Volume 43 Number 3
Both Sides of the Fence with Water Tec International’s Leigh DeGrave
Aim that rocket at the moon instead of Moscow and you'd have Leigh DeGrave's position as president of Water Tec International Inc., of Tucson, Ariz. His family business has skyrocketed with triple-digit growth since opening a warehouse in Guadalajara, Mexico, in 1998. Last fall, Water Tec moved into a new 25,000-square-foot building in Tucson between I-10 and I-19 and just off a rail spur an hour north of the border to take advantage of that growth.
The company, founded in 1967, began as a dealership run part-time by Leigh's father, Richard, who came from Wisconsin where he worked for a Lindsay -- now EcoWater -- dealership. Leigh, 34, joined after graduating from high school and moved his way up to president by 1991. In 1992, it began assembling its own product to expand on business in Arizona's neighboring state south of the border, Sonora, Mexico. It did a fair amount of distribution among maquiladoras -- U.S.-owned twin plants or factories in Mexico.
Still, it wasn't just business drawing Water Tec there. There also were family ties. In 1985, Richard DeGrave married his current wife, Lupita, a native of Guadalajara. They have lived there since 1996 and currently head the company's Mexican affiliate, Water Tec de Mexico. In January, the company began work on a sister office in Mexico City, which DeGrave expects will broaden its commercial/industrial market there and eventually in Central and South America. It works exclusively through a network of 200 dealers in Mexico, passing on attempts by pharmaceutical, bottled water and beverage companies, such as Coca-Cola, to buy direct.
Leigh's sister, Michelle, is the controller in Tucson. His wife, Jennifer, runs the local dealership, now independent as Water Tec of Tucson -- and growing a mere 25 percent a year, he jokes. Leigh oversees the wholesale manufacturing side of the business, which -- in U.S. sales -- distributes mostly in the West through a network of appliance channels that work directly with luxury home builders that contract out installation and service with independent dealers.
Today, Water Tec employs 50 people, split evenly between the wholesale and retail side of the business. That's up 30 percent from a year earlier. The company expects to break $12 million in 2001 -- with 80 percent coming from the wholesale side.
DeGrave notes that he's taken a bit of flack for being on "both sides of the fence" as an assembler/distributor and a retail dealership. He points out the dealership is exclusively in Tucson and, because it uses the same equipment as the larger company wholesales, it provides better quality control and shows his faith in the products.
The U.S. border with Mexico runs roughly 2,067 miles from Tijuana south of San Diego to Matamoros, south of Brownsville, Texas. In many areas -- because of immigration problems -- fences were built over the last 10 years. Just as 300 miles of fences can't stem the crush of people seeking a better life here, it also can't stem burgeoning opportunities for U.S. businesses there, particularly since NAFTA passed in 1993. Lessons will be learned, but DeGrave says they're worth it.
For details on Leigh DeGrave's views on these and other topics related to pressures on distributor/assemblers in the point-of-use/point-of-entry water treatment industry, read on:
Water Tec International, Inc.
Degrave: My dad basically worked at night. He had a full-time night job and then got the company going during the day for the first few years.
WC&P: Your dad is again?
Degrave: Richard DeGrave. He'd actually moved from Wisconsin and had worked for a Lindsay dealer there and decided he wanted to try doing it on his own. So, basically, it was a retail company that still exists today. The retail division has about 24 employees and runs about 15 trucks for doing field service for residential and commercial customers. And it would be about eight years ago that the manufacturing or wholesale portion of the company was started, primarily to feed or supply equipment into Mexico. And about four years ago, we actually opened our first stocking company-owned warehouse in Mexico, which was basically in the Guadalajara area. The Guadalajara office now operates out of a 20,000 square foot stocking warehouse...
WC&P: By "stocking" you mean it carries equipment for distribution...
Degrave: Yes, it's just strictly a warehouse. They don't do any manufacturing or assembly or anything like that there.
WC&P: That's all done here in Tucson.
Degrave: Manufacturing is all done here.
WC&P: Where was the company at in Wisconsin?
Degrave: My father actually worked for an independent dealer in Wisconsin, a Lindsay dealer.
WC&P: Which is now EcoWater?
Degrave: Yes, he came here in 1967.
WC&P: Why Arizona?
Degrave: The dealership was available.
WC&P: At that time, how many employees were here?
Degrave: It was just himself. It was part-time. And about 1985, that's when basically I became involved in the company.
WC&P: How old were you?
Degrave: Just out of high school. At that time, we probably had about five employees.
WC&P: Eight years ago, the company got into manufacturing -- what was the thought process there?
Degrave: Basically, just to be able to supply what we thought would be pretty good demand for equipment into Mexico.
WC&P: The kind of equipment being?
Degrave: Water conditioning, softeners, reverse osmosis, ultraviolet, residential and light commercial.
WC&P: How far into Mexico were you?
Degrave: Mostly, at that time, just in the [Mexican] state of Sonora.
WC&P: Were you working with maquiladoras or what?
Degrave: Doing some of that and then doing a lot of wholesale to independents. You know, dealers. Really never selling to end-users. So, it was primarily wholesale.
WC&P: Now, when you say independent dealerships, these are dealers in Mexico?
Degrave: Right, in Mexico.
WC&P: How broad a market is that, or how was it then and how has it developed, I should say?
Degrave: Eight years ago, it was basically just supplying things out of Tucson into Mexico just for dealers. And then, as I mentioned, four years ago, we opened a warehouse in Guadalajara.
WC&P: Guadalajara is pretty far away from Sonora.
Degrave: Yes, about a 16 hour drive from Tucson.
WC&P: How did we get all the way done there?
Degrave: Basically, we had interest expressed by companies that were handling products by asking them what they would like to see. And what they said they'd like to see is to have a facility that was fully stocked in their backyard.
WC&P: So you started expanding beyond Sonora when?
Degrave: Roughly about four years ago. I mean we were shipping deeper into Mexico, but I think the real growth obviously started taking off when we obviously did have a stocking warehouse.
WC&P: Your father lives in Guadalajara, does he not, with his wife Lupé?
Degrave: Correct, Lupita. They've been together now 15 years.
WC&P: How did you handle the challenges of the devaluation? That was in December 1994, I believe.
Degrave: At the time, it did have a big impact on our business -- there's no doubt about that. And I think big part of the reason we didn't feel quite as big of an impact was that we worked very closely with the dealers in Mexico in supplying them with credit and being pretty accommodating, knowing the situation they were in. I think later down the road that paid, obviously, some good dividends when the economy turned itself around.
WC&P: i.e., the importance of relationships and loyalty and how that is respected in the Latino culture, so to speak...
Degrave: Exactly, I think they have a good grasp of remembering when somebody supports them in the down times and, therefore, I think they've always supported us real well.
WC&P: Now, you're still operating as a dealership out of the Tucson area.
Degrave: That's correct.
WC&P: Are you the largest dealer in Tucson?
Degrave: Uh-huh, by far.
WC&P: Even bigger than the Culligan dealership?
Degrave: Oh, yeah.
WC&P: How do you have things split percentage-wise between business or dollars and what you've got going into Mexico vs. local retail?
Degrave: As far as the employee split, it's almost 50-50. The wholesale or manufacturing portion of the company as far as a dollar volume is probably close to four to five times the dollar amount retail does. It's much more volume.
WC&P: By 50/50, you mean you have basically 50 employees total?
WC&P: We always try to get some revenue figures that represent the company size as far as what people are comfortable stating. What would you indicate for your company?
Degrave: Well, retail is approximately $2 million in annual sales. And manufacturing/wholesale is about right in the neighborhood of about $8 million.
WC&P: Are you just doing business in Mexico on the wholesale side?
Degrave: No, we do work domestically, but our emphasis and where our growth and where our hardest effort goes is mainly in supporting our offices in Mexico.
WC&P: How many units do you make a year or how might you indicate that?
Degrave: I guess it kinds of depends on the terminology of units, because we're making UV, ROs, softeners...
WC&P: What did you start out with?
Degrave: Primarily just the commodity type of stuff, residential softeners and ROs. Now, we've evolved into having a full machine shop and doing custom orders and manufacturing commercial and light industrial systems.
WC&P: Talk to us a little bit about a couple of things, if you could. When you say custom orders, does that include doing private label equipment for dealers in Mexico?
Degrave: We do private label -- well, not really much that goes into Mexico. Most do have the Water Tec name on it. Domestically, we do a fair amount of private labeling for other companies.
WC&P: Like who? Can you name them?
Degrave: A lot of these appliance-type companies. Equipment that's distributed through the appliance networks. I'd rather not give away company names.
WC&P: Are you competing with EcoWater in that sense?
Degrave: Oh, sure, definitely.
WC&P: How far and wide?
Degrave: Mostly in the west. Our strength is in the western portion [of the country], unless it's something that we do make that's proprietary or is a unique-type product. But as far as the commodity water softeners and reverse osmosis units, our customer base is definitely in the West.
WC&P: Are these major chains that we're talking about?
WC&P: Department stores or sort of big hardware-type stores?
Degrave: No, not actually that channel. Not actually that channel. More it's like the high-end appliance-type dealers that maybe deal to like custom homebuilders.
WC&P: Oh, I see, kind of like the people who may work with the Anthem or Del Webb type developers.
Degrave: There you go.
WC&P: For those reading this, Anthem is a planned community north of Phoenix [see http://washingtonpost.com/wp-dyn/articles/A62086-2000Jun4.html].
Degrave: Maybe more of like the high-end homes, not tract homes and that, but a few steps above.
WC&P: By high-end then, I assume you mean luxury homes.
WC&P: We've got an article coming out for dealers on how to work with wealthier clients whose homes fit that category by former WQA president Jamie Wakem in our February issue.
Degrave: It's phenomenal the way houses are being built these days.
WC&P: We also had an article in about a year ago in the midst of the dot-com mania with all the money in software and computers and actors who were building homes up in Montana along the Bitterroot Range that were astronomical in size and cost. They're basically building a lodge.
Degrave: I was up at an Anthem site in Las Vegas and some of the homes up there you're curious who owns them. They'll tell you a pit boss owns it, which makes you think: "Wait a minute..."
WC&P: A pit boss at the stock exchange, you mean?
Degrave: No, at the casinos. Yeah, apparently, those guys make mid-six figures.
WC&P: Makes you wish you knew how to deal cards better.
WC&P: Those private labels aren't really going to dealers per se?
Degrave: No, but arrangements are actually made with local independent dealers as far as taking care of doing the installation and the ongoing service and preventive maintenance. The equipment is sold to an appliance dealership for distribution and then there's kind of an alliance with a local dealer to be able to do the rest.
WC&P: Do you have your own dealer network at all?
WC&P: How many dealers do you have? These are independent dealers too, I take it.
Degrave: Yes, we have about 20 that are about good core numbers. Otherwise, most of them are in Mexico. In Mexico, we have close to 200.
WC&P: How much of the Mexican market would you say you guys have?
Degrave: We're doing a pretty good job. I don't know what the percentage is. We're opening Mexico City right now.
WC&P: As of...?
Degrave: We have the building. They're in there literally setting up fixtures now.
WC&P: So, it will be up and running by March?
Degrave: Oh, yeah.
WC&P: What do you look for out of that Mexico City office? You're talking a huge metropolis.
Degrave: That's true. Probably more industrial-type work. And again, the thing that we do in Mexico is we will not sell to the end-user. It's all wholesale. Somebody comes to us requesting... you know, we've had some large businesses like Coca Cola and companies like that which have approached us and that is all directed toward the dealer. We don't sell to any end-users.
WC&P: Pass along the profits to the people who you're supporting.
WC&P: What type of work is being done with your systems when you talk about commercial industrial?
Degrave: Anywhere from pharmaceuticals, bottled water, hotels, restaurants, hospitality industry... The residential market hasn't developed to what it is in the States.
WC&P: Define it for me if you could?
Degrave: I would say they're maybe three to five years out maybe before the residential market is going to be developed like it is in the states.
WC&P: And that is with continuing growth apace of what it is now.
Degrave: Exactly, the market is primarily commercial/light industrial... a lot of filtration market vs. maybe softening.
WC&P: Or reverse osmosis.
Degrave: Yes. A lot of filtration market.
WC&P: Is that a cost issue, an equipment issue or local infrastructure issue?
Degrave: It's probably where they get the most bang for their buck, maybe to make the water a little clearer, appearance-wise a little better vs. maybe not worrying quite as much with the aesthetics as far as hardness and things like that.
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