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Hot commodity

By Chris Atchison | December 1, 2015
Hot commodity
Ron McArthur

For Ron McArthur, President of leading grill, fireplace and furnace maker Napoleon, strategic planning, measured expansion and a commitment to quality are central to the company’s global success

It reads like a cautionary MBA case study: A family-owned business in a highly commoditized industry not only decides to continue manufacturing in Canada but expands its domestic operations by 25 per cent despite ever-present economic headwinds.

But that’s exactly what the Napoleon Group of Companies, which makes high-end outdoor grills, fireplaces, furnaces and air conditioners, did when management recently added a 260,000-square-foot logistics centre at the company’s Barrie, Ont., headquarters. Some would say the move was born of loyalty to a community that welcomed Napoleon Founders Wolfgang and Ingrid Schroeter – who emigrated from Germany to Canada separately in their early 20s, before they married – with open arms. Other, observers might call it a big strategic mistake. “This makes sense to us, Napoleon President Ron McArthur says. “Our commitment to Canada is entrenched here.”

The investment in the Canadian market has been substantial. The logistics facility cost several million to build, and roughly 80 per cent of Napoleon’s products are made domestically. This despite the fact that the company operates a factory in Guangzhou, China, and a distribution warehouse and manufacturing facility in Kentucky – places where labour costs and taxes are far lower. Napoleon also owns a large distribution centre in the Netherlands to ship product in to the European market. In other words, moving operations to a more cost-effective manufacturing environment to boost the company’s bottom line would be a relative breeze.

But an unflinching commitment to manufacturing in Canada and an embrace of counterintuitive entrepreneurial thinking has been a hallmark of the Schroeters’ success. When the Great Recession of 2008-09 ravaged the U.S. economy, for example, Napoleon ramped up investment south of the border just as other Canadian companies fled for the familiar confines of home.

“The Schroeters saw the recession as a reason to advance in the U.S. marketplace,” McArthur says. “In fact, we put more sales representatives on the street in the U.S. Sometimes it’s that entrepreneurial style and gut feel that just says, ‘This makes sense.’” The move paid off: Napoleon now enjoys a growing market  share of the hotly competitive in the U.S. market.

Similarly, industry insiders may have thought management had lost the plot when Napoleon announced a move into the hyper-commoditized HVAC market in the late 1990s. What the naysayers didn’t predict was that the company would create a high-quality product that would eventually earn it a chunk of the North American heating, ventilating and air-conditioning (HVAC) market. “All of our products are designed to be aspirational yet within reach,” McArthur notes. “We’re not focused on volume because we refuse to jeopardize product quality.”

Then there’s management’s deep-seated commitment to the company’s core values: trust, integrity and a people-first approach to business. Case in point: Napoleon has a strict no-layoff policy for full-time workers, one it has never violated. Associates are paid at market value wages and enjoy generous benefit packages, but it’s the familial culture that keeps associates fully engaged with strong tenure throughout the organization. As part of their training, associates are taught to put quality above all else. They learn that Napoleon products are designed to be functional, aesthetically pleasing and, most important, durable. Perhaps that’s why lifting the hood of a Napoleon grill is a feat of strength. As McArthur puts it, “We’re often accused of over-engineering our products. They tell us we should lighten up our steel, but that’s not going to happen.”

There’s no doubt that Napoleon is a Canadian manufacturing success story in a sector decimated by factors ranging from the high cost of the loonie over the past half-decade to the sweeping impact of globalization. Those hurdles aside, the company has managed year-over-year growth rates of more than 15 per cent for the past three fiscal years and has kept bolstering its employee headcount, which now tops 1,230 worldwide. Napoleon products are now available in 21 countries.

But being fiercely patriotic and treating staff well can only take a manufacturer so far. What elusive managerial formula has Napoleon tapped en route to becoming a global player in the cutthroat grill, fireplace and HVAC markets?

It starts with strict quality control, according to McArthur. When Napoleon expanded to China, for example, management resisted the temptation to outsource production. Instead, they invested in their own plant and appointed a general manager who had worked for Napoleon in Canada to run its Chinese operations, then carefully recruited a local management team including quality HR, accounting, finance and engineering associates.

“Our general manager understands our culture as a company and the Canadian mindset,” McArthur says. “He’s a tremendous asset to ensure we have the right culture in our Guangzhou facility.” Also, Napoleon executives visit the company’s global facilities every quarter to ensure operational and cultural consistency. “If you get the right people driving the bus, you can go anywhere,” McArthur says.

Napoleon’s executive team is constantly looking for innovative ways to manufacture more efficiently, while developing new products that will satisfy consumers’ changing tastes. When McArthur joined three years ago – with the task of doubling its size and working with the second generation of Schroeters, who are led by sons Chris and Stephen – they not only hired a full executive team including a Vice-President Finance and Vice-President Operations. They also separated the formerly unified sales team into distinct divisions with responsibilities over the company’s three main product categories. The move helped to minimize seasonal product cycle downtime and improved delivery of real-time customer feedback to Napoleon’s research and development teams. “In each of our sectors, we have huge competitors that are significantly bigger than us, so we try to talk and listen to our customers and salespeople about what’s trending in order to compete,” McArthur says.

That’s how management learned of an emerging consumer preference for sleek and modern built-in linear gas fireplaces with larger flame profiles. With that knowledge in hand, Napoleon’s designers quickly tweaked the 2014-15 fireplace lines to reflect the sales team’s critical market research.

McArthur, with experience running both private and public companies, points to family ownership and the ability to make rapid-fire strategic decisions – expanding facilities, capital investments and investing in new product lines – as the key to Napoleon’s success. The stability of family ownership also ensures managerial continuity and measured growth without the pressure to expand too quickly, a move that could upset Napoleon’s skilfully crafted company culture. “We have nice market share in Canada on fireplaces and grills,” McArthur stresses. “There’s huge potential in North America and Europe, and that’s enough on our plate. You don’t want to push the growth thermometer.”

And though McArthur is the first to recognize Napoleon’s wins, he’s also happy to fly under the industry radar – at least as far as his much larger competitors are concerned. “We’re quietly humble because everyone underestimates how big we are, and we’re quite comfortable with that,” he says. “We’ve always been that way, and that’s what we’ll continue to do.”

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