Ceramic: Industry Overview - April 2012
By Darius Helm & Jessica Chevalier
The single most important thing to know about the U.S. ceramic tile industry is its share of the flooring market. Currently, about 9% of U.S. flooring consumption is ceramic tile, by value, and that’s a lot lower than most other nations around the globe. In Italy, it’s more like 60% to 70%, and the average for western Europe is 27%, three times higher than in the U.S.
There’s one overriding reason for this disparity: broadloom. Broadloom carpet was invented in Dalton, Georgia in the 1930s and over the next few decades it grew to account for over half of all flooring in the U.S. Broadloom has not achieved the same flooring marketshare in other nations, where it is often more of a luxury item. In Italy, for instance, carpet accounts for only 1.5% of flooring, by volume.
Ceramic tile, which is technically the oldest flooring category in the world, is a traditional floorcovering in markets stretching from Europe to Asia, and it’s also significant in Central and South America. Ceramic tile’s low share of the U.S. flooring market is a critical differentiator between the U.S. and other nations, because, while growth in emerging markets (like China, Russia, India and Brazil) is based on organic growth and the development of a robust middle class, in the U.S. it’s about consumer desires. And that opens the door to different approaches in the U.S. market.
This low tile consumption makes the issue here in the U.S. not just about getting product to the stores but also about convincing consumers to choose tile over other flooring types. Ceramic tile has to make a case for itself—through design, price, performance, installation, maintenance, value and, to some extent, its environmental story. This comes with lots of challenges. For instance, broadloom, sheet vinyl and laminates are less expensive, especially when you factor in installation costs. Also, tile installation can be complicated and requires a level of expertise. However, tile scores big in terms of performance and maintenance, and it also adds value to the home, so it’s a good long-term investment. And thanks to all the efforts of the great tile innovators, it now offers design capabilities that are almost unlimited.
There’s also the Made in America proposition. For reasons ranging from keeping American jobs to greening the built environment, there’s a movement afoot to buy American, and with nearly two-thirds of product coming from foreign production, that’s a tough hurdle for tile to overcome. However, the potential pay-off is huge. If U.S. consumption were to climb to 18% or 19%, which is still lower than many other nations, including Canada, that would mean an additional $1.5 billion in tile revenues. And that’s part of what makes the U.S. market so attractive.
Right now China and Russia are huge markets for ceramic tile. Though a lot of commodity tile is produced in China, its growing upper and middle class are seeking the prestige associated with higher end goods, and that’s made the Chinese market extremely important to the big exporters, particularly from Spain and Italy. Five years ago, the U.S. was a key growth market for these producers, but the protracted economic slump stalled a lot of efforts. However, it looks like many tile manufacturers are now looking at the U.S. with renewed optimism and they’re starting to refocus their initiatives here.
In terms of production, the big players are Italy, Spain, China, Mexico, Turkey and Brazil, with a lot of commodity product coming from China and Mexico. Colombia, Argentina and Portugal also have ceramic tile producers that export globally.
U.S. MARKET OVERVIEW
In 2010, imported product was 62% of total U.S. consumption. The largest importers of ceramic tile to the U.S. are Italy, China, Mexico, Spain and Brazil; Italy represents about 35% of all imports in dollars. China and Mexico make up a combined 38%, split almost evenly.
Within the U.S., Texas ships the most tile (35%), followed by Tennessee (9%). Texas’ share is due, in large part, to Dal-Tile and Marazzi’s factories there. Tennessee is home to the manufacturing facilities of Crossville, Florim USA and Stonepeak.
The top-selling manufacturers in the U.S. market are Daltile/Mohawk, American Marazzi, Crossville, Florida Tile and Florim USA. Daltile’s net sales were $675 million in 2011, which represents almost 45% of the total marketshare. American Marazzi, in second place, clocked in at $230 million, or 15% of marketshare, the same year. Other major brands in the U.S. include Bisazza, Florim USA, Imola, Laufen, Mannington, Porcelanite-Lamosa, Shaw, StonePeak, Summitville and Vitromex.
For many years, ceramic tile was primarily sold through manufacturer-owned wholesalers or through specialty ceramic tile wholesalers. In these cases, the product was generally sold to contractors, not directly to the homeowner. In the last ten years, however, with the popularization of the DIY movement, home centers and specialty flooring retailers have begun selling the product, so manufacturers have had to make changes to their distribution channels to accommodate this. Though some ceramic tile manufacturers still sell from their own showrooms, and some, like Crossville, are acquiring more, many are now using traditional flooring distributors or specialty ceramic tile distributors to get their product in the hands of the homeowner. Quite a few of these firms report that their distributors serve the A&D community as well.
Ceramic tile lost a good deal of footing in the recession due to several factors, the most significant of which are the decline of homebuilding and the weakness of the dollar, particularly against the euro, which had a huge impact on margins for European exporters. In 2006, according to Market Insights/Torcivia, ceramic tile mill sales to the residential market were $1,572 million, or 1,796 million square feet. In 2009, mill sales hit a low of $887 million, or 1,001 million square feet. In the residential market, a lot of ceramic tile goes into new homes, and though much of that tile is entry level, the fortunes of tile producers have been heavily influenced by the health of this market.
2012 is expected to be the lowest year for manufacturer sales to the commercial market at $527 million, or 346 million square feet, according to predictions by Market Insights/Torcivia. In 2006, commercial sales were at $823 million, or 562 million square feet. The education/institutional and retail sectors are the strongest commercial sectors for ceramic tile. Though the education market is cranking along decently, retail has been sluggish about renovations. Of course, in a competitive marketplace like the retail sector, delays can only be maintained for so long before stores must refresh their look, and the good news is that there’s a lot of talk this year about activity in remodeling of the retail market.
Market Insights/Torcivia predicts steady growth for the commercial tile market starting in 2013. All of the firms that we spoke with for this report expressed optimism about the ceramic tile category in 2012, noting that trade shows are buzzing and customers have, generally, put their pessimism behind them and are investing in new product.
Ceramic tile by its nature is a fairly green product. Sand, clay, flint and feldspar, the components of ceramic tile, are substances of the earth. Tile emits no VOCs, and, furthermore, it has a lifecycle of centuries. In addition, many tile manufacturers make use of their waste product: reusing water; recapturing and reusing glaze; and, in some cases, reusing waste tile.
In fact, several ceramic tile manufacturers have trimmed their manufacturing processes so efficiently that they now have to move outside of the manufacturing process to green the product itself or even outside of their own businesses to increase their sustainability profiles. Crossville’s partnership with plumbing products manufacturer Toto, in which it recycles Toto’s scrap porcelain, is the most touted example of this. Many ceramic tiles contain some amount of post-consumer and post-industrial content, and, from our discussions with manufacturers, it seems that quite a few who don’t practice this recycling effort right now will be doing so in the future.
The hole in ceramic tile’s green story is in regard to energy use. It takes energy to fire the kilns (and unlike in the hardwood industry, there is no burnable byproduct), and it takes a significant amount of energy to transport it, due to its weight. The increase in the cost of fuel impacting transportation today has forced manufacturers to consider the most efficient and cost-effective methods of getting their product to the paying customer. Whether that means operating a multitude of distribution centers across the country, choosing to import less from overseas or opening their own retail stores, today’s concerns about transportation aren’t just about saving money but about maintaining a sustainable profile as well.
Thin tile, which is generally 3mm to 5.5mm compared to traditional 9mm to 11mm tile, may be the ceramic tile category’s best bet for reducing energy consumption. Many firms are creating thin tile or experimenting with the product, and it’s catching on fast in Europe, but here in the U.S. it has not yet had much of an impact and so far it’s only being used on walls and on the exterior as cladding.
Because the product is still fairly new, many of its potential advantages have not yet been realized. For one, even though it uses less material and the firing time is shorter, most of the product out there is not yet priced below conventional tile. This will change as demand grows and as manufacturers become more efficient in their thin tile production. Also, consumers are wary. They perceive it as new and untested, and there are not yet any formal standards for either product quality or installation.
According to the Tile Council of North America (TCNA), while the international committee for tile standards, ISO TC 189, has initiated efforts to create thin tile product standards, that’s probably still at least a year away. It won’t be until those standards are in place that the installation side can be addressed.
However, the benefits of thin tile are many. Besides consuming less raw material and taking less energy to transport—significant benefits—it can be installed over any level surface—including old ceramic tile and any other existing level flooring. Most thin tile uses digital inkjet technology to create the visual, so we’re starting to see designs that are as stunning as any available on traditional tile, though the same degree of surface texture cannot be achieved.
Chances are we’ll see the popularity of the product increase slowly, but there will come a tipping point—when advances in technology, consumer awareness, product and installation standards, and cost efficiency meet up—when the product will gain some real traction in the market, especially if the cost of fuel remains high, incentivizing manufacturers to pursue and market thin tile.
The other major development in ceramic tile technology is in digital inkjet systems, which are quickly becoming standard. The technology allows for high resolution photo-quality looks of any sort to be created on tile surfaces. While this means that most any manufacturer, with sufficient expertise, can accurately replicate faux looks, like natural stone or hardwood, it has ended up generating a new creative movement in the industry, with the most sophisticated manufacturers combining inkjet with other production techniques to differentiate themselves from those just doing flat photo-realism. And perhaps the most interesting development lies with the manufacturers that are using the technology to move away from the ultra-realistic faux looks toward more stylized, blended designs—for them, inkjet technology has actually liberated them from pursuing replicated visuals and moved them toward a more pure artistic expression. And finally it’s worth noting that the technology has had a huge impact on customized designs.
Of the top six U.S. producers, four are owned by Italian firms and two—Crossville and Daltile—are owned by U.S. firms. Daltile is part of Mohawk Industries, the largest flooring producer in the world, and Crossville is privately owned by The Curran Group. Of the six, Crossville is the only one that does not manufacture internationally.
The biggest U.S. tile manufacturer is Daltile, which is celebrating its 65th anniversary this year. The firm has production facilities in the U.S. and Mexico, and it also has joint ventures with Italy’s Emil Ceramica and China’s Sanfi.
It was a growth year for Daltile in 2011, and even stronger growth is anticipated for this year—business started to pick up toward the end of last year and that momentum has continued into 2012.
Last year, John (JT) Turner was promoted to president of Daltile, and Jim Fanning joined the company as vice president of marketing. In the next couple of months, the firm’s second Mexican manufacturing facility, located in Salamanca, will start producing tile for the Mexican market, freeing up capacity at the firm’s other facilities to serve the U.S. market. The Salamanca facility has an annual capacity of 90 million square feet.
Environmental-minded Crossville is a domestic manufacturer that makes 80% of its products in Crossville, Tennessee. If the company can produce a product in the U.S., it will. It sources the balance of materials from across the world. Crossville does not export any of its products, and 90% of its offering is floor tile.
Out of all the U.S. manufacturers, Crossville has the strongest commercial focus, with close to 80% of sales going into the commercial sectors. In addition to porcelain floor tile, Crossville produces stone and glass tile for both wall and floor applications.
Florida Tile, which is part of Italy’s Panaria Group, had double digit growth in 2011, thanks to success in all its channels. Growth was strongest in its 20 owned showrooms. The firm is now also a national vendor to Lowe’s.
Next month, the firm will start up a new porcelain production line at its Kentucky facility, where it has also added a third inkjet system. Panaria’s Italian facility recently doubled its thin tile capacity to 20 million square feet—using a continuous press system.
Marazzi is a privately held Italian company that has now been producing in the U.S. for 30 years. In fact, it was the first Italian company to produce tile here. The CEO of U.S. operations has been with Marazzi since its inception in this country, and the youngest member of the executive team by tenure has been with the company for over eight years. The Marazzi Group started in 1935 in Modena, Italy and is still owned by the Marazzi family today.
Check out next month’s Annual Report for comprehensive profiles on the top five U.S. producers.
Most of the tile consumed in the U.S. comes from foreign production. Both China and Mexico are gaining in share in the U.S. market, but the two most important exporting countries remain Spain and Italy. There are over a hundred Spanish and Italian tile producers with flooring sold in the U.S., though the bulk comes from less than 20 manufacturers. Here’s a quick look at a handful of those players.
Italy’s Cooperativa Ceramica d’Imola, which was founded in 1874, is a $300 million company with three facilities providing a capacity of 230 million square feet. Over 70% of its tile is exported. The firm’s Ceramica d’Imola North America operation, which serves the Caribbean market as well as North America, is headquartered in Miami, where it has a showroom and 90,000 square foot warehouse. The U.S. business is mostly focused on the medium to high end of the residential tile and technical commercial tile markets. The bulk of its residential products retail from $5 to $7 per foot. Product goes through independent distribution.
Imola has been in the U.S. market since 1990. Tom Smith, who was with Imola for the first 12 years, then with Crossville for seven, was brought back last summer as director of North America as part of the firm’s strategy of refocusing on this market. Over the last few years, several of the Italian firms doing business in the U.S. brought in Italians to manage the business, but the strategy frequently backfired, since the U.S. market is so distinct from most other tile markets. Imola’s retooled approach uses an all American sales team to serve the U.S. residential and commercial markets.
The strategy of managing the business from the U.S. with American expertise is already paying dividends, with solid growth in the second half of last year compensating for a slower first half. This year should yield strong positive results. Imola is currently planning additional distribution centers to serve other U.S. regions more efficiently.
The commercial market accounts for 25% of U.S. sales and the firm has dedicated salespeople focusing on the A&D community. Retail, hospitality and healthcare are Imola’s strongest commercial sectors. Imola offers product with post-industrial recycled content starting at 25%, reclaiming both raw and fired material as well as waste water.
Internationally, both Russia and China are strong markets for Imola, again focusing on the higher price points—the firm does not participate in the commodity side of the business. In China, there’s a lot of demand for polished porcelain for the nation’s growing upper crust, which is fixated on the best products, like Italian porcelain, that the world market has to offer.
In the U.S., the bulk of Imola’s products retail from $5 to $7 a foot. On the residential side, most of its product is sold through ceramic tile specialists as opposed to floorcovering retailers.
The U.S. arm of Italian company Atlas Concorde manufactures all its products in Italy. The company has two plants: one for porcelain tile and one for wall tile. Wall tile accounts for 20% of the company’s sales. Atlas Concorde targets the mid to upper end of the market.
Atlas Concorde introduced Linea, an 8mm thin tile, to the U.S. market two years ago. The product is available in a wide range of colors, finishes, sizes and series.
2011 brought significant increases in production costs—raw material, energy and manpower—to Atlas Concorde; however, business was slightly up last year. The company expects the same, regarding both costs and growth, in 2012.
Italy-based Ceramiche Caesar produces unglazed porcelain tiles that are for both floor and wall use. The U.S. branch of the company, Caesar Ceramics USA, is based in New Jersey, where there is also a distribution center. The company has additional distribution centers in California and Florida. All products are manufactured in Italy.
Caesar’s products reach dealers, end users and contractors through distribution. Both distributor and national accounts managers promote Caesar products within the A&D community as well. In the last year, the company has introduced a new size, 30”x30”, to its line as well as three new series: Concept, a collection of five sedimentary stone looks; Gate, a stained concrete look; and Flair, which looks like a canvas with paint brushed in different directions and sharp, shiny colors throughout.
Caesar offers a thin version of many of its lines. This collection is called Aessential, and tiles in the collection are 4.8 mm thick.
Caesar grew by double digits in 2012 and expects steady growth in 2012.
Both Atlas Concorde and Caesar are part of The Concorde Group, whose other brands include Refin, Marca Corona, FAP, Mirage, Keope and Supergres.
Roca, founded in 1917 as a Spanish manufacturer of cast iron radiators, got into sanitary tile in 1936, but it didn’t start producing ceramic floor tiles until 1979. Since then the firm has been on a tear, building and acquiring tile and sanitaryware facilities all over the world. In 1999, Roca acquired Switzerland based Laufen, doubling its revenues and increasing its position in key markets, like the U.S. Now with several facilities in both Europe and Asia, as well as one in Brazil, Roca has grown into a $2 billion company and a world leader in sanitaryware.
At the same time, the firm has been a design leader, last year collaborating with Armani to create stunning bathroom spaces. In terms of floor tile, the firm hits all price points, but it’s strongest in the $5 to $8 range. Its Home Depot Marlin series goes for about $1 a foot.
Roca has been in the U.S. market for over 15 years. It recently opened a showroom and warehouse in Carteret, New Jersey to serve the New York metro area. The main U.S. showroom is in Miami, and there is also a showroom in Chicago and another in Carson, which in the heart of the Los Angeles metro area. In addition to the warehouses in those four locations, there’s one in Texas and one in Virginia.
About 60% of the tile Roca sells in the U.S. is produced in Spain. The balance comes from facilities in China and Brazil. Incepa, Roca’s four-year old Brazilian operation, is a zero waste facility. Roca offers a lot of products, like its popular Rock & Rock, with 40% post-industrial recycled content, and it has some products with up to 80% recycled content.
Roca’s U.S. business started to pick up toward the end of last year, and so far this year growth has continued.
Pamesa started making tile in Spain in 1972 and in 1997 it built a porcelain facility in Recife, Brazil. Total annual capacity is over 280 million square feet and annual revenues are close to $270 million. Pamesa has been doing business in the U.S. since the late 1990s. Following some slow years, business started to pick up in November of last year, and 2011 sales to the U.S. were up about 6%, with strong double digit growth anticipated for 2012. An even bigger market for Pamesa is Canada, where it accounts for 15% of all imported Spanish tile.
Most of Pamesa’s U.S. business is in the residential market, where the firm offers porcelain or red body ceramic tile, with inkjet technology used on both types of tile. Major international markets for Pamesa include France, Russia, the Middle East and the U.K.
Another fairly young Spanish tile producer is Grespania, which was founded in 1976. In the last few years the firm has invested heavily in upgrades at its two facilities in Spain to create state of the art, highly automated processes for the production of traditional ceramic and porcelain as well as its Coverlam thin tile, which comes in sizes up to 95”x40”. The firm added kilns, an 80’ high “technological tower” that automatically blends and distributes clays, a massive 27-level automated shelving system, and digital inkjet equipment.
At this year’s Cevisama trade show, Grespania’s designs were right at the heart of design trends with stylized wood/stone blends and wood/concrete blends. The firm has been in the U.S. market for 30 years. Last year, U.S. sales were flat, but growth is expected for this year.
Emser, a privately held company, has been in business since 1968 and has its headquarters in Los Angeles. Emser develops products and has them manufactured by strategic partners in 30 countries; all of these products are exclusive to Emser. The company is active with introductions; in the past two years, it has rolled out over 40 porcelain series.
Emser sells ceramic tile, porcelain tile, natural stone and setting materials. In total, not counting the setting materials, the company has 2,700 active SKUs. Porcelain is a growing part of the business.
Emser has 56 full-service distribution locations across the U.S. for the trade. To service these and their mass merchant and retailer accounts, the company has two major distribution centers, in Houston and Los Angeles. Emser sells a broad range of products that retail for between $1.00 and $20.00 per square foot. Much of Emser’s product is manufactured in Italy.
2011 was a good year for Emser, especially on the commercial side, and the company is optimistic about 2012.
Copyright 2012 Floor Focus