A bath has long been more than just a bath in the wealthier corners of the world.
And bathrooms seem less like utilitarian places for bodily hygiene, but wellness oases with tropical showers, aroma clouds, background music and designer faucets.
This is good news for manufacturers of bathroom furnishings and fixtures, such as the Grohe group from western Germany. For many years, the world leader in premium bathroom fittings has expanded its business through economic slumps and geopolitical crises.
In the first three quarters of 2014, sales increased by 6 percent to €1.14 billion, or about $1.42 billion. Earnings before interest, taxes, depreciation and amortization were €210 million, for an impressive 19-percent profit margin.
Grohe has not always been so successful.
The family firm was sold to a U.S. company, then repurchased by the family ― then sold again, this time to financial investors. There followed a painful restructuring and new orientation after years of stagnation. The head of the Social Democratic Party at the time, Franz Müntefering, used the long suffering Grohe workforce as an example to start a public debate on private equity firms that gobble up domestic businesses like “locusts.”
But things quieted down a good while ago. Grohe now grows faster than its competitors and invests continuously in new products. For a year now, the bath specialist has been owned by the Japanese building-materials company Lixil, which partnered with the Japanese Development Bank to pay €2.7 billion ($3.37 billion) for its German acquisition.
With a company reorganization next year, Grohe will stand at the head of a newly formed division, Lixil Water Technology, which combines all of the Japanese company's bathroom brands. These include American Standard, Joyou from China and Lixil itself.
The family firm was sold to a U.S. company, then repurchased by the family ― then sold again, this time to financial investors.
The new unit, with $6 billion in sales, will be far ahead of its competitors from Japan (Toto) and the United States (Masco). While the competitors concentrate primarily on their home countries, Lixil’s four brands will operate throughout the world ― at 50 production sites and with 27,000 employees.
David Haines, a British executive who chaired Grohe’s management board for 10 years, will head the new Lixil division. He sees it as a great advantage for the German producer of premium brands.
“Grohe is already the largest single brand in the world,” he told Handelsblatt. “With our new channels of distribution, we'll have better access to Japanese and American markets.”
With the new structure, joint purchases and a platform strategy, Mr. Haines expects savings of several hundred million dollars for all brands in coming years. At the same time, the Lixil Water Technology group intends to invest around €1 billion in research.
“Many of our competitors don’t even reach sales of one billion,” said Mr. Haines.
The $65 billion market for bathroom products and bath fixtures is fragmented globally, but Germany plays a significant role. Most premium producers are German: Duravit and Villeroy & Boch for ceramics, and Dornbracht and Hansgrohe for luxury fixtures. These companies also are expanding worldwide but are significantly smaller than the Grohe group.
As the worldwide market leader, the new Lixil bath division has a 9-percent market share. From this position of strength, Mr. Haines does not exclude further acquisitions, but said there are no concrete plans now. “It would be best to digest everything first,” he said.
Above all, this means distinguishing the four brands in the Lixil empire from each other: American Standard will no longer be offered in Europe, Lixil will remain in Japan and adjoining markets.
Things are different with Joyou. Mr. Haines said that after successful market launches in Great Britain and a few southern European countries, bath fittings from China will be offered in Germany starting in 2015. “That way we will round out our product range at the lower end,” he said.
But he insists the three Grohe factories in Germany are safe. “I see only opportunities for the German factories,” he told Handelsblatt. Grohe recently made significant investments and its products are leaders in terms of design and quality. “Production in Germany is the centerpiece of the company,” Mr. Haines said.
New opportunities are also ahead for Grohe. The company, which until now concentrated on fittings, will increasingly offer ceramic products. And in important foreign markets such as the United States and Middle East, it plans to offer a complete range of bathroom furnishings. The products will come from the Lixil conglomerate or from Grohe itself.
One new product is a bidet with a built-in hot-air dryer. It originally came from Japan, but the concept has many fans in Germany. Currently, the high-tech basins are produced by Grohe and a Swiss partner for the European market. Mr. Haines believes that in the future, Grohe could manufacture it or similar products in Germany as well.
The hot-air bidet is popular, he said. “Many customers are skeptical at the beginning,” he said. “But once they've tried it, they don’t want to be without it.”
Martin Wocher is a reporter for Handelsblatt. He has also trained journalists in his capacity as lecturer at the universities of Münster and Cologne. To contact the author: [email protected].