Well, happy new year everybody. Like the ancient Chinese curse, 2010 sure was “interesting times”. Here’s hoping 2011 will bring opportunities and fulfillment for all. I’d love to hear about peoples positive plans and outlook for the next 12 months.
I’m going to start with my “traditional” predictions for the coming year (twice makes it a tradition, right??!). For 2011 I’ll again go with 5 themes
1. Raw material price increases continuing. With the effect of the cumulative increases in additives I see end of year prices in input costs increases for producers in the 20% range. With oil over $90 and pushing up I see this a safe bet.
2. How much of this will be passed on? Common sense says all of it plus a backlog, but sense has not prevailed in the past. Make your own guesstimate. I see a minimum 10% price rise in the first quarter. How much of this will stick – probably 8% +/- if already incurred costs are to recovered. Its uphill from there. I believe a 20% increase has already been flagged by Kommerling.
3. Again colour demand will grow, both self-coloured, foiled and painted. Suppliers will push it to differentiate their offering and consumers will react to greater choice and increased visibility of the fitted product.
4. The Newbuild market will maintain its low trajectory with little change. However, growth in RMI will be apparent as people look to maintain or improve their existing dwellings rather than move or invest abroad. Conservatism (small C) in every sense will prevail.
5. The expected consolidation at the producer (extruder) level – all the gossip of 2010 – logically seems inevitable in 2011. However, logic is in short supply and may only come about subsequent to a major failure with burnt suppliers and customers. I’d give it at 70% chance of happening in the year.
Results for 2010
I would guess 4+ out of 5 isn’t bad even though the negative predictions won out.
Resin prices rose and rose all year long. I predicted falls as well as rises but what we got were more like pauses in the ongoing flow of news. The beginning to end price increase was more like 15% than 10% and the price of compound for producers was further impacted by constant and serious increases in additives such as TiO2, stabilisers, modifiers etc. That was bad enough but shortages in almost every element meant many producers were on allocated supplies and therefore with limited bargaining power.
Prediction 2 was absolutely correct, price increases imposed and then cannibalised by market grabbing exercises. Those same companies then are left without sufficient revenue to re-invest, refurbish tooling or equipment or give proper service. In the meantime their quality products deserving premium prices are sold at prices which imply the label “trash” and pull down the whole market. The added value in the supply chain from quality producer to quality fitter is thereby proportionately reduced. The consumer is the winner but doesn’t know it.
Prediction 3 – rising demand for colour – was right on the money.
No 4 – market contraction of 5 % – was close enough but for the wrong reasons. The weather played hell at both ends of the year and if it were not for that we might have seen a rise of perhaps 10% year on year as confidence seemed to grow as the year progressed.
No 5 -small increase in independent stockist numbers and a reduction in group-owned outlets – Got the first part right. The second part was mixed with some expansion, some contraction. The most significant move, certainly as far as their customers were concerned, was the purchase by Epwin group (Swish, Profile 22 etc.) of significant outlets and seeming to move further towards the Eurocell model.
Happy New Year everyone!
- Tony
I predict you will get 4.5 out of 5 again, Tony.
There is no sign of a let up in pressures on raw material prices. If anything it could get more intense as the BRIC economies, particularly Brazil, India and China, power ahead and suck up supplies at an ever faster rate. Commodities, food and oil and gas prices are already accelerating north. We have yet to see the effects of China’s investments in developing countries where in return for the investment or infrastructure project they have first refusal on raw materials, energy and commodities of all types. The energy guys are already discussing when the open market will start to stutter and close and we will be allocated raw materials whether we can pay or not.
There is big overcapacity in windows, doors, conservatories and roofline with window systems companies for example able to supply a demand two to three times the size of the current market. So, it is good that a company like Synseal has the money to buy, has said that it wants to buy, and has even appointed an M&A Director to accelerate acquisitions. But some of the obvious takeover targets are struggling with sky high valuations based on what they need to dig themselves out of the hole they are in so they can afford to hand over the keys and walk away. But the penalties for overpaying hang around a balance sheet for years like concrete boots as one of the takeover targets knows. But who wants to pay for concrete boots and will anyone break the stalemate?
I fully endorse your prediction for colour, Tony.
It is hard to dabble in colour and make progress which is why many window systems companies and trade fabricators have been reluctant to commit to it. But once a company does commit to colour and makes it easy for its customers to buy and sell it, colour sales surge as we found. Homeowners love the choice and possibilities and once an installer starts to offer it they sell a lot more colour, convert more sales and make a much better margin.
One prediction you omitted, I believe, is the industry being much more committed to defending PVC-U and its own interests. For 10 to 15 years the industry has reacted passively or not at all to attacks from well meaning but woolly minded environmental lobbyists with half the facts and half the story and timber’s shock troops telling lies about PVC-U and stretching the truth about timber.
The industry was complacent for too long believing that the material would sell itself and homeowners and specifiers would distinguish fact from fiction. But if no one stands up for PVC-U, the media and the public will believe what it hears and reads. And the proof has been in timber’s increasing share of a shrinking market and a falling share for PVC-U.
Over the last two years the industry has realised it has to defend itself to stop this trend. After the scrapping of the BPF’s separate Window Group Marketing Committee a number of leading figures in the industry are getting together to begin the fight back with a more sustained, proactive and industry wide campaign. Your industry needs you!
I couldn’t agree more Martin about the need to fight our corner. There is way too much trashing of fellow suppliers. I suppose competition is competition but there is not enough uniting against our aggressive common detractors. Lets hope we see the change you project.
Your predictions look plausible, Tony, but I’d add another on risk and the need for better protection. Having seen what damage financial and other, apparently once in a lifetime, disasters do to our economies and lives both businesses and consumers are far more sensitive to risk and its consequences.
Unable to move house without mortgages, consumers need more living space. Homeowners are adding space and improving their accommodation but they can’t afford to waste money and time on improvements that need more money and time to put right. Consumers are more educated and aware of their rights and they want to be better protected.
We will see a flight to safety in the home improvement market as homeowners respond to reliable installers who can offer them better protection and less risk with longer guarantees and consumer protection schemes like DGCOS that really protect.
The economy looks increasingly difficult to predict but it isn’t going to be helpful to growth whatever happens. So, whether we grow or not is down to each of us. And over the last two to three years the market has been dividing up into those who get it and grow, and those who don’t get marketing and don’t grow. One of the biggest decisions a firm makes is where it chooses to compete. But even in an economy in the doldrums many sectors are growing. Choose a sector in decline and it’s like running up the down escalator. But choose a growth sector and you have a head start on other firms.
Another big factor is continuity of direction. The effects of strategy and choosing where to compete take time to impact. People chop and change far too often before the effects have time to work their way through to market.
People pooh-poohed the idea of Network Veka at the start but after 10 years pioneering it has put down strong roots and is now an unqualified success. Apart from quality products and depth of support the core Network Veka benefit is the quality of the brand and the marketing that enables members to sell more easily, capture a bigger share of their market and sell at a better margin than their competitors. It was a brave leap of faith in marketing to begin with, but the return on their investment for our parent company Veka and Network Veka members has been phenomenal.
Colour will be one of the biggest trends in 2011. Homeowners love colour, and will buy it if it’s offered. Colour has been extremely popular with our customers. Most composite doors are white on the inside with colour outside, but demand for our new colour-both-sides door has been extremely strong. With new housing continuing to flag, and strong signs that people will be improving, not moving in the next few years, diversification will play an important role in helping companies grow, but so far only composite doors and bi-folds have emerged as major growth markets.
The other big trend that I think you’ve skipped is marketing. We have been committed to marketing to customers, and providing every advantage customers need to help them beat their local rivals to the sale from day one. We have our foot to the floor and it has driven our growth, and is driving our customers’ growth. Customers say we have a great range, quality and support and our 3 day door delivery service is a knockout. But unless you market strongly and continue to tell people who would know?
Yes and of course colour is a wonderful marketing opportunity.
I am amused every time I remember one of our competitors who proudly proclaimed that you could have any colour you want provided it was one of his 5 whites!
Who claimed they had 5 whites?
Tony
Good try but you want find anying on the Kestrel web site.
TC
Feb 17 2011 11:42AM Freefoam Plastics Ltd Cork Ireland http://www.freefoam.com Tel: (021) 496 6311 Google Kestrel and “white” and “colour” and “customers” and “want” 12 00:31:54 Multi Visit Organic Company Announcements
Hi Tony,
I didn’t mention Kestrel but now that you enticed me to look at their website I can see Dove White, Standard White, Brilliant White, Whitegrain and Cream.
Keep well.