Bubbling Over the Border
The Canadian market has been heating up for Viking Spas, but Tom Kneeshaw sees no turbo button to catapult sales onto a higher plane. At the most, there are fertilizers that can speed up growth.
“My mother grew up on a farm, so I keep coming up with comparisons to farming,” says the director of Sales and Marketing for the Grand Rapids, Michigan-based company. “Selling hot tubs is like planting seeds. It takes time to gain customers. With our business you are dealing with individual retailers. For the most part they grew up in their community and decided at some point to sell hot tubs, You have to establish a pattern of familiarity where you establish trust so they are comfortable taking your product.”
In Canada this dictated a step-by-step approach of incremental geographical expansion. Viking Spas started out selling its range of hot tubs in Ontario and did not venture into neighboring Quebec until years later when an opportunity arose to gain a strong sales presence in the French-speaking province.
This ponderous approach belies a blistering pace of international expansion. Ten years ago, when Kneeshaw joined the family-owned company, international sales accounted for a modest 2 percent of overall revenues. Today they stand at a proud 50 percent of the total.
Market developments in recent years have vindicated the decision to shift the marketing focus to exports in a big way, as domestic sales suffered a sharp decline from which they have yet to recover. “With the housing and banking crisis there was also a hot tub crisis,” says Kneeshaw. “We were doing about 400,000 spas a year. Today we are selling about 125,000 in America. This has not changed in the past couple of years.”
The steaming growth of Viking Spas’ international sales earned the company the Presidential Export Award in 2012. First established in 1961, the President’s “E” Awards are the highest recognition any U.S. entity may receive for making a significant contribution to the expansion of U.S. exports.
Kneeshaw says that the award has imbued all of Viking Spas’ employees with pride. “It shows that our commitment to make our products in America, using U.S.-based vendors and following a certain level of American standards, can be successful,” he comments. Outside the United States, customers are not familiar with the “E” Award and its characteristics versus a plethora of other badges of distinction from different countries, so it does not carry a comparable weight, but it does convey the message that Viking Spas has been acknowledged by the U.S. government and reflects that “we should know what we are doing,” he says.
Canada is one reason for the award. It accounts for about one-third of Viking Spas’ revenues. According to Kneeshaw, it is the country with the highest density of hot tubs per capita, three times the ratio of hot-tub ownership in the U.S.
Ontario was a fertile launch pad for the company’s Canadian business, thanks to a large number of dealers that sell Viking Spas products. The foray into Quebec came some five years ago, through the hook-up with a strong sales team based in the province that landed a contract with Quebec’s leading retailer, which provided a huge boost. “If the largest seller in Canada sells your product, it makes people look at you and wonder what your strengths are,” says Kneeshaw.
Overall, he sees little difference in selling to Canada to selling in the United States, but Quebec is different. Most of the population in the western part speak English, but this is not the case farther east. For this reason, Viking Spas is putting on a mini trade show in the warehouse of its largest customer in Montreal every year. The one-day event typically showcases four different hot tub lines and draws a loyal audience of retailers who would not venture to U.S.-based shows because they do not speak English.
Recently, Viking Spas teamed up with its first dealer in western Canada, the next target for expansion. “It is a vibrant market,” notes Kneeshaw, pointing to Vancouver, Calgary and Edmonton, which all show strong demand for hot tubs.
Down the road he intends to tackle the eastern part of Canada. He already has some leads, but these are on ice for the time being. “With every new venture you need manpower and you need money,” he says. “Now our manpower is busy with Quebec; they focus 100 percent on Quebec. When this is going smoothly they can start to move into eastern Canada.”
All the logistics are handled from the company’s premises in Grand Rapids, where the entire production is performed. Unlike some competitors, Viking Spas never entertained ambitions to produce some or all of its lineup outside the U.S.
“A lot of companies that utilize manufacturing outside America are chasing maximizing profitability,” says Kneeshaw. “When the Canadian dollar was around 60 cents of our dollar, it would have made sense to manufacture in Canada. At a one-to-one exchange rate, what’s the point? So, you move to another country. We are a family-owned company, we are not that size, so we maximize our strength, which is manufacturing in America, and only American-made parts go into our products. That is our marketing plan.”
Ontario and Quebec have been easy to serve by truck from Grand Rapids. For western Canada, Viking Spas is developing a different logistics strategy. For one thing, the transportation mode shifts from road to rail, following the approach the company chose for serving the U.S. West Coast markets three years ago. Another change is the planned introduction of warehousing for distribution.
“A lot of customers cannot order a full container to rail to their premises,” notes Kneeshaw. Hence the company intends to team up with a customer in the region to utilize his existing warehouse. Kneeshaw reckons that this should hold about 50 hot tubs to serve the region.
Embracing rail to serve the West Coast has not required a significant adjustment in the company’s logistics processes. Kneeshaw finds it similar to loading a shipping container for overseas markets. “The biggest worry we had was what the shift and vibration on the train would do to the tubs compared to what it was like on a truck. It was no big deal. We put in more airbags to stabilize the freight,” he recalls.
Transit times may be less flexible and slower than going by truck, but the cost savings have been substantial. “We can save as much as 25 percent on shipment cost,” says Kneeshaw. Given the size of the spas, the transportation cost is a large factor, so fully utilizing a rail or ocean container or a truck is important, he adds.
When it comes to replacing pumps, the company does not want to have the defective units shipped to Grand Rapids. All the dealer has to do is peel off the tag and send that over.
“They do not have to prove to us that the pump does not work. They do not have to spend $60 or more to send it back to us,” says Kneeshaw. “There is a great deal of trust between us and our customers and our vendors. We have long-term relationships with our vendors and our customers.”
When it comes to moving the products to Canada, it is the dealers who call the shots. They pick the trucking companies and select the brokers who handle the rail shipments and clear consignments.
“When you ship to Canada, it is most important to work with good brokers in Canada who can clear the shipments for us. Our customers over there are savvy, they know the good brokers,” says Kneeshaw.
Viking Spas started shipping to Canada after the NAFTA agreement came into play, so nobody in its management has any recollection of pre-NAFTA conditions. Kneeshaw has not experienced any problems or headaches in this respect. He sees little difference in shipping hot tubs to Canada or to New Mexico. “It seems a very easy process for us,” he says, adding that essentially Canadian consumers have the same criteria as their counterparts south of the border when it comes to buying spas.
Nevertheless, he stresses the need for local representation. “Find a sales associate or rep who is Canadian or who lives in Canada. It is a different country,” he says.
This applies particularly to Quebec, and not only because of the language. “Quebec has its own set of challenges. You need a rep who knows the culture,” he advises.
Three Supply Chain Lessons for Businesses Coping with COVID-19