monitoring gives technicians access to unit performance details, event history, and maintenance schedules.

Navien launched its NFB-C commercial boilers last October with a 7-inch color touch screen. According to the company, the display offers intuitive navigation, at-a-glance unit status, easy set up and configuration. Navien boiler controls offer features such as multiple zones with priorities, built-in freeze protections, warm weather shutdown, fully customizable OAT reset curves, history of alarms, notifications and energy usage. The firm’s control platforms now communicate with BMS systems and include Modbus, BACnet and LonWorks gateways in addition to 0-10VDC input/output signals. The NFB-C boilers are also compatible with the Wi-Fi-enabled NaviLink controller, allowing users to remotely access temperatures, usage data and receive diagnostic notifications including alarms and warnings.

Marketing and more marketing

Because of the hole the industry finds itself in because of the coronavirus, manufacturers and contractors will need to do more marketing than ever to try to get sales this fall to an even marginally acceptable level.

“Contractors should continue to market company capabilities so that homeowners and business owners know they are available for repair work and replacement work,” asserted O’Donnell from Laars. “Communicate the importance in keeping heating and hot water systems in working order. This may also be a good time to add flexible payment programs or financing options as part of quotation packages as there may be more customers experiencing financial hardships. Contractors should also remain cognizant of any COVID safety and CDC guidelines that still remain in effect and practice those recommendations when entering customer homes and businesses to protect themselves and make their customers feel safe.”

Butterfield noted that the National Oceanic and Atmospheric Administration has published a forecast for the 2020–21 heating season that would be slightly colder than an average season. All of Weil McLain’s pre-season activity has been geared to support this potential level of demand. The big unknown is how much the economic situation causes homeowners to defer replacements.

“Remain active in sales and marketing efforts,” advocated Fish. “Remain aggressive with preseason programs. Remain supportive with our clients.”

Said Ensminger, “While no one can predict what the fall will be like, especially this year, we need to be ready when the demand for equipment arrives, with on-hand inventory to supply our distributors and their contractors so that they are able to meet the needs within their market.”

What contractors should know

The message that manufacturers want to convey is that contractors will not be taken for granted.

Weil McLain wants its customers to know that it is making every effort to ensure that their businesses remain profitable during the COVID-19 crisis, as boilers will still need to be repaired or replaced during this upcoming heat season. The boiler manufacturer has curated links to resources and information for small businesses, including links to government assistance resources and links to resources, to assist contractors as they establish safe operations in this new environment, including links that address contractor in-home practices.

“We would like for our customers to know that we are an essential business during this pandemic and are here to support them,” said Hernandez. “Specifically, if they have projects that are related to COVID-19 recovery efforts, we will put those on top of our priority list and get the full attention of our organization.”

Summed up Pinto, “The role contractors play has always been essential when it comes to protecting public health by specifying and installing hot water systems. The importance of what they do has now climbed to the forefront, in the face of the COVID-19 pandemic, and we are extremely proud and appreciative of what they do. Bradford White and Laars are here to serve and support our contractor customers as they work on the frontlines in the battle against COVID-19.”

It’s going to be a difficult six months, but players in the industry have brought out all of the tools in their toolbox to help the industry make it through to the end of the year and hope for a more prosperous 2021.

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