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February 2002: Volume 44, Number 2

Part 2, An Exchange with DI Water’s Jim Hunt
by Carlos David Mogollón, WC&P Executive Editor

The following is a continuation of our interview with Jim Hunt, president of DI Water and managing partner in The Water Group, of Amesbury, Mass.:

WC&P: I would thought that eventually there would have been a boost, in a sense, to certain markets. This is trying to put a positive on a negative; and your perception of the atmosphere is probably better than mine. With the destruction of the World Trade Center and the number of buildings damaged and companies moving to New Jersey or other parts of New York City, I would have thought there would have been a bump up in the number of products that those companies are going to need. By that, I mean microelectronics, computers, servers, software, networks. At some point, I would think there’s going to be somewhat of a surge after the fact. What’s your feel for that?

Hunt: Might be. I heard some fantastic numbers about the hundreds of thousands of phone lines that had to be replaced.

WC&P: Fiber optics.

Hunt: Yes. Fiber optics in Manhattan. That was just mind boggling. I would suppose that all the transfer switches and other kinds of things like that which go with it would have to be purchased. And where they got those at the spur of the moment must have certainly depleted existing inventories.

WC&P: That could bode well for the microelectronics sectors.

Hunt: Right, at least for the telecommunications part of it.

WC&P: And now everybody’s looking to buy a cell phone, just in case. Therein lies increased business in microelectronics as well.

Hunt: Actually, when that happened, I was at the Eastern WQA show and there was a woman there who was thankful she had hers.

WC&P: Where was EWQA at this year?

Hunt: It was in Lancaster, Pa. I remember when my wife called me on my cell phone, I told her not to worry about me: “Terrorists aren’t going to go after rural Pennsylvania.” And, of course, one of the airplanes went down in a cornfield.

WC&P: Was that near Lancaster?

Hunt: It was about 70 miles away.

WC&P: Close enough, eh?

Hunt: In the scheme of things, yes. But, there was a woman there whose son was working in the World Trade Center. She was absolutely frantic and, quite fortunately, both she and her son had cell phones and they made contact very early in the day and her anxiety was resolved without too much waiting. They could do a marketing piece for cell phone sales.

WC&P: Definitely. So, how many dealers do you work with?

Hunt: Between all of the companies we represent, we probably have 150 dealers we do business. And we need 150 more, of course.

WC&P: Talk me through how the growth since 1998, when DI Water was started, ramped up -- to borrow a phrase from you? And when was The Water Group formed, by the way? At the same time?

Hunt: No, The Water Group was formed in 2000, when I changed my status as an employee of Duff to an independent factory representative. And I continued to represent them in the area until June of 2001, when I switched from representing Duff to R&M.

WC&P: What sort of growth did you see?

Hunt: In DI Water?

WC&P: Yes.

Hunt: For DI Water, we bought a fledgling little business. I think when we bought it, it was $10,000 dollars a month in revenue. We just bought the assets of it. It was called Commercial Water Systems. And at the height of things before this fall, we were up to $70,000 a month -- or sevenfold growth. But, we’re back down off of that about 20 percent.

WC&P: You say that between the two businesses, there’s 150 dealers; I assume the bulk of the dealers are kind of numbered out there.

Hunt: Oh, yes, The Water Group calls on the dealers on behalf of DI Water, R&M and Glegg. Of course, I’ve been calling on dealers in New England since 1987, so I’ve done business with most o the established companies at one time or another. Some of them are now franchise dealers and don’t do business with us… Actually, that’s not even true. Even franchise dealers -- Kinetico and Culligan dealers, etc. -- have need of some of our more esoteric commercial applications. They don’t buy residential water softeners from us; but if they have a difficult high purity water system to work on, they may call us for assistance on that.

WC&P: I was going to ask because before you’ve represented several different companies -- you moved from Kinetico and the others to R&M exclusively. It’s a small world in water treatment. How do we work out such things amicably?

Hunt: Well, I certainly try not to burn any bridges behind me and I don’t have anything bad to say about any of the companies I’ve worked with. Some of them have been bought and sold and changed, causing dislocation of people like myself. I didn’t really choose to leave Alamo. They did a consolidation and decided that they didn’t need a warehouse or staff in the Northeast, that they could do it out of Pennsylvania. I wasn’t about to move. I have to have an ocean nearby.

WC&P: We should probably point out to readers that you’re an avid sailor, so that’s why you have to have an ocean close to you.

Hunt: That’s right. I do this during the week so I can race sailboats on the weekends. That’s not big in Pennsylvania.

WC&P: No, they like fly fishing on secluded rural streams -- and hunting. You mentioned a few trends that are going on and how you were affected. While larger companies and corporations grabbed the big of headlines, there’s been a lot of things happening that to some might say were more exciting in the past few years among the medium-sized supplier/assembler/OEM distributors. Talk to me about that and some of the factors as you’ve seen them, if you could, please?

Hunt: It’s interesting you should bring it up. I think the reason I got started with DI Water was because we saw USFilter buying up all the DI providers in the area and controlling it -- having probably 90 percent market penetration. That’s good for them, but it’s not necessarily good for competition. And not all customers are happy with the same supplier. As so often is the case with the larger corporations, they have some really talented people working for them, but often those people are pretty far removed from the customers. And the customers have a hard time getting to somebody that can answer a question for them.

WC&P: Someone who can communicate effectively and know the answer to something that’s happening on the shop floor, for instance.

Hunt: Right. So, we saw this as a golden opportunity that the movement of acquisitions by larger corporations was creating the need for a small, more agile service-oriented type of company in the commercial/industrial market here in the Northeast. That’s the impetus that launched DI Water and it’s turned out to be the case. We can’t compete with USFilter on price. We can’t compete with them on the breadth of product offerings very well. But we sure can compete with them on service. And that’s how we do it. I think that’s the same message that we try to bring to the water treatment dealers that try to break into the commercial/industrial markets. Don’t go trying to underbid USFilter -- that’s a losing proposition.

WC&P: It’s like trying to underbid Wal-Mart.

Hunt: Right. Just out-service them. That’s a winning proposition.

WC&P: So, who are your primary competitors?

Hunt: Of course, in DI Water, the primary competitor is USFilter. To a smaller degree, Ionics, I suppose. Now, we have lots of competitors in selling residential equipment to dealers from R&M. All the national franchises, all the other OEMS, the local OEMs as well as the national ones like Alamo.

WC&P: How do you position yourselves there?

Hunt: That’s again a tougher thing. You have Duff and Tenergy and people with local representation and local facilities. If you need a softener today, you can almost get a softener today. Where for us, it’s a couple of days away shipping from Wisconsin. So, we have to overcome their local advantage by more value-added in terms of technical support. And, of course, partnering with these people wherever we can. And, then, we have the exclusive Technetics product line with the high-efficiency, counter-current water softener, which is pretty popular. We have some dealers who are doing a very fine job with that.

WC&P: Are there others beyond GE Glegg and R&M with whom you are pursuing relationships that might continue to improve your competitive edge in some of these areas?

Hunt: It’s getting hard to sign up any more manufacturers because most of them expect exclusivity in their core product line. So, there aren’t many products that we don’t have covered in our lineup with the people we have, although I’m sure there’s still more. We’ll find them. We’re more concentrating on finding more dealer partnerships, more dealers we can work with. We can help them grow their business because of our commercial/industrial expertise.

WC&P: I would assume that since you’ve got some history in the area, that name recognition and personal experience go far in the water treatment industry. That might be something else you’re able to leverage, yes?

Hunt: Correct.

WC&P: What’s your goal -- aside from another 150?

Hunt: Actually, when I say we need another 150, another 25 good dealers would be just fine. The nature of the way we’re competing with the value-added technical support sort of limits us from doing mass merchandising to water treatment dealers. It’s basically one-on-one relationships. So, we can’t just take on 150 new dealers without anything more than a commodity product. In the areas where we’re trying to compete, we really end up spending a lot of time with dealers on projects.

WC&P: Do you have any examples of that and how you balance out what you can do with what may be required?

Hunt: Sure. I have an example. A dealer-customer of ours, a Kinetico dealer, encountered a commercial/industrial customer with a unique problem. Believe it or not, it was a laundry that needed high purity water because they clean the uniforms of people that work in clean rooms in microelectronics engineering. So, they have to rinse these garments in the last cycle of the wash in very high quality DI water. It was terrific. Our dealer was in the same town as this laundry. They found them. They developed the relationship. They did the install, but we helped them with the design so that it would in fact produce 18 megohm water at up to 100 gallons a minute.

WC&P: That’s not a high purity story you hear every day.

Hunt: No. For them, it was a very challenging situation. For us, it was pretty much off the shelf. So, they bought some DI tanks and accessories from us. They bought the RO unit from their supplier, Kinetico. They did the piping and installation. They’re nearby, so they actually gave us the DI exchange tank business, which we pay an ongoing commission on after the fact. It was a good deal all the way around. Everybody benefited and the customer got a system that worked. That’s an important part of the equation.

WC&P: Always. Are there other trends in the industry that you see that you might want to comment on as far as how the mid-level supplier/distributor/service provider market has changed in recent years?

Hunt: It seems like there’s going to be -- or I guess we’re hopeful that there’s going to be more uniform regulation.

WC&P: You mean split the difference between, Iowa, Wisconsin, Massachusetts and California? Those are the four that are always mentioned in that regard.

Hunt: Right. Again, if California stands all by themselves with their standards, for instance, that means that products have to be specially manufactured to those standards. And they’re not, as such, mass produced.

WC&P: Which means additional cost.

Hunt: Right. The cost is higher. You have fewer people producing fewer units for that marketplace. Whereas, if you standardize -- if California, Iowa, Massachusetts and everyone else all had the same standards, then you have everybody competing for a bigger pie and that drives down the cost to the dealer and ultimately to the consumer. It makes this whole thing more palatable. We don’t think water treatment is the commodity that you can buy at a Big Box store. But, on the other hand, it doesn’t mean it has to be so expensive that only a small portion of the population can afford to do. Home water treatment -- we’d like to see it be professional and affordable at the same time, if that were possible. That’s one of the biggest issues facing us.

WC&P: Speaking of regulations, there’s also, over the next year, the second phase of the California brine efficiency rule and whether that’s going to raise the bar for manufacturers across the country, which I assume is part of what you’re referring to. But that’s going to be at the end of this year. On the first phase, we were told that the tighter efficiency could be just by modifying how softeners were run. In the second phase, it was said there might need to be new engineering into the softeners themselves. What is it now?

Hunt: Four thousand grains of hardness removal per pound of salt. Well, there certainly are a number of softeners on the market now that can meet those standards, not the majority of them. There’s probably half a dozen makes that can do that as they stand without any modification. But, of course, they probably represent only 15 percent of the total softener sales right now. I think the technology’s there. I think the OEMs can bite the bullet and come up with what it takes to do that. It does sort of, how do you say this, call into question the viability of all these little independent OEMs sort of doing it their way in their own little locality. Some of the engineering changes, manufacturing changes, etc., can only be justified with annual sales in the tens of thousands of units, not the 100s of units.

WC&P: That may be why R&M, for instance, is expanding eastward?

Hunt: It’s why it makes sense for somebody like R&M that services the independent, non-franchised market to do two things: 1) acquire the technology, which they did, to a product that has the exchange of approximately 4,000 grains per pound of salt, and 2) to expand nationally so that they have the volume to support that technology acquisition.

WC&P: That makes sense.

Hunt: I think you might see more of that. Of course, I don’t think it would be great for the national marketplace just to have the national franchise chains inherit all the business. I think there’s room and a need for the independent dealers that aren’t franchised. But they need a supplier that can compete on a national basis.

WC&P: What all organization’s are you a member of? I know WQA is one. I figure American Water Works Association is another…

Hunt: I’m an individual member of AWWA. My partner, or it might just be my company, is a member of ISPE, the International Society of Plumbing Engineers. There’s ASPE, the American Society of Professional Engineers. And the Eastern WQA.

WC&P: Which one do you guys get the most value out of?

Hunt: Well, obviously, WQA is very important in keeping up with the pulse of our residential water dealer customers. The issues that we confront in high purity systems are more often addressed in the professional engineering societies.

WC&P: The difference between a plumber and a dealer -- what do you see in the market there?

Hunt: The plumbers are primarily sold through plumbing supply houses. I hate to characterize a group, but essentially you could say that plumbers need kind of bulletproof equipment as far as the applications go. They install it and make sure it doesn’t leak and figure that the rest of the responsibility is up to somebody else.

WC&P: They view it more as an appliance?

Hunt: Right. They’re counting on their local wholesale supplier to recommend the proper piece of equipment that will require the least amount of service. There are a few plumbers that are seeing the benefits of having service accounts and doing follow-up service. But, by and large, that falls more into the purview of the professional water treatment dealers. They’re very good at maintaining service accounts. Plumbers, traditionally, haven’t been so good at that.

WC&P: Where do you see the market going? There’s been a lot of transition on points of sale and channels to market, etc. Where are we going?

Hunt: Jeez, if I knew the answer to that, I’d have an office someplace down on Wall Street and you’d be coming to see me.

WC&P: Who should I be investing in?

Hunt: I don’t know where the market’s going. The residential market, in spite of the current little uptick right now, doesn’t seem that exciting to me in terms of growth potential -- although there certainly is a good piece of ongoing business that can’t be ignored. The big growth sectors are commercial/industrial. That’s a huge sector. A lot of that is driven by wastewater, non-sanitary wastewater. I’m talking about what goes in the sewer…

WC&P: And other industrial discharges so they can get it down to where it can meet environmental standards, or just recycling loops so that they’re simply not using as much water and the water they are using is being employed as efficiently as possible…

Hunt: Correct. Both of those, recycling and discharge are two huge issues. And that’s like the Wild, Wild West of water treatment, I’ll tell you.

WC&P: WQA has been all over it for the past few years trying to figure out how best to incorporate it within the organization.

Hunt: Right. The technologies for that are evolving. Successful applications of technologies is evolving. In some cases, you might say successful applications yet to happen. It certainly is a lot more fraught with challenges and difficulties than water in the process side, which is a lot more controllable. Wastewater tends to be a moving target sometimes and, once you figure out how to treat it, it changes. It’s a tough environment, but it can be very, very lucrative if somebody is successful at it.

WC&P: You’re sitting up there in the New England area and this may be dated by the time this comes out but we just heard that Christine Whitman, the USEPA administrator, just approved the dredging of the Hudson to get rid of all the PCBs that were dumped there by GE. Is that going to create a lot of residential business possibly?

Hunt: I don’t know. Of course, any time water contamination makes the news, there seems to be a little uptick in interest and sales in water treatment -- even if the people whose water is being treated have no connection to the Hudson River or that water basin…

WC&P: Or sometimes even how valid the news is…

Hunt: Right. The amazing part of that news was that GE was saddled with a half a billion dollar cost and they didn’t expect it to significantly affect profits. How do you get there?

WC&P: Save those pennies. What about the regulatory environment overall? We’ve done a switch from a Democratic presidential administration that issued a number of “midnight” regulations as they related to environmental industry to a Republican one that, at least based on some of their initial moves, is expected to be a lot more lax and that favors business -- ours being an industry that’s often regulatory driven.

Hunt: As far as the business plan from a manufacturer or dealer perspective, although mostly from a manufacturer’s view, it’s really hard to gear up for the peaks or valleys of regulation. You really have to only approach the things that become mainstream regulations that are likely to be enforced from administration to administration. On a regulatory front, people get all excited and hot and bothered about new arsenic standards and things like that. From a real business perspective, it’s hard to get very excited about that ‘til long after the fact of its being enforced. In my lifetime, I’ve chased a number of regulatory driven industries. Solar comes to mind. When tax credits or the regs change, the industry collapsed. It’s hard to get real excited about regulatory driven business.

WC&P: I don’t know if I ever asked you about your early background, but where did you go to college?

Hunt: I went to Portland State University in Portland, Oregon. I did not get a degree from there. I got assigned to do my turn of service to the draft during the Vietnam War and moved to California for that. I studied nights at U.C. Berkeley and Sonoma State and completed my college courses but didn’t have residency, so I don’t have a degree to this day.

WC&P: How did you wind up getting into water treatment originally?

Hunt: At the time, I was doing real estate development. Prior to that, I’d done solar treatment equipment sales to dealers.

WC&P: These are for people to put on top of their houses to heat water, etc.?

Hunt: Right, mostly thermal solar.

WC&P: I take it we’re talking about the ‘70s.

Hunt: Right. The industry died and I was developing real estate. A large manufacturer rep calling on the plumbing supply house industry in New England had taken on the Bruner line and was getting nowhere with it. So, they remembered me from the solar days and knew that I’d done a good job setting up solar dealers and training them. They asked if I’d come and do the same thing for them in water treatment. I finally quit the real estate development and went to work for this rep who was a Bruner rep.

WC&P: Where did you do real estate development?

Hunt: In Maine actually.

WC&P: What sort of things were you doing?

Hunt: Basically, mostly what I was doing was buying up old summer camps that had gone out of business, clearing out the cabins, lodges and debris and putting in roads and house lots.

WC&P: Camp Hiawatha becomes Hiawatha Estates, so to speak.

Hunt: Right.

WC&P: After that?

Hunt: Well, I was approached by a manufacturer's rep for Bruner. Again, they were not having much luck and knew me as having done a good job of training solar dealers on that product line. So, I went to work for Emerson-Swan, a 100-person rep agency in Norwood, Mass. I covered the Northeast and headed up the water treatment division. That was from 1987-89. At the time, they were also owners and manufacturers of Well-Rite tanks and reverse osmosis systems, so the line ran from accumulator tanks to ROs. Well, Bruner was bought by Gould's Pumps, which fired all the reps. Then, I went to work for Marlo, which had ROs, softeners and filters, as well as being an independent rep for Kinetico. That was for two years. In 1991, I went to work for Portasoft, which was bought by Alamo in 1993. Alamo decided later that it didn't need a warehouse in Pennsylvania and so didn't need a rep in New England.

WC&P: That brings us to Duff again.

Hunt: And back to here.

###

Next month in this column, read our interview with Dean Spatz, who is founder and chairman of Osmonics Inc., of Minnetonka, Minn.