He sees alliance with buying groups as a key to ASA’s future.

Bill Kenny of Kenny Pipe & Supply (Nashville, TN). Photo by Jim Olsztynski.

“I’ve dodged it for years, but I’m doing it because I love the industry and have my sights set on what I want to work on,”Bill Kennysaid about his upcoming presidency of theAmerican Supply Association.

“I’m not a top-down person and that’s why I’ve been reluctant to take a leadership position,” the congenial business executive added. “I’m an in-the-trenches guy. When I go to a cocktail party I’m going to know the waiter better than anyone else there.”

Kenny, 56, hails from southern Louisiana and a family of entrepreneurs in oil field businesses. While in college he worked in a warehouse and after graduating with a degree in finance from Louisiana State University got a job with a supply business in Houston. The company ended up facing tough times and began negotiating a buyout with Westburne Supply. That deal didn’t work out, but Westburne was impressed enough by Kenny’s role in the negotiations to hire him as vice president of U.S. operations. He presided over 32 branches, most of which were not making money. “In five years of working with them, I learned a lot about trying to rebuild operations,” Kenny recalled.

Westburne was acquired by a French company in 1992, and Kenny was invited to work through the close after which his job would end with a severance package. Along the way his own entrepreneurial juices got stirred and in what he calls “a ridiculously leveraged buyout,” he ended up carving out five of the Westburne branches into Kenny Pipe & Supply. He selected some of the more profitable branches in locations that were in reasonable proximity. In the center was Nashville, which becameKenny Pipe & Supply(KPS) headquarters.

“It was as much a lifestyle decision as a business decision,” the dedicated family man told me. “I wanted to run a business where I could visit any location in a day and still get home to sleep in my own bed.”

Today, KPS operates eight plumbing wholesale branches in the Tennessee cities of Nashville, Clarksville, Jackson, Johnson City, Knoxville and Murfreesboro, as well as Decatur, AL, and Asheville, NC. An industrial PVF group operates out of Nashville, acting mainly as a broker in supplying projects throughout the country, usually in partnership with fellow Affiliated Distributors’ members in various localities. A separate division, Kenny & Co., operates upscale bath and tile showrooms in Nashville and Birmingham, AL.

Like almost everyone else in the industry, Kenny’s company was ravaged by the Great Recession. At a peak they had around 200 employees, now they’re down to 140, but profitable, paying their bills and building equity.

“That’s the way it will be for the foreseeable future,” Kenny said. “I believe this is not a typical recession but a generational change. Our generation doesn’t have the wherewithal anymore to become the spenders needed to pull the economy up to where it used to be. That looks to be a 10-20 year process when you look at the size of the bubble that burst and how long it will take to clean up. If you’re going to thrive, you’ll need to learn to thrive in this kind of economy.

“One of the healthy things about the downturn is it forced us to keep our best players and get rid of a lot of overhead fluff,” he added. “In boom times you don’t have to be real smart. This forces us to excel in order to gain business.”

KPS’s Nashville branch was under five feet of water after flooding last May. It was being rebuilt. Photo by Jim Olsztynski.

Weathering the storm

Besides the brutal economy, KPS was whiplashed by the downpours last May that dropped 15 inches of rain in two days and caused deadly flooding in Nashville and other parts of Tennessee. Five feet of water occupied KPS’s Nashville branch, which had to be substantially rebuilt, a process that was about two months away from completion during my visit in late July. The branch was operating in makeshift fashion while renovations were underway.

The deluge was especially cruel in its timing. A large shipment of inventory had arrived on a Friday that was supposed to be shipped out on Monday. Instead, the rains came that weekend and KPS lost $400,000 worth of material. “We salvaged about 25% of what was taken out of the building,” Kenny told me. “We individually tested each type of pipe and fitting that touched water before putting it back into inventory, and our guideline was to only put it back if we wouldn’t mind it being used in a grandchild’s home.”

Characteristically, Kenny found positive things to say even about the drenching. “A lot of good people from around the industry called and emailed us with offers of help. We had manufacturers reps working knee deep in real nasty waters helping us clean up. Even competitors like Ferguson came through offering to provide anything I needed. It made us feel good about the people we work with in this industry, so even the flood wasn’t all negative.  I had a lump in my throat one morning after opening an envelope from Eastern Industrial Supply and found a $1,000 check from their employees. I have never been on the receiving end of a donation.”

He does know what it’s like to give, however. Kenny believes that KPS exists for the purpose of honoring the Lord, as stated in his mission statement. His reward is in the ability to give to various ministries and also to missions abroad; in particular, Africa.

Kenny noted that the Nashville branch was an old facility in need of repair even before the flood. “Now it’s getting done, so even though it was painful in the short run, long-term it will be a better place to work.”

Rebuilding in general has created some sorely needed construction work in local markets, though Kenny informed me that it’s coming piecemeal since around 93% of the damage done to property in middle Tennessee was uninsured. “The music industry has been holding countless benefit concerts for local people, and that’s been heartwarming,” he said.

After President Kenny, the company is headed by Vice President/General Manager Eddie Agee, CFO Phil Venable, along with a strong managerial staff. These industry veterans will play an even larger role in running the business while Kenny takes considerable time away during his ASA presidency. They’ve been through it before. Kenny took a four-week 30th anniversary trip to Italy with his wife several years ago in which he kept only sporadic contact with the office. “We’ll be in good hands - maybe even in better shape without me around to mess things up,” he quipped.

Here’s how Bill Kenny responded to questions put to him about industry and ASA affairs.

Supply House Times: What are some of the key management decisions you made to stay viable as a business during this miserable recession?

Bill Kenny:We were fortunate that the economists we listen to forecast the downturn and we tightened up accordingly. I knew we were in trouble in the mid-2000s when the savings rate went negative and lenders were advertising 110% the value of a house. That doesn’t make sense.

The thing that could’ve really hurt us was credit, so in early ’08 we tightened our credit policies. As a result we have had no credit issues, even through the worst part of the downturn. Last year’s collection percentage was one of our best ever, though there was a lot less to collect, of course.

The reduction in business happened so fast it was astonishing. It all took place in just six months, spanning approximately the last quarter of 2008 and the first quarter of ’09. Business didn’t slow down, it just plain stopped. You either adjusted fast or didn’t survive.

We first threw overboard a lot of non-payroll expenses like owner incentives, company cars, perks and then bonuses. For a time we absorbed a lot of health care cost but eventually had to cut back. We own our buildings, and where necessary arbitrarily reduced rent to way below market levels. Thankfully, we were in a position to do that.

Eventually things got so bad we had to reduce payroll. I went branch to branch telling our managers that this is the new business level, and what we can afford in the way of payroll.

We got through it with our equity intact and our balance sheet actually strengthened.

The bulk of KPS business comes from eight plumbing supply houses within a day’s drive from Nashville. Photo courtesy of Kenny Pipe & Supply.

Q: What are some of the major differences in your business and the industry as a whole today compared with when you first started in 1992?

Kenny:To me the biggest part of any business is the people. Different generations have some different characteristics and you have to adapt to different ways of motivating them, but otherwise there’s not much difference.

Technology certainly is a lot different. I remember when fax machines first came out and the supply industry was panicking because all of a sudden customers could get quotes from 10 different distributors. We all thought that would be the death of the industry, but as it turned out the technology changes were beneficial. Now about 90% of our invoices go out via e-mail or fax.  The cost of mail has gotten pretty significant now, so this helps. Also, we have a fairly complex pricing model that we adapted from the grocery industry. It works very well for us and wouldn’t be possible without today’s technology.

Central distribution has been around for a long time, and we’re finally getting around to the CD concept by building a distribution center at our Murfreesboro location, which is near an Interstate. We’re going to a VMI setup with Charlotte Pipe and talking to other manufacturers about it. That works better if you have central distribution.

In today’s world you have to be adaptable, and a lot of times that means building alliances and partnerships, which we’re doing with our PVF division in partnering with key Affiliated Distributor vendors and distributors. We’ve developed some wonderful relationships with them.

Also, a lot of projects today are government funded with a huge push toward minority participation. We have found a great minority partner and are going after business together. This shows the business community that two guys from diverse backgrounds can work together, and I’m as excited about that as with the business opportunities.

Q: Do you see another wave of consolidation coming to the industry?

Kenny:Some things are driving for it, some against. There are still a lot of owners up in age who someday will want to retire, and many of them don’t do succession planning. If there’s no younger generation to take over, they have to sell their business.

On the other hand, as someone with a finance background, I don’t see many big roll-ups coming. Except for a select few, most roll-ups have crashed. You can’t substitute debt for equity and count on a 20% compound growth rate to make the formula work. It’s a bubble phenomenon.

I love what I’m doing and love the people I work with. I have a son, a daughter, and two sons-in-law working in our business, and our intent is to continue to the next generation. I worked on the acquisitions side and saw what happens to the owners and the people they worked with, and know it can get ugly, so I made a commitment not to sell out from under them.

But it takes an enormous amount of strategic planning to get to the new generation because our estate tax system - when it returns to the 55% tax position at the end of this year - is designed not to do it. It takes years of tax planning. We have transitioned 40% of company stock into trusts and continue to transition more.

You also have to train the next generation to be owners and run the business, which can be a bigger challenge than the money. Everybody needs to do what they do best. Somebody has to be the president, but it doesn’t necessarily have to be a family member.

A subsidiary, Kenny & Co., operates luxury bath and tile showrooms in Nashville, TN, and Birmingham, AL. Photo by Jim Olsztynski.

Q: How is ASA doing today with regard to membership, finances and so on?

Kenny:Membership got hurt during the downturn, but we’re beginning to see it climb back. I know several regionals have people joining again, and I think national’s membership will come back even before the economy does.

As for ASA finances, we’ve had to adjust just like every other business. We lost some money when the trade show ended, but we had only a small piece of that trade show and our main job was to drum up attendance. Now we can operate a version like we have done in the past but with control over the whole format. So it wasn’t that much of a loss. Revenues are just coming from a different model.

Manufacturers have really stepped up to support us, like Weldbend sponsoring the IPD Breakfast, and David Kohler addressing ASA and SWA. Our manufacturers have really proven to be good industry citizens.

The ASA office has given notice to move out of our Merchandise Mart location in downtown Chicago. Right now we have more space than we need, and this will allow us to be repositioned at reasonable cost somewhere in the suburbs, where most of the staff will be closer to where they live. It’s the right move. <

Q: Tell us some of the ways your business has benefited from ASA membership.

Kenny:We are the size of business that cannot afford to develop sophisticated training materials. Our training used to be as old school as it gets - a guy came aboard and worked in the warehouse for a few years of OJT. If the person training him was mediocre at his job, the new guy learned to duplicate the same bad habits. We have developed a new training system using ASA materials. The old system took a person five years to get into sales, and we now get it done in 15 months.

There is no place to go besides ASA for management and industry specific training. I can’t afford to develop it, but ASA makes it easily available.

Also, no distributor buys 100% of their material through their buying group, so ASA and regional conventions are the only times I get to see executives from a lot of manufacturers I wouldn’t otherwise have access to. They can’t afford to come to Nashville just to see me, but it’s efficient for them to go to the national convention to see me and a bunch of other distributors. ASA conventions have helped me tremendously with non-buying group vendors.

In the past I’ve never been very politically active, but with the things going on now in our country, we need to have a voice. ASA has done an excellent job in this regard with fly-ins and so on. It’s hard to get to see my local congressman here in town, but they coordinate it for me to see him in Washington.

Q: Allow me to play devil's advocate. Why should ASA bother with political action when ASA is part of NAW, which has considerable political clout and addresses almost all of the issues that concern ASA?

Kenny:The large manufacturers and distributors are working through NAW, and they do a great job, but how many people have been to see their congressmen via NAW? If you and I want to speak to our national elected officials, it’s not going to happen via NAW. ASA gets it done.

Q: What do you see as ASA's biggest challenges?

Kenny:ASA started as a group of regional associations that formed a national organization with the intent of delivering services through the regionals. That world has changed. Some regionals have ceased to exist and those that remain aren’t as equal in the services that they deliver. ASA has this awesome Educational Foundation, but the delivery system is not consistent in all areas of the country.

I am a past president of SWA and continue to enjoy and benefit from my relationship with them. They perform their mission well and I think they ought to keep doing it. But when it comes to delivering services nationwide to the membership, ASA needs to also connect with the buying groups. It would be a win-win because the buying groups don’t have what we have in the way of education, political action and training.

My main mission with ASA is to strengthen our links with the buying groups. This is not a one-term process. Joe Poehling started it and Frank Nisonger is continuing it. If ASA can get linked up with the buying groups, it will serve our mutual interests.

KPS’ PVF division has benefitted from supplying the booming ethanol industry, like this plant. Photo courtesy of Kenny Pipe & Supply.

Q: What are the obstacles?

Kenny:The buying groups are separate organizations serving different groups of wholesalers. The competition is obvious and there needs to be a common voice. ASA can be that voice and serve all groups. I know ASA has the talent to deliver the goods when it finally comes about.

ASA has to be tenacious about supplying leadership and working with the leaders of the buying groups. I think this is the formula for our long-term survival.

Q: Looking five years into the future, how will ASA be different than it is today?

Kenny:A big question is, we don’t know what the government rules will be that we play by. Assuming they’re not too much different, I hope that in four or five years from now we will not be scrambling to squeeze out dollars just to survive. Instead, our focus will be on delivering all the services that we do best.

Q: There has been some background buzz about ASA eventually merging with one or more other trade associations in the PHCP industry. What can you tell us about this?

Kenny:I think we’ve spent too much time trying to make it happen. If we quit trying to sell others on merging and let them come to the conclusion that it’s the right thing to do, then you won’t be able to stop it from happening.

Q: What's the best thing about being ASA president?

Kenny:It’s been neat to see people who have gone through the chairs coming back to serve the organization in various capacities just because they want to. They are giving their time and have valuable experience and wisdom to contribute.

Another exciting thing is that, starting with Mike Adelizzi, we have great staff people with good attitudes working on behalf of the ASA membership. If we get the formula right and get out of a survival mode, ASA can accomplish great things.

Joe Poehling took the president’s job with such grace. Jeff New was so excited and enthusiastic he made everyone root for him. I didn’t know Frank Nisonger at first, but have gotten to know him and am impressed with his leadership.

I’m not as polished as Joe, not as excited as Jeff, and more comfortable in the background than on the front page. I may not deliver a speech as well as the people who preceded me, but I hope my actions speak louder than words. I hope that my legacy will be to help ASA implement that strategic formula for long-term success.