Mark McMunn

Outdated technology? Bandsaw blades for stone cutting are still being produced in China.

Outdated technology? Bandsaw blades for stone cutting are still being produced in China.

Larvikite granite is the national stone of Norway. The silvery blue luster of polished larvikite is due to the interaction between natural light and feldspar crystals.

Larvikite granite is the national stone of Norway. The silvery blue luster of polished larvikite is due to the interaction between natural light and feldspar crystals.

The stone industry is continuing to show signs of increasingly rapid consolidation. This month we look at some snapshots of just a few observations.

Snapshot #1: Many People are Disappearing

The number of conversations and postings at the SFA website are very low and slow compared to 10 years ago, when there would be several very lively discussions going on at the same time. Today, several days and even weeks can go by before someone can even get a reply to a question, and sometimes, not at all. Over at Stone Group Unlimited’s website, things are simply dead, where now more than a week and sometimes two can go by without anyone making a post or starting a new discussion. 

What does this mean? It could mean that everyone is so busy that no one really has time for online chit-chat, but at the height of the housing boom pre-2008, it was common to have over 20 people on line at one time at the SFA forum, and those were very busy times, as we all remember. Times are just as busy now, but there is a dearth of discussion at these once-popular forums. The only other explanation could be that many of the people that had been posting have left the industry – and there could be a million reasons why.

One explanation could be that the industry is consolidating. However, consolidation does not necessarily mean that independent shops are being bought up and consolidated under one company, although this is said to be happening. Consolidation can also describe the means used to produce the end product. 

Thirty years ago, a shop was considered cutting-edge if you had a manual bridge saw and a flat edge polisher. In those days when everything was marble, you were at the very bleeding edge of production if you had a diamond bandsaw. Does anyone recall the diamond bandsaw and its promises of solving the problem of curved work? Bandsaws were great for marble, and when the market flipped over to granite, the bandsaw was still viable for 2cm granite. But for 3cm granite it just could not handle the extra work, and was put away. Still, as the kitchen countertop revolution was building up steam and every shop was desperate to try and find a combination of machines that would consolidate the production process for countertops, the machinery was just not there. All of the major machine makers were stumbling through different versions of nascent CNC equipment for the industry until now, where it appears the combination of saw and waterjet along with a router is the final combination of equipment that achieves a level of production to consistently make a profit. 

Flak will be fired if it were not mentioned that a combination of a CNC saw and router is also a combination of equipment that is achieving sufficient levels of production to make a profit. With more and more larger shops acquiring these pieces of equipment, and thus consolidating their production with a stable of reliable, productive pieces of equipment, the manual shops are going to find it increasingly more difficult to compete with only general-purpose equipment. Many small shops just do not have the volume to accumulate enough capital to make the CNC jump and are possibly dropping out as a result. 

Still, this does not mean that a small shop cannot survive. The question remains, though: do you have enough energy to manually produce several kitchen countertop jobs a week for the rest of your working career? For too many, 3cm has ruined their backs and knees before they turn 40. Perhaps these are the shops that are quietly disappearing from the SFA forum.

Snapshot #2: The Continuing Explosion of Engineered Stone in the Marketplace

Some months ago in this column, the financial numbers for Caesarstone were shown in order to illustrate the gargantuan volume of business they are doing relative to the industry as a whole. The final total for 2016 sales was well over half a billion dollars–yes that is a billion with a “b.” In 1980 the total of all the marble and granite dimensional work in all of the United States was probably well less than half a billion dollars. 

And these are only the numbers for Caesarstone. There are at least a half dozen other serious ES producers that have numbers just as high as Caesarstone if not higher, and one of those players is DuPont, an S&P 500 company. The interesting thing, though, is that Caesarstone’s profitability is not keeping up with sales. This can only be explained by increased competition as the other producers are jockeying to remain in the game, as that section of the industry is going through its own consolidation. 

Where and when does the consolidation stop? If you study the financial statements of the S&P 500 you will find that these companies operate at net profits close to 5 percent and thrive at that level. There are a few companies that achieve double-digit net profitability, but those margins attract competition and that competition continues until stability is reached, usually at a number under 10 percent. The fabrication sector is subject to this same phenomenon, and it’s a good bet too that when the fabrication sector in the USA reaches complete efficiency, it’s very likely that 5 percent net profits will be the norm. Right now, there are still many incidences of shops making higher net margins than this, but the question remains for how long?

Snapshot #3: Quarriers of Natural Stone are Getting Worried

As these words are being written LUNDHS of Norway is seeking partnerships at the SFA forum with a direct quotation below:

“Criteria for Partnership: Believe in the need for a BRAND NAME in the Natural Stone Industry. BRAND NAMES work in engineered stone. Stone industry needs to step it up to take back some of the market share that engineered and other surfaces are currently taking.”

This is not the first time an appeal has been made to fight back against the encroachment of ES on natural stone, but branding of natural stone against ES is not likely to work, because branding does not really work within the ES world either. How many times has anyone ever heard a designer say they will only specify a certain manufacturer of ES? Designers only care about color, just as they only care about color with natural stone.

That a natural stone producer has put out a call to react is very telling. LUNDHS of Norway may be the first, but they definitely will not be the last.

Paint Your Wagon and Come with Me

Truly, the granite countertop revolution has been a modern day gold rush that even Ben Rumson would have appreciated. You remember Ben Rumson? He was the wily prospector from Paint Your Wagon, played by actor Lee Marvin, whose policy was “to bust out of any territory the day it became a state and head off for another wilderness.” In a way this is what is happening to the countertop industry now, as the days of $100 plus square foot jobs are coming to an end, and everyone has to be mindful of the current market price – a sign of things coming to a state of order.