Director WORLD NATURAL STONE ASSOCIATION (WONASA)
During the last decade many people have been observing that the natural stone industry seems to be in a perpetual state of crisis. Lower margins year after year, companies not being able to increase their sales, the industry in many countries actually shrinking- these are just some of the symptoms.
ENVIRONMENT OF NEVER ENDING UNCERTAINTY
It is also true that during the last decade and a half there has been one unexpected mega crisis after another, almost a permanent sense of instability and uncertainty in the economic environment. It has been, therefore, fairly easy to explain the sub-optimum results of most companies. "The adverse circumstances are beyond our control, we can do nothing about it", is almost a universal complaint and explanation.
Additionally, so many challenges appear all the time in daily business life, difficulties in opening and operating stone quarries due to tougher environmental criteria and sensibilities, new competitors mostly in other countries and existing ones who always seem to be lowering prices, the company's product line looking outdated and out of fashion, difficulties in finding skilled employees when an employee leaves or retires, new alternative products that come into the market, etc.
Few businessmen, overwhelmed by the daily efforts required just to survive, are able to find time to reflect in a more profound manner on the causes of consistently declining performance, and rarely ask themselves some basic questions such as what exactly their business model consists of, and in which direction the industry is heading.
CURRENT BUSINESS MODEL
The reality is, a more fundamental change has been taking place, different from the constant uncertainties plaguing the overall business environment. Industry people tend to forget that the prevailing dominant business model roughly consists of big size blocks to make big size slabs for countertops, tiles for applications such as flooring, cladding, decoration, etc. There are, of course, other applications, like funerary monuments or exterior pavings in thick granite, etc.but they are basically small market niches. The improvements and technological innovations that have taken place over the years have focused on increasing productivity, lowering costs, increased safety for workers, etc. but, in essence, the business model of the last three and a half decades has remained the same. Bigger squared blocks, big slabs, and the same applications as always.
There is a simple question that one should be asking- In how many industries does the same business model lasts for three decades ? We live in an age when business models in most industries everywhere get outdated every few months and companies need to be nimble and extremely flexible all the time. Yet, in the natural stone industry there seems to be a deeply held irrational assumption that since natural stone is a timeless product, the business model of a company too is essentially timeless, and only minor tweaking is required from time to time.
THE DISRUPTION FROM NEW COMPETITION
Consider the currently biggest threat facing the natural stone industry - the latest generation of ceramics, the big format porcelain, which has made the ceramics industry now a formidable, almost existential, competitor to a large number of stone companies. Big size slabs of 3.2 × 1.6 m available in unlimited quantities, and as thin as 6 or 9 mm. Lighter by more than half or 1/3 compared to the standard 2 cm thick stone, and with surface finishes that often makes it difficult for even professionals to differentiate from natural stone. The new generation porcelain slabs have been a major disruption for the stone industry, and taken away a big share of market share in applications such as kitchen countertops, decoration and claddings in many markets. The ceramics industry is undoubtedly technologically innovative, it is constantly improving its product range with new colours, textures and designs that are in tune with contemporary fashion trends. It has big marketing budgets and well established distribution channels that are constantly being strengthened and expanded to allow them to reach better the final customer.
In this current scenario, by and large, it is only exotic stones, quartzites, onyx, black colour granites and marble, and a few special stones that are resisting the onslaught and noting an increase in demand, at least for now.
Yes, there is a greater sensibility nowadays towards natural products. It is true that in some countries at least criteria like EPD, sustainability, are determinant criteria for specifiers like architects in their projects, specially in North and western Europe, and also in USA. Without question natural stone is the winner when these criteria come into play.
But then another question arises- what percentage of natural stone is used in projects as compared to applications such as decoration ? The proportional use is probably a small fraction compared to use un decoration, perhaps as little as 5% in most markets, higher in the Gulf region.
Does one really think that an individual doing home renovation and where typically only about 25 to 100 sqm of stone will be used, will consider sustainability as a criteria, ignoring aesthetics, budget, convenience, and, most important, the tremendous psychological pressure that comes from being bombarded by the non-stop marketing tools employed by the porcelain industry?
So given the way the market is moving, why would the new generation porcelain not take away even more of the market share from natural stone industry in its applications? More and more factories are coming up in different parts of the world, and each factory typically produces over a million sqm oer year. In comparison, how many natural stone companies all over the world reach that level of production?
Reality check, therefore, - in many countries the natural stone is an industry in decline. There are demographic factors also in play, a failure to make the transition to a new generation, lack of skilled labour( also prevalent in other industries), specially in the developed world.
All this means that in a time period of a decade, in many countries the number of companies in the natural stone industry has reduced by about 20 to 30 %, mergers of companies being a rare phenomenon.
Another reality check - fabricators which previously used to work only with natural stone now do so also with quartz and porcelain in ever greater numbers at the expense of natural stone.The 'exclusivity' in logistics of natural stone has been lost. And who knows if and when it will be back. The wait for the trend to reverse may be very long, impossible to predict.
It is also true that natural stone is a growing industry in other countries and regions with new quarries opening and new processing units being set up. One can name the North African countries as an example, or the state of Rajasthan in India, or Ceara in Brazil, or Angola, new quarries and factories keep opening in Turkey, Iran etc. But these new quarries and processed stone probably do not make up for the lost production elsewhere.
Maybe the natural stone industry is moving, as so many other industries are, out of the developed world, but that phenomenon will be examined another time. What remains clear is that at least in Europe, for long the centre of gravity of natural stone, the industry is becoming smaller and even in countries like India and Brazil, especially for the export oriented granite companies, every year is becoming more difficult than the previous one.
So how to reverse what currently looks like an alarming, irreversible trend against natural stone?
REVERSING THE TREND OF DECLINE
Some people have speculated that more promotion of natural stone can be an answer. But once one gets into the nitty grity of expanding into how to promote natural stone, one immediately realises that there is no way the highly fragmented and small sized companies structured natural stone industry can come even close to matching the marketing budgets of the porcelain industry. Huge marketing budgets are needed year after year, a one time campaign is worthless, a waste of money, if at all one can even harness the money needed. Even trying to define a local marketing campaign is not easy. Various marketing campaigns proposed in recent years amount to no more than variations of the same B to B efforts that no longer have any effect at all. They hardly ever reach a bigger audience which, in any case, would require resources of a totally different scale.
ASKING NEW QUESTIONS, SEARCHING FOR NEW ANSWERS
One way to rethink the natural stone industry is to ask some out of the box questions.
1). Instead of battling with thinner alternatives, why not ask- WHAT CAN ONE DO WITH THICK STONE THAT CANNOT EASILY BE COPIED BY ALTERNATIVES AND WHICH POTENTIALLY HAVE A MASS MARKET? Why does the industry only think of making stone thinner? Why not ask- what can be the virtues and possibilities of thick stone? A high value added product makes transport costs less relevant, no matter what be the thickness or shape.
2). To overcome or alleviate the shortage of skilled labour, a situation that is more likely to get even worse in the future, perhaps the factories should focus on making finished products instead of intermediate products which require further manual intervention and, thus, put more pressure on gross margins. In the value addition chain less are the number of interventions between the quarry and the end consumer, greater will be the margin of manouvre in pricing for everyone, and greater the share of the pie for all. Another topic that requires further analysis in a different article.
3). The overwhelming emphasis on big size blocks from the quarries means there is huge and unnecessary amount of unused raw material left in the quarries and considered waste. Any factory owner too will tell you the large amount of waste that exists due to client rejection because of the 'wrong' veins, or tone variation, or left over of slabs. Why has the industry not focused on using this waste, converting it into commercial products? To make furniture for exteriors, for example. This kind of furniture can be of any size, of any finish too, and no one will reject a piece because of a dark spot on a surface on a rugged finish. It is a question of using imagination. Another advantage of using waste to make commercial products is cost of raw material can be essentially considered to be zero for accounting purposes, and the marginal costs will be mostly of diamond tools, energy consumption, assuming labour to be a fixed cost already discounted for.
4). The new applications, be they furniture for exteriors to be installed in the gardens, or benches , or wine holders or anything else, means they will need new distribution channels and a new type of customer for them to be viable businessness. It is not a question of making a few just to show them as mere possibilities, but a way of developing new business lines with volumes that justify significant investments and having a factory. For example, in the West there is a culture of wine, so in theory the market too can be of hundreds of millions for wine holders.
How many people in the world have gardens in their homes? Why not install benches and tables made of natural stone in gardens which will last forever and not those made of plastic which need to be replaced every season This is another application which potentially can generate huge volumes and create a new stone industry.
ANTONIO ROSALES ARTE EN PIEDRA, Spain
5). New products also means new distribution channels, new trade fairs to exhibit and display them, new methods to expose them to the end customer or the specifiers/influencers, new ways of promotion. For furniture in the garden the company may perhaps need to exhibit in garden or landscaping fairs, or those shows and events where home and furniture designers are present in a big way.
6). Because these products are finished products when they leave the factory, no further manipulation will be required. An important part of the current logistic system will probably become irrelevent - so many fabricators nowadays have only a limited and declining interest in natural stone in any case, why should they stop working with alternative materials like quartz and porcelain, they will ask you.
7). New skills will obviously have to be learnt too. For a factory making slabs, manipulation of stone to make something entirely different may require new investments in CNC machines, close collaborations with designers of furniture, a new mindset - and that is just for starters. A new business model is not just new products, but an almost complete reinvention of a company's business model, it will often need new people with new thinking, and new skills.
8). The new applications do not mean abandoning what one has been doing for decades. It basically means adding a new line of business to the current one. The new applications can be the motor for growth again for the stone industry.
Nothing will be easy, it will take time before decent volumes are generated, and there are obviously risks in entering any new line pf business. But when survival is at stake, what other alternative exists?