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Prepared for:

NEBRASKA STATE RECYCLING ASSOCIATION 512 ELKWOOD, CENTER MALL

OMAHA, NE 68105 PHONE: (402) 444-4188

MELINDA CRUZ Consultant

Nebraska Business Development Center University of Nebraska at Omaha

Omaha, Nebraska

May 1996

THE NEBRASKABUSINESS DEVELOPMENTCENTER

The Nebraska State Recycling Association is working with Bev Clark who is currently managing Antelope County recycling. Ms. Clark is considering opening a tile manufacturing plant in Neligh, NE. The tile produced will be made from recycled glass collected from the local community. The product made from this technology is called glass silicate tile. Ms. Clark will purchase the technology from Futuristic Tile, a start-up company located in Wisconsin. Ms. Clark will purchase the equipment, which includes 2 kilns and 8 formulas for tile. In addition, Ms. Clark will pay Futuristic Tile 3% in royalty fees on sales or $25,000 annually, whichever is greater. Currently, there are no operational plants in the United States using this technology. Futuristic Tile has a research and development facility in Eastern Europe.

ISSUES

The Nebraska State Recycling Association contacted NBDC for assistance in the development of a feasibility plan for a tile manufacturing plant. Below is a list of issues pertaining to the start-up of the glass silicate tile manufacturing plant that warranted further research.

Gauge and attempt to quantify the acceptability of glass silicate tile in the Nebraska and regional market.

Estimate the market potential of glass silicate tile in the Nebraska and regional market.

Gain a better understanding of market penetration and distribution barriers in the U.S. tile market.

Gain a better understanding of the price retailers, distributors and architects will be willing to pay for the tile.

Create pro-forma financial statements for the manufacturing plant.

Gain an understanding of the tile distribution system.

Find markets in which the tiles will be sold.

Discover competition that would be most closely aligned with this type of tile.

RECOMMENDATIONS

It is recommended that the company develop sample boards ready with slippage factors, density, installation, testing and specifications.

It is recommended that the company determine the product’s installation requirements. If it cannot be installed in the same manner or for the same applications as ceramic tile, it may become a commercial product by default.

It is recommended that the company develop written installation specifications for customers.

It is recommended that the glass silicate tile be marketed as something unique rather than as a substitute for natural stone.

It is recommended that the client have a clearly defined contract with Futuristic Tile. The contract should include a description of the roles of each party. It is recommended that the client review the licensing agreement with a lawyer.

It is recommended that the client negotiate a yearly line of new recipes.

It is recommended that the client negotiate and specify a geographic area of distribution.

It is recommended that the client focus on product qualities such as price, durability, ease of installation, etc. instead of primarily the fact that the glass silicate tile is a “green” product.

It is recommended that the client develop relationships with regional distributors in advance of product introduction.

It is recommended that the client investigate the use of other technologies to transform used glass into a salable product.

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THE NEBRASKA BUSINESS DEVELOPMENTCENTER

THE REPORT

The Industry Ceramic tile has the largest geographic base of all construction materials. The overall estimated market size in 1996 is approximately $1.5 billion. This market is expected to grow at a compounded annual rate of approximately 9 % in the next 3 years. Profit margins in the U.S. tile industry have declined due to the increasing numbers of manufacturers entering the industry. The resulting competition is driving down prices. Since 1982 there has been a 44% increase in the number of tile producers. Demand for ceramic tile is driven by the demand for construction, which in turn is inversely related to interest rates.

According to the U. S. Industrial Outlook 1994,

Following declines during the 1990-91 recession, the ceramic wall and floor tile industry (SIC 3253) experienced an upsurge in shipments in 1992 and 1993 to 472 and 495 million square feet, respectively. This compares with the shipments peak of 543 million square feet in 1989. New single-family housing construction and greater levels of improvements to existing structures spurred the gain. This level of shipments by domestic producers still represents less than half of the U.S. market. The annual U.S. import-to-consumption ratio has ranged between 50 and 60 percent for many years.

The industry consists of about 90 firms operating 110 plants. Many of these firms produce only accessories and special tiles. The ceramic tile market has a broader geographical base than most construction materials. Sales go well beyond local markets near plants, to regional, national and sometimes international customers.

Ceramic tile prices rose modestly in both 1992 and 1993 (about 1 percent), according to the Producer Price Index. This followed a drop of about 1 percent in 199 1.

Ceramic tile consumption should rise 3 to 4 percent in 1994, to 1.2 billion square feet. Of the total, domestic shipments should make up about 5 10 million square feet and imports about 680 million square feet. This would be the second highest level for both domestic shipments and imports. The projection is based on the popularity of ceramic tile and the level of new residential construction and renovation work. Continued weakness in the private nonresidential construction sector will be a negative factor.’

The following excerpt from “Ceramic Floor and Wall Tile” by Specialists In Business Information explains the historical perspective of the U.S. tile market and forecasts future trends in the market.

The U.S. ceramic tile market has been in a cyclical upturn since 1992. Domestic demand benefited from a stronger construction spending as interest rates declined, led by a strong upward movement in home sales. Demand is forecast to continue to increase at relatively strong rates over the next decade as ceramic tile use becomes more widespread in new construction and remodeling spending strengthens further. Dollar sales and profitability will also receive a boost from stronger prices.

The value of the U.S. ceramic tile market supply increased an estimated 9.2% compounded annually between 1992 and 1994. Dollar sales are estimated to have reached $1.3 billion in 1994. At the same time, volume sales rose 11.9% compounded annually to 1.3 billion square feet. This compares with the market growth rate of 7.6% based on dollar sales, and 6.9% based on volume sales between 1982 and 1992.

Relatively strong market growth in recent years is in direct response to the significant decline in interest rates since 1990. Lower interest rates led to a recovery of U.S. construction activity, especially in new single- family home construction. In fact, home building has been a leading sector in the domestic economic rebound. A similar situation occurred during the economic recovery in the early 1980’s.

Stronger growth also reflects the ceramic tile market’s ability to outpace the overall floor covering market in recent years. Ceramic tiles estimated to have accounted for 8.4% of total 1994 U.S. floor covering product supply on a dollar basis, and 5.3% of volume sales. Ceramic tile represented 8% of dollar sales, and 4.8% of volume sales two years earlier. These inroads were sparked by the increasing size of the average U.S. new housing unit and the upturn in the number of bathrooms per new home.

In addition, over the past two years consumers reacted positively to the continued weakness in ceramic tile prices. Prices weakened because of rising competitive pressures in the domestic ceramic tile industry. This can be seen in the 44% increase in the number of U.S. ceramic floor and wall tile producers since 1982. New entrants were attracted by stronger U.S. ceramic tile demand and a weaker U.S. dollar which caused import penetration to level off Still, imports continue to capture over 50% of total U.S. volume sales.

Weaker prices, however, led to sluggish plant profit margins. Manufacturers responded by dramatically improving labor productivity

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THE NEBRASKA BUSINESS DEVELOPMENT CENTER

and reducing inventory levels. Reducing inventory levels has finally caused ceramic tile prices to begin strengthening during 1994, when the wholesale price index for ceramic floor and wall tile is expected to increase at its strongest rate since 1988.

Larger-sized tiles are expected to benefit the most from strengthening prices. The average price of ceramic floor and wall tiles over six square inches is estimated to rise by 1.1% during 1994, the first increase in three years. This compares with a 6% decline in average mosaic tile prices. These trends reflect the respective demand patterns for these two product sectors in the U.S. market. U.S. mosaic tile volume demand increased a total of 15% between 1991 and 1994, while larger-sized tile sales rose 38%.

Domestic ceramic floor tile demand is forecast to continue to increase at relatively strong rates over the next five years. Volume market supply is projected to increase at an 8.8% compound annual growth rate during this period, climbing to 1.6 billion square feet by the end of the decade. Dollar supply could increase 12.9% annually to $1.7 billion. The dollar value of ceramic tile sales will be aided by stronger prices since a weaker dollar results in rising import prices. As a result, U.S. manufacturers are expected to improve their position in the domestic market over the next five years. U.S. volume shipments are forecast to increase at a 9.9% compound annual growth rate between 1994 and 1999.

In any event, manufacturers and marketers will benefit from continued inroads made by ceramic tile in the U.S. floor covering market. Ceramic tile is expected to account for 8.9% of total U.S. floor covering supplies, on a dollar basis, by 1999. This is the highest level in a decade. Demand will be increasingly driven by residential remodeling markets as the economy recovers, and by late recovery in new U. S. nonresidential construction activity.2

From the excerpt one will realize that the U.S. tile market is dependent on the construction industry, both new construction and remodeling.

Market Potential for Glass Silicate Tile

Initially, it was believed that Antelope County Recycling could produce and sell ceramic tile in Nebraska and possibly border states. However, based on discussions with distributors and after sizing the market for specialty tile, it appears that a geographic area of the entire Midwest market or a minimum of an eight state area will be required to provide sufficient demand to support full capacity of the plant.

"Ceramic Floor and Wall Tile" Specialists in Business Information

5


There were approximately 91,947,410 households3 in the U.S in 1990. Compounding the average annual population growth rate of 1.1% by the 1990 figure yields 98,1875,292 for 1996. In 1994 estimated residential purchases of ceramic floor and wall tile were $1,325,700,0004. Assuming an average annual growth rate of 7%, the dollar value of the U.S. Ceramic Floor and Wall Tile Market can be estimated at $1,517,793,900 for 1996. To arrive at an average, the consultant used the 1996 value of the U.S. ceramic floor and wall tile market, ($1,517,793,900), and divided by the estimated number of households in 1996, (98,1875,292). This came to $15.46/household for ceramic floor and wall tile. Estimated U.S. consumption in square footage for 1994 is 1,3OO,OOO,OOO5 square feet of tile.

To find an average for the square footage of tile used per household, the square footage for 1996,( 1,627,809,300), was divided by the estimated number of U.S. households in 1996. Using this method for 1994, each household used an estimated 16.57 square feet of tile.

Since 1992 figures for Terrazzo, tile and marble work in Nebraska were not available, the consultant used 1987 figures. To arrive at a 1996 estimate, these figures were compounded annually at 7%. The estimated dollar value of terrazzo, tile and marble work in Nebraska for 1996 was $8,273,066. Comparing this figure to the 1996 estimate, using the method of multiplying the number of households estimated for Nebraska in 1996 by the average household expenditure of $15.46, we have $9,944,311 (See the following table). The difference between the two estimates is $1,671,245. -Using the difference between the two numbers, the consultant arrived at $9,108,688 as likely size for the Nebraska market. If the Nebraska company operated at 100% capacity, 160,000 square feet or $640,000 in sales, the company would have to capture 7% of the Nebraska market. Capturing 7% of the Nebraska market is a lofty goal. It is therefore recommended that Antelope County Recyclers take into account the necessity of expanding beyond Nebraska for geographic distribution.

A representative from Sunderland Brothers sells approximately 10,000 square feet of tile from a specific specialty line. To be conservative, the consultant assumed that the Nebraska plant will sell about 10,000 square feet of tile a year to a Nebraska distributor. This constitutes .0938% of the Nebraska market. Most distributors will require an exclusive distributorship. For the purposes of estimation the consultant assumes that a distributor will have an exclusive distributorship that covers the geographic area of a state. To estimate the market potential the consultant multiplied .0938% by the square footage of tile sold in each state. This would be a realistic number of square footage of tile that could be sold in each state. (Refer to Appendix F for a state listing of estimated market size.) Although this method was used to understand how

much in tile sales could be expected, it is not a method without error. Nevertheless, this method does provide an idea about how much market penetration can be expected. Refer to the table titled “Estimate of Market Penetration” for a listing of the market potential for each state. The table below is an abbreviation of the larger table (Appendix F). Although this table shows an amount for each state that could potentially be tapped, it is not necessary for the Nebraska company to have sales in all these markets. This table was formulated to illustrate where and how much tile is being sold annually. This table has a margin of error of +/- 10 percent.

Market Potential of Midwest for Ceramic Floor and Wall Tile

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Using the maximum capacity of the plant, 164,000 square feet, the minimum geographic area can be estimated by first looking at our bordering states.

Based on capturing a .09% of the markets in each of these states, the Nebraska company would have to have the above area at minimum to capture a large enough market share to support maximum capacity. Based on the financial projections, the company will need to capture the following percentage of the Midwest Market (12 state area) depending on the case scenario and year. It becomes very apparent after looking at the following chart that the production capabilities of the Nebraska plant are a very small drop in the bucket when looking at the tile market. Although the market is large, a few firms control the U.S. domestic production market. The Industry Outlook argues that ceramic tile sales go well beyond local near plants, to regional, national and sometimes international customers.

Production of Plant and Percent of Midwest Market to Capture

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Niche Market For Glass Silicate Tile

In examining the potential markets for glass silicate tile, several options arose. Tile can be sold to distributors, retailers, contractors, architects and other construction related purchasers. Below is an explanation of the various methods of distribution for glass silicate tile.

Distributors and Exclusive Distribution

Most contractors and retail stores purchase tile from a distributor. Usually distributors carry tile lines from several manufacturers. Sunderland Brothers, a very large distributor in the Omaha market, sells tile from about 25 manufacturers. Most distributors cater to all sizes of contractors. The very small contractors purchase from retail stores.

Larger distributors usually have sales representatives who cater to architects, retailers or contractors. These sales representatives serve as an educator for architects, retailers and contractors. The salesperson explains new products to these groups and gives them promotional material.

The Following table lists the number of distributor establishments and sales per state for firms listed under the SIC code of 5032, which includes companies who sell brick, blocks, tile, clay, cement and sewer pipe.

Number of Distributor Establishments

United States 4,285 $1 0,117,659 3,388 $ Ne bras ka 28 95,288 20 16,200 Illinois 177 619,780 1,143 239,892 Iowa 43 78,711 32 46,256 Missouri 75 239,989 59 97,515

South Dakota 7 10,101 5 (D) Colorado 62 164,375 45 57,045 Kansas 40 83,740 32 28,327 Wyoming 4 (D) 4 (D)

Source: U.S. Department of Commerce 1992

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Tile manufacturers select distributors who serve as exclusive agents for a specific geographic area. Exclusive distribution rights are common throughout the ceramic floor and wall tile industry. It is difficult to estimate the number of distributors that will be needed, since each distributor will demand geographic areas of different sizes and market potential.

It will be important for Antelope County Recyclers to gather data regarding distributor performance in introducing new products and success in entering the market, to gain knowledge in how to best evaluate the distributor. As knowledge is gained about how a given distributor operates and performance criteria are developed, the company will have the insight to better select future distributors in new markets. Questions to ask distributors will include “is the sales volume of the entire company more important than the sales generated per sales representative?”.

A distributor usually operates at a 28% gross margin. The skew (consistency of size) is very important. Usually the manufacturers give sample boards to distributors to give to their customers. Some distributors make their own to give to contractors and architects.

One distributor requested a frost resistance test which must be better than 7%. This is better than the 24 hour water absorption test. They have exclusive distribution rights.

One distributor first thought the glass silicate product would be sold commercially, but most commercial products are more mat than glossy. If this product is to be sold commercially it would need a more mat-like finish. It would also have to be slip resistant.

Retailers

There are over 160 floor covering stores in Nebraska with sales revenue of approximately $1 11 million. There are over 3 13 home finishing stores with revenues in excess of $1 56 million.

The consultant visited with several individuals from retail stores. The goal was also to gain a better understanding of the different tile products on the market. Retailers often purchase from distributors. Even local franchised retail flooring stores purchase from local distributors to supplement the regular stock they get from the franchiser. Local retailers commonly work with more than one distributor.

A representative from Color Tile said that the store sells directly to small contractors. Most of these small contractors deal with Color Tile because they do not order in large quantities that would warrant a relationship with a distributor. The store gives small contractors a discount on their purchases.

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Contractors

The category of contractors can encompass not only general contractors, but also specialty contractors or contractors who only install tile and flooring. Contractors learn about new products by receiving information from distributors or manufacturers. Sample boards are usually large boards that have pieces of tile attached. Manufacturers usually put information on the backs of the boards such as product specifications. For residential construction projects homeowners are usually given a flooring allowance. The homeowner is then sent by the contractor to the distributor’s tile showroom. The homeowner can select from all the tile samples in the showroom. Distributors provide sample boards to contractors to promote their lines.

Architects

Architects learn about new products from manufacturers or distributors. To get to the architect it is necessary to have a relationship established. This takes significant effort to build. Otherwise, newcomers are dismissed to the junior designers. Some of the concerns from architectural firms included the slippage factor. One firm would like to see how it works with other materials such as brick. All firms asked how the tiles should be installed. One firm liked the three larger tiles the green, red and white (with black specks). Commercially one firm estimated spending about $5/square foot for ceramic tile and about $7-8/square foot for quarry tile.

In marketing to architects one firm said she would like to see specification comparisons, price comparisons, samples, etc. Others asked what the tile is made from and the availability.

On average, flooring for a school may be about 5,000 square foot. If the tile is used as an accent the firm may spec about 200 square foot of tile. Dana Larson Roubel says that it builds about 10-1 5 school projects a year.

A representative from one firm argued that the concept of using “green” products in building is not a prevalent factor in helping or inducing companies and individuals purchase a product.

When a firm was asked how the contractor commonly gets the material, the representative said that they usually send the contractor to the local distributor to purchase the material. All products that are used in the building must go through the architectural firm.

An individual in an architectural firm said that the natural stone market has exploded in the last few years. It is now very easy to get stones from Italy, Spain and Portugal, which was once more difficult. An architect from Folgers argues that this product is competing more with ceramic tile than with natural stones.

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The installation may take this product out of retail. The more specialized the tools, the more difficult and more expensive it is to install the product.

Number of Establishments

United 68,127 41,834 17,875 States Nebraska 267 152 92 Illinois 2,687 1,597 864 Iowa 359 220 102 Missouri 1,084 620 320 South 110 62 35 Dakota Colorado 1,662 1,071 419 Kansas 477 293 132 Wyoming 175 109 29

Source: U.S. Department of Commerce 1992

Product Features and Market Opportunities

Custom Color Matching

There was an interest in investigating custom production and custom tile color matching. While there are possibilities in this market, the effort that would have to be expended in marketing the service would be too costly to be feasible. This assumes that the company would have to purchase each custom color match recipe from Futuristic Tile. Custom color matching would require the purchase of more color recipes from Futuristic Tile. If this option is to be seriously considered the geographic area of the market would also have to be expanded to be profitable.

.

The Issue of Selling a “green” Product

All those interviewed by the consultant said that even though the product was “green”, this alone would not be the determining factor in the purchase. Although in Nebraska there is an Executive Order for local governments and

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municipalities to use recycled and environmentally sound products, this is not enforced.

The consultant believes that the fact that this product is manufactured in Nebraska is a better selling point than the fact that it is a “green” product. This does not mean that that the fact that the product is green will never be a selling point. There is a strong possibility that as awareness about alternative building materials grow, there will be an increase in demand for those products.

The Importance of Tile Color

After speaking to individuals within the tile industry and to architectural firms, it became evident that the color lines used for the commercial market and the residential market are different. Architects liked the brighter colors such as the red granite and the deep green tile. Distributors and retailers of wall and floor tile liked the more neutral colors. Architects appear to be more daring in their color selections for commercial buildings than homeowners. Popular residential colors and patterns are the antique stone colors which are lighter. Most of the more popular floor and wall tiles on the residential or commercial market have the appearance of distressed stone or weathered-looking stone. (Please refer to Appendix A for examples.)

The selection of colors for the product line requires a great deal more research than simply going to tile stores and seeing what is popular. The company can hire a color consultant to help determine the best color choices. The Color Association of the United States (CAUS) publishes reports on the color cycles or trends in various industries such as tile, cosmetics, textiles, etc. CAUS assembles experts on color in particular industries. These experts create color forecasts for their respective industry based on the color cycles within their industry. Membership to CAUS is approximately $300 for an individual. Individual color reports for non-members are $300 and over. Members can get one copy of their industry’s report for free. Reports on other industry colors average $50 for members. Why would a company choose to pay for the report or pay for a color consultant? A great deal of money will be spent on the purchase of the eight initial colors, therefore knowing the hot colors customers want will be vital to the company’s success.

Most of the tile colors for residential use on the distributor’s showroom floor are light neutral colored tiles. The most popular stock items at Yankee Hill Tile

and Brick are washed out stone, antique stone, marbleized or simulated marble with a texture, slate finish and fume texture with three colors. A representative from Yankee Hill Tile and Brick liked the following Futuristic Tile samples best: antique gray, pearl white, black and speckled gray.

Since color is so vitally important, the contract with Futuristic Tile must include some provisions for the purchase of additional formulas. It is recommended that the company negotiate at minimum of one color line each year from Futuristic Tile. This should be part of the agreement and part of the 3% royalty fee.

When a distributor’s representative was asked about the breadth of a manufacturers color line, the representative argued that eight colors should be sufficient. Nevertheless, if more colors are available, the presentation will be enhanced. Eight colors could be perceived as a short line. Even so, larger lines often have about 5-6 best selling colors and the additional colors are rarely ordered.

Geographic Distribution and Related Pricing Strategies

There is a concern that the market and price will affect the geographic distribution of the product because the higher the price charged the larger the geographic area of the distribution. The issue of protected territory must be resolved before a definitive market is specified. Therefore, it is necessary to negotiate specific territories with Futuristic Tile. If the company chooses to sell tile to the commercial market, the price must be lower than if it is sold to the high-end residential market. The fundamental reasoning is: the higher the price, the greater the geographic area that must be covered to serve the market. If the client chooses to sell tile at a competitive commercial price, the geographic area that must be covered is smaller. Additional information is included in the pricing section, along with more analysis.

The marketing strategy for a standard product line should be the gradual establishment of a network of exclusive local and regional distributors. This may be accomplished by concentrating on one specific geographic area at a time. This strategy may be employed until the company’s intended market is obtained. The determination of geographic area entered should be determined by size of the potential market, trends within that particular market (i.e. economic, construction and population), and the production capabilities of the company. The consultant believes that gradual entry into the market will allow the company to obtain their goal of distributing their products on a regional basis while maintaining the high-quality, exclusivity, and reliability that will be required for long-term success.

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When Sunderland Brothers entered the market in Kansas City it took them some time to develop a network. They had to build credibility with architects, contractors, retailers and other tile purchasers. This process was facilitated by the company's thorough understanding of the tile industry, but there were certain nuances that are unique to geographic regions that needed to be learned.

It is common practice when a new representative selling building materials approaches an architectural firm to be told to speak to the junior designer or lowest person on the totem pole. The problem with this is that the junior designers move from firm to firm frequently. This means that each contact made with the architectural firm must start anew. Distributors are able to overcome this barrier. Distributors, especially well established ones, develop a rapport with the firm's architects and thus have the ability to access the firm's decision makers.

Promotion Promotional programs should be designed to appeal to different types of distributors: small (local), medium (regional) and large (national). These programs should be designed with their differences in mind to apply to both a small and large distributor. The following table illustrates programs that would generally be of interest to distributors based upon their size. As the table indicates, the small distributor is not concerned with marketing, but with generating sales volume. Regional distributors are aiming at growth and will support manufacturers efforts that will increase their functional efficiency. Large distributors will support programs that are unique or which greatly enhance their extensive capabilities.

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DISTRIBUTOR

MARKET AREA

Local

Regional

National

PREFERRED

SUPPORT

PROGRAMS

Receiving Concessions

Credit Granting

Minimum Order

Quantity

Expediting Emergency

Orders

Sales Leads

Training Seminars

Quarterly Promotions

Co-operative

Advertising Plans

Tight Partnerships

Co-operative

Advertising

Promotions

Faster order-response

systems

Better Status on Orders

LESS

PREFERRED

SUPPORT

PROGRAMS

Co-operative

Advertising

Training

Sales Leads

Incentive

Programs

None

Training

Sales Leads

When designing support programs for distributors, it will be important to talk to those distributors who will be serviced to determine what programs should be developed. In other words, design support programs with the individual distributor’s needs in mind. Once the support system is in place it will be important to maintain open communication with the distributor to make sure that their needs have not changed or the needs of their particular market have not changed. This situation should be looked upon as dynamic and not static.

Pricing Below is a brief listing of some products on the market that will be competing with the glass silicate tile.

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operating within an area and will not be allowed to sell to areas where a competing manufacturer exists.

There is a concern that even if protected territories exist there will be an overlap in the territory of distributors. For example, let us assume Plant Z's territory is Nebraska and another manufacturing facility is sold in Iowa, Plant X. Plant Z decides to distribute tile exclusively through Tile B Distributors whose territory covers Nebraska and part of Iowa. Under these circumstances which plant has the right to Tile B Distributor’s business, Plant Z or Plant X? How does Futuristic Tile plan to resolve this question?

Will Futuristic Tile provide marketing support? A great deal of time and money must be invested in creating and developing marketing materials to give to architects, contractors and distributors. Sample boards, brochures, etc. must be created. Will Futuristic Tile assist in the development of these marketing materials?

This business endeavor requires a significant capital outlay. The only risk that should be taken is a calculated one. Although this technology, glass silicate tile manufacturing, is being used in Eastern Europe it has not been tried and tested in the American marketplace. Being the first in any new venture is risky in itself. Futuristic Tile does not own the plant that is operating in Eastern Europe. The Eastern European plant is only operating at 40% capacity. In Futuristic Tile’s business plan they argue that they are providing the owner with technical assistance. The question is then raised, “What kind of technical assistance are they providing?” How can they use this plant as a model if it is not at or near a higher percent of capacity? Why is it only at a 40% capacity? It is the only plant of it’s kind in Eastern Europe. Because of this there are genuine concerns about the knowledge Futuristic Tile is offering. While Futuristic Tile argues that they have a testing facility, a testing facility is not a fully operational plant operating at a profit.

The client should be concerned about the lack of research that has been conducted by Futuristic Tile. After speaking with the .representative and requesting information, it became very clear that the company has not conducted sufficient market research and does not have a comprehensive plan outlining operational considerations of the sale of this technology. Since Futuristic Tile will be paid a sizable amount of money for equipment and ongoing royalty fees, the company should at minimum have a more thorough understanding of the overall tile market as well as the markets in which glass silicate tile will be sold.

Furthermore, Futuristic Tile has no strategy to market its technology. There is the very real concern that the company will sell to anyone to make a profit. If this happens and there is a proliferation of this technology, Bev Clark will lose her competitive advantage. Without territory and price

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protections a company who purchases a 20 oven installation will easily be able to produce tile at a lower per unit cost. See Appendix B

FINANCIAL ISSUES FOR ANTELOPE COUNTY RECYCLERS

For what applications are the tiles best suited (Floor, counters, kitchen, bath, entrance, hall living, pool area) commercial, residential, both?

All applications would work. Impact resistance is the primary concern for flooring especially in areas where objects might be dropped.

What will determine where they will be used-tile quantities, customer preferences, etc.?

The properties of the tile will determine where they will be used.

Summary

The U.S. tile market is viable and growing at a steady rate. Although the market has become increasingly competitive, there is still room for new innovate products. If Antelope County Recyclers is to be effective they must pursue a wide market for glass silicate tile. This market must extend beyond the borders of Nebraska.

The consultant believes this product will sell if it is set at a competitive price and marketed through a distributor, but several issues must first be resolved with Futuristic Tile. Some of the major issues include: marketing support, pricing protections, territory protection, and yearly color lines.

Clearly the relationship with Futuristic Tile affects many of the issues of concern. The primary concern with Futuristic Tile is their lack of focus. This lack of focus may lead them to sell this product to anyone with little forethought as to how this will affect the product’s competitive advantage.

Futuristic Tile mentions throughout the business plan that they have intentions of selling 20 oven installations. How will the sale of these installations affect a small 2 oven manufacturing plant in Nebraska? Obviously, a 20 oven plant could produce tile more cost effectively.

The original idea of specializing in custom color matching appears feasible on the surface, yet Futuristic Tile fails to mention how much they will be charging for each recipe they would have to formulate. This niche market would not be cost effective for such a small manufacturing plant if they had to individually purchase recipes of custom color matches.

In Nebraska, the fact that this product is “green” will not be a pivotal factor in inducing purchases. However, in the future the fact that a product is “green” may have a greater bearing on the decision to purchase.

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APPENDIX A

FINANCIAL PROJECTIONS


Key Financial Issues The key to the financial projections rests in four major cost issues:

The ramp up capabilities of the manufacturing facility True production capacity of the equipment

Loaded cost for operating expenses

Ramp up and true production capacity of the equipment: The key to any manufacturing facility is to become the most efficient operation possible. Operating at 100% capacity is the ideal, however, in the case of this untried technology, it appears that the equipment capacity has not truly been tested. In addition, the manufacturing process will need to be fully developed to meet that capacity expectation as quickly as possible.

Because the production capacity expectations have not been reached, this may present an opportunity. The Antelope County Recyclers may be able to exceed the capacity expectations or on the other hand, suffer with less than projected capacity expectations. The consultant recommends the client structure an agreement with Futuristic Tile that the equipment and processes must be capable of delivering the expected volume at some point in the future.

Royalties to Futuristic Tile: The projections include the minimum payment to Futuristic Tile because at no point to sales reach a level to meet the variable liscencing fee. Because Antelope County Recyclers are purchasing the smaller capacity plant the production is not capable of going above the minimum royalty payment. As a result, the royalties range from as low as 3.2% (best case, fourth year) to 12.7% (worst case, first year) of total sales. This would be one point for negotiation with Futuristic Tile when structuring the licensing agreement.

Loaded cost for operating expenses:

The operating costs-in all three scenarios present expenses consistently and with a view to include more costs, rather than less.

NEBRASKA BUSINESS DEVELOPMENT CENTER 2

APPENDIX B

FUTURISTIC TILE’S BUSINESS PLAN


FUTURISTIC TILE

Background 1996-2000 Plan & Projections

January 25,1996 Allenton, Wisconsin

OVERVIEW

This document summarizes the brief history of Futuristic Tile, LLC, as wells providing insight into our current vision of its future.

It is difficult to capture the impact of the positive and encouraging response we have received during our early marketing probes. We truly believe we have something of great value to offer the world.

APPENDIX C

ASSOCIATION INFORMATION


CAUS gives you the

color advdntdge

Top American professionals help you select the right colors.

80 years of American colors and professional experience (documented in over 100,000 swatches in the Association's archives) are available for members.

Benefits of Membership Members receive one gratis copy of a forecast in the category of their choice. Forecasts are released 18 to 24 months in advance of a selling season. Each forecast is accompanied by a duplicate package of colored materials in yarn or fabric (for apparel cards) or silk-screened paper swatches (for interiors/environmental charts). Members can purchase as many extra cards as they require at the special member discount.

Monthly newsletters and color bulletins.

Color marching services with documen- tation going back to 1915 is available for member sourcing. CAUS archives are arranged for easy access: by season, year and decade. Each color is specified by number and name in CAUS records.

A telephone and fax service to answer color questions immediately is in operation from Monday-Friday, 9-5, EST.

Members receive discounts on books, including The Standard Color Reference of America, Living Color, and The Color Compendium.

Services The service rendered by the Color Association is invaluable to those interested in merchandising all phases of color. Every industry, designer, manufacturers, wholesaler and retailer will, we believe, significantly benefit from CAUS services.

CAUS consulting is available to members. Our special consulring team service provides color research and expertise relevant to design projects and in light of known color cycles as documented in ongoing research and in CAUS archives.

The Association is pleased to give fuller details regarding membership either through a personal meeting or correspon- dence with its associate director. Margaret Walch or with its director of membership, Hugh Sang.

Dues The annual dues of the Association are $600 for a company membership and $300 for an educational and/or individual design membership in the interiors category. Dues are payable in advance in US currency.

ANNUAL SEMINAR AND TILE EXHIBITION

The CTI Seminar brought manufacturers and distributors face-io-face with architects, specification writers, design professionals, decorators, general contractors , tile contractors and others responsible for specifying billions of square feet of tile in new construction projects each year. They also specified tile for building renovations, retrofitting, and refurbishment. The special events included an Architectural Symposium, Designers Panel, workshops and the exhibition.

CERAMIC TILE CONSULTANTS PROGRAM

The CTC program was organized in 1975 to give those individuals working in the Tile Trade a general education on all phases of tile from manufacturing to estimating to installation. The instructors were experts who represent all facets of the Tile Industry. The Tile Industry's support combined with demand for the course have allowed the classes to expand to ten other cities across the United States and Canada. Over 600 graduates are currently providing specialized expertise to architects, specifiers, and other design professionals.

RECOGNITION A WARDS FOR THE INDUSTRY

CTI originally introduced the Tile Industry's first program for recognizing outstanding tile workmanship. The industry's highest honor, the "Golden Tile Award," acknowledged outstanding service and dedication to the industry. CTI was also the first to recognize women in the Tile Industry and acknowledge their valuable contributions with the coveted "Tile Woman of the Year" award.

TECHNICAL LIBRARY

CTI maintained the most complete, up-todate library of books, specifications, movies, videos, slides and literature on all tile products, materials and installation methods. The staff fielded hundreds of requests for this information each year from architects, designers, contractors, specifications writers, inspectors, and even homeowners.

TECHNICAL DOCUMENTS

CTI wrote and published more than 350 tile specifications, publications and Field Reports. NO

other organization in the world has researched and written so many of the specifications and standards to upgrade quality as has CTI. Equally important, CTI prepared and published Field Reports on many aspects of tile addressing new or revised concepts related to tile problems, products and installation methods.

JOB PROBLEMS

CTI was requested an average of 40 times per month to help resolve job problems where customers were not satisfied with the results. Problems included installation failures, poor product quality, poor workmanship, or occasionally unrealistic expectations. Following the job plans and specifications, CTI staff provided a neutral investigation of the job problem by visiting the site and preparing a report which was disseminated to the installing contractor and other parties. The goal was to find an equitable solution to the problem based on all of the individual elements of each job problem, applying the standards of the Tile Trade. CTI functioned as an unbiased, non-partisan third party so that the individuals involved were usually able to avoid months or years of the legal expense and installation frustration.

PRE-INSTALLMENT INSPECTIONS

CTI initiated the concept of pre-installation site inspections. Qualified inspectors visited a job site to determine whether the building conditions and preparatory construction were sufficient to continue additional construction preparations or to initiate tile work. The inspections were usually requested by architects, specification writers, owners, developers, investment groups, tile contractors, general tile contractors and other interested parties.

For over three decades, CTI representatives have participated as committee members, directors, and/or officers of the American National Standards Institute A-108 Committee, International Conference of Building Officials, International Association of Plumbing and Mechanical Officials, American Society of Testing & Materials, Construction Specifications Institute, Tile Contractors Association of America, Western States Ceramic Tile Association, California State Joint Apprenticeship Committee, American Society of Civil Engineers, American Institute of Architects, American Society of Interior Decorators, Los Angeles Department of Building and Safety, and the American Society for Women in Construction.

Many times CTI was the only voice representing the Tile Industry at meetings with other construction industry organizations lobbying votes on issues affecting the use of tile.

CTI received 18 awards from the Construction Specifications Institute, many for writing or improving tile specifications for the CSI whose members write specifications for billions of dollars worth of tile every year.

CTI succeeded in promoting the use of tile by pioneering sound-rated floors, developing pre- fabricated high-rise tile exteriors, reversing the use of laminants, and limiting the use of plastic tub installations. CTI also worked with major corporations such as McDonald’s, Hilton Hotels. American Airlines, Taco Bell, Mervyn’s, Carl’s Jr., and Marriott Corporation, to overcome previous installation problems and expand these companies’ use of tile in the future.

Because of the critical need to continue the successes and momentum of the CTI, all levels of the Tile Industry are encouraged to actively participate in the new CTIOA, Inc. through individual and corporate memberships. To qualify for membership, a person or company should be actively involved in the Tile Industry, either as a licensed ceramic tile contractor or as a manufacturer, importer or distributor of ceramic tile or allied products. Each person or company would be a member entitled to one vote. Levels of support for voting members suggested on a monthly basis are:

Monthly Contribution

$50 $100 $250 $500 $750

$1,000 $1,500 $2,000 $2,500

Category Member

Member Contributor Donor Patron Benefactor Bronze Circle Silver Circle Gold Circle Platinum Circle

Associate or non-voting memberships are also available to individuals or organizations who wish to support the new CTIOA, Inc. at a more moderate level. Associate memberships are also available to employees of members, retired contractors or professionals, and other interested parties for a reduced annual membership fee of $100.

Please complete the enclosed pledge letter as soon as possible and mail or Fax it to the New Ceramic Tile Institute at:

Ceramic Tile Institute of America, Inc. 12061 Jefferson Blvd., Culver City, CA 90230-6219

PHONE: (310) 574-7800 * FAX (310) 821-4655 FAX (310) 946-3462

APPENDIX D

MARKETING MATERIALS OF COMPETING TILE PRODUCTS

APPENDIX E

TABLE- MAJOR END USE MARKET OF CERAMIC FLOOR AND WALL TILE


APPENDIX F

ESTIMATED U.S. TILE MARKET

APPENDIX G

DIMENSIONAL STONE MEDIA KIT


1996 Media Kit THE MARKET The use of granite, marble and limestone, and other dimensional stone is enjoying a renaissance all over the world, and particularly in the U.S. and Canada. The very words “granite,” “marble,” and “limestone” connote quality, good taste, and elegance. Adding to their increasing demand and usage are the new cutting, polishing and installation techniques now in use and being developed-

With this evolution and renaissance comes a demand for practical information. What products are available? What man- agement and planning considerations must be considered? What fabricating, finishing and installation techniques are the latest state of the art? How can quarriers, producers, exporters, importers, distributors, fabricators, contractors, installers, fin- ishers and machinery, equipment and tool manufacturers and allied product manufacturers expand their sales and increase their market share? Where can architects, designers and specifiers learn more about dimensional stone characteristics, uses and installation procedures? All are constantly, actively searching out pragmatic information that speaks directly to their special needs ... and that‘s where Dimensional Stone Magazine comes in.

THE MAGAZINE Buyers and decision-makers in the various segments of the dimensional stone industry, and key architectural, design, and specifying firms get exactly what they have been asking for in each issue of Dimensional Stone Magazine: a professionally produced business journal specifically for the industry, draw- ing on experts in every phase of it, from quarrying to final end use.

Dimensional Stone Magazine provides the industry with coverage, features and departments containing the latest information on trends, products, events, installations, materials, equipment and techniques available, as well as quality articles on current technical, legal and business topics from professionals both throughout this industry and beyond it.

Dimensional Stone Magazine foIlows a format that has proven its success, a format that has been adapted to organize

its high-quality, cutting-edge content into an even more informative. eye-catching, broader focused complete package. With a design of broad editorial coverage by top experts in the field, interspersing advertising with editorials, Dimensional Stone Magazine reinforces products and service identification like no one else can.

To assure proper editorial direction and coverage, Dimensional Stone Magazine has established an Editorial Advisory Board made up of many of the leaders in the industry. And with strong editorial contributions and input from our outstanding Editorial Advisory Board members; comprehensive profiles on stone projects throughout the world; round- table discussions that get the right information from where it counts: inside the industry; technical articles on equipment, techniques and procedures that are second-to-none; greater exposure for both established companies and newcomers as well; continued coverage of the many legal and business aspects of the industry; and in-depth editorial coverage of both national and international stone events, Dimensional Stone Magazine is an international stage upon which to showcase both the national and global dimensional stone industries.

THE CIRCULATION Each of the thousands of buyers and decision-makers in all phases of the dimensional stone industry receive Dimensional Stone Magazine: Included are all known quarriers, producers, importers, distributors, fabricators and workshops-in North America and in the major producing foreign coun- tries. Other readers are contractors; installers; machinery, tools, equipment and installation materials manufacturers; specifiers, designers, architects, builders, developers, construction companies, shopping center developers, hotel, motel, fast food chains, D-I-Y centers and wholesale and retail floor covering dealers.

Dimensional Stone Magazine advertisers do not pay for wasted circulation. We go only to the buyers and key decision-makers in all phases of the industry. Our highly quali- tied circulation is reflected in proven results to advertisers.

APPENDIX H

DESIGNING WITH TILE AND STONE MEDIA KIT


& STONE

MEMO FROM THE PUBLISHER

TO: The Tile and Stone Industries FROM: Jerry Fisher, Publisher

The enclosed media kit should be of great interest to you. Why? Because finally there is a magazine that combines both design and technical knowledge that will enhance the design community’s use of ceramic and stone tiles.

The ceramic and stone tile industries have needed a publication of this type and quality to showcase their wide range of colors, products and services aimed specifically at thedesign professional. Designing with Tile 6 Stone features informative articles on all aspects of the ceramic and stone tile industries, from selection of proper tiles to installation to care and maintenance. Matching our unsurpassed technical articles are articles from leading specifiers and guest columnists discussing outstanding residential and commercial applications, complete with details on each.

Our readers are more than 11,000 specifiers who have been prequalified. Our circulation is not a duplication of our other magazines.

Once you have studied our media kit, I’m sure you’ll agree there is no better way to reach the design community and get results!

Please feel free to call on us for any further information you may want.

Sincerely,

Jerry Fisher Publisher

APPENDIX I

TILE & DECORATIVE SURFACES MEDIA KIT


APPENDIX J

INFORMATION FROM INFO TILE


APPENDIX K

ENVIRONMENTAL QUALITY WASTE

GRANT PROGRAM APPLICATION FORM REDUCTION AND RECYCLING INCENTIVE


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