May 2002: Volume 44, Number 5
Part 2, Keeping an Eye on Erie Controls’ Kopacz
by Carlos David Mogollón, WC&P Executive Editor
The following is a continuation of our interview with Erie Water Treatment Controls executive vice president Mike Kopacz:
WC&P: Can you mention some of the big non-Aquion customers that Erie may have and where you hope to grow some things?
Kopacz: Domestically, our channels to market are primarily the OEMs, the original equipment manufacturers, etc.
WC&P: Describe what you mean when you say OEM? Do you mean this or that type of operation?
Kopacz: Wood Bros. and R&M Manufacturing, they’re called OEMs or large assemblers.
WC&P: R&M just opened a distribution center in Wisconsin to branch eastward.
Kopacz: Yes, they did. They’re a customer of ours. That’s the primary channel to market we’re targeting. We want to make sure we service the OEM market because they’ve got distribution to the marketplace. So, consequently, there are some large OEMs who we’ll call independent water professionals that will buy direct and not go through the OEMs. There are a few of those.
WC&P: I’m getting lost on some of the OEMs.
Kopacz: I know, that’s another sensitive one. You have to be pretty tactful, but I tell you -- that’s tough to explain sometimes. Our primary channel to market is through the original equipment manufacturer.
WC&P: Why don’t we say large assemblers or whole system manufacturers?
Kopacz: I would use large assemblers. You know that’s a tough one, though, because when I come in the industry and I look at it and someone says, “This guy’s an OEM.” I say, “No, he’s not. He’s an assembler.” So, in the component industry they use OEMs for the assemblers as well.
WC&P: It can be a tricky thing. And it might be attributable to ego at times, because if you’re a large assembler and you’re doing a lot of product, your perspective is you’re running an operation similar to an OEM that's a key component manufacturer and/or a whole system manufacturer.
Kopacz: I consider a true OEM to be an original equipment manufacturer that’s a vertically integrated company or somebody who puts a branded product together. And that’s because you can have master assemblers or assemblers, but the OEM is the guy that’s pretty much vertically integrated and he’s controlling the process from the point that he’s manufacturing the components and then screwing together complete systems or assembling final product. It’s a tough one to define, but our marketing channel for Erie is through the large assemblers.
WC&P: How widespread was Erie’s market at the point where it was acquired? Did they have a few customers all over the place? Did they have a strength in a particular area?
Kopacz: We had a strength in one particular geographical area and that was the Far West. We had what we’ll call dwindling distribution in other parts of the U.S. and, in some of the strong hard water markets, we also saw dwindling distribution. Our whole objective and goal was to rebuild that relationship within the primary markets.
WC&P: How do you do that? Do you go back to what may have been prior customers or do you go look for new ones?
Kopacz: You take the prior customers or existing customers and try to grow their business with Erie. And you also look for distribution in unserved markets.
WC&P: By unserved markets, you’re talking certain niches?
Kopacz: Certain niches or take the Midwest as a hard water market or Florida as a primary market, you’ve got to go in and take a look at those people that have excellent distribution in that market and resell the company. That’s been our whole goal through the last year and a half, to resell the benefits of Erie and the products that they offer; that they’re under new management with the objective to not only produce and distribute high quality products, but also high quality service as well.
WC&P: Prior to acquiring Erie, on the RainSoft side, who were they sourcing valves through?
Kopacz: RainSoft has their products manufactured to their specification.
WC&P: It can safely be assumed that it was not Erie?
Kopacz: No, it was not.
WC&P: How have the RainSoft people, and its dealers themselves on the grassroots level, embraced Erie? I assume it’s a market that Erie would want to approach. How have they responded to the acquisition?
Kopacz: They’ve accepted it very well. Our feedback is they’re excited by the fact that Erie is now part of Aquion and that there are some advantages or synergies that may benefit the RainSoft side of the business; and also that our strategy to keep the businesses separate was well received by them as well.
WC&P: What about with CWT? Are there some new product categories that Erie could be looking at getting into and are you investigating that?
Kopacz: Well, there’s very little synergy with CWT at this time. There’s some but not a lot. The synergy comes in leveraging distribution, whereby they may have customers that can cross-pollinate into our products or distribute our products internationally and maybe domestically. We also look at leveraging those distributions for the Erie side where also CWT may have some opportunities for those same customers.
WC&P: But CWT if they were going to make a new venturi injector for ozone dosing, they would do that themselves?
Kopacz: From a product perspective, they’re two separate distinct product offerings. Where the synergy would come would be in the distribution.
WC&P: OK. Now, in the context of how the acquisition fits into the big picture, we’d talked previously about shifts in the industry and whether companies needed to become both horizontally and vertically integrated because of some of the pressures on the industry, price pressures, consolidation pressures, channels of distribution pressures as well as sourcing pressures for those assemblers that we talked about -- the mid-level assemblers. Talk to me a little bit about some of the theoretical ways in which Aquion approached that in its acquisition of Erie.
Kopacz: Repeat the question again.
WC&P: I mean, in terms of all of the different market pressures that are coming to bear in general on the industry itself, what sort of philosophy do you and does Aquion come from in that acquisition of Erie and where it looks forward from this in terms of basically one thing. That is channels of distribution and sourcing product.
Kopacz: We’ll take it from channels of distribution. In the Aquion family, RainSoft is the systems supplier to the market. And Erie is a component supplier to the market. They have different channels of distribution. And they’re pretty pristine and pretty defined. So, where we can get synergies is commonality of components -- where that falls into play -- or commonality of vendors supplying us. Although the components would be different, with the vendors, we could leverage quantity discounts and quantity purchases from that company. Or with the molder, we could leverage that captive molder in giving us higher quality, lower priced components whereby we’re consolidating purchases. But from a channel of distribution point, they are distinct different channels of distribution. There’s very little leverage there. However, there are some advantages on the RainSoft side where we might be able to supply or sell to them, because they would be a customer of ours as well -- filling some small niche of products they may need. But for all of the major components and major channels of distribution, those are going to be pristine. Erie’s going to have its channels to market being the large distributors and RainSoft is going to have branded dealers. It’s pretty defined and pretty segregated.
WC&P: You were very sensitive when I first approached you right after the acquisition because I was kind of looking at this as a trend in terms of different companies being acquired. And, at that time, it seemed as if there was somewhat a move to kind of bring different products in-house or consolidation among that mid-level assembler going on.
Kopacz: Yes, there was a lot going on.
WC&P: I think Alamo had just been purchased, for instance. There seemed to be -- and the hints I was getting then -- some pressure on that mid-level guy and some question over how they were going to continue to source product if you had big companies buying up all the different product or component lines, effectively putting some of these companies of being in a position of either theoretically or literally buying from their competitors. How did you look at that movement? You probably have a better perspective on it than I do since I’ve only been involved in this industry for the past six years.
Kopacz: At that point in time -- and it still is -- it’s a very dynamic industry. You’ll recall that Jorge (Fernandez, Pentair Water Technologies president) made the comment (at the WQA New Orleans convention) that it’s still under consolidation. That’s very true. It’s market is still open for consolidation, especially among mid-level companies, etc. And the market continues to expand. We’re in a period that seems to be moving more and more toward retail, which is fine. But I think the product still needs to be sold (by dealers). So, consequently, there’s still a lot of opportunity for independent water professionals and there’s a tremendous opportunity for branded dealers as well. That business I don’t think in the short term is going to see any loss of business. I think it’s still a great opportunity for growth. So, what we looked at was where is Erie going to fit within Aquion and then where is Erie going to fit within the industry. Our whole objective was that it was a good acquisition for Aquion for many reasons. But, primarily from a distribution point of view, we still had as our goal that our customer was to be the large assemblers of systems. That’s still a very large market.
WC&P: What about the other aspect of it? At the time the acquisition was completed, there also was a feeling that certain producers in the market were beginning to limit who they were selling to in terms of volume. In other words, if you were a small dealership or even a mid-level dealership; you basically were independent and bought a few valves, tanks and components and assembled your own stuff, you might have a harder time getting that product was somewhat the fear that was discussed at that time. This was not because of Erie, as I understood it at the time. It was because of a competitor or couple of competitors. What’s Erie’s perspective on that small independent guy?
Kopacz: I think the small independent person is still viable in almost every market, whether a large market or a small market. Those people often are young entrepreneurial people who continue to take advantage of the opportunities for water treatment. Distribution to those people, we haven’t wavered from that. As far as speculation in the industry, I really can’t give you any insight there.
WC&P: Does it give you more opportunities?
Kopacz: It gives us more opportunities, but I think it’s important that we focus on our primary challenge to market -- that, again, being a large, independent water professional and OEM/assembler who has extensive distribution and multiple offices and who's likely buying product direct from component suppliers. They would be a potential customer of ours. The small independent dealer…
WC&P: You’d generally encourage they source their product from an R&M or Wood Bros.
Kopacz: Right. They’re going to continue to buy from those people, the large assemblers. And, then with those people, we have to focus on enhancing the Erie distribution. They have to be our primary customer. But, if the question is are we going to go after small independent dealers, no.
WC&P: Since there’s also a European component here, how do you approach some of the issues that were just discussed at the WQA show regarding the World Assembly Division and some of the big challenges being faced in Europe?
Kopacz: We’re going to approach them I believe the same way all other manufacturers or component suppliers or system suppliers to the market do. That is that it’s important for our business as well as for the industry to have a presence in Europe and to continue to help build that market. And so, consequently, we’ll share and work with the other people in the industry to support organizations in Europe or other parts of the world that are beneficial for the industry. We wanted to keep our European operation as an affiliate operation and a free-standing supplier to the European market. Nick Govaert is active -- as I mentioned before -- in European trade organizations and also is actively involved with other suppliers to assist in industry issues.
WC&P: Do they wind up having a different kind of product there because of this?
Kopacz: They do.
WC&P: I mean in terms of disinfection steps or blending valves such as is required in Germany and Austria?
Kopacz: That’s why I think it’s critical to have a European operation or an operation within that market so they can tailor the product for their specific customers. And if the product needs disinfection, then our operation is responsible to source that locally to meet the market demand. He has to tailor that product to meet market demands -- and also to stay on top of European norms, standards and regulations to help be aware of any outside influences that could affect his business.
WC&P: The whole thing that we were discussing in New Orleans -- lead by Aqua Europa’s Tony Frost -- is one that’s been tossed around for several years. It’s all been based on harmonization of standards in Europe and whether certain companies had established a market dominance in one country based on influencing the standard in a certain direction or another to serve their particular product design. Thus, they were able to block competitors based on that. And what was the risk if that local standard would wind up influencing the standards of an entire European market. There’s some heavy issues that come into play there and offer greater influence elsewhere potentially. That’s because, as (RainSoft president) Bob Ruhstorfer said at the WQA convention, if one regulation that may not be based on sound science necessarily is allowed to prosper in one area, there’s a tendency for other areas of the world to look at what’s being done elsewhere and try to copy that. Therefore, left unchallenged, those things have a tendency to spread.
Kopacz: That’s true.
WC&P: That’s something I assume you all are very sensitive to as well.
Kopacz: Well, we’re very sensitive to that and, again, that’s why it’s so important that we empower our affiliate general manager to work with the industry in Europe to try to suppress issues such as what we’re seeing over there right now. That issue is one that can create havoc for the industry. It’s not a competitive issue, but it’s a problem within the industry that can affect a lot of businesses. It’s a European issue and, as American manufacturers, I think we have to do everything we can to unite and offset such threats to the business, especially when they’re ill founded.
WC&P: Here in the United States, you’re also overseeing the South American and Asian markets. What do those two markets offer for Erie?
Kopacz: They offer tremendous opportunity. We have very little presence in Asia. However, that’s growing every day because we’ve focused on growing international business outside the domestic U.S. primarily in the Asian market as a key component of our strategy going forward. With that in mind, we’ve expanded distribution three-fold in that market. We’ve put emphasis on trying to grow that market very rapidly. There’s tremendous opportunity in Asia.
WC&P: Do you have different goals as far as percentages that you’d like to see there?
Kopacz: Oh, absolutely. We’d like to see at least a four- or five-fold growth in that market, because it offers us tremendous opportunity. And we’d like to see that in the next three years.
WC&P: Do you target specific countries for that?
Kopacz: Yes, we do.
WC&P: And those would be?
Kopacz: The upper China sea, which is China, South Korea and Japan, that group of countries.
WC&P: What about South America?
Kopacz: In South America, or Latin America, we continue to exploit those opportunities, but our primary focus is Asia at this time.
WC&P: How much attention do you put on Latin America?
Kopacz: We’ll exploit those opportunities as they come forth, but our major pursuit and focus is in Asia.
WC&P: Now, you’ve got 30 people on staff at Erie. Who all have you brought on board? What are some of the strengths that you’ve brought in? Feel free to name them if you want.
Kopacz: We brought in technical support, Rob Yelland; he has extensive experience in the water treatment component market. We also leverage Aquion’s technical expertise, so that’s part of the synergy that we have with this business -- we can leverage a number of years of technical and engineering expertise from the water treatment support areas. From the engineering side, we added a dedicated engineer. And we also have, again, our engineering department from Aquion that is a shared service.
WC&P: Who’s your dedicated engineer?
Kopacz: Leonid Burda.
WC&P: That sounds Eastern European.
Kopacz: Actually, he’s Ukrainian.
WC&P: What are your plans for staffing?
Kopacz: As the business continues to grow, we’ll add staff as necessary. At this point in time, we have sales manager John Hofherr and myself to drive the business. Then, we use Aquion’s marketing department to exploit some of the advertising and marketing to generate leads for us. So, as the business grows and expands, we’ll add people to meet those needs.
WC&P: I assume that you’ll be at AquaTech in Amsterdam, since…
Kopacz: Oh, absolutely. That will be our European affiliate. He’ll have a free-standing booth, because that’s primarily a global trade show and we want to make sure we focus on the European community.
WC&P: I would assume that since you acquired the company a year ago from last October, a year prior to October, that you’re positioned at this point to where that AquaTech show is going to be very important.
Kopacz: Very true. The AquaTech show is critical for this year. Again, although the European operation has maintained its presence and grown its presence in Europe, we also want to make a statement that Erie is alive and well and wants to continue to expand into all markets.
WC&P: Conversely, here in the United States, there was a big, somewhat questionable response regarding the turnout at the WQA show here just this past March. I’m being polite in describing it that way, according to what I heard.
Kopacz: I know. You’re doing the same thing I was earlier. Go ahead.
WC&P: But, how do you approach a market here? What do you do as far as that type of a thing? For instance, before the show, I know that there were six of the big manufacturers, including Bob Ruhstorfer, who’s now president of the association, that wrote a letter to the board of governors regarding the direction of the WQA and the show itself and what would be of the long term benefit for the industry.
Kopacz: The association for the industry.
WC&P: Exactly. Give me your perspective on that please.
Kopacz: I think WQA still continues to play a large role in this industry. Trade organizations are critical for any industry. So, the trade organization, like manufacturing and product distribution, have to adapt to market needs. And, at times, they have to adapt very rapidly. I think we’re in a stage or phase with the industry and WQA where we have to take a look at where it is and how can WQA better serve the industry, what are the changing dynamics within the industry and what has to be done to make it a critical component of supporting the industry. It could be from a legislation/regulatory point of view, but I think it’s an issue that the industry needs a trade association…
WC&P: To be strong and vibrant…?
Kopacz: To be strong and vibrant and exciting and adaptable, flexible and nimble to change. I’m not saying that it’s been non-responsive, by no means. I’m just saying that, all of a sudden, we’re faced with an issue and…
WC&P: The industry has leapfrogged and WQA is struggling to keep up?
Kopacz: Right. All of a sudden you wake up and, whoa, we’re in the back of the bus. There's a major market shift. Now, we have to figure out how to react. The association has to adapt. And I think the industry owes the trade organization as much help as possible to for it to properly focus on where the industry is going.
WC&P: You and I sat in on a number of the same meetings in New Orleans. It was kind of like I was following you around the show for a while there. But, P. Regunathan, Regu said some very important things regarding criticism the WQA may have been under previously and even now. His response to that was something to the effect of: “Look, we are the association. If we are not involved and participating to change the things that are going on in the association for the better, then you get what you give.” That’s a perspective that works very well in theory, where participation is very important. I noticed that you were at every World Assembly Division meeting that I went to, so I assume you’re planning on playing a bigger role there.
Kopacz: Absolutely, Aquion has been very active in the WQA and continues to be very active. When I came on board with RainSoft, I was not as active in the three prior years. Before that when I was with a competing manufacturer, I was very active in WQA and was very instrumental in beginning the World Assembly Division. Myself, Bob Ruhstorfer…
WC&P: Who used to be the chairman of the division.
Kopacz: Right. We were members of the first executive committee that began the World Assembly Division along with Ray Jaglowski, now with NSF, and Bill Prior, of Kinetico. We were instrumental in that early on and I was heavily involved with WQA. My goal is to be more involved and active with WQA going forward. That’s one of my objectives to help them continue to grow and where we can step in to help them get past what I call this transition period.
WC&P: It pretty much is because, effectively, they’ve been in somewhat a transition period since 1997, when they started the Sections. At that point, they introduced the Consumer Products Section, with Brita, Pur and Innova, etc. Then they also absorbed an industrial water treatment association as the Commercial/Industrial Section, at the same time. There was an agreement then that the idea of changing governance would be tabled, based on the strength of the retail/dealer members. And, correctly me if I’m wrong here, but what seems to have occurred is that this thing has been put on a back burner and everybody is looking at that pot on the back burner for five years and suddenly it’s boiling over. Is that a good analogy?
Kopacz: Good analogy.
WC&P: That kind of seems to be where things are now. The suggestion to bring in the strategic planning consultant at the convention, Lynn Kahn of the Kahn Group, was a good idea.
Kopacz: Great idea.
WC&P: She seems to have a good grasp of how to go about this review process. We’ll see how things role out. What was your whole perspective on that strategic planning process?
Kopacz: I thought the concept is excellent. Knowing where WQA is today, with the turmoil and the -- I’ll call it -- little bit of uncertainty as far as where’s it going, where’s it going to end up, it was critical to bring in the consultant as a good first step. There’s a lot of very sharp and intelligent people that are part of this industry. And there’s a lot of talent that can be tapped to help remold and refocus the WQA. There’s a lot of dynamics going on and I think it was the right step. The first thing you have to do is understand where you are and where you want to go and how you want to get there. With the last three to five years of changes in the marketplace -- the consolidations, uncertainty in the economy which seems to be rebounding, and outside influences to the industry like legislation, 9/11, etc. -- we’ve got to take a look at ourselves and the industry and say, “How do we reposition ourselves and WQA to effectively help grow this business?” From a strategic and tactical planning point of view, how do we do that? As I mentioned, this was a good first step. My concern is I don’t want to lose momentum. It's important we all follow through on this.
Next month in this column, read our interview with Lennie Burckhardt, who is president of Better Water Industries Inc. of Tyler, Minn.