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    Credit: NICK ORABOVIC

 

When suppliers announced they were raising the price of muriatic acid last fall, many retailers reluctantly followed suit.

“For the last couple of years I was charging my customers less than what we really should’ve been charging,” said Diane Carlson, owner of Blue Sky Pool Supply in Los Gatos, Calif., back in October. “But now I’m going to have to mark it up — I don’t have a choice.”

As with a number of commodities, chemical prices are subject to basic principles of supply and demand. If supplies fall or demand spikes, an increase in price often follows. In the above example, muriatic acid supplies were still plentiful, but a jump in demand (particularly from the oil industry) caused manufacturers to raise their prices by 15- to 20 percent.

On a broader scale, this recent episode has brought to the forefront ongoing questions about whether it’s advisable to boost retail prices when suppliers raise theirs. Is it better business to swallow the higher costs, or do chemicals fall into the category of products that consumers need regardless, and thus warrant premium rates?

Taking it a step further, any discussion of chemical prices must also address price-matching, and how retailers deal with customers who request a discount because, as they often claim, “I can get it for less down the street…or online.”

What goes up (and a few reasons why)

Retailers across the country report a steady rise in chemical prices over the past several years, with estimates ranging anywhere from 10 to 20 percent.

As expected, the most abundant and best-selling chemical — chlorine — is also subject to the most frequent and substantial price increases, and for a number of reasons.

First, raw materials will always impact pricing. For chlorine products, that means keeping a close eye on the markets for caustic soda and urea.

Plants that manufacture chlorine also churn out caustic soda in what is known as the chloralkali process. This process produces roughly the same amount of each product. Because they are made together, if the demand for one is greater than that of the other, the result is a change in pricing.

For example, some industries like paper and automotive rely heavily on caustic soda. When those markets fluctuate, they cause uneven demand. So prices tend to vary in order to keep production level.

In other words, a slowdown in automobile production could very well spur higher chlorine prices (because demand for caustic soda has fallen, less is being produced, and thus less chlorine is being made).

Urea, an organic compound, is used in the manufacture of cyanuric acid, which is in turn chlorinated to make dichlor and trichlor products.

But urea also is a key ingredient in fertilizers. As might be expected, the world’s largest producer — and exporter — of urea is China. So consider that a rapidly developing China will have more domestic consumption, which places greater demand on its urea production, thereby raising prices.

Fuel and shipping rates represent another root-cause of price fluctuations. Any significant rise in gas prices will necessarily affect the transport of goods, including chemicals. But there are other concerns.

In fall 2011, chlorine manufacturers warned that shipping rates could soar if U.S. railroad companies passed along billions of dollars in safety upgrades that had been mandated by the federal government. In fact, freight carriers have expressed support for a federal proposal that would in essence allow them to transfer much of the added cost of shipping hazardous materials to the manufacturers, according to the American Chemistry Council.

Chlorine makers may subsequently see their shipping rates climb as much as $1.14 billion a year, the council said.

The result could be substantially higher wholesale prices, or simply a shift in production to overseas facilities — neither of which is optimal for end users in the pool industry.

To absorb (or not to absorb)

At Fiesta Pools and Spas in Tulsa, Okla., assistant manager Nancy Thompson recently saw a $2 increase in the cost of a half-gallon bottle of biguanide sanitizer. The price had remained relatively unchanged over the past several years, she says, so the jump was noticeable.

As a general rule, Thompson chooses to absorb chemical price hikes.“It has to take a pretty healthy hit,” she explains.“I’d rather sell more at a slightly lesser [margin].”

But when percentage increases reach double digits, Fiesta makes modifications. Thompson says her store typically will meet customers in the middle of the price spectrum — if her costs rise by 10 percent, for example, Thompson could bump retail prices by 5 to 7 percent.

In addition, Fiesta usually waits until the end of the year — or at least until swim season is over — before altering its chemical prices.

“I’m a consumer, too,” she says, “and I wouldn’t want to get shafted like that. It’s just not fair when they’ve been spending a certain amount all year.”

Management at Townley Pool and Spa in Little Rock, Ark., similarly tries to hold the line on chemical pricing, says assistant manager Bobby Hill. But maintaining the store’s bottom line is equally important. And in the end, retail prices often will increase at a rate similar to their suppliers’, just not as fast.

“We have let it slide for a year, but it does affect us,” he explains. “So if they go up a certain percentage over two years, we’ll go up by that same percentage at the end of that two-year period. For the most part, it’s usually a small enough increase to where customers don’t really notice.”

By and large, retailers appear willing to absorb chemical price increases until they reach a certain point. After all, few, if any, brick-and-mortar pool stores can afford to sell even commodity-type products at anywhere close to cost.

“Unless they’re going to the big-boxes, customers are probably going to another pool and spa retailer — and nobody’s saying they’re willing to take a loss just to get their business,” says Chris Lombard, sales manager at Splash City in Sioux Falls, S.D.

“You have to base it on what your expenses are,” he adds. “We’ve gone times without raising them, but when you get hit with those increases you almost have to do it. It’s become kind of a necessary evil.”

To match (or not to match)

Jonathan Dale, like other retailers in his area, keeps an eye on the competition’s chemical pricing — springtime espionage, he calls it. The assistant manager at Dover Pools in South Dover, Del., is prepared to price-match with his fellow specialty retailers as well as big-boxes, provided it’s a comparable item.

“We don’t get undersold. If it’s apples to apples on a certain product, we’re going to match it,” Dale says. “So we do what we can, and our customers understand that. Even if it’s the Internet, if I can at least come close, say within a few dollars, people appreciate the effort.”

Other retailers say they are unwilling to consider meeting an Internet-found price because there’s no service attached to it.

Or, in many cases, the products simply aren’t comparable.

For Kathy Jurgens, keeping chemical prices low is just one way she stays competitive. Instead of haggling when customers question her pricing structure, the co-owner of WCI Pools and Spas in Ames, Iowa, takes the opportunity to sell her store’s differentiating services, such as complimentary water testing, and an 800 number that customers can call with chemistry questions.