Conceding share, but adding value

Tell us about your remit.

It’s a unique responsibility. Prior to me, there’s always been a division between the upstream or ‘primary’ manufacturing part of the business and the second line, processor and merchant business, or distribution business I should say. The two came together 18 months ago in terms of a restructuure. That gave me the opportunity to take responsibility for sales of that business entirely.

How have you approached it?

Previously at Pilkington, there was a distinction between primary and branches that was largely independent from the relationship that we have with our independent customers. When the decision was taken to re-combine the businesses that meant we had to have a change in approach. This was largely spawned by the increased competition in supply at the primary level, which meant that we were going to have a lower market share than we had been used to. Now there are three indigenous manufacturers. There wasn’t the demand to accommodate all of them so something had to give. In that sense, we conceded market share at the primary level in return for some stability in prices. We had to arrive at a situation where we could effectively derive more from that lesser volume. The need was to sell better through our branch network.

Did streamlining come in to it? It effectively meant that we had to make decisions about customers really. The decisions we made were about how far we were prepared to take glass for the prices we were trying to achieve. In some cases, unless there was a strategic reason to reach a certain locality, we would opt to retract and leave others to supply – we would concede it to another manufacturer.

Guardian effectively came in with close on 200,000 tonnes of capacity and not 200,000 tonnes of market to go at. The only way the market was going to be less aggressive was if we allowed them a share so they could get some critical mass to manufacture.

What I think wasn’t foreseen by Guardian was the downturn in the UK market. Perhaps they wouldn’t have built the plant. They’ve come in to the UK market at a time when it’s less able than any time in the recent past to accommodate a new float line. That’s why we have a situation that is highly competitive at the manufacturing level and also further down the chain, because there’s over-capacity at every level.

Have there been any instances of Pilkington not servicing certain regions?

We have made conscious decisions. It’s necessarily been about certain customers but ultimately it’s down to freight costs – how much it costs us to transport a 25 tonne load of glass. With freight costs being a disproportionate amount of the selling price, it necessitates just how far you’re prepared to go.

It’s all a balancing act, as is trying to get the right loading on float lines. If as a consequence of demand or circumstances you’re not able to load that float line you can lower how much glass you melt, but then your unit costs go up and it’s even more critical to get the right selling price.

Do you make anything on standard float glass?

I think it’s probable that nobody makes any money on standard clear float glass. It’s probable that we make more than the other manufacturers simply because we have sought to keep our prices as high as we can in the circumstances, but not in any mercenary way. We have chosen where to supply, at what price, in order to get a satisfactory return on our sale.

You could say we’ve had a privileged position, having the greater share in the UK. We’ve had the option of choosing which of our customer base we continue to supply and at what prices, and where the prices or economics became untenable, we’ve walked away.

There’s a core group of customers that everyone wants to supply and that’s where the competition is. Everybody wants to supply the big processors who are highly creditworthy and pay their bills on time. Which is understandable because there are assets that have been invested in.

We’re largely satisfied with our float volumes and our volumes overall really. The prices could be better but they’re acceptable to us at the moment. The mix then becomes more important: opportunities for added value such as coatings or other means of adding perceived greater value.

Clear float is half of a sealed unit. It is and it isn’t. The Low E (low emissivity) is a given. Currently, the outer glass is expected to be clear float glass but it could be Pilkington Activ, it could be tinted, or any number of things. The opportunities are in moving this forward and that’s what we’ve seen with Pilkington Activ. It’s adding a higher perceived value. We will launch Activ with a blue tint in September for the conservatory market.

Do you think that your competitors are achieving market share on the back of their glass coatings?

There’s probably no doubt about it. As far as the UK was concerned, when Part L came in Pilkington had K Glass, and the other manufacturers had to play catch-up. None of them had a product that was comparable to K Glass and in terms of positioning we’d been in the market with it for 13 years.

The other manufacturers arguably didn’t have a product that was suitable for the UK. Being European based, their Low E products had been developed for the continental market, which isn’t a toughened market. It came down to the fact that the UK was largely unique in having a high proportion of toughened glass being the favoured safety glazing material. That dictated the type of product that was acceptable to the UK.

Apart from Glaverbel, who have the technology that we licensed to them, the other manufacturers didn’t really have an online product – a pyrolitic product – that was comparable to K Glass. Their developments were in offline coatings that could go some way to replicate the processability of K.

Guardian came into the UK market without a Low E offering. Now they’ve caught up with their 1.4D but there are problems with that: You need two stocks, it needs edge stripping. Because of the processing limitations and because they are new to the market this leads to deep discounting to gain market share.

And arguably the same situation with Saint Gobain. They didn’t have Planitherm Total in the early days. They were trying to compete with genuine (meaning high performance) offline coated products or offline coated products like Planitherm, which was alright for the UK but didn’t have the processabillity. So they developed toughenable versions of that. Even now, Planitherm Total is a good product but it is a hybrid product – it’s not truly Low E. Neither has it got the processing advantages of an online product.

Glass processors have gone soft coat because the material cost is lower. Many of them have invested a lot in order to process it and the only way to justify this is for our competitors to discount soft coat against K Glass.

Although you have Optiwhite, the fact that you’ve stuck with K as your main Low E offering has given competitors an opening because there are always customers that want to exceed the performance criteria with soft coat.

The Low E products that have been adopted have been the Planitherm and the I.4D which are hybrid products. They don’t get down to the 1.1 or 1.2 U values which are truly Low E products. It is arguable that demand for Low E is currently in parity with supply, so it is possible to sustain the current position for all manuafacturers at good prices.

Wouldn’t you have held on to more market share if you had promoted your soft coat products as well?

This presents us with a dilemma because we do have offline coated products but they’re not hybrid – they’re truly Low E products, achieving U values of 1.1. But if we subscribe to promoting soft coat products we subscribe to the diminution of K Glass. K will satisfy the demands of the UK market for some time to come and we think it always will be, because not everyone will want to invest in soft coated products.

K Glass is very important for us and I think for the market as well. We also manufacture in Germany, so of all the manufacturers we have the greatest capability to supply the demand in the UK for a Low E that is toughenable. If we didn’t supply, it’s questionable where it would come from. The government only decided about Part L because it was satisfied that demand could be met and Pilkington K Glass played a very large role in that. K is by far the market leader in terms of volume and will be for the foreseeable future.

Moving it forward. We’ve got Window Energy Ratings (WERs). Whatever you feel about the system, K sits well with it.

Window Energy Ratings is significant. It doesn’t discriminate between forms of Low E. It tries to take into account the properties of thermal insulation and thermal transmittance as well. It was seen as a step too far in Europe. Getting people to understand U values was hard enough. But Window Energy Ratings does all that.

What is far more beneficial for the window industry and the glass industry than U values is that it does facilitate a larger window area. values was always going to be a losing battle for windows.

Window Energy Ratings is saying that improved insulation has to come from the frame and other components. Glass is already performing well enough.

Is this the outlook?

For the foreseeable future. But this doesn’t withstand marketing. Some window companies will look for the opportunity to distinguish themselves from the pack and may choose to go down a higher performance route – selling on the back of U values as opposed to WERs.

But it’s a little bit to early to predict – there’s only a handful of people who actually have a rating. We are trying to encourage our customers and in turn their customers to look at the implications and what role the glass can play in this. It’s a fact that most windows will get a rating of D or E. The ‘Energy Efficiency Recommended’ label can be applied to a C and beyond. The more progressive companies will want to differentiate by getting higher up that scale.

So, why rebrand Pilkington K?

Basically to recognise the fact that the market is more competitive than it was previously. We’re not standing alone anymore. This is an opportunity to re-present Pilkington K Glass as the foremost Low E glass in the UK. It’s the sort of thing oil companies do on a regular basis.

I was Product Manager for float products at the time of K’s relaunch in 1990 to give it more impetus (the original launch was in 1989).

The consumer campaign was vast. We had a massive road show. It was unprecedented for a glass manufacturer and has never been repeated. We even solicited the interest of the window salesmen through approaching window companies throughout the UK to atttend a roadshow of about 10 product launches. That was accompanied by radio and TV advertising and a lot of press. It was very high profile and arguably established the brand, the legacy of which we’re still seeing now. I think it’s a unique situation in having created an awareness in householders about a glass product. I don’t think anyone else can claim to have done that. It’s been the foundation on which K has largely had its latter day success.

You also manufacture K in Germany? Is that to supply Russia?

This is to supply other parts of Europe where there is a demand. The continent has behaved entirely differently to the UK. In some countries like Poland where we expected them to progress first to Pilkington K Glass because it is easier to process, they have leapfrogged it entirely and gone straight to offline products (soft coats). They were following established practice from Germany and other parts of Europe.

We established the capability to manufacture K in Germany when we first introduced K into Europe. We haven’t been able to utilise as much as we wanted because continental demands are different. On the continent it’s not acceptable because legislation has moved on and it’s not permitted in many places. So we manufacture a volume which satisfies demand in certain parts of far Eastern Europe. Also in Scandinavia where there is sometimes a secondary sash behind double glazing, and this glass needs to be durable.

Do you have plans to promote Pilkington Activ to the consumer?

We have plans for a significant campaign but it’s about choosing the right time. We polled some of the window companies and the answer was ‘not yet’. They are more preoccupied with getting a sale than selling up. Window companies are largely avoiding any opportunity for someone to sell against them. If one is offering a differentiated product with a premium attached to it then it’s easy for the next guy to come in a sell against it. There’s a great reluctance for anybody to put their head above the parapet.

Things are tough at the moment and everyone can tell you that. The market is significantly down year on year and there is overcapacity at every level. As a result of the recent good times that people have enjoyed on the back of greater sales revenues – largely on the back of Part L – they have invested that money in their businesses to give greater capability which has resulted in overcapacity, whether it’s toughening or sealed unit manufacturing.

Everyone has enjoyed good times. The salesmen have not had to sell, and now the market has changed very quickly.

Prudence is a byword again in terms of who you choose to trade with. Again this goes back to everyone wanting to sell to the same customers. You must identify customers who are going to be here for some time yet, and try and avoid the bad debts. This is a tough market place, however, with our technical expertise and strong product offering we are confident that Pilkington is well positioned to lead it for some years yet.