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
www.powdercoating.org and click on the Project Expand
link. Or, contact Jennifer Egan, PCI program director at 832-
585 0770 or via email at jegan@powdercoating.org.
Sharon Spielman is editor of Powder Coated Tough magazine.
She can be reached at 847-302-2648 or via email at
sspielman@powdercoating.org.