Dan Fesler likes to tell of the time a new Home Depot store opened in town and John Menard sent his minions to put fliers on all the cars in its parking lot. The leaflets declared that his store, Menards, would beat the price on every grand opening special that The Home Depot was offering.

BRUISED BUT UNBOWED: Ron Dorn of Portage (Wis.) Lumber has spent decades competing with Menards. He says the key to surviving the Menards challenge is to focus on service, not low prices.
David Nevala / www.davidnevala.com / www.auroraselect.com BRUISED BUT UNBOWED: Ron Dorn of Portage (Wis.) Lumber has spent decades competing with Menards. He says the key to surviving the Menards challenge is to focus on service, not low prices.

"John Menard is very good at predatory pricing," says Fesler, CEO of St. Paul, Minn.-based Lampert Yards, whose 32 locations lie in the heart of Menards territory. Like that Home Depot, Fesler bears wounds from competing with the Midwestern big-box chain. "When they built the first Menards down the street from us, our business fell off 40 to 50% the next year," he says.

Other pro dealers have their own war stories about competing with John Menard, the richest man in Wisconsin and the founder and majority owner of the Eau Claire, Wis.-based chain that bears his name. "For the last year, John's had his henchmen show up on our contractors' doorsteps and promise them the world," complains a Wisconsin pro dealer, asking for anonymity out of fear of reprisals. In Indiana and Minnesota, others repeated the same story.

It was one thing when Menards focused on the retail customer, but it's quite another now that the big chain has turned its attention to contractors. That shift, combined with aggressive pricing and an ability to adjust to changing market conditions faster than other home improvement giants, makes Menards arguably dealers' most formidable competitor.

And Menards is a growing threat to independents. As of late May, it operated 261 stores in 13 states: Wisconsin, Minnesota, Illinois, Indiana, Ohio, Michigan, Iowa, Missouri, Nebraska, Kansas, Wyoming, and the Dakotas. In February, the company moved into southwest Ohio for the first time, opening a store in Oxford and telling local news outlets it was all about service–a departure from its usual mantra of price. Four other new stores will open in Kansas later this year. In the southern Chicago suburbs, a million-dollar incentive package from local officials will help Menards expand its Tinley Park store to create the 360,000-square-foot behemoth that company officials say will be the largest Menards in America.

In interviews with more than a dozen pro dealers and industry experts, one theme came through: Success won't come through winning–or even trying to win–a price war with Menards. "You can't get into a price war with Menards because you will lose," says Dan Anderson of Perkins Lumber, Willmar, Minn. "The pro dealer has to flaunt its expertise and level of service."

Same Name, Cheaper Specs

At the heart of the Menards challenge: John Menard's reputation as a bare-knuckled competitor who uses his company's collective buying power to pressure suppliers for low prices.

"Historically, they've also been very good at getting manufacturers to produce a name-brand product that looks the same, but they change the specs to cheapen it," says Quent Ondricek, vice president of Fort Wayne, Ind.-based Do it Best, a distributor co-op with scores of member dealers that have Menards in their town.

Then, emulating role model Sam Walton, John Menard spreads his gospel of "cheap" via an enviable marketing machine that consists primarily of twice-weekly newsprint flyers and a barrage of TV and radio spots. In February, Menards even spoiled the Super Bowl for some pro dealers by buying up all the local ad time for its earworm ads: "Save Big Money at Menards."

"We're never going to be able to afford a multi-million dollar advertising campaign, so we have to find different ways to keep our name in front of people," says Ron Dorn. His Portage (Wis.) Lumber has spent decades competing with the marketing monster headquartered 150 miles northwest.

To do that, Dorn and his brother, Dennis, have concentrated on what they do best, Ron says. That's "providing service with knowledgeable employees who have more than 400 years of combined experience."

Dorn's employees view themselves as "problem solvers," he says, making sales less about products and more about projects. To get that message out, the Dorns turned to social media and plan to install a new high-tech sign that will show videos demonstrating new products.

Still, Menards remains one tough competitor. "It plays by a different set of rules than the other big boxes," says Ron. And therein lies Menards' secret.

"The No. 1 reason Menards is a tougher competitor than The Home Depot or Lowe's is because of Menards' image that they're the cheapest," says Joe Collings, owner of Ferguson Lumber Corp., with three locations near Indianapolis and 141 years of corporate history. Collings also is chairman of the National Lumber and Building Material Dealers Association.

Menards' "Save Big Money" slogan, drummed home by countless ads, masks a very different reality, says Collings. Others agree.

In fact, "people [who buy at Menards] are just being ripped over the coals on things we could sell for two-thirds the Menards price and still make a 40% profit," says Anderson.

Selective Markup

That's because "John Menard is a master at variable pricing. No one is better," says Lampert's Fesler. If most lumberyards mark everything up 25%. Fesler says he knows Menards' average markup is 35%. "So you're paying for that somewhere," Fesler declares.

That "somewhere" is where the customer least expects it. "What John [Menard] does is he looks at the most popular item–and he has an uncanny ability to know which item that is–and he sells it at cost; say sheetrock," Fesler continues. "But every other item–the ones no one checks: the metal corners, tape and mud needed to complete the job–those will be double priced."

When Fesler priced gutter jobs against Menards, "his gutter would be $9 a foot. Ours was $15. But because his gutter spikes were 99 cents instead of 14 cents, overall, we'd be much lower-cost than Menards."