The recession has been a wake-up call to manufacturers of wood-plastic composite decking. They know they have to make products with great weatherability, more scratch- and mar-resistance and very low maintenance in order to reinvigorate the industry, whose sales levels are less than half what they were 2006.
“The industry's future is strongly tied to new product innovation,” James Morton, senior partner with Principia Partners in Exton, Pa., said at the consulting firm's 2009 Wood-Plastic and Natural Fiber Composites conference in Baltimore in late October. “People want products with aesthetics and where there is very little maintenance. They want ultralow maintenance.”
Those innovations aren't just necessary to snare sales and compete with pre-treated wood on the low-end and cellular vinyl decks that have carved a niche in the premium end of the market in the past five years. They also are necessary to survive, as more industry consolidation is likely, Morton said.
“Up until now, there have been a lot of me-too product companies because demand was so great that you could just pump out product and it would sell,” Morton said.
The market now wants products that are different, ones with increased aesthetics and performance, he said.
“We are going to still have more shakeout in the industry and more consolidation,” Morton said. The top 10 suppliers accounted for 90 percent of sales in 2008, compared with 81 percent in 2004, he said. “I think the large players will get larger because it is all about access and distribution,” particularly since the market is still sluggish and expected to rebound only slightly in 2010.
“The days of the small entrepreneur jumping in and making it is history unless they offer a uniquely compelling value,” Morton said. “And if the second-tier companies don't have strong distribution, I don't know how they will survive. They will have to go to direct sales or become regional companies.”
The North American decking and railing market has declined from $4.6 billion in 2006 to $2.8 billion in 2009, with the wood-plastic composite segment declining from $1.5 billion in sales to $630 million in that three-year time frame.
Wood sales have fallen nearly in half from $3.1 billion in 2005 to $1.6 billion, while cellular vinyl decking and fencing sales have increased from $5 million in 2004 to more than $95 million in 2009, according to the latest market report from Principia.
The tumble coincides with the housing and economic downturns, which have made banks reluctant to lend money and left consumers with less home equity to tap for decks and other home remodeling projects.
Principia expects volume growth to inch up 6 percentage points and overall decking sales to increase a modest 10 percent to $3.1 billion in 2010, leaving sales volumes at a level still way below the peak of 2006.
“It will be tough to get back to the levels we saw in 2006 in the foreseeable future,” Morton said. “Most people feel we may not get back to that level in a long period of time, maybe not even by 2011-12.”
Jonathan Speakes, president of sales for Southern Vinyl Manufacturing in Raleigh, N.C., agreed.
“For 2010, the rebound will be slow in general and the industry will recover only in select markets,” he said. “To grow, we will need to continue to innovate and manage the price gap between the cost of wood products and vinyl products so we don't price ourselves out of competing with wood.”
The drop in wood prices, combined with increased prices for plastic resins, allowed wood decking to reverse a 12-year market decline in 2009.
Though composite decking has been losing market share to wood on the low-end and cellular vinyl on the high-end, Morton thinks that is a temporary glitch.
“Synthetic composites will continue to be an important decking material,” Morton said. “The reversal in wood market share is probably short-lived.”
Still, bank-lending practices and housing troubles continue to cloud the industry's recovery. “Are banks going to lend money? Will home equity ever be available as it was?” Morton also said that with rising energy costs, “people may well shift remodeling dollars to insulation, more energy-efficient furnaces and air-conditioners and that may have a greater impact on the ability of the market to rebound than anything else for the next two to four years.”
“There is still more room to grow,” said Paul Bizzari, vice president of innovation for TimberTech Ltd. in Wilmington, Ohio. “But I don't see 30-40 percent growth again and I think the recovery will lag the economic rebound. The growth will be on a little bit slower incline in the years ahead, but there are opportunities” — largely in innovations that will improve product performance.
“People want value. They want something that doesn't stain, doesn't mold and where the color won't fade. We have to demonstrate and prove these real values.
Mitch Cox, vice president of sales for Trex Co. in Winchester, Va., agreed.
“The brands that deliver the consumer benefits are going to be dominant and whatever technologies deliver that will succeed,” he said.
The need for innovation has triggered an emerging number of profiles with capstocks that improve performance.
“The industry has just begun to bring those products out in the last couple of months,” Morton said. “I expect there will be a nice influx of these products in 2010 because the industry has realized that it has to adopt these new capstock technologies.”
“Capping allows the industry to fabricate products not previously thought of,” said Tom Hannen, president of Patwin Plastics Inc., a manufacturer of cellular vinyl fencing in Linden, N.J.
“The creation of a hard skin on the outside of the product can improve the attributes of the product and enhance strength without increasing the weight,” he said. “Pre-compounding appears to be the trend,” said Tom Hughes, product manager of composite technologies for Strandex Corp. in Cincinnati, Ohio. “It allows you to use different blends to harden the surface for improved scratch and mar resistance and add stabilizers for improved weatherability, low-heat buildup, improved chemical resistance and to diminish color fading.”
In addition, he said the coextrusion process reduces the raw materials cost in the substrate and allows companies to engineer for board strength and performance. “You can design more creative, wood-like looks, more choices for consumers and provide more value and performance. It encapsulates the wood-composite fiber for weatherability.”
“As builders, we need products that resist staining and are scratch and scuff-resistant,” said Bobby Parks, president and owner of Peachtree Decks in Alpharetta, Ga. “This is way we need to be going as an industry. We need to create alternatives that we can stake our reputations on.
“I am very, very excited about these outer shell and capstock possibilities,” he said. “I think it will be easy to convert a lot of people down the road to capstock products and it will put a big dent into hardwood market share. It is like chocolate and peanut butter meeting at the road to create a great combination.”
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