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November 2001: Volume 43, Number 11

Part 2, Gettin’ Crafty with Superior Water’s Kratzer
by Carlos David Mogollón, WC&P Executive Editor

The following is a continuation of our interview with Superior Water Systems president David Kratzer…:

WC&P: Tell me a little bit about how Superior’s products have evolved?

Kratzer As far as going from metal tanks to…?

WC&P: That to switching to new technologies. At what point did you, say, introduce RO? And, even there, has there been an evolution, for instance, on what you would offer 10 years ago, 20 years ago vs. today? What are people more likely to see today? And what type of instrumentation might be involved?

Kratzer I’ll back up a little bit on this. We’ve talked about reverse osmosis and I was also involved in another company probably eight years ago. The name of the company is Challenger Water, which manufactured drinking water systems or ROs. And let’s say 10 years ago, I always felt your best combination was your whole house water conditioner and your drinking water system. That’s why I helped to form another company that is sort of a combination for the household that has become the most popular combination out there, which is he point-of-use, under-the-counter drinking water system and the whole house water conditioner. What we’ve seen basically is for a lot of people, and I feel it’s very important to push more and more the sanitization of the systems, of the water conditioner and the RO system and more monitors, as far as some of them will have test lights on the drinking water systems. We try to always tell dealers, “Have your scheduled maintenance calls to go and replace those filters.” Always go and take care and maintain any kind of filters for drinking water.

WC&P: How do you integrate sanitization of those systems into it?

Kratzer As far as to the dealers do you mean?

WC&P: Well, are you referencing what’s talked about in Europe with respect to sanitizing filters and conditioners from common microbiological growth…?

Kratzer Oh, you mean as it regenerates. Not yet. As far as that technology, I’m only using basically what we have here. They haven’t brought that really into the U.S. But at some point, I believe we will have some kind of system similar to that.

WC&P: What are some of your product names?

Kratzer We have the Ultimate V, that’s our drinking water system. We also have our exclusive, it’s called the Ultimate II water system, which is a valve that Superior designed and it’s our own proprietary valve.

WC&P: What type of systems are these?

Kratzer I’m sorry. The Ultimate V is a drinking water system -- an RO. That is manufactured by Clack. That is just the name we’ve given to that particular system. The Ultimate II is a water conditioner that has a proprietary valve put together by Fleck Controls for us.

WC&P: How long has that been on the market?

Kratzer That has been on the market about seven years. And those dealers have territories and they have the proprietary valve and the drinking water systems go along with that.

WC&P: You’re in the West and here, regardless of where you go, it’s generally a more arid environment than say the Midwest. Are there issues where people, for instance, my father-in-law who lives up in Phoenix and doesn’t want to promote water waste so he has an undercounter filtration system only.

Kratzer Right. We also offer those also. It’s basically a preference and the dealers that are out there, they have the option. Like I say, we support the dealers in what they want to sell and what their customers request. They can also sell a three-stage filter for under the sink. We’re explaining to them that people are more educated. The articles are out on how it works and what kind of water it produces, so if the dealer has tested for and has in his particular area, that’s how we kind of custom-build to them. We don’t go out and say you can also go out and sell this. That’s why every order that comes in is a different order because it’s tailored to that particular dealer.

WC&P: As a sort of segue from the idea of sort of western sensibilities about water, you’ve been in California your entire career so you’ve dealt with the whole issue of the banning of softeners and the banning of ROs in particular communities. And even the pressure on the industry that’s emerged since Proposition 65 can’t be underscored enough. Comment to me about that if you could?

Kratzer On the first thing, when it came to the banning in the city of L.A., I was instrumental in helping get a lot of the associations together to go to that meeting, boiler associations, apartment associations, etc. And at that time, I was more politically involved to try to help to stop the banning of the water conditioner.

WC&P: Were you in the Pacific Water Quality Association?

Kratzer Yes, this was all through the PWQA. I received the Mario L. Pomarres Award that they give out for a person who benefits the association in going out and building public relationships.

WC&P: What year did you get it?

Kratzer It’s been a while, 1994.

WC&P: Were you ever in the leadership with PWQA?

Kratzer No, I’m basically a small company. And running the day-to-day operations and having a smaller, younger family, it’s been a little tough to find the time.

WC&P: How about Proposition 65? How has it affected things?

Kratzer The focus of Prop. 65 being on water, I was definitely affected by that. I was involved in some of the legalities of Prop. 65. Since I went through that, I made sure that all products that we get, No. 1, are made in the USA and suppliers are made sure that they understand it’s going into the state of California and better meet all of Prop. 65’s requirements. Like I say, I manufacture nothing as far as pure water systems, so when I do buy the product that these people make (it has to meet these tighter restrictions). For instance, the faucets, that was the main issue that got publicity for our industry.

WC&P: How did you get involved in the legalities of the matter?

Kratzer I was named in the suit the state of California put out to about 15 or 20 manufacturers, which was due mainly to the faucets.

WC&P: None of which now involve lead-leaching brass faucets or parts, and I believe there was some question as to the testing methods used one of the reports released on the topic.

Kratzer That’s correct. But when I was buying in the state of California and it was under my assumption that the faucets that I would be getting would meet Prop. 65. I obviously found out different.

WC&P: Tough lesson to learn for a lot of people in the industry.

Kratzer Yes, very costly.

.

WC&P: You mentioned Challenger Water. How were you involved?

Kratzer I was one of the founders. I, myself, Bob Youngworth and Pat Wynn were. When Raytec, which was a manufacturer of ROs for a lot of companies, decided to move back East, we at that time decided to form Challenger Water in San Marcos, Calif.

WC&P: This was what year?

Kratzer I’m not positive, but it seems like about 10 years ago. At that particular time, what I intended to do was to start manufacturing my ROs at Superior Water Systems. The opportunity was that I had two people who had been in the manufacturing of ROs. I understood ROs and knew how to manufacture them, but I felt I already had a core of people that could run the manufacturing facility and help sell the ROs. At that point, the three of us formed a partnership and became stockholders in Challenger Water.

WC&P: Bob and Pat were with who prior to this?

Kratzer They were with Raytec.

WC&P: Who owns Challenger today?

Kratzer That I couldn’t tell you. I’m no longer involved with Challenger. About five years into it, I sold my portion back to Challenger Water.

WC&P: Are you still getting product for them or when did you go with Clack?

Kratzer No, it was right at that time I went with Clack. Clack was just coming out with their brand new manifold RO system. I’d talked to Rich Clack and mentioned that I was ready to sell back my portion of Challenger back to the company and that’s when we started using Clack’s RO on the West Coast.

WC&P: I was talking with Atlantic Filter’s Jamie Wakem for the last issue -- by the time this comes out, it will be November; so that means October -- and he was chatting about what he felt both dealers and smaller to mid-size distributor/assemblers needed to do in order to survive this new era for the industry. What he’d suggested was most important was forming partnerships with suppliers. How has that been reflected in the way you’ve seen your business evolve?

Kratzer In terms of uniting purchasing, is that what we’re speaking of?

WC&P: Well, in the same sense that you’re working with dealers to leverage their strengths among each other, how has your experience with your suppliers changed in the need to develop partnerships because of some of the consolidations that may have happened in supplier chains? How have you seen that reflected or not?

Kratzer I just feel that what’s happened, as far as that goes with some of my competition, we’ve been closer. We haven’t officially sat down and said at any point, “Let’s all buy together.” But we’re more or less helping one another if we need a different product or if we need product out the door. If we need to talk to our competition and like I say borrow whatever the product that we would need to help our dealer, that’s kind of uniting the independents on the West Coast. We haven’t gotten to that next step of forming like a buying commune yet.

WC&P: Is it headed that way?

Kratzer There is that possibility yes.

WC&P: Tell me about, if you could, about some of your commercial/industrial clients and what areas you’ve seen as niches for Superior Water.

Kratzer That would be quite a long list, but basically we have quite a few dealers that deal with restaurant chains. As each store opens up throughout the U.S., they’re in charge of making sure that system gets started up and spec in a certain size system that, once that store goes in, it goes out. We’ve established with some of the larger stores like Safeway stores that we put our water conditioners in them in the state of Arizona. We have specialties such as dishwasher companies that will go out and spec and put our systems in. We have car washes, especially these smaller car washes that you’ll see at Shell gas stations and the like.

WC&P: Linked to service stations?

Kratzer Exactly. A lot of that would be our equipment that we’ve sold through dealers that specialize in that niche. The boiler industry or boiler treatment for commercial operations continues to be very big. And that’s for manufacturers as well, as they grow too and boilers get larger, they need to expand and add on another softener as a polisher.

WC&P: What are some of those companies that you work with or indirectly through your dealer work with?

Kratzer On all those, I work directly with my dealers. The dealers are involved with that and I just supply them with equipment.

WC&P: Some of these companies would be, though, if you could name any of them or some of the particular industries?

Kratzer Like the car wash industry or restaurant industry?

WC&P: Manufacturers, let’s say?

Kratzer At this time, I don’t have any of those names with me.

WC&P: How do you see growth among any of those niches? Is one growing stronger than another? Do you see fluctuations in that?

Kratzer Yes, I see fluctuations. I’m sure that, like I say, the economy itself would basically dictate to some of these larger companies -- as far as, let’s say, the restaurant chains. But then these guys have basically projected out how many restaurants they’re going to build within a specified time. The economy isn’t going to affect them because they may have already allocated the money for those systems. So, on a commercial level and something like that, the economy isn’t really affecting that production. And also, the same would be true using the Safeways as an example. The carwashes, a lot of these guys are dealing with larger companies. I don’t want to say which, but I’ve already mentioned, for example, where a Shell may be attached to them. There’s a lot of other niches right now that are kind of escaping my mind in the commercial field.

WC&P: I understand that you either have or recently had a big contract with Rayne as well.

Kratzer That’s correct.

WC&P: Tell me about what’s happened with that particular contract and how competition for that contract reflects pressure on the industry competitively, if you could.

Kratzer First of all, I do not have that contract any longer. I had it approximately for two years and it ended in February of this year. That basically to Superior Water was a private label contract that Superior Water took its pride in its product and manufactured that for Rayne. Additionally, it helped them expand their business. Meanwhile, we still had people in-house taking care of all the Superior Water dealers.

WC&P: So, there’s a number of Rayne systems that are out there on the market that were manufactured by Superior Water?

Kratzer That’s correct.

WC&P: I don’t know if this is even feasible, but about how many systems has Superior put out that are in the marketplace?

Kratzer I wouldn’t be able to give you any figures on that.

WC&P: Kind of tough to enumerate, I would imagine.

Kratzer Yes. Like I say, I had one guy come in that had one of our systems for 25 years and said he wanted that same one. I had to tell him, “We no longer make that system, sir. But here’s the newest system from us.” It happens all the time. I’ll go someplace and meet someone that says, “I had one of your systems and we moved someplace and had to get another one.” There’s a lot of systems out there.

WC&P: You’d mentioned that you’re in the 11 western states, so I assume California is your strongest market?

Kratzer That’s correct.

WC&P: How does it kind of fall out from there?

Kratzer After California, we go into the Washington market, over to the Nevada market, to the Arizona market, the Hawaii market is a good market for me. That would basically be how I see it, just picking a few. Idaho’s an upcoming market for us. Colorado market is similar.

WC&P: There was one of the regional suppliers up in Phoenix, Premier, that just got bought by Watts Industries. Does that affect you in any way, positively or negatively? Does that create opportunities or challenges for you?

Kratzer I’d say that probably creates additional challenges for me because in the Arizona area, which is why it’s not a top priority, the competition is very high as far as manufacturers go.

WC&P: You’ve got B&R, you’ve got Premier, Water Resources International and Water Sciences Technologies… a number of companies.

Kratzer Yes, and they’re in the backyard. I’d almost have to set up another manufacturing plant in that area to be competitive.

WC&P: B&R is the company that had the Rayne contract and won it back as well.

Kratzer That’s correct.

WC&P: What did you learn from that? What was the key factor there?

Kratzer Like I said we offered good service and it came down to cost. We helped them build sales up from 100 units a month to 450 and had some supplier costs go up.

WC&P: And it’s more expensive to do business in California.

Kratzer True. I’m here because I’m born and raised in California and I love it. But if I could change the tax basis, I would in a minute. Bottom line, though, is the contract was very price sensitive.

WC&P: What do you see as far as other trends in the industry that affect your business whether it’s within WQA issues, regulatory issues, consumer issues -- we haven’t talked about Big Box retailers, for instance?

Kratzer All of the above issues that you brought forth are a concern. I could go into detail on each one. But I’m saying that on a daily basis, we try to look out and forecast these are the products we’re going to come up with. And we might get to that next level of getting ready to take that product to market and all of a sudden the marketplace changes or the rules and regulations change. So, you really have to adapt to the market and to the legislation.

WC&P: We’re going to have coming down fairly soon the whole issue of salt efficiency and softeners, which is a big challenge mostly for manufacturers in being able to meet the next level of salt efficiency requirements in California.

Kratzer We’ve been, as long as Superior has been around, validated, efficient units. I’m also a licensed plumbing contractor and a licensed C-55 contractor.

WC&P: C-55 being?

Kratzer Water conditioning contractor in the state of California. What I’ve always done is try to keep that efficiency. Have the settings, have the dealers aware of what the salt is -- in other words, try to get the best salt efficiency -- I’ve been trying to do that for I don’t know how many years.

WC&P: Do you have training with dealers?

Kratzer Most of that we do in conjunction with usually the resin people, the valve companies and also have our in-house staff available to answer service or technical questions that maybe a valve/resin combination couldn’t answer.

WC&P: Who do you work with as far as resin suppliers?

Kratzer At the present time, we work with Rohm & Haas and Sybron. Those are the two primary resin manufacturers that we’ve selected that give us excellent technical backing and service.

WC&P: Are there other suppliers that you’ve got a close relationship with?

Kratzer In the resin business?

WC&P: No, in general, people or companies that have partnered with you to help make Superior Water more successful.

Kratzer Definitely. I see a lot of the valve manufacturers. It’s like I come up with this program and it seems sometimes like they’ve copied it. All of a sudden, they’re out saying, “How can we help you?” I’ve basically seen the Osmonics/Autotrol people and Pentair/Fleck folks; I’ve seen more presence of them being out in the field asking what they can do to help “you.”

WC&P: Also, Clack has just this past year introduced it’s own valve, too.

Kratzer That’s correct. I was able to view it approximately two months ago.

WC&P: And they also just switched from Structural Fibers to Park International tanks as well.

Kratzer That’s correct. And I see that as a move as additional competition for the combination of Pentair which is Fleck and Structural Fibers.

WC&P: I don’t know if K&M is big in your specific markets.

Kratzer We’ve been a K&M distributor for probably 20 years, as far as all the different size tanks that they do make. So, basically, we handle all those products and carry a wide supply of parts for the valves, because we know if the dealer needs them… You know, one little screw up with a customer screaming at you for 20 minutes -- we want to be able to get everything out to the dealers so they can take care of the end-user and our customer is happy with the results of Superior Water.

WC&P: How do you handle Big Box retailers as competition? Is that even addressed in your world?

Kratzer No. The people we deal with, we don’t deal with anybody dealing with Big Box issues. But we continually reinforce to our dealers the value-adder warranty of the actual service that you can give to them, the technical support that you can give to them.

WC&P: Likewise, we’ve seen -- with the advent of the Internet over the past several years -- an increase in demands of consumers to be able to buy direct from suppliers. Does that enter into the picture for you at all?

Kratzer That’s something I’ve always looked at. As a matter of fact, we’re in the process right now of updating our Internet site. Before, it was only an information site. Now, we’ll have a little bit more about what Superior is about, some of the mission statements, maybe a few manuals or questions and answers they can go on and if this doesn’t work, universally what would so they can go on and try to fix it themselves. Or an information page where the customer can write in and say, “I have this kind of equipment. Can you help me?” And that would be forwarded to our dealer in that area.

WC&P: When do you plan to have a rollout on that website or is it evolving?

Kratzer No. I’ll get a preview on that within the week and it should be up in a month.

WC&P: So by the time people are able to read this interview, it will be up.

Kratzer That’s right.

WC&P: Who are some of the people who have helped you along the way in your company?

Kratzer Carl Evans is our operations manager and is basically in charge of bringing the product in and getting it back out the door. In technical support, we have Mike Ferran. He’s got probably 25 years experience. He used to be in the field, installer, service -- such that if someone calls in saying they need this XYZ part, he knows exactly what to do and how to troubleshoot it. And a lot of times, if you give people that extra niche vs. looking into a book, turn to page 5 and read it. They understand that you know what you’re talking about. You’ve been out there. You’ve done it. Like myself, I can talk to the engineers, I can talk to the plumbers because I’ve been out there in the field myself. I know why they need the service they do because I’ve been there. You need to have someone respond to your needs so you can take care of your customer. We have Sandy Junge -- she’s the office manager and also helps with dealer coordination. We have Karina Archila, who oversees, in Mexico, dealer coordination there and purchasing. We have Janice Kuwahara -- she is a dealer manager and also handles in the accounting. We have John Heyman -- also in technical support -- who has an additional 25 years experience. That’s basically the staff in front.

WC&P: It sounds a little like you’ve got a multicultural office as well.

Kratzer We definitely do.

WC&P: And I guess that would be reflective of the multicultural nature of California with Asians and Hispanics?

Kratzer That’s it exactly. We have about five really good dealers in Mexico. They’ve also been with me for probably 25 years plus. Karina has been in contact also with people in Bolivia and she handles a lot of the international sales for us also.

WC&P: In closing, where do you see Superior going in the future? What would you like it to be like in five to 10 years?

Kratzer I see it still with a solid dealer base, with that dealer base taking all of its dealers up to another level. In the future, those levels are going to be the knowledge, the service that they offer, how to taker care of the products and how to take care of the customer. Superior’s future is going to go back to Superior Water providing value to its customers. I think it will be the same concept in just bringing on other products to enhance that dealer.

WC&P: Finding new ways to maintain personal contact with your dealers as well as helping your dealers maintain positive personal contact with their customers.

Kratzer That’s correct.

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Next month in this column, read our interview with Kurt Gruett, who is Vice-President of Water-Right Inc. of Appleton, Wis.