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June 2001: Volume 43, Number 6

Sta-Rite’s Mark Bertler Stays Pat, Part 2
by Carlos David Mogollon, WC&P Executive Editor

WC&P: With all of these different companies that you've acquired -- again, you've been more a quiet player on the side doing this and not taking the headlines as maybe USFilter or Culligan did in the past several years -- there's bound to be growing pains. In talking with one smaller manufacturer, he noted that any time there've been mergers, he's been able to take advantage of the market confusion as the companies reorganize. How have you handled that and how have you handled maybe the turnover that may have been involved in all these different acquisitions and meshing this amalgam into Sta-Rite/WICOR?

Bertler: You know, having come from USFilter originally, I would say that sometimes you almost feel as if you're thriving on organized chaos. But it's just kind of a way of doing business. I would say that we've not had nearly the level of noise or nearly the degree of challenges as somebody that's made multiple and multiple acquisitions. Making an acquisition and really the difficult task of integration can be very demanding on management's time. I think what we tend to do is I try not to keep things too bureaucratic. I like to keep an entrepreneurial feel with how we conduct business. That means do whatever you've got to do to make sure you're satisfying the customer. And I would say that with the customer, we try to make sure we do not get too far removed with a lot of bureaucracy or too many steps away from the customer. If we make decisions that are taking us down the wrong path, we usually hear about it very quickly and we can adjust accordingly. We really try to put that customer first and listen to what they have to say and that we're making it easy for them to do business. If you keep going back to the main theme, which is making it easy to do business with the customer, usually you tend to get more things right than wrong.

WC&P: Any challenges in that or sticking points that helped the company learn a lesson on an issue it had to overcome?

Bertler: Probably the biggest challenge is you think you know what the problems are and come up with a solution as to what you think should be done. And, a lot of times, the communication isn't the greatest -- not speaking about Sta-Rite so much as in general when you make an acquisition, you're integrating it and communicating with customers -- even though you may say certain things, it's not always sent and received correctly. So, communication is critical. I find that whatever you're doing, you probably need to communicate the same message a couple times and you may need to tailor it a little bit differently.

WC&P: i.e., by feeling out how different companies may have communicated in the past and adjusting the message or the communication channels for new outlooks…

Bertler: Yes, and what's being said by a customer to you, let's say, you need to make sure you're listening to what they have to say. A lot of times it comes down to really basic things that, more often than not, you overcomplicate things. Consumers aren't always that difficult. They want to make sure they get good, quality product, they get timely responses from you, you ship it when you say you're going to ship it -- things like that.

WC&P: With some of those acquisitions and the adjustments you've made in integrating the companies, you're going to have some sort of turnover. What's the chain of command there now? James Donnelly is the president and CEO. Where does it flow from there?

Bertler: He's the president and CEO of WICOR Industries as well as of Sta-Rite Industries. And then, within Sta-Rite, again, we have three groups -- the Water System Group, Pool & Spa and Water Treatment Group. Really, those are business units that are comprised of sales, marketing, engineering and customer service. So, those really truly are business units. We have other groups such as manufacturing, human resources, purchasing, finance -- they would all have separate people that head those up and collectively we would function as a team.

WC&P: So, there's a group of people managing each of those separate divisions?

Bertler: Yes. For example, Fibredyne, at one point we had a single point of contact who oversaw every aspect of the business. I would call them a true general manager. Now, we have a plant manager. The plant manager is responsible for the products that are produced, the quality and the quantity, the safety at the plant and things like that. And that person would now report in to a VP of manufacturing. The people who are part of the business side would report in to myself.

WC&P: You're the vice president of the Water Treatment Group. There's a vice president at each level and the hierarchy falls from there. Who's the VP in the Pool & Spa Group.

Bertler: Dennis Ruis.

WC&P: Who's the VP on the pump side or Water Systems Group?

Bertler: Tom Strupp.

WC&P: You mentioned you've only been with the company for 18 months and before that were with USFilter. Give me a little background on yourself if you could.

Bertler: At USFilter, I ran the Great Lakes Business Unit and really was involved as the general manager with P&L responsibilities for a defined region in the Midwest.

WC&P: P&L?

Bertler: Profit and loss. Basically, I ran the business in which we had sales, engineering, service; we had regeneration plants and did some assembly work. I was one of a multiple of business units that comprised USFilter's Process Water Group or division. Really, what I did there -- beside manage the day-to-day business -- was, as we made acquisitions, you had the issue of integrating those acquisitions into the fold to become part of the USFilter team. So, I had a fair amount of experience of acquiring as well as integrating businesses into more of a cohesive team.

WC&P: I assume that's the strength you bring to Sta-Rite as well.

Bertler: Yes.

WC&P: How long were you with USFilter?

Bertler: Prior to that I was with Arrowhead Filter and we were acquired in '95, so about five years with USFilter.

WC&P: So, your years in the water treatment industry would be?

Bertler: Total years would be 13 now in the water treatment industry.

WC&P: Of these three different groups that we've split things into, what's been the performance? What's been the percentage of revenues or units moved? How are they divided up within Sta-Rite itself and how is that measured?

Bertler: Taking a step back to last June, what we did at Sta-Rite was we used to have really domestic operations for North America as well as international. And, the international operations were run separately. What we did in June was reorganize the company to have global business units. That was our goal to really not have the separation between North America and the rest of the world. We have a lot of customers, for instance, Home Depot, who are playing on the international scene, as well as a lot of other customers who are asking us to grow with them on an international basis.

WC&P: GE is one of your customers that might be seeking that, correct?

Bertler: Correct. And, in that regard, what we did was reorganize and create three separate global business units that I've mentioned previously. So, the revenues from some of these different international groups have now rolled into the three business units. But, if I had to make a cut at it, we would be probably about $260 million on the pump side of the business and probably about $100 million on the pool and spa. And this year, we should finish probably about $70 million for water treatment.

WC&P: Again, pool and spa and water treatment showing the most growth and the other being the more mature market niche that you have.

Bertler: I would say the pump is probably more mature.

WC&P: There is steady growth there…

Bertler: But it's probably more pegged to how the economy is doing vs. a market that's grown in double-digit figures.

WC&P: What is your international approach to business? What do you see on the horizon as far as markets with the most strength and synergies for Sta-Rite?

Bertler: Well, if I had to look at it maybe a little from the water treatment perspective, Sta-Rite truly is an international operation. We've got plants in Germany, Italy, Mexico, Australia and we've got a joint venture in China. From the water treatment perspective, everything is up for us. We have an ability to really leverage off a lot of the regional resources, both in people and assets -- that being plants primarily. And so I think we have the ability to take a company, for example, Park, which in the past was privately held and maybe had the ability to grow internationally, but it would have required a leap of faith from a capital investment perspective. I can do that a lot easier being part of Sta-Rite. So those are some of the things we bring to the table that allow us to take businesses that have performed well in the past and really to take them to another level. I would say that what we are doing is we're looking at some of the proverbial low-hanging fruit that's out there. But really coupled with that is I think you have to develop a good business plan and international strategy. With that, I've recently added a number of different people to the organization but, as it relates to the international side, I've got a new person on board as a dedicated resource to grow our business internationally.

WC&P: Who would that be?

Bertler: That's Andrew Warnes. He comes from Kinetico. For the last several years, he has been primarily the international person as it relates to, for example, growing Kinetico's international business. He was the guy responsible for that. And he's worked with other water treatment companies in similar capacities, so he's got a lot of experience in Europe, South America, Mexico. He brings a lot of talent to the table as someone who can get out and survey the competitive landscape, understand what's happening from a regulatory point of view as well as a demographic point of view and, working in concert with the regional resources that we have, jointly develop a business plan.

WC&P: So, of domestic and international, do you split that up in any percentage basis? How is that broken out for you in terms of where you see the most growth or growth potential, as well as what the current split is in terms of revenues?

Bertler: Just speaking from a water treatment perspective, probably about 85 percent of our business is domestic. But by a percentage basis, by far the greatest amount of growth we're going to see is international. From a revenue standpoint, it will probably lag what we can grow this year domestically because we've got things under way and it will take time for that to materialize. Still, you'll probably see the greatest growth as international.

WC&P: Is there any reason for that? Is there more demand out there internationally or is it that the market has finally been discovered internationally?

Bertler: I would say it's probably more the latter. I think there's an increased demand, at least what we're seeing for a variety of our different products. Just as in the United States trend-wise, people are recognizing that you don't necessarily have to accept the water that's coming out of your tap. And even as you see the water coming out of your tap, there's increased awareness and concern over what is the quality. What is the purity? That's really what's driven in large part the huge boom in the bottled water market. I just think from a health perspective and an awareness, we're seeing really just an across the board increased demand from people who want to ensure peace of mind that they've got good quality water that they can drink.

WC&P: Tell me if you could where you see things going in the future for Sta-Rite? You've made it fairly plain that you have no intention of marketing complete systems, say a softener or RO, working rather through the OEMs on that.

Bertler: Yes, I see us supporting as a components supplier the different distributors out there as well as the different system assemblers -- of being one of the reliable people who can provide components, aligning ourselves with other companies that can provide components as well. Again, we try to make it easy for the system assemblers to build their systems and work on things such as by consolidating with other people who provide components. Let's say if you can consolidate a shipment, you have the ability to minimize their inventory or provide better inventory returns for that assembler -- and those are all big wins for that person or system assembler.

WC&P: Are there any cost or price pressures involved that Sta-Rite is keeping an eye on?

Bertler: Just talking generally about the business, I'd say there are a lot of concerns about offshore produced product.

WC&P: Foreign knockoffs, you mean?

Bertler: Yes. There's quite a lot of concern there.

WC&P: How do you approach that issue?

Bertler: As a manufacturer, if I take a look at our growth strategy -- and I've touched on a few things here -- one would be to globalize the business as a growth strategy. We've talked about the different kind of things we're doing there. The other one would be to improve margins. Usually, that's done not by price increases. You receive a lot of price pressure by your customers. And really what we're doing there is to continue to make use of a lot of continuous process improvements, using a lot of state-of-the-art information technology tools, adopting "best" practices for new product development -- the whole issue surrounding outsourcing and procurement. When do you outsource? We've got active cost improvement programs under way at all of our different plants. The whole thing is how are you improving the design of the product, how are you improving the cost-structure of the product, when do you need to go to a foreign source location in order to procure some of that. I think each product has a different path along the product life cycle here. You've got some more commodity-type products. You're probably going to see more of that be foreign-sourced.

WC&P: Such as?

Bertler: Some of the really basic filters, some of the basic cartridge filters. You're seeing more price pressure on those types of products. Whereas, things such as our modified carbon block, that will probably be done domestically because of the proprietary nature of the technology behind it…

WC&P: As well as more control over the quality assurance process.

Bertler: Yes, that one isn't as easy to manufacture as something for which you just put together the product specifications and can expect someone to get it right the first time.

WC&P: With all the different things we've talked about, it seems you've got a lot of different fingers in a lot of different pies with multiple development strategies combined for an overall approach to the market that requires melding all that into a single, well-run organization. And we mentioned earlier that Sta-Rite has kept its name fairly low profile in deference to its subsidiaries. For the dealer out there selling various equipment, they may not know they're selling your product. What sort of message do you have for them about what they can expect to see in the future? You're in a lot of different markets. You're in retail as well as providing product for assemblers, suppliers and distributors. The GE aspect, what do you do for them? Taking all that into account, what sort of thing can a dealer expect to see from Sta-Rite in the future?

Bertler: You've got a couple parts to the question.

WC&P: Feel free to dissect it.

Bertler: Regarding the GE side, we are like probably several other companies out there on an OEM basis providing product for private label for GE.

WC&P: You're providing primarily what for GE, refrigerator filtration products?

Bertler: No, not the refrigerator products so much as just other water filter type products that'll end up being branded GE. I would just like to point out that we share on a few of the skews here.

WC&P: Culligan is doing some of it for GE, EcoWater is doing some of it -- there's a few companies doing a lot of different things.

Bertler: Yes, I believe there are probably several different companies providing different product. Each product that's being provided by different companies is probably from their core competency and whatever GE has been able to work out with the respective companies. That's the GE perpective. In terms of the water treatment dealer, there are a lot of -- without maybe getting into the specifics -- home dealers out there for whom the home company they're getting product from we provide a lot of product that's actually coming from Sta-Rite. It can be either a proprietary or custom-molded product.

WC&P: It may not say Sta-Rite on it, but…

Bertler: It may have a color and look that is detailed for that particular customer. And there's just a point we haven't discussed yet but I'd like to bring up.You can look at a lot of these companies as being either diverse -- and I can find a lot of things that would say one is completely separate from the other -- but what's the one unifying piece of all of this? And that's really the customer base. That's so critical for us. We've got our retail customer base and there's a really true synergy between Omnifilter and Flotech in terms of the products that we take to our retail customers -- the Home Depots and the Lowes, etc. And if I look at a non-retail side, which is the OEM and the water dealer -- what we have had is multiple people calling on a lot of these different customers. What you should have is a single point of contact and that's what we're going to. Again, if I go to my premise of making it easy for my customer to do business with us, you don't what to have four or five people showing up with different business cards. We've changed the sales organization in order to better serve the customer and have a single point of contact. If you've positioned yourself more as a consultant to that customer, you begin to understand more what are their needs, what are they looking for, what's important to them and you can manage that relationship and make sure you are properly directing the various products and services that you can bring to bear.

WC&P: Looking at your ownership by Wisconsin Energy Corp. and the announcement made at the WQA convention that American Water Resources would begin marketing softeners and ROs through its water utility customer base with product sourced through EcoWater as complete units, it made me think has there been any indication of interest there from WEC? Chesapeake Utility Corp., another natural gas provider, began buying water treatment dealerships in the Mid-Atlantic states a few years ago. San Jose Water in California has a jointly owned dealership with Kinetico. Is there an interest in that or have you looked at that and said "No, that's not where our strengths are"? What is your perception of what American Water Resources has announced and how you've looked at that in the past? By that, I mean leveraging what you provide through say the customer base that Wisconsin Energy has with product through WICOR?

Bertler: There are a couple comments regarding what American Water is doing. First of all, they're dealing with EcoWater and are getting completed systems. I'm not in the completed systems business. That probably wouldn't sit well with our customer base. That's not the path we're heading down. You didn't see a lot of utilities making a play here until recently. In fact, they were on the other end of the spectrum, saying that the product wasn't necessary. I think we need to view that as an industry with probably both interest and concern as far as what it means. For an analogy, the Internet didn't mean that much 10 years ago; but today we can't imagine doing business without it and email... Thus, it would be somewhat remiss of us if we didn't evaluate it. In terms of Wisconsin Energy, their interest in acquiring WICOR wasn't to get Sta-Rite to sell product to their customers it was to acquire Wisconsin Gas. They've not expressed any interest in that area and I would say it's like anything we do. First, we do initial research, investigate it in greater detail and begin to rationalize how these things may play out and whether we want to be a part of it. At this point, I would say that we have not pursued that or discussed pursuing that.

WC&P: Well, that about wraps it up. Would you like to add anything else?

Bertler: One comment -- in this industry, you hear a lot about consolidations. And I would say one of the things that's important for us is that if you truly value the customer -- which everyone does -- you really listen to how do they want to buy their products. Again, you can't pigeonhole customers and say everyone is going to buy through dealers or everyone is going to buy through retailers or everyone is going to buy through distributors… There are different customers out there. They want choices. They may want to by direct, they may want to buy through a distributor, they may want to buy off the Internet or a dealer. I'm not here to close down all the different channels on the way a customer wants to make a purchase. Why might they want to buy through a distributor?… They may be able to provide more service. It all equates down to what are they looking to get for the service provided. Who am I to say whether that's a viable way to the marketplace? I don't see us at Sta-Rite try to close off channels to market… If we're truly listening to the customer, we're going to have multiple ways in which the customer can end up getting their products. In my opinion, one mistake a lot of companies make is trying to set themselves up organizationally and trying to impose that on their customers. To customers, that doesn't matter. They will tell you how they want to do business.

WC&P: How are they telling you they want to do business?

Bertler: In that respect, what we're doing now is working in concert with Clack Corp., which is a major distributor for Structural tanks. It has a new valve coming out which puts some tension between Clack and Pentair -- Structural's parent. Clack is actually going down a path where they'll be working with Park as an alternative tank supplier. Longer term that means Clack really becomes the primary distributor for Sta-Rite/Park throughout most of the United States and it may go beyond that. What that's demonstrating is really a commitment to the water treatment professional and the regional OEMs that they have a choice. The company I'd alluded to earlier that mirrors us, Pentair, it's positioning itself as the only game in town in terms of bundling and this is what your package is-period. We're trying to offer a competitive choice and affirm our commitment to these guys. What's interesting is Clack is about 70 miles from here, but there are other synergies as well. The reason this is big is the fact that Clack is the major U.S. distributor for Structural. To give you an example of synergies, we have potential customers in Florida and instead of them having to take a trailer load of tanks and another of valves, we're really so close that we have an opportunity to consolidate that and makes it easier for them to do business. That means less money they have tied up in inventory. That's a big win for them. I'd say that we're aligning ourselves with the ability to listen to what the customer has to say. And I would say it's been pretty well received by all the folks we've spoken with so far. The official launch date that Clack will have product available on this is April 16. We basic have competed against Clack/Structural and so what you see really is a realignment in which Clack has said, "We think we can offer some other things in the marketplace. You don't have to be forced into buying a specific product or bundle of products. You have choices." That's what's had the industry pretty concerned because Pentair has had a stranglehold on the industry in that respect. This is something that's really welcomed by the industry, as a result.

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Next month, we'll interview Mike Gottlieb, president of ResinTech Inc., which has made four acquisitions in the past two years and doubled the size of the smaller niche player in the ion exchange business.