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November 2001: Volume 43, Number 11

Executive Q&A: Gettin’ Crafty with Superior Water’s Kratzer
by Carlos David Mogollón, WC&P Executive Editor

Superior Water Systems, of Gardena, Calif., just celebrated its 51st year in business and launched a revamped “Dealer Advantage” program designed to reinforce and leverage its support of independent dealers it supplies in 11 Western states as well as Hawaii and Mexico.

Today, the list of dealers is about 150 strong, said Superior's president David Kratzer. Kratzer joined the company full-time in 1972 when his father, Frank Kratzer -- who started the business in 1950 -- was still president. An avid supporter of independents, the elder Kratzer died in 1990, a year after his son officially took over.

“He was one of the pioneers of this industry,” says the younger Kratzer, speaking with pride about the role his father played in developing the point-of-use/point-of-entry water treatment market. That was particularly true for portable exchange deionization and mobile systems for on-site regeneration.

“We had certified welders. We had a (brass) valve we put together. And we fabricated our own brine tanks out of metal… We also made large systems for hotels, hospitals, commercial operations and residential systems. At the time, each state had a Superior outlet -- Superior Las Vegas, Superior Utah, etc.”

With the transition toward fiberglass and polyethylene tanks in the '70s, Superior sold its manufacturing divisions and entered into supplier agreements with components suppliers, including proprietary conditioner valves and reverse osmosis (RO) systems.

In the early '90s, a Superior supplier, Raytec, pulled out of the West Coast, prompting Kratzer to join two of its former executives in founding Challenger Water. Five years later, though, he sold his interest and signed on with Clack Corp. to supply it with proprietary RO systems.

When Kratzer took over as president, he noted the company had $2.8-3 million in revenue, 25 employees, 100 dealers and a facility encompassing 6,000 square feet. Today, sales have increased by more than $1 million, there are half as many dealers and the facility has grown to 16,000 square feet.

He’s not content, however, to rest on his laurels, considering shifting sands as Big Box mass retailers, utilities and foreign multinationals attempted to slice up the market in recent years. This hasn’t only put the pinch on smaller manufacturer/assemblers but hurt morale among independent dealers they support and rely upon.

So, in the past two months, Superior has introduced two new products -- the Ultimate V RO and Ultimate II conditioner -- and enlisted the services of Arnold Ng of Insight Learning as its new business strategist to define specific strategies to reinvigorate and excite the Dealer Advantage program.

“We felt the need to do this because of all the consolidations and takeovers and large companies that are coming in and kind of leaving the independent stranded out there,” Kratzer said. “We felt that, with this marketing, we brought them in to make all these independents feel like they’re part of a larger group.”

Portraying the challenge as sort of a David vs. Goliath clash, Kratzer says it's the independent that can offer an added sense of personal care consumers are craving today.

He also comments on fallout from the economy and the Sept. 11 terrorist attacks, California’s Prop. 65 and tighter salt efficiency standards, the impact of losing a major contract, and the possibility of independent suppliers uniting to give themselves a more competitive edge.

Before we get to the interview, here are a few details on Superior Water Systems:

Superior Water Systems
13529 S. Normandie Ave.
Gardena, CA 90249
Tel: (310) 532-2855
Fax: (310) 532-2855
Email: superior@superh2o.com
Website: www.superh2o.com

Owner: David Kratzer, president
Employees: 15
Revenue: More than $4 million with 10-12 percent annual growth
Operations: Manufacturer/assembler of RO drinking water, multi-stage filtration and water conditioning systems for distribution in 11 Western states and Hawaii, Mexico and Asia; 60 percent residential, 30 percent commercial, 10 percent industrial; sales network includes 150 independent dealers; key suppliers -- Clack Corp., Pentair, Osmonics, K&M, Rohm and Haas and Sybron; brands include Ultimate V RO and Ultimate II softener

And now for the interview:

WC&P: Tell me a little bit about -- to offer the readers some background -- Superior Water, how it originated, some of the things that have occurred in its development to date and where you see it positioned currently in the marketplace.

Kratzer Superior Water Systems is a U.S.-based corporation. We’ve been in the city of Gardena for 50 years. It was founded by Frank Kratzer, my father, who also was one of the pioneers of this industry. And Superior Water basically has, as niches that we sell to, the residential market, the commercial market and the industrial market. We sell to the dealers on wholesale basis only. Any leads that come into us will be sent back out to the dealers. We also have a line of drinking water systems that we provide for the dealers.

WC&P: These being what specifically?

Kratzer The under-the-counter RO drinking water systems that we distribute for Clack Corp. We are an assembler also. We basically build custom label systems for the dealer. Each individual dealer is used to ordering a particular system that will work in their particular area.

WC&P: How far and wide is your market?

Kratzer In our market, we cover basically the 11 western states, we sell into Mexico, we sell into Hawaii and we have a few overseas markets that we sell into in Asia.

WC&P: Such as?

Kratzer Japan. And we just completed an order for Kuwait. Those are the basic export markets that we have at the present time.

WC&P: Real briefly, what was the order for Kuwait?

Kratzer Ironically, the order for Kuwait was a multimedia combination of sand filters that they were using for filtration for housing.

WC&P: So the company got started in what year?

Kratzer In 1950.

WC&P: Did you start out as a manufacturer/assembler or what?

Kratzer We started out as a manufacturer of tanks. We basically started out in manufacturing. We had certified welders. We welded our own metal tanks together. We had a valve that we put together, a brass valve. And we fabricated our own brine tanks out of metal. We also did that with commercial systems. Everything was made out of steel in the early days. We made large systems for hotels, hospitals, commercial systems and residential systems. At that time, each state had a Superior outlet, Superior Las Vegas, Superior Utah, different Superior outlets. That’s how we first started out.

WC&P: Tell me a little bit about the evolution to where you are now?

Kratzer Basically, in the evolution, we went from the steel tanks around a period of approximately, I believe, the 1970s when we were still making the steel tanks -- the fiberglass tanks were introduced into the market. At that point, we sold a division -- it was called Purotron -- and also California Manufacturing to Foremost McKesson/Sparkletts. And at that point, we were basically out of the manufacturing of the tanks.

WC&P: What exactly did Purotron make?

Kratzer It designed and had deionization. They came up with the design for the deionization mobile semitrucks with on-site regeneration and also bulk delivery of the two large 40-footers -- milk trucks I call them.

WC&P: You sold that business?

Kratzer Yes, in the ‘70s. Superior was still a corporation ongoing and, at that time, is when I believe it was that fiberglass tanks came onto the market and some of the first automatic valves came onto the market, Autotrol, Fleck andErie. At that point is when we decided to go to all fiberglass and went from the original OEM making everything ourselves into subcontracting out with all the different vendors to put together the Superior equipment. Everything was made out of basically fiberglass or tanks with the polyethylene brine tanks.

WC&P: So, you were basically still doing the assembly work yourselves?

Kratzer Yes, that’s correct.

WC&P: And Superior at it’s peak is or was how big?

Kratzer As far as sales?

WC&P: Sure, sales or units moved or…?

Kratzer Let’s talk about location size. We’ve grown from a 6,000-square-foot to a 16,000-square-foot operation. Sales in the peak would be about $4.2 million.

WC&P: Today?

Kratzer Today.

WC&P: Do you have your own dealers, are they independent dealers or how is your distribution network structured?

Kratzer Yes, most of or all of Superior Water’s dealers are now all independents that we supply with Superior equipment. We kind of use the David-and-Goliath theory in that we try to keep all the independents together so we can compete against the larger competitors such as the USFilters.

WC&P: I was talking to one of WC&P’s Technical Review Committee members and was told that Superior Water really was one of the inventors of softened water in America and one of the pioneers, particularly with portable exchange deionization sysems. Your dad’s name was mentioned as one of the old family names of the industry in California similar to the Dodds or Nate Weinhausen, etc. How has that changed? How do you view Superior today compared to the early days?

Kratzer How I felt about Superior being around as long as it has is I basically kind of kept the same philosophy that my dad passed on to me with this. My dad started the company with the vision that helping individual or independent businessmen compete out in the market with Superior product. And we basically are kind of committed to that same vision. It’s to unite as independents as far as we supply all the service we can, we supply our dealers with the newest products that are out there on the market, we offer technical support and pride in the products that we ship from Superior Water.

WC&P: When did you get involved with the business?

Kratzer I got involved in the business in approximately 1972.

WC&P: And what was going on then?

Kratzer That was kind of a turning point in that I had always been working in the industry part time when I was going to college. At that time, my dad was looking to retire and move down to San Diego. And that decision was made that I should come into the business and basically I’ve been running the business since that time.

WC&P: Is your dad still alive?

Kratzer No.

WC&P: When did he pass away?

Kratzer About 1990.

WC&P: In 1972, when you came on board, did you immediately start managing the business or was there a training period?

Kratzer No, there was definitely a training period for me. I basically started out, as far as the manufacturing side of it, in the back putting the equipment together, getting to know the equipment and kind of progressing the way up the ranks and going out into the field, installing equipment; working from that, the next level is actually going out in the field and selling equipment in the residential sector. And then, I advanced on to the commercial field, where we had a very good gentleman who is no longer with us, Jim Curl, who basically took me out and taught me the commercial business, how to size, how to service. I basically wanted to know every aspect of the business before I took total control.

WC&P: So when did you become president?

Kratzer I want to say 1989.

WC&P: At that time, how big was the company?

Kratzer The sales were I want to say $2.8-3million.

WC&P: And how many people?

Kratzer At that time, we also had some outside salesman, but I believe it was 25.

WC&P: And how many do you have today?

Kratzer 15

WC&P: How many dealers did you have at that time?

Kratzer I would say probably in the neighborhood of 100.

WC&P: And today?

Kratzer 150 active dealers. A lot of these dealers have been with me approximately 25 years.

WC&P: That’s great. I would imagine there’s a lot of family like atmosphere in having that close a relationship with your dealer base over so long a time.

Kratzer Oh, definitely. There definitely is. And that’s how we feel united. Like I say, a lot of these companies I’m dealing with, I’m now dealing with the second generation in a lot of their companies also -- a lot of our dealer companies.

WC&P: How do you see yourself in the market as far as your competitors?

Kratzer I don’t really gauge myself in the market by my competitors. I gauge myself on the dealers themselves. I do a constant, when I say monitoring or questioning, where I ask what we can do for the dealers so that I’m always in touch with the dealers. The competition is always out there. We’re friendly with them. I basically can’t run my business on what my competition is doing, but can basically keep my ears open as to what’s happening. Most of the time I get good feedback on what changes need to be made, though, from the dealers themselves.

WC&P: In looking at how you’re split up with residential, commercial and industrial, what sort of percentage split do you see in your business between those different areas?

Kratzer I would say it’s going to be probably 60, 40 and 10 -- and the 10 would be the industrial.

WC&P: How has that changed?

Kratzer I still see what stays strong, especially with the economy now, is commercial. With the residential, what we’ve had to do is even go beyond our normal spectrum of service to our dealers to keep them motivated to sell the residential equipment. We do that on a constant basis by contacting them, seeing where there at and what we can do for them to help them sell more equipment.

WC&P: Are there tips that you may have gotten from other trends you’ve seen in the industry in that effort that you may have employed or come up with on your own to motivate your dealers that you’d like to talk about?

Kratzer Basically, right now, I can’t give the whole plan away. But Superior did employ a new marketing company with which we’re in the middle of revamping our Dealer Advantage program, that’s brand new and that’s going to be introduced to the dealer here at the beginning of next year. So, we’ve also kind of passed that enthusiasm on to our dealers because this marketing company has brought to us a new life, a new excitement that the dealers can really also share. We get excited about a product or program and it kind of passes right along to them. Like I say, they’re re-fired back up to sell equipment into the public. So, we’re real excited about this new program.

WC&P: Without necessarily giving it away, what can you say about it -- the focus or why you felt the need to do this?

Kratzer We felt the need to do this because of all the consolidations and takeovers and large companies that are coming in and kind of leaving the independent stranded out there. We felt that, with this marketing, we brought them in to make all these independents that we sell to feel like they’re part of a large group. And that’s kind of how, as part of this marketing plan, we’re bringing all these dealers together.

WC&P: Somewhat as if they’re leveraging each others’ strengths even though they may not be in the same market?

Kratzer Exactly. Yes.

WC&P: What are some of the factors that you see that may have affected that market for them? You mentioned some big companies coming in and you mentioned some consolidations. Are there particular instances or other issues that come into play in how the POU/POE industry may have changed?

Kratzer The way I look at it, it still hasn’t changed. You still have to provide that service to the customer and take care and follow up on that customer. I feel like, for instance, with the utilities emerging and some of the large acquisitions, that is also showing me that there is a future out there as far as everybody eventually will have some kind of water treatment equipment in their home at some point in the future. And I still feel that that’s going to be a freedom of choice whether you’re going to buy from a utility company, a Culligan or an independent. I mean if that someone as an independent is in your backyard and you know that he’s going to take care of you as far as more of a personal touch rather than a computer printout, “Here’s your bill” and that’s it -- I feel that that’s still a value-adder.

WC&P: That personal touch being something that maybe hasn’t been given enough credit or has been taken for granted a bit?

Kratzer I’ve seen that happen to people that service me. We’re still human beings and we still have needs and wants. We want to maybe talk to the president of the company. We still need to have that personal contact. I mean the electronic age has basically -- aside from making us work harder and faster -- kind of taken away that personal touch also.

WC&P: How has your business grown in recent years, say in percentages, and which of those areas are faster growing for you?

Kratzer Well, overall, Superior Water is basically a conservative company.

WC&P: How so?

Kratzer I’m talking conservative as far as our growth rate. We’re taking our dealer base and growing that dealer base and, as we grow that dealer base, we’re picking up other dealers on the way up as this base is getting refocused and getting built back up. So, I look at it as far as our plans and what growth next year might be -- conservatively, I’d say probably 10-12 percent growth.

WC&P: Similarly, last year, that’s what you experienced?

Kratzer Yes.

WC&P: Do you see the economy affecting that, particularly in recent weeks as we’ve seen all the turmoil in New York, Washington, D.C., and Pennsylvania, and the fallout of the terrorist attacks exacerbating what was already a grim outlook?

Kratzer I definitely feel the effects of that. I think everybody has taken the time out to unite as Americans, and I feel that patriotism is back in the U.S. We’ve also taken the time out to grieve. The bottom line is it’s changed everybody’s values. What it’s done is kind of make a lot of people take a look at their priorities, set them aside and uniting with their families -- becoming closer with their families. So, I feel that we’ll still be there. We’ll still be a product that the people will buy. But right now, with employees, they’ve had time out to go to church, they’ve had time out to give blood -- and it’s brought us together as Superior Water employees to talk about what’s going on.

WC&P: Have you noticed anything prior to Sept. 11, or it may be too soon to see any impact currently, on how people are more or less willing to buy products based on tighter money or layoffs, etc.?

Kratzer I hadn’t noticed that. With Superior Water, it’s kind of been an up and down year and I’d have to say the economy definitely has an effect on that. But, I still feel like I say that these products -- drinking water and water conditioning systems -- it’ll still be a product that consumers still want to have.

WC&P: Is it a case of where some people might even say that effectively, considering the fear that people have expressed over the past couple weeks about bioterrorism and water supplies, you might think the importance of this equipment might be even more emphasized as to the need or the desire?

Kratzer Yes. When you say that, I had just made some calls and tried to do a little research myself and that was some questions that the dealers posed to me. What kind of products can we or do we have that could prevent that. So, I’m right now basically contacting the suppliers of the resins and the different medias out there and membrane manufacturers to see if there is anything that we would have that would help us protect us and our clients’ customers against any attack such as what you mentioned.

Click here to view a followup article:
  Part 2, Gettin’ Crafty with Superior Water’s Kratzer