Flash. Boom. Lights out.
It’s a scenario any homeowner is familiar with: A severe storm knocks out your power and the lights, appliances and electronics you rely upon are rendered useless.
These outage events are becoming increasingly common as U.S. electricity infrastructure ages and super storms become a more common occurrence.
In the past decade, a growing number of homeowners have been turning to portable and standby generators to power their homes during outages. This trend has benefitted some major manufacturers in the southeastern Wisconsin area.
Wauwatosa-based Briggs & Stratton Corp., Waukesha-based Generac Power Systems and Kohler-based Kohler Co. are three of the biggest players in the generator market, and all of them call this area home.
The companies are locked in competition to grab market share as the adoption of generators continues to escalate among homeowners nationwide.
Generator epicenter
So how did three of the world’s leading emergency generator manufacturers end up in southeastern Wisconsin?
It goes back to the European settlement in the area in the early 1900s and those immigrants’ industrial skills, said Todd Teske, chairman, president and chief executive officer of Briggs & Stratton.
“At one point in time, between Briggs, a company called Tecumseh and Kohler, just about all of the small engines in the country in the ’50s and the ’60s and even into the ’70s were all made in a 60-mile radius of Milwaukee,” he said.
Kohler began manufacturing generators in 1920, and claims to be the first company in the world to build and market modern generators.
“We’ve been providing generators that serve the home market almost from the beginning,” said Larry Bryce, president of Kohler Power Systems. “Ever since the beginning really it’s been used for the home as well as commercial and industrial use.”
Generac began manufacturing residential generators in the 1980s. Before the Generac home model came on the market, consumers were using small commercial or industrial sets that ran on diesel fuel, said Aaron Jagdfeld, president and chief executive officer of Generac.
“We actually invented this category,” Jagdfeld said. “Others might think they did.”
The popularity of home standby generators increased from the late ’80s through its peak when homeowners were preparing for potential outages during “Y2K” in 1999, he said.
“When Y2K happened, there was a lot of discussion, a lot of media press about what’s going to happen,” Jagdfeld said.
That was the point at which generators turned the corner and entered the mass market arena, he said. Home Depot, Lowe’s and other retailers began carrying the products.
Generac now has more than 70 percent of the home standby market share, Jagdfeld said.
“When you have a first mover position in a market like we did in the late ’80s and you’re able to build on it like we’ve been able to do … frankly, we do more than two times the volume of all our competitors combined,” he said.
Wisconsin’s workforce is mechanically inclined and has a strong work ethic, which has kept the companies here, Bryce said. The area is also in an ideal location, near central hubs like Chicago.
Kohler now counts itself as one of the top three generator manufacturers in the world, with thousands sold per year and a presence on every continent but Africa, Bryce said.
The company is focused on the industrial and home standby generator markets and has not entered the U.S. portable generator market. The company’s generators are manufactured at two Wisconsin facilities and several international locations.
Kohler Engines, a separate division, sells its products to portable generator manufacturers across the world.
The private company does not share its exact sales numbers or growth percentages. It has 30,000 employees globally, close to 7,000 of whom are in Wisconsin.
Kohler makes residential generator products as well as custom industrial and commercial generators. The company designs and builds power solutions for businesses at up to 3.5 megawatts, Bryce said.
Kohler has a remote monitoring function for its home generators, which can be linked to the owner’s smart phone.
Kohler Power Systems recently broke ground on a major expansion, which will add 100,000 square feet and about 300 employees to its manufacturing facility in the Town of Mosel in Sheboygan County. The plant is expected to begin full production in the first quarter of 2014.
In 2001, Briggs & Stratton acquired portable generator and pressure washer manufacturer Generac Portable Products Inc., a former Generac Power Systems subsidiary, from a private equity firm.
A non-compete agreement was in place from 1998 to 2007 that prevented Generac Power Systems from manufacturing pressure washers, portable generators and standby generators of 12.5 kilowatts or less.
At the same time, Briggs could not make generators larger than 20 kilowatts, Teske said. When the agreement expired in 2007, Generac re-entered the small generator market and Briggs began manufacturing larger generators.
Today, Briggs has about 6,000 employees worldwide, 1,200 of whom are in Wisconsin. Its portable generators are manufactured at its Chinese facility, while standby generators are assembled by a seasonally flexible workforce at the company’s Wauwatosa headquarters using globally sourced components.
Growth factors
Household penetration in standby generators is at about 3 percent, according to both Briggs and Generac.
“That segment has been growing pretty nicely over the last couple of years,” Teske said. “We’ve experienced strong, double-digit growth on a year-over-year basis the last few years.”
While that growth rate will be difficult to sustain, Briggs expects to see strong growth for the foreseeable future, he said.
The residential generator market has grown about 20 percent compounded annually over the last decade, Jagdfeld said. He anticipates Generac’s home standby business will grow at between 11 and 13 percent annually going forward.
The increasing interest of consumers in generators is driven by a rising number of power outages that the generator manufacturers blame on aging power grids.
“The power grid in the U.S. for a developed nation like ours is actually pretty rotten,” Jagdfeld said. “The utility companies are underinvesting in the grid.”
At the same time, a growing number of severe storms have been causing much-reported devastation across the county.
“We seem to be getting these 100-year storms every three to four years,” Jagdfeld said.
Bryce and Teske also credited the prevalence of major storms and the media coverage of them for driving more awareness of portable and standby generators over the last several years.
According to the U.S. Energy Information Association, energy consumption remained fairly steady from 1993 to 2009 because appliances and homes are becoming more energy efficient. But at the same time, energy facilities are undercapitalized or overused, resulting in increasing and more pronounced grid failures.
“What you’re seeing is an increasing awareness, and the trend is toward people wanting more reliable power,” Bryce said.
Some sources indicate the number of large power outages has been on the rise. According to Massoud Amin of the University of Minnesota, the number of outages impacting 50,000 people or more rose from 41 nationally between 1991 and 1995 to 92 between 2001 and 2005.
The duration of non-storm power outages has increased from 97 minutes in 2002 to 112 minutes in 2011, according to Ventyx.
“Our dependence and reliance on devices that use electricity are significantly higher,” said Vito Minneci, vice president of marketing at Kohler. “A power outage has gone from being a minor inconvenience to being very significant.”
Additionally, many baby boomers are choosing to “age in place,” remaining in their homes as their mobility and independence decreases. They need phones that work, medication that remains refrigerated and a home that is designed for their needs.
“They’re investing in their home in a way that makes it livable for them for the next 20 years,” Jagdfeld said. “Eighty percent of the buyers of these products are over age 50.”
Portable generators cost about $600 at minimum and usually run on diesel fuel. The user plugs extension cords into the portable generator to power the appliances he or she has chosen to run.
A home standby generator starts at about $2,000. Most homeowners purchase a model that’s between $4,000 and $6,000, not including the cost of installation, Teske said. The unit is hooked into a home’s electrical system so it automatically kicks in during a power outage.
“It’s much more of a considered purchase,” he said. “It’s something that is actually wired into your house, so there’s some installation cost that goes along with it.”
Standby generator prices have been coming down over the last few years, partly because of innovations that allow for a smaller generator to power a larger house, Teske said.
Briggs’ manufacturing operations are driven by demand, which has been higher as a result of increased visibility of its product in the last two years.
Several other factors have increased the need for reliable power, Bryce said. Businesses’ reliance on computers means they can’t work without power, and high-rise building windows often don’t open, which means there is no relief if the air conditioning cannot run, he said.
“I’m pretty bullish on the market,” Bryce said. “The need for good power is important – I think our lives depend on it. The demand for electricity has been increasing over time, and I don’t see that stopping.”
Wisconsin’s 2.3 million housing units spend $4.38 billion on energy each year, according to the U.S. Energy Information Association’s 2009 Residential Energy Consumption Survey.
Briggs has seen greater adoption of generators among consumers in the coastal areas of the United States because they are more prone to severe weather events, and the East Coast has a less reliable energy grid, Teske said.
“Initially what you see is a more significant demand in the areas in which the storm impacted but then you also see demand across the country,” he said.
That increased interest has helped Briggs grow its generator segment.
“It’s been double-digit growth for the past few years because of the storm activity,” said Greg Inwood, vice president of the standby power group at Briggs & Stratton. “We’ve made some expansion in engineering personnel and marketing personnel. We’ve made some expansion in the factory.”
Home generators
The residential generator market has moved away from diesel gas to natural gas power as the natural gas distribution network expands.
The natural gas-powered home standby generator market is relatively new, Inwood said. It developed in the late 1990s as the result of tropical storms’ impacts on power grids.
“The idea was built out of the inconvenience of filling a portable generator with gasoline, trying to take care of your home in a power outage,” Inwood said.
Briggs entered the home standby market in 2005, but did not begin developing products in a meaningful way until 2008 or 2009, following the end of the non-compete agreement with Generac, Teske said.
In 2011, Briggs formed a trademark license agreement with General Electric to manufacture and market GE brand generators in addition to its Briggs & Stratton brand.
Briggs focuses on power management to match generator output to the requirements of a homeowner, Inwood said.
“The standby generator, in the early days, was focused on talking to a homeowner and deciding which part of your house do you want to run in an outage?” he said. “Our differentiating point was focused around, ‘How do I get a smaller generator to be matched up to a larger home?” We do that through power management.”
The house is considered the base load for a generator, and the air conditioning, water heater and cooking appliances are considered high-wattage loads that need to be managed.
An information hub is connected to the user’s phone, which allows for remote management of the generator’s power load.
“What we can do is we can manage what comes on and what doesn’t come on when that generator starts up,” Teske said.
About 60 percent of Briggs’ business is in its engine division, while the rest is the products group, which includes pressure washers, portable generators and lawn and garden equipment.
The majority of Generac’s home standby products are manufactured in Whitewater. The company has about 3,300 employees and six Wisconsin facilities.
Jagdfeld has doubled the size of the company over the past two years and Generac is now approaching $1.5 billion in annual revenues.
Residential generators, including small portable generators, make up about 60 percent of Generac’s business, while the remainder is commercial and industrial.
This month, the company announced it has entered an agreement to acquire Baldor Electric Company’s generator products division, which is based in Oshkosh.
The acquisition will allow Generac to gain more market share in the industrial and commercial segment, where it has just 15 percent of the pie.
“What Baldor gives us is access to products that are much bigger than what we manufacture today,” Jagdfeld said. “It provides us with access to that end of the market that we didn’t have access to before.”
Baldor Generators manufactures portable, mobile, standby and prime power generators up to 2.5 MW at its locations across the country. Generac’s largest generator is currently about one-quarter the size, at 600 KW.
Differentiating the product
Every generator is made in essentially the same way: by joining an engine and an alternator. So how do Wisconsin’s generator makers differentiate themselves?
Portable and standby generators are like an insurance policy for electricity, Teske said. Briggs & Stratton offers piece of mind and continuity of lifestyle.
“We’re not just selling a product, we’re selling everything that goes around a product,” he said. “It really goes back to the whole customer experience.”
It’s important to have not only good sales, but an extensive service network, Bryce said. Kohler prides itself on having highly trained distributors, installers and service people in the field because of its long history in the industry.
“I think the competition is out there, there’s a lot of competition and it’s pretty fierce,” Bryce said. “If you don’t have a good brand name, it’s going to destroy you.”
Kohler, Briggs & Stratton, Generac, Baldor, Minneapolis-based Cummins Inc. and Peoria, Ill.-based Caterpillar Inc. are among the largest players in the generator world, and they’re all clustered in the Midwest.
“It’s a pretty nichey industry but yet there are so many major players right here in the U.S.,” Jagdfeld said. “There’s this high concentration of talent around this type of product and engine technology (in the Midwest), which is really important to our industry.”
Generac differentiates itself through its specialization in only generators, whereas companies like Kohler and Briggs have other segments, he said.
Briggs, Generac and Kohler are all after the millions of homeowners that haven’t installed standby generators. According to Generac, every 1 percent of penetration in the home standby market is $2 billion in opportunity.
“Every market you’re in today is competitive, especially with a market like this where there’s a lot of opportunity in the future with those growth rates,” Jagdfeld said. “You can’t sit around waiting for the weather to create your next opportunity.”
