Formica Looks to China to Restore Its Luster

By Lucy Craymer 

WELLINGTON, New Zealand--As Formica Corp.'s retro appeal fades in America's roadside diners and kitchens, the 101-year-old laminate company is turning its focus to China, a growing part of the US$30.4 billion global industry.

The company this past financial year roughly doubled its capacity in the country with a new plant, and it is expanding its staffing and product offerings in China to appeal to a residential market that remains a small part of its business. But Formica is struggling with industry competition and cooking customs that put it at a disadvantage.

Formica--invented in 1913 in Cincinnati by two engineers who found that plastic resins could be used to make electrical parts--takes its name from its ability to substitute for mica, a mineral previously used as insulation.

By the 1930s, Formica products, which are basically paper dipped in resin and cooked at high pressure, had become a popular choice for interiors ranging from nightclubs to ocean liners because the products were durable and cigarette-proof.

But sales growth in recent decades at Formica--a unit of New Zealand's Fletcher Building Ltd., which bought Formica in 2007--has been choppy in its traditional markets of North America and Europe, partly because consumer tastes have shifted toward granite and stainless steel. Its operating earnings for the fiscal year ended June 2014 rose 9% to 63 million New Zealand dollars (US$49.4 million).

Meanwhile, Asia's importance to the company has grown: The region contributed less than 25% of Formica's earnings in 2006 but now sits at around 40%.

Formica in 2011 pushed further into China, which accounts for about 30% of global laminate demand, as the country was in the midst of a construction boom, with new apartment and office blocks requiring interior fittings.

Around 85% of Formica's sales in China are to commercial customers, including Yum Brands Inc.'s fast-food chain KFC, which uses its laminates in hundreds of stores in China. Formica is looking to diversify its base to residential customers.

"In the rest of the world, Formica has a strong residential focus so we will be looking to launch a lot more of our products into the residential sector [in Asia]," said Mark Adamson, chief executive of Fletcher Building. "As you see the middle class rise to 200 million and beyond [in China] there is a big customer base out there for our product so we will be focusing more of our attention on this."

Formica also plans a new range of laminates that provide more hygienic surfaces and resist odors, and launched a mobile game to promote the product.

The company's fiscal 2014 result was hit somewhat by costs related to opening a NZ$75 million factory in the central Chinese city of Jiujiang. The plant, which is capable of producing 45 million square meters, or 54 million square yards, of laminate a year, roughly doubled capacity in the country. Formica's existing plant in Shanghai had been operating near capacity ahead of the Jiujiang opening.

Formica has faced some unexpected obstacles.

While its name might be ubiquitous in middle-American home décor, in China it is just one of many laminates--and an expensive one at that. The company competes in China against rivals including Wilsonart China along with a number of smaller Chinese firms. Contacted on Thursday, Wilsonart said it couldn't immediately comment.

Over the past five years Formica has struggled to lift earnings growth, with Asia operating profit for the year ended June unchanged from 2009 at NZ$29 million. Three months into the 2015 financial year, the company said volumes in China and Taiwan are likely to be flat.

"There are more than 100 competitors in China alone across the quality spectrum. Many of the copycat and local brands have quicker turnaround for new décors and textures" which are supported by "lower prices compared to Formica Asia's brands and products," the company said in an email.

Cooking methods more popular in Asia than elsewhere, such as open flames and scalding woks, dim Formica's appeal for kitchen countertops, said Gerry Bollman, Fletcher Building's chief financial officer. "The one downside to our product is that if you put too hot a temperature on it, it will scar."

As a result, Formica changed tactics to promote its products for cabinet doors instead. The new China plant has introduced a range of interior door products to be sold world-wide, the company said.

Write to Lucy Craymer at [e-mail]

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