If you were CEO in 2008, survival was likely your strategy. Lower you costs, keep up on your debt, and get through the dip in order to operate long enough to get to the other side.
This was part of the strategy of Caesarstone at the time. But the Israeli manufacturer of quartz of other stone surfaces for countertops was also looking ahead. In 2009 the company hired Yos Shiran as its new CEO and challenged him to lead the company from the bottom of the recession to being the top surface company in the world.
Seven years later, Caesarstone is recognized around the world for its sleek design, high quality and innovative technologies that have all made it the leader in countertop surfaces. Tefen sat down with Yos Shiran to discuss how he led the company to where it is today.
Taking a new job as CEO during the recession must have come with many challenges and expectations. What were some of your first moves as CEO in 2009?
What intrigued me was the ability to build a global Israeli brand. If you want to operate better and grow the business, you need a strong global brand and work with a long term vision. You also need to invest in the right markets.
Towards the end of 2009 we set a mission statement that was: 1 - 5 - 500, which meant being #1 in the global surfaces market, in five years with $500M in sales. At the time sales were about $160M, so it seemed to be an ambitious mission, which we are happy to have achieved.
However it took time until we were able to develop a team with the confidence that we could really do something special and exceptional in our field. In the meantime, our actions were aimed at survival, making sure the cash flow was right, and that the company could cross the turbulence that came.
When we moved from defense to offence we laid down the new strategy and the mission statement that went along with it. The process of forming the strategy involved the extended management of about 25 people who were divided into three groups who formed their view of the advisable strategy for the company. The final strategy which we set was a mix between two suggestions from the groups.
The new strategy included:
We translated the strategy into an action plan with about 12 action items that we were supposed to execute and measure in preset timeline. This included for example, taking hold of the distribution, marketing and sales in the North American markets, being highly efficient company, and also putting a lot of emphasis on developing our people and creating a leading team. We also knew we had to raise money as soon as we can in order to achieve our revenue goal of $500M, so the IPO in 2012 was part of this strategy.
We set the target of $500M of sales because we thought that by such scope it will be hard for anyone else to beat us in scale.
If you want a global brand or a strong brand in specific markets, you need to work with a long term vision, you need to take off the table all the conflicts you can, and you need to make an investment without any irrelevant limitations, in the brand, the production, the development and the marketing.
The company was a pioneer in the field of quartz surface. In the last few years Caesarstone definitely built its position as #1 in the field.
Could you see tangible results from this change in strategy?
In 2009 Australia was about 40% of sales and today Australia is 22%, although sales there are still growing. Sales in the U.S. were relatively small then, and today the U.S accounts for approximately 45% of our sales and Canada for approximately 15%. The opportunity in the US market is much bigger than in the Australian or Israeli market so this was very important for the future.
We have introduced innovative products very successfully, we have expanded our production capacity - from four manufacturing lines to seven lines.
This strategy required a lot of cash to invest in different areas. Can you tell us about Caesarstone's decision to go public?
The IPO was one of the key elements of the strategy because we needed access to funds in order to execute our plans. Even before the IPO we aimed to operate in an organized manner and we were ready for the transition to the life of a public company as of management and corporate governance. I think the IPO added a burden but only to a limited amount of people in the company and to some extent to the relationship with the kibbutz, which was the main shareholder at the time. The IPO also contributed to the company's position and its profile in the public.
One of the big things that required funding was the decision to start manufacturing outside of Israel. What went into this decision?
Building a plant in the U.S was another big milestone. We had a lot of demand for our products and we were becoming capacity constrained. We decided we needed to expand production capacity and to build a new production line as soon as possible in Israel. We added the line to our plant in our Bar-Lev plant.
But what we really wanted to do strategic-wise was to build a factory in the U.S., closer to our customers there. Before that we did a analysis to find the right location in two folds: first - what is the right location for the plant globally, whether it's better to do it in China, Vietnam or Australia, or why should we go out of Israel? When we decided to establish a plant in the U.S. the second question was where in the U.S? We chose Savannah, Georgia after a thorough site selection process and invested approximately $130M to build a plant with two lines. This was all funded by the company's ongoing cash flow, we did not take any loans for it, and we are still in a positive net cash position.
You make it sound so easy, but being a leader in any industry must come with many challenges. What are some of Caesarstone's main challenges today?
Competition is the biggest challenge. The quartz segment is still the highest growing segment in the countertop industry. You have many alternatives such as natural stone, granite, marble, laminate, which costs about one fourth of quartz, solid surface, stainless steel, wood and so on.
Quartz today is only 10% of the global countertop market which is about $80 billion, including installation. We believe our accessible market is of about half of it, because our involvement in installation is relatively low, so we are looking at a market of about $30 billion-$40 billion. With the growth of this segment the competition is growing, and we are prepared for that, but it is still a challenge.
There is a lot of competition in terms of number of companies, but they are not very strong. Out of those, only one—a Spanish company—really managed to become global and there are some American companies that focus on the states that do well.
There are also many companies from the Far East that compete by offering low costs and low priced products. Such companies from China don’t use the same machinery as ours, their materials and technology are different, and they compete on price on the low end. The Chinese companies have been around for 15 years and they are growing, so when there is a lot of competition on the lower level, it pushes other companies from low/mid-level to mid and it also creates some ripples on the mid/high-level.
The competition also include big companies in the sense of their resources, not specifically in our field. So far they haven’t succeeded so much but they have the capability if they decide to deploy a lot of money.
A second challenge is technology. Quartz is the best product available today for countertops but there are other technologies that may be considered in the future and we need to make sure that we cover those if we intend to keep on leading.
We have a vision of being the #1 surface company in the world for many years ahead and if we want to stay true to that vision we need to get into other technologies and other areas in addition to the kitchen countertops, where we are today.
Even prior to the new strategy in 2009, Caesarstone was strong in global markets, how did the company start its growth internationally?
As global opportunities are much bigger than those of the Israeli market, which is relatively small, global business is stronger.
Caesarstone started to work on the global front with one fabricator in the Netherlands that came across our products and started to promote them in the Netherlands and in Europe.
Another step was when Tene Investment Funds came in. At this time they built a more thoughtful strategy to sell outside of Israel. I then joined the company in 2009 and we took it further in a sense, and set clear objectives to get to new markets every year and more importantly, to transit into direct distribution in key markets. This was done first in Australia before I joined the company, and then in other markets as well.
What advice can you give to CEOs who want to grow a company like you did with Caesarstone?
In order to be able to change a company you need to know its business very well, you need to live and breathe all of its aspects. There are common things that work everywhere and this starts with people. It starts with respecting people, be open to different opinions and encourage people to say out loud what they think. It also means to encourage them to think about things, and to make sure that everyone understands that what each of us do— whatever his job is in the company—matters. Other important things include trust, transparency, constructive criticism and the grant of equal opportunities to everyone.
This is all part of building a team.
If you want to make your company global you need to know how to sense, you need to build a very good intelligence around all the markets and the world, and to infer what is relevant from one market to another. For example something can start in the Netherlands and then become relevant in other places. You have to try to recognize this and be the first to implement.
And of course never "rest on the laurels," always make sure the business is efficient, that everything runs on the highest integrity possible and that people understand the direction.
We like to think that we have built a culture of being #1 together as a company and as a team.
By Ayellet Globerman, Partner, Tefen Israel, and Aviva Gat, Consultant, Tefen Israel