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The 50 year paint company consolidation movement has been relentless. The recent hullabaloo about PPG’s attempted takeover of AkzoNobel may have overshadowed the fact for some that big or small and close or far industry acquisitions affect paint professionals. Or…maybe you are thinking that rolling out walls, finishing trim or spraying corrugated metal deck ceilings will not change much if a large American based supplier buys a huge company on another continent.

If an industry giant goes super nova or a regular biggie develops some ultimate proprietary resin or a one-off product, the chance that many professionals will be affected, at least indirectly, is quite probable. If a $15 billion dollar company went to $30 billion by acquisition, think about the raw material buying power or the research budget. To say the least, that scale of operation could disrupt a given market – industrial, architectural or specialty. Whether or not a takeover is big or small, the cumulative change of continuous market consolidation has affected professionals.

Here is a look-back snapshot of company owned stores as of 2011:

Top 10 by Company Owned in US & Canada

Source: Company reports and Grace Matthews estimates

Editor’s comments –

It is important to note that the chart shows company owned stores and not independent dealers or the big box chains.

The following companies did not have company outlets in 2011; Masco brands Behr & Kiltz; RPM International brands (sell specialty products); Valspar, which at the time sold architectural paints primarily at Lowes and independent dealers.

Also, the Benjamin Moore and Comex (in Mexico) sales model are centered on dealer stores, rather than company owned.

In 2017, the chart looks very different. When we consider sales – not company owned stores: Architectural paints have just two national giants operating with multiple brands and sales in the $15 billion range: PPG and SW (including the recent Valspar acquisition). SW has been and remains the US architectural sales leader. Next there are two biggies also with multiple brands, although to a smaller extent: Behr and Benjamin Moore. Every other company’s slice of the pie is regional. (Except for the RPM brands, although sold nationally, RPM does not make a full spectrum of architectural products).  It is also interesting to note that regional companies seem to be clustered in the west and in southeast, mostly Florida. There are some areas that do not have local paint manufacturers.

Dozens of brands have gone away or switched owners in the last decade. The US market is one of the most desirable and unlike the grocery business, domestically owned companies rule.

Are you thinking that industry waves are somehow missing your toes? Remember the sky-rocketing material price increases from several years ago? The price crisis was often blamed on the fake titanium dioxide shortage or the $150 dollar barrels of oil. Well, it turned out that there never was TiO2 scarcity (several raw materials suppliers were indicted for price fixing) and oil has been about $50 (or lower) for awhile. While oil barrel and TiO2 costs have normalized, did paint and coating pricing plummet?

No, professionals pay higher prices. If petroleum based raw materials were a main cause of the price rocket launch, it is interesting to note that gas and heating oil prices have fallen by about half from their peak, while paint products have more or less leveled and certainly have not been cut by 50%.

By the way, check out the cost make-up per gallon of paint (as of a few years ago):

Raw Material Costs for Architectural Coatings

Source: Sherwin-Williams

It is interesting to note that about 20% of the per gallon cost is TiO2 and even if it was 40% percent, the gallon price should never have doubled in a short period…

Another example of the paint professional butterfly effect; if a company develops colorants that are zero VOC and are additive, rather than subtractive, the technology (or similar) starts popping up at other manufacturers. Material technology changes have impacted application and product selection; linseed oil materials (long oils) are all but gone. Even alkyd products (short oils) are less popular. 100% acrylics have demonstrated superior performance on many substrates and manufacturers have largely focused efforts on improving these formulations. Of course, regulations have pushed research in this direction and more so than the go green movement.

The paint and coatings industry is constantly evolving and for the last 50+ years consolidating. The US has gone from 6,000 architectural paint related manufacturers to about 1,000. It is worth noting that foreign owned companies have not entered America and taken over. Both ICI – Great Britain – and AzkoNobel – Netherlands – got clobbered and were either taken over (ICI) or retreated…financially weakened (Akzo). It will be interesting to see if the Japan-based company, Nippon Paint, goes for a nationwide expansion using the Dunn Edwards purchase as a stepping stone.

We should note here that in 2004 the then Mexican based Comex paint company entered the US and Canadian markets by buying regional makers. Subsequently in 2013, those assets were sold to Sherwin-Williams. In an earlier time, while Comex was still a family owned operation, they hatched a plan to expand through diversification. Comex was already the number one supplier in Mexico and quite profitable. Apparently, their market research indicated that the top four brands in Mexico from one to four were Comex; SW; Behr and PPG.

Company leaders concluded that growth in the Mexican market through acquisition was not a viable option and organic sales growth (same store and new store openings), although steady was a slower model than desired. The new and different idea was to make and sell gypsum wallboard, which was not common outside of commercial construction. The plan was for vertical integration; since Comex was already used on more walls than any other brand, why not supply the walls? It is kind of like paint professionals replacing rotted siding or trim, but with a much larger investment, while introducing a somewhat rarely used product.

To say the least, the challenges were great; residential construction was largely old school plaster and Comex paint stores could not easily sell the bulky, heavy gypsum products. The same company supplier/store concept of paint and gypsum did not work. But imagine if it did, other companies, likely outside the US, may have jumped on the band wagon morphing the paint and coating business. Meanwhile, throughout America many companies frame, hang, finish and paint gypsum wallboard, but get there materials from different manufacturers.

Still think the “paint company consolidation cloak” keeps you unaffected? In the 1960s, 54 companies sold 74% of US architectural paint gallons. Today, the company number is down by 99%…two companies sell about two-thirds of the market gallonage. The silver lining for professionals is that all the paint makers are seeking a larger share of contractor buyers. Big or small, professionals are essential to growing sales.

In the News, PPG announced that Henrik Bergström has been appointed Comex president replacing the retiring Marcos Achar. By the way, Mr. Achar, a consumate businessman and very nice guy, developed uniquely close dealer relationships and championed professionals as cherished customers in an unprecedented manner than almost anywhere in the world. A couple of fascinating aspects about his strategy: smaller dealers paid the same prices as larger dealers and Comex bid and sold large scale projects including materials and labor guaranteeing the workmanship.

That’s right, just like in the US, a very large supplier kept a select list of contractors, but unlike here, more than just selling product, Comex worked closely with professionals to provide binding owner guarantees. Imagine your main supplier company securing large projects for you? Building and facility owners gain peace of mind with the paint maker and application company rolled into one. The American outfit who adopts that model will organically grow faster than the competition.

In another PPG News item, the Pittsburgh blue chip announced that it has completed the sale of its Mexico-based Plaka plasterboard and cement-board business. Maybe it was a concept ahead of its time. One thing paint professionals could learn from the expansion endeavor: profit provides choices and it is the essential tool to business longevity and success. Companies can decide where to invest and well run companies can rebound from mistakes. Constantly struggling to pay bills or make payroll limits choices (and weekend activities).

We have a feature, The Whole Paint & Coatings Enchilada, which provides some big picture information about the paint industry and emphasizes more details about the overall paint manufacturing business. How many sectors make up the paint and coatings market? What are the three distinct categories in which manufacturers formulate product?

For the very few…okay maybe more than a few…we have the Color Selection article even you will enjoy. Killing Color consists of three videos so there is very little reading, but great insight. Without doubt, we think non paint nerds should enjoy the first clip; History’s Deadliest Colors.

In addition, there is an Origins of Craftsmanship column, American Paint History IV, which is the fourth installment of the series and covers what damages historical interior paint and the appropriate preparation and priming for professional restoration.

Here at PPT, we aim to keep professionals up to date on industry News, colors including the ones copied from butterflies, while sharing ripples that may affect paint and coating application.

Please send comments and corrections to MarkCasale@paintspecialists1.com.

Mark Casale, Editor