Discuss Marketing Strategy of Dal-Tile International Inc. within the Marketing Management forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; Statistics: Public Company Incorporated: 1947 as Dallas Ceramic Co. Employees: 7,600 Sales: $720.2 million (1996) Stock Exchanges: New York SICs: ...
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Marketing Strategy of Dal-Tile International Inc.
Marketing Strategy of Dal-Tile International Inc. - December 16th, 2010
Incorporated: 1947 as Dallas Ceramic Co.
Sales: $720.2 million (1996)
Stock Exchanges: New York
SICs: Ceramic Wall & Floor Tile; Offices of Holding Companies, Not Elsewhere Classified
Our corporate vision: A team dedicated to grow our business by creating the best value for our customers through innovative products and exceptional customer service.
Dal-Tile International Inc. was the largest manufacturer, distributor, and marketer of ceramic tile in North America in the mid-1990s. A vertically integrated holding company, Dal-Tile, through subsidiaries, offers a full range of wall, floor, and mosaic tiles as well as installation materials and tools and stone and quarry-related products purchased from other manufacturers. The company's products were being sold in the mid-1990s through a network of 222 company-operated sales centers to tile contractors, architects, design professionals, builders, developers, and individual consumers. Dal-Tile is also a significant supplier to home-center retailers such as The Home Depot and to flooring dealers.
Problem Acquisition, 1990--95
Dal-Tile began operations in 1947 as Dallas Ceramic Co., establishing its first wall-tile manufacturing facility and corporate headquarters in Dallas. A private company, it was owned by Juan (Jack) Brittingham and Robert Brittingham, Sr., who quietly built it into a world-class company. A Mexican plant was opened in 1955. The company was known as Dal-Tile Group, with manufacturing facilities in Texas, Pennsylvania, and Mexico, and 125 company-owned sales centers nationwide, when AEA Investors Inc. bought it in early 1990 for approximately $650 million, including $200 million in equity. Dal-Tile's 1989 revenue was reported to be $337 million. The Brittingham brothers netted at least $470 million after taxes from the sale and landed on Forbes's list of the 400 richest Americans. Robert's personal fortune was estimated at $350 million.
AEA Investors was just as publicity-shy as the Brittinghams, but its 90 or so investors were known to include former Secretary of State Henry Kissinger, former Secretary of Transportation Drew Lewis, former ambassador to Mexico Charles Pilliod, Jr., and retired corporate chief executive officers such as Walter Wriston of Citicorp and Roger Smith of General Motors. Its glittering client list notwithstanding, AEA paid approximately four times book value for a company about to fall into a slump because of a nationwide drop in commercial construction. After capital outlays, Dal-Tile's operating earnings of about $51 million in 1991 were barely adequate to cover the $43 million in interest AEA paid that year to service the debt it incurred to buy the company.
Also in 1991 the Texas Water Commission imposed a record $1 million fine against Dal-Tile for 12 years of illegally dumping hazardous, lead-contaminated waste into two gravel pits in southeastern Dallas County. It was the largest fine ever levied by a state agency for environmental violations. The company, which used glazing compounds containing lead to manufacture ceramic tiles, was required by law to send contaminated wastes from the manufacturing process to special landfills but, according to state investigators, dumped the material from 1975 to 1987 in pits that were not specially licensed. The commission also found that Dal-Tile used waste oils on farmland for dust control, failed to notify the state it had discharged industrial solid wastes into water, and failed to keep records of the waste and file annual reports.
This violation was uncovered by Lorrie Coterill, a housewife and mother of four who began worrying about odors coming from a gravel pit near her home--one of two in which Dal-Tile stored the contaminated wastes. She scaled the fence around the pit and found barrels leaking diesel fuel, evidence of illegal burning, and a sludge that was later found to contain lead, arsenic, cadmium, and other dangerous substances. The contaminated pits were within 100 feet of some drinking wells and near swimming holes where children had played for years, although tests found no groundwater contamination, according to state officials.
In addition to the fine imposed on Dal-Tile, a federal grand jury indicted Robert Brittingham, Jr., and company president John Lomonaco on 17 criminal counts, including conspiracy to dump hazardous waste. Brittingham was found guilty in 1993, fined $4 million, and sentenced to five years' probation, which he began fulfilling with 15 hours a week in community service by financing and operating a $6 million lead-abatement program for Dallas. The total cost of the fines and dumpsite cleanup came to $16.5 million.
Despite these problems, Dal-Tile's new owner was bullish on its prospects because it saw a growing market at the expense of the 50 percent of tiles used in U.S. construction that were coming from abroad, mostly Italy. To compete with Italian firms, whose designs and product quality were far superior, Dal-Tile earmarked around $20 million to modernize its existing tile plants and build new ones. The company planned to open a new manufacturing plant in southeast Dallas in 1994 and a new, $18 million regional warehouse built adjacent to this plant. To bolster its residential business, Dal-Tile also was adding around 30 percent more sales outlets, at a cost of about $13 million. Between 1987 and the end of 1991 the company opened 76 showroom warehouses, which were serving as the primary outlets for its tile. Another 21 were opened in 1992, and 21 more were planned in 1993.
Overall sales in the tile industry fell 30 percent during 1990--91. Dal-Tile, however, was able to raise its revenues to $357.6 million in 1991 and $398 million in 1992. In 1993 the company sold $133 million worth of five-year notes to help pay down debt. According to the prospectus that accompanied the offering, Dal-Tile controlled 18 percent of the tile market in the United States. Moody's Investor Service gave the issue a poor rating, citing Dal-Tile's heavy debt and the cyclical nature of the construction industry. The company had warned in the prospectus that it did not expect to generate sufficient cash from operations to pay the notes at maturity.
Dal-Tile Chairman Billy Ray Cox retired in 1993 after 34 years with the company and was replaced by Pilliod. One of the new chief's first acts was to postpone the planned Dallas plant and warehouse project because of slower-than-expected sales. The creation of the North American Free Trade Association was good news for Dal-Tile, however, because the company was producing about one-fourth of its tiles in Mexico. The end of the 19 percent import duty on Mexican tiles meant a projected annual saving to the company of about $10 million.
Dal-Tile's revenues grew to $506.3 million in 1994, the year the company introduced high-end floor-tile products and significantly increased sales to home-center retailers. Even after paying $53.5 million in interest, it was able to record net income of $6.9 million. Net sales slumped to $478.8 million in 1995, but the company earned $2.1 million after taxes and after interest payments of $55.5 million.
Growth by Merger, 1995--96
In September 1995 American Olean Tile Co., a company with five ceramic-tile factories, agreed to merge with Dal-Tile. As a result of the transaction, which was completed in December, Armstrong World Industries Inc., American Olean Tile's parent company, became a significant shareholder in Dal-Tile. Armstrong also contributed $27.5 million in cash and received 37 percent of the common stock.
American Olean Tile's origins dated back to 1878, when American Encaustic Tiling Co., Ltd. was incorporated to acquire the business and assets of an even older company. An affiliate of this company started selling products of Olean Tile Co. in 1937. The American Olean Tile Co. was formed in 1948 as a joint venture of the two. National Gypsum Co. bought both American Encaustic and Olean Tile in 1958 and created American Olean Tile as a subsidiary. It was sold to Armstrong World Industries in 1988 for about $330 million.
American Olean differed from Dal-Tile in producing tiles for a network of independent ceramic-tile and floor-covering distributors as well as through more than 60 company outlets. Its glazed ceramic mosaics were being used primarily in schools, hospitals, malls, and office buildings. The company had manufacturing sites in Fayette, Alabama; Lewisport, Kentucky; Olean, New York; and Jackson, Tennessee. It also had a half-interest in a joint venture in Chihuahua, Mexico. American Olean had sales of about $250 million in 1995.
With the addition of American Olean Tile, Dal-Tile's revenues grew to $720.2 million in 1996. When allowing for the acquisition, however, sales were essentially flat, which the company attributed to problems in merging the computer systems of the two units, thereby leading to delays in delivering shipments to the company-owned sales centers. During the year Dal-Tile opened a state-of-the-art wall-tile facility in El Paso, Texas and acquired a floor-tile facility in Mt. Gilead, North Carolina. Dal-Tile became a publicly owned company in August 1996 with the completion of an initial public equity offering and began trading on the New York Stock Exchange.
In all, beginning in 1991 and extending through 1996, Dal-Tile invested about $130 million in capital expenditures, including about $85 million in new plants and state-of-the-art equipment to increase manufacturing capacity, improve efficiency, and develop new capabilities. Manufacturing capacity grew from 203 million to 343 million square feet over this period. By the fall of 1997, the number of manufacturing facilities had grown from 11 to 13, with total annual capacity of more than 425 million square feet of tile&mdash-ough to cover the state of Massachusetts.
Dal-Tile had interest expenses of $46.3 million during 1996 and took an extraordinary $29 million loss on early retirement of debt. Nevertheless, the company still had net income of $5.4 million during the year. Its long-term debt in April 1997 was $470.7 million. AEA Investors owned 53.5 percent of its stock and Armstrong World Industries owned 34.4 percent.
Dal-Tile in 1996
Dal-Tile's offerings in 1996 included different types of ceramic tile under the Dal-Tile and American Olean names and the new Homesource brand name, introduced in 1996. These company-manufactured product lines constituted one of the industry's broadest product offerings of colors, textures, and finishes, as well as the industry's largest offering of trim and angle pieces. Dal-Tile offered one of the broadest lines of glazed floor and wall tile, mosaic tile, porcelain tile, quarry tile, stone products, and allied products. In addition, it carried a selection of tile products from foreign manufacturers. Homesource was targeted for the do-it-yourself/buy-it-yourself market.
Dal-Tile had a network of 222 company-operated sales centers in 44 states at the end of 1996, up from 124 in 1990. About 72 percent of its net sales (excluding American Olean) in 1996 were made through these centers. Each one included a showroom, office space, and a warehouse in which inventory was stored, including a selection of products not manufactured by the company. The company was also supplying more than 1,000 home-center retail outlets nationwide.
Independent distributors at about 170 locations were distributing the American Olean brand to retail centers. In all, independent distributors accounted for about 52 percent of Dal-Tile's tile sales in 1996, compared with 33 percent for company-operated sales centers and 15 percent for home-center retailers. About 71 percent of Dal-Tile's net sales in 1996 were company-manufactured products, with the remainder being provided by other domestic manufacturers, as well as foreign manufacturers, located principally in Italy, Spain, Mexico, and Japan.
Dal-Tile's largest manufacturing facility at the end of 1996 was the one in Monterrey, Mexico, which accounted for about 45 percent of the company's annual manufacturing capacity. The others were in Fayette, Alabama; Lewisport, Kentucky; Mt. Gilead, North Carolina; Olean, New York; Gettysburg, Pennsylvania; Jackson, Tennessee; and Coleman, Conroe, Dallas, and El Paso, Texas. The company owned talc mining rights in Texas and clay mining rights in Kentucky.
Principal Subsidiaries: Dal-Tile of Canada Inc. (Canada); Dal-Tile Corporation; Dal-Tile Group Inc.; Dal-Tile Mexico, S.A. de C.V. (Mexico); Dal-Minerals Corporation; Materiales Ceramicos, S.A. de C.V. (Mexico); R&M Supplies, Inc.; Recumbrimientos Interceramic, S.A. de C.V. (Mexico; 49.99%).
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