Posted in: Industry News

“Project Expand” Reveals Viable Future

Posted on Thursday, December 1, 2011

By Sharon Spielman

Earlier this year, in its charter to constantly seek methods to provide its membership with viable opportunities to expand profitably, the Marketing Intelligence Committee (MIC) of the Powder Coating Institute (PCI) decided to select an outside, unbiased, yet industry knowledgeable source to investigate opportunities to expand powder coatings usage.

Chemark Consulting Group, Inc., Southern Pines, N.C., was selected to conduct the study, and the “Project Expand” report is the result. Phil Phillips, Ph.D., president and managing director, at Chemark, spoke with me about the study.

Phillips says that when considering the total global market for powder coatings within the global paints and coatings that are offered, studies show that powder is a 5 percent share. When architectural paints are removed from the equation—leaving product OEM and specialty products segments—powder coatings increase to an 8 percent share of market (SOM).

In the past three to four years, powder coatings in the United States has slowed and has actually decreased in both dollar and unit growth. In 2011, the growth increased someplace near the other coating systems at between 2.5 percent and 3.3 percent annualized average growth rate. This four-year picture is due to several factors, Phillips says, including:

• Greatly increased powder utilization efficiencies, resulting in decreased unit sales.

• Slightly lower coating film builds, resulting in decreased unit sales.

• Slowing economy, resulting in fewer new powder coating user installations.

• Increased raw material costs, resulting in inefficient cost pass-through.

• Customer consolidations, resulting in greater price leverage.

• Customers moving offshore, resulting in fewer customers.

• More than 85 percent of powder coatings offered lack differentiation.

• More than 40 percent open capacity , resulting in price/margins driven down.

In North America, when compared the Consumer Price Index (CPI) over the past 35 years, Phillips tells us that coatings in general had lost 38 percent of its collective value, while powder coatings had lost a whopping 70 percent of its value in this time period. (See Figure 1.)

In this same time period, the number of powder coating formulators in North America has increased from 17 in 1965 to more than 73 in 2010—a 330 percent increase (7.5 percent per year) with current average excess capacity of between 35 percent and 40 percent.

To further illustrate the powder coating situation, Phillips says to consider the following graphics depicting the delta in average powder coating selling price at the formulator level over 15 years vs. the price per pound necessary just to “keep up” with the CPI. At current powder coating pricing of $1.60/pound [Ed. Note: price at the time the article was written, November 2011] and considering the average powder coating price in 1995 of $2.75/pound (a loss of $1.15/pound), the price would have to be $5.50/pound today just to keep up with CPI. (See Figure 2.)

The “push back” against cost pass-through from the ultimate end user back through the retail segment, to the formulators, and forward from the feed stock and then from the raw material suppliers on to these same formulators has very successfully “squeezed” the formulators into submission.

According to Phillips, “The reason for this formulator inability to push back against the suppliers cost passthrough and the end-users push back resisting cost or profit repositioning moves is the fact that formulators have historically been poor value marketers and have caved due to the lack of respect and lack of sufficient differentiation by these two groups for what coatings and paint formulators bring to the party in value.” (See Figure 3.)

Powder coatings value drop can be best appreciated when one considers just the “top line” profitability—gross profit. The chart below shows several important elements of the powder coatings situation but one statistic is most graphic. Gross profits at the formulator level have fallen over the 15 years from a high in 1995 of 45 percent to 2010 at only 19 percent on average. (See Figure 4.)

This low profit condition is largely due to the lack of differentiation from one product/service offering to another and indicates, as a whole, the powder coating formulators are barely covering fixed costs with little to no capital left over for reinvestment.

This background discussion with Phillips represents the industry’s current condition for U.S. powder coating formulators and the reason why Project Expand was created— to research for viable opportunities where the membership could target potentially to recoup the following lost elements:

• Ability to differentiate in product/service

• Establish new leadership in return on investment (ROI)

• Create another powder coatings profitable growth curve

• Establish a value respect for powder coatings

Project Expand has researched the marketplace needs and has identified applications where powder coatings would have a compelling rationale advantage properly innovated and marketed.

Within the United States alone, Chemark has identified 21 opportunities valued at $4 billion U.S. dollars and segmented into three type categories:

Current = 11%

Adjacent = 17%

New = 72%

(See Figure 5.)

The average sizes of these applications are:

Current = $85 million

Adjacent = $175 million

New = $240 million

Project Expand will provide the member buyer with unique insight and recommended tactical approaches to achieve success in these 21 application/ markets. And, as a discipline to follow to avoid the historic pitfalls of value decline, this tactical recommendation includes a brief tutorial on value marketing.

For more information about the study and its pricing, visit and click on the Project Expand link. Or, contact Jennifer Egan, PCI program director at 832- 585 0770 or via email at

Sharon Spielman is editor of Powder Coated Tough magazine. She can be reached at 847-302-2648 or via email at