StoneTalk Episode 3 – Ted Sherritt

Our 3rd episode features an interview with Ted Sherritt, President and CEO of FLOFORM Countertops, one of the biggest fabricators in Western Canada and the Pacific Northwest of the United States.

Listen to this episode to learn:

• Where the value is across various places in the countertop ecosystem
• The value of owning a positive, full-service relationship with your customers
• Scaling – and partnering – to handle a larger and larger geographic footprint
• The value of going all digital
• The importance of service when choosing an equipment provider

Be sure to subscribe to the podcast in iTunes (and please give the show a review!) or via RSS … and please let us know what you think! You can leave comments for this show at stonetalk.org, on the StoneTalk Facebook page, via Twitter, or on this site. And of course, you can always email patrick@moraware.com, too. If you have stories or insights that you’d like to share with other fabricators, please reach out to Patrick.

Transcript

NOTE: This transcript has been edited for readability.

Patrick: Today, I’m chatting with Ted Sherritt of FLOFORM Countertops. Ted joined FLOFORM in 1995 as VP of Finance, and became President and CEO five years later. Since then, he’s helped grow the company into one of the biggest fabricators in Western Canada and the Pacific Northwest of the United States. Let’s give him a call.

Ted: Patrick – Ted Sherritt. How are you today?

Patrick: Good. How are you doing, Ted?

Ted: Awesome. You were looking for me?

Patrick: I was.

Ted: Yes. I’m going to give you some answers to some questions.

Patrick: And actually, the first question is from a friend of yours, I believe. I asked for questions on Facebook, and Dave Paxton replied.

Ted: Oh, Davey Boy Paxton …

Patrick: Dave wants to know: “Where is the money really made in the big picture of granite countertop, production or sale? Is it the quarries, the slab processor, the distributor, the fabricator, kitchen and bath dealer, the builder, general contractor, or realtor?” What do you think? That’s a tough one, isn’t it?

Ted: The distributor must make a buck at it, because his costs are very defined. If he buys something for X and he sells it for Y, his input costs are structured in the sense that he owns the warehouse, he’s got two salespeople. Do you know what I mean by that? His value-add costs are limited.

Patrick: He’s got big fixed costs and he’s got material he’s got to pay for, too, right?

Ted: Absolutely. I think the reseller does okay too, which was all of the last eight you listed there, the lumberyard, all of that. They have the opportunity to do well if they control the customer and can add the value at their point. Once they get the customer to the showroom, if they can prove why they need to buy from them, why they’re going to get the best value – note that I will never say the cheapest price, right? With us, it’s all value. Service and value.

That retailer, if he’s tied to someone who’s going to do a really good job of fabricating and installing it and they know that the customer satisfaction level is going to be high after every experience they have with the fabricator, that guy can put 15, 20 points on it doing very little. He doesn’t touch it, right? We template it, we install it. Lots of our people, they even use our showrooms to pick stuff. So those people have an opportunity to – once they sell the cabinets, they just point and say, go to FLOFORM. And we handle them just like they’re one of our customers and send the bill to the fab guy, he puts his margin on it, and away it goes.

Patrick: You mentioned controlling the customer. Do you think in general that value is going to be commensurate with how close you are to the customer, that if you’re far away from the customer, there’s less value-add?

Ted: I believe that, because the value of pulling that slab out of the mountain and polishing it and putting it on a boat is so far away from what the customer’s kitchen looks like. That’s why slab pricing is $8, and when you get it in your house, it’s $90 for that same square foot. So they’re not adding a significant chunk of value, in my mind. They have a lot of capital investment and they move all that stuff. But again, with respect at least to our business, the way we run our business, we value finishing the last three feet. That’s where we think there’s value.

When you’re standing in Mrs. Smith’s kitchen getting her to write you a purchase order, that’s where the value is, in our mind, because we can control that. We can sell her a beautiful countertop. We can sell her a beautiful sink, nice set of taps, and a tile backsplash. We can add all that value. She’s going to go find it somewhere anyway. You don’t spend $8,000 on a granite or quartz countertop and not put a tile backsplash behind it. So somebody’s selling that to her. Why couldn’t that be us? We’re there anyway.

We’re trying to be the full service provider, and that’s where we think the value is. Whoever owns that customer should be able to make the most money on the deal.

Patrick: Interesting. Well, this is a related question then, also from Dave, about wholesaling. He says, “Do you see the fabricators’ route to market selling wholesale, do you even see that as sustainable, say, for the next 10 years?”

Ted: Large commercial shops – we have a segment of our business where we can’t service – we never sell to somebody inside our region. Like if I have a shop in a city, I want to do the installation and everything on it so I can control the quality. But as soon as it’s a two-hour drive away, I want to be associated with the best fabricator in that town and I want to sell him fabricated products. He sends me a digital template, and I send him a great-looking countertop on an A-frame, and he installs it. I mean, that’s just proximity, and that guy becomes a partner, right? He’s an extension of you because he’s sending you a template, so you have to have that dialed right in, right? He has to know exactly what you’re looking for and how to label it and all those things. So he becomes a true partner, and then he gets to yell at you when you build it wrong. That’s the way it works.

And again, that’s geographical for us, the regions that are too far away. We quite often deliver it. In three of our markets, we have trucks that run and deliver to those people in surrounding towns, so I guess that would be wholesale. We call them Install Associates. They might have a fabrication shop of their own or they might just be a kitchen/bath retailer that wants to add some value by adding some install revenue to their stone.

Patrick: But again, they’re the one with the relationship with the customer ultimately. They’re the one who captures the customer’s business, correct?

Ted: Right on. They’ve got a showroom and they’ve selected the color at that place, and quite often they’ve designed the cabinets with them, too. So they’re happy.

Patrick: Interesting. You mentioned a second ago being a full service provider. I noticed you also sell laminate in addition to stone and solid surface, and you mentioned tile backsplashes. When you’re crossing over different types of counters and adding different upsells or end-to-end products, what additional challenges does that bring to your business?

Ted: I think it brings opportunities instead of challenges. You have to educate the customer. Let’s say you’ve got a 30-year-old. That’s probably the first countertop they’ve ever bought. A 30-year-old homeowner who just bought a house, probably lived in an apartment or a condo or at home or something, and they have not had the need or the opportunity to buy a countertop. So most of the people are very – naïve isn’t the right word, but uneducated. They’ve done a lot of research on the Internet, they’ve been to Home Depot, so they understand a little bit about countertops, but you’ve got to ask them a whole bunch of questions.

And, again, this is where we’re adding value and trust and creating that relationship. It’s, “How are you going to use that countertop? Do you have kids? Do you cook a lot?” All of these questions so that you understand what the customer’s needs are and their budget, and then you’re going to tell them, “OK, I have this product which has these positive attributes and negatives, and I’ve got this product that has these positives and negatives, and I’ve got this product with these positives and negatives. From what you’ve told me, this one looks good for you because you have kids that are going to beat it up; be really hard on it.” You know, that’s moving you over to stone. As compared to some older lady or something, where her kids are all out of the house, and she really is a freak on cleanliness. Well, that might be back to solid surface again.

Listening to their needs and figuring it out allows us to sell them what they need, not what we want to sell them. If I’m a granite guy or a stone guy, I’m going in there and, dammit, you need granite. You don’t have a choice, right? I can’t sell you solid surface, because I don’t make it. I can’t sell you laminate, because I don’t make it.

So that full service, from our perspective, allows us to do a better job servicing that customer based on what they need.

Patrick: Nice. So if I was a stone countertop guy doing five countertops a week or something like that, do you think I would be better off trying to get more stone countertops or listening to my customers and delivering them what they need, adding laminate and solid surface, even if it meant through partnerships?

Ted: The answer to that question is which customer and who owns it. If you’re talking to a kitchen and bath dealer, maybe they’ve already got those relationships set up, and you just want to sell more stone to that guy. Or if they don’t … we were really successful – we’re a 53 year old business, and we started in laminate. We have a really large footprint in the number of people that buy laminate from us. So in the 1990s when we started solid surface, since we did a really good job for them in laminate, when they had a solid surface customer they came to us, because they knew we were going to look after them. We had a warranty and good salespeople. Then when we added stone in the mid-2000s, all of those laminate customers said, “Oh, you’re doing stone now? Okay, well, I’ll sell that for you.” And it just added. So the way our business was set up, it was a really natural extension. We tried to grow all of our products.

That’s a hard question for me to answer, whether you need to go deeper into one product range or broader into them all. I think it depends on your customer base, who you’re servicing and what their needs are. If they’re happy with your service, then it might make sense to add other products. But if you’re going to focus on too much, then, you know, it’s too much. Then you’re a jack-of-all-trades, specialist of none.

We feel that we’re a countertop specialist. We’re not stone, quartz, granite, laminate, we’re countertop specialists. I don’t know whether that’s too big-minded or puffy-headed or whatever you want, but we think we can service those four categories and do service them very well in our markets.

Patrick: I think we came back to the answer also that focusing on the customer seems to be relevant. It seems less about even what you want to do, although obviously that’s got to be a part of it. If you just hate doing some activity, you’re not going to be good at it. But if you have primarily kitchen and bath dealers as your customers, that’s going to be different than if you have people walking in off the street. And they’re going to let you know. If you get a bunch of calls that say they want laminate and you think you can make money from it, then you might want to look at that.

Ted: That’s right. Exactly.

Patrick: You do commercial, too. How does that fit in with your business?

Ted: We do. It’s a smaller part of our business. We’re 85% residential. We do lots of apartments and that type of stuff, which some people include as commercial. When I think commercial – if it’s going into a kitchen, I think that’s residential. It doesn’t matter if it’s in a high-rise or an apartment complex or condos. To me, that’s residential. Lots of people call that commercial, but I think of commercial as a restaurant, an airport, a common area, a shopping mall common area, things like that. That’s to me true commercial. And that’s about 15% of our business.

Patrick: And that’s a distinctly different customer?

Ted: Oh, absolutely.

Patrick: So types of things that would work for residential – I assume it’s a completely different set of needs. If that’s about 15%, is the value that it kind of balances ups and downs of residential, or what makes you want to continue doing commercial?

Ted: The opportunity … we’re tied with some products. We’re very tied with Cambria, we’re DuPont Corian fabricators, so it’s their customers as well. They’re getting stuff spec’d out in the marketplace, right? They’re doing a good job seeing the architects and designers, so when they spec a Cambria product, I’m the guy that fabricates it.

So that’s all good. Again, it’s an untapped market. Not that we have our residential markets covered and filled out and there’s no growth opportunity there, but we view it as a new market for us because we’re so low penetrated. And some guys, that’s all they do is commercial, right? So we view it as an opportunity there.

Let me make a quick comment back on the products, the breadth of products. To do a countertop, there are a whole bunch of standard processes, right? You’ve got to talk to the customer, find out their needs, and sell them something. Then you’ve got to go and template it, and that’s where it starts being different. Your process for laminate, stone and solid surface, they’re all different. Kind of similar, but different; you need different equipment for the stone. But the idea is you take that digital drawing and you kind of piece the size, you do the edges on it, you finish it so it looks perfect, and then you go – and what’s consistent with all three of those products is you go and install them. So the sell, the template, and the install are all identical, or 90% identical, anyway, and then it’s the fabrication process that’s different. And that’s just time and money, right? We have probably $9 or $10 million worth of manufacturing equipment. At the beginning of that stone business, we started cheap, but today, that’s a big chunk of our business. The capital investment required to do stone is significantly different than laminate or solid surface.

Patrick: You have 12 showrooms, if I’m not mistaken. How many fabrication facilities do you have?

Ted: Four. We have stone shops in Saskatoon, Edmonton, and Seattle, we build our own post-form laminate tops in Winnipeg, and then we have small solid surface shops in Winnipeg, Edmonton, and in Seattle, a big fabrication center.

The rest of them are what we call sales centers where they receive ready-to-install product and go and install them. They do very little fabrication. They fix – they repair stuff, but they don’t stock inventory and there’s no full-time fabricators at the other locations.

Patrick: And is the sales shop in Saskatoon going to be pretty much the same as in Seattle, or do different markets dictate significant differences?

Ted: The product mix differs between how successfully we’ve penetrated those markets with each of those products. On our prairies where we’ve been around forever, we are really, really strong on laminate, and in the other markets where we started with solid surface and stone, we’re very weak on our laminate business. So it’s really just where you started. And for us, it’s all history, right? I’m 51. I’m not the guy that has the answer to, why did you start in laminate, right?

Patrick: Right, right. It’s what was there. One other interesting question  – crossing the country border. Does business that originates in the U.S. stay in the U.S. and vice versa with Canada, or are there situations where you might fabricate something just across the border in Canada and bring it over into the U.S.? How free is our trade across that border?

Ted: It’s just fine. Anything that we fabricate in the U.S. – if it’s been manufactured in the U.S. or Canada, it’s free. We pay GST – we pay some taxes, but we get them all back.

Patrick: Interesting.

Ted: Yeah, the taxes are not the limiting factor. Everything in our BC market is fabricated in Seattle, so everything we sell in BC comes up from Seattle.

Patrick: I wouldn’t have guessed that it would be that easy. Glad to hear it is. That’s nice.

Ted: Yeah. It’s only three hours away. But you might – in your article, you might want to make that really hard. That it’s very hard to import. So don’t try it.

Patrick: This is recording – this is a podcast, so people are going to hear it coming from your voice directly.

Ted: Oh, great.

Patrick: Oh, well. You know that it’s difficult to compete, so . . .

Ted: Yeah, absolutely. It’s a different market. So you need to have a sales location there. We’ve got a 9,000 square foot sales location and shop there and salespeople on the road. So yeah, it is. It’s not just – you can’t just run in and dump something, because it doesn’t work that way.

Patrick: As you’ve grown bigger and bigger, was there a point where you started achieving economies of scale by expanding geographically?

Ted: Absolutely. We service 11 cities with two stone inventories. I guess we’ve got a little one in Edmonton now, but really, we have significant investments in equipment facilities and stock in Saskatoon and in Seattle. And from there, we service our two separate regions, our western region and prairie region.

But yeah, absolutely it’s economies of scale in people and training and education and all that you need to run these high-capacity, heavy mechanized shops. We have all digital stuff. That’s a special resource, so to have that in 11 cities – well, we wouldn’t have it in 11 cities. We would have small, little shops in 11 cities. A lot of the guys that we compete against are smaller little shops that don’t have the capital to invest on our level to get to the mechanization that we need.

Patrick: Are there any disadvantages of being big? Do you ever wish you were a smaller shop?

Ted: Yeah, a new headache every day. We’ve got 700 employees, so there’s those days. But no, we’re really happy with our business the way it’s set up. There’s lots of trucking. We have three semis on the road running at all times picking product up and dropping it off. It’s a logistics challenge, for sure. So there will be some days we think we’re a trucking company when we really make countertops, which is what we’re good at, but it’s a necessary evil the way we’ve structured this hub-and-spoke manufacturing.

Patrick: As your business has grown over the last 20 years, how have you grown as a manager and leader? What have you had to learn as you’ve gotten bigger and bigger?

Ted: I’ve had to learn to stay out of a few things, that you can’t do it all. I’ve learned that you really, really need strong people to run those locations. I’m fortunate. I think I have the best management team in the business today. They run their little shops, their little towns, and they own those. All of our – the majority of our branch managers own a little piece of the company, and they run their shop like it’s their own small business. They approve all payments, they have a separate set of financial statements; they get a profitability bonus based on their performance at their location every year, so it’s really 11 small businesses.

Patrick: Very interesting. You mentioned you’re a fan of digital. It sounds like you do everything digital, as much as possible, anyway?

Ted: Absolutely. From Moraware to scheduling, everything. All of our templates are digital. If I take a template in, for example, Winnipeg, and go 50 miles west of Winnipeg to a small town, we can do a digital template there. We use the ProLiner technology. We’ve got about 40 of those things in our system. And when the guy is finished with that template, he can either finish it in the house, or he takes it with him and cleans it up at night, and then it’s emailed and added to Moraware. We just drop it into our Moraware, and the Saskatoon plant pulls it out of Moraware.

And if we’re in a hurry and we made a mistake on something, the guy will digitize it and put it into Moraware within half an hour of having it final digitized. The shop in Saskatoon will pull that off the Moraware and they can start fabricating it in a few hours, have that product finished and back on a truck that’s on the way back to our location. So our turnaround on fixing things can be very quick as a result of digital.

We used to ship cardboard templates. We used to make a cardboard template at all of our remote locations, put them on a truck, and ship them to Saskatoon, where they got digitized. So our first step was moving it to have digitizers in each location, electronic digitizers in each location. And then just the natural progression was to, why doesn’t the guy that goes to the house do the digital template? And again, we were not the leaders in that, for sure. We learned from other people that were doing it. And today, I think we’re pretty good at it.

And then right down to all of our equipment. We use Park Industries waterjets, saw jets and CNCs and all of that stuff, it’s 100% digital through our shop.

Patrick: Do you prefer to stick with that one vendor, Park Industries? Do you prefer a best-of-breed approach, or do you like making your bet with one company?

Ted: Well, I’ve seen a bunch of stuff out there that say they might be the best-in-breed, and again, in stone countertop fabrication equipment, they make good equipment. Their saw jet is world-class. Their CNCs have caught the Germans, in my opinion, and the Italians. The quality of the stuff they put out is amazing.

But what it comes down to is I will live with a machine that is really good, even if there are better machines out there, to get the service. Park Industries is incredibly competent on their service. Their parts inventory, the way they fix stuff. We’re never down. When we have a problem, they can log on to our machines, do a diagnostic, tell us what’s wrong with it, send the part overnight, and we’re back up and running the next day. If it’s something really bad, one of their guys hops on a plane. We see him the next day, they figure it out, and on we go.

So their service level has been incredibly high. That’s why we’re a customer of theirs. And we hope that’s what our customers say about us, too, is that when I’ve got a problem, FLOFORM comes and fixes it. They just look after it, and everything’s good. Again, I will pay an extra dollar to have that service and peace of mind knowing that they’re going to look after me.

We use Park Industries for everything. We’re actually just installing five new Park TITANs in our Seattle shop, taking the place of nine CMS Brembana machines that were dated and aged. The technology is just so much different, so much more updated today. The thought of running two different technologies in our shop … the efficiencies of changing all to one system will pay for that upgrade in a very quick period of time.

Patrick: Very nice. Last question. If it’s 10 years from today, what do you think is going to change in the countertop business over the next 10 years?

Ted: Okay, who’s the interview for?

Patrick: Other countertop fabricators.

Ted: It’s not MIA, though? (laughs)

I really think the quartz product today – and I’m a bit jaded on that because we do a lot of quartz – but we find that product to be … the customer satisfaction from that product is easier. It’s higher and it’s easier to get because of the consistency of the product.

The new Cambria colors – everybody’s producing new movement colors – are great. They’re trying to replicate granite. Granite will always win when I want the natural beauty of granite, but these guys are catching up to that. They’re designing really cool, innovative-looking products.

The performance of it … there’s no sealing it, they don’t chip, there’s no chipping issues. They’re easier to fabricate. Miter folded edges are common; the number of those we do today is incredible compared to what we used to do. And when I cut a stone, I get blowouts, and that edge just doesn’t look nearly as good and as crisp as it does in a quartz product. So the manufacturability, the performance in the customer’s house, all of these things. I think today, quartz is the best countertop product I can put in a house.

I think it’s still early on the bell curve. I think there’s a lot of growth in quartz. But there’ll be something next. You know, the ultra-compact surfaces are coming. And again, they are just in their infancy. There’s a lot of issues with those yet. Fabrication issues, aesthetic. But again, it’s young and early. There will be a next product. But I would like to bet that in 10 years, quartz will still be a very dominant product in the market. And granite will never go away, because you can’t build a blue that comes out of the ground and looks so pretty. So there’ll be a place for every bit of it. But what does the customer need in their house? What’s going to satisfy how they’re going to use it? If they never cook in their kitchen and they really are fancy and like beautiful colors, granite is probably good. But if you’re cooking three meals a day for five kids in a house, then probably a different product than granite will serve you better.

And 10 years from now, I think that quartz will be closer to the bell curve of volume, early innovators and up. I think quartz, you know, I don’t see that as very far off that first curve yet. In 10 years, is it at the top and heading down the slope? Again, just think of the Corian slope, right? That had a huge run up, and it stayed at the top for a long time, but I truly believe that it’s on the back side tail of that product life cycle curve.

And I don’t think that Cambria – again, particularly for residential kitchens, in the 1980s and 1990s, Corian dominated that, and then for the next 10 or 15 years, granite dominated that. I think for the next 10 years, quartz will dominate that. That’s, again, from a guy sitting in the middle of the prairies that’s just been very lucky.

Patrick: I’ll check back in in 10 years and see how accurate you were.

Ted: Sure. I’ll probably still be here. I like what I’m doing, so I’m probably going to be here.

Patrick: Well, that’s good. I hope to hear from you more. Again, I know you’re busy. I just wanted to get some of your thoughts. This was really helpful. Any parting thoughts?

Ted: No. Tell Paxton on his interview I want to send some questions to him, too.

Patrick: I definitely will, because he’s on my list, too. We’re going to get him there.

Ted: And he’s a good man.

Patrick: Awesome. Thank you, Ted. I appreciate your involvement with this. I’ll let you know when it’s live, and . . .

Ted: I’ll go have a listen.

Patrick: Awesome.

Ted: Excellent. Thanks very much.