By Lucy Craymer
WELLINGTON, New Zealand--As Formica Corp.'s retro appeal fades
in America's roadside diners and kitchens, the 101-year-old
laminate company is turning its focus to China, a growing part of
the US$30.4 billion global industry.
The company this past financial year roughly doubled its
capacity in the country with a new plant, and it is expanding its
staffing and product offerings in China to appeal to a residential
market that remains a small part of its business. But Formica is
struggling with industry competition and cooking customs that put
it at a disadvantage.
Formica--invented in 1913 in Cincinnati by two engineers who
found that plastic resins could be used to make electrical
parts--takes its name from its ability to substitute for mica, a
mineral previously used as insulation.
By the 1930s, Formica products, which are basically paper dipped
in resin and cooked at high pressure, had become a popular choice
for interiors ranging from nightclubs to ocean liners because the
products were durable and cigarette-proof.
But sales growth in recent decades at Formica--a unit of New
Zealand's Fletcher Building Ltd., which bought Formica in 2007--has
been choppy in its traditional markets of North America and Europe,
partly because consumer tastes have shifted toward granite and
stainless steel. Its operating earnings for the fiscal year ended
June 2014 rose 9% to 63 million New Zealand dollars (US$49.4
million).
Meanwhile, Asia's importance to the company has grown: The
region contributed less than 25% of Formica's earnings in 2006 but
now sits at around 40%.
Formica in 2011 pushed further into China, which accounts for
about 30% of global laminate demand, as the country was in the
midst of a construction boom, with new apartment and office blocks
requiring interior fittings.
Around 85% of Formica's sales in China are to commercial
customers, including Yum Brands Inc.'s fast-food chain KFC, which
uses Formica's laminates in thousands of stores in China. Formica
is looking to diversify its base to residential customers.
"In the rest of the world, Formica has a strong residential
focus so we will be looking to launch a lot more of our products
into the residential sector [in Asia]," said Mark Adamson, chief
executive of Fletcher Building. "As you see the middle class rise
to 200 million and beyond [in China] there is a big customer base
out there for our product so we will be focusing more of our
attention on this."
Formica also plans a new range of laminates that provide more
hygienic surfaces and resist odors, and launched a mobile game to
promote the product.
The company's fiscal 2014 result was hit somewhat by costs
related to opening a NZ$75 million factory in the central Chinese
city of Jiujiang. The plant, which is capable of producing 45
million square meters, or 54 million square yards, of laminate a
year, roughly doubled capacity in the country. Formica's existing
plant in Shanghai had been operating near capacity ahead of the
Jiujiang opening.
Formica has faced some unexpected obstacles.
While its name might be ubiquitous in middle-American home
décor, in China it is just one of many laminates--and an expensive
one at that. The company competes in China against rivals including
Wilsonart China along with a number of smaller Chinese firms.
Contacted on Thursday, Wilsonart said it couldn't immediately
comment.
Over the past five years Formica has struggled to lift earnings
growth, with Asia operating profit for the year ended June
unchanged from 2009 at NZ$29 million. Three months into the 2015
financial year, the company said volumes in China and Taiwan are
likely to be flat.
"There are more than 100 competitors in China alone across the
quality spectrum. Many of the copycat and local brands have quicker
turnaround for new décors and textures" which are supported by
"lower prices compared to Formica Asia's brands and products," the
company said in an email.
Cooking methods more popular in Asia than elsewhere, such as
open flames and scalding woks, dim Formica's appeal for kitchen
countertops, said Gerry Bollman, Fletcher Building's chief
financial officer. "The one downside to our product is that if you
put too hot a temperature on it, it will scar."
As a result, Formica changed tactics to promote its products for
cabinet doors instead. The new China plant has introduced a range
of interior door products to be sold world-wide, the company
said.
Write to Lucy Craymer at Lucy.Craymer@wsj.com
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