Finding a New Niche
When Oneida announced in the summer of 2003 that it planned to close its Buffalo China dinnerware factory and decorating facility in Buffalo, N.Y., along with four other manufacturing plants (two in Mexico, one in China and one in Italy), few in the industry were surprised at the news. The foodservice industry was hit hard in the economic downturn of 2001-2003, and virtually all ceramic manufacturers were struggling with rising manufacturing costs and sinking profits. While yet more jobs would be lost as a result of the closures-more than 300 in Buffalo alone-few people could blame Oneida. After all, the move would save the company some $12 million and was seen as necessary to Oneida's overall long-term viability.
Then the unexpected happened. The management of Oneida's Buffalo operations stepped forward under the name BC Acquisition Co. LLC, headed by Robert Lupica, and made an offer to buy the factory and keep it in operation. "How can they possibly compete against all of the low-cost imports?" everyone in the industry wondered. "Why does the factory's management think they can turn the facility around, when Oneida with all of its resources couldn't keep the operations profitable?"
According to Lupica, who had been senior vice president and general manager for the Buffalo operations before Oneida announced its plans to close the facility, the decision to buy the plant ultimately came down to teamwork and vision.
"The idea of purchasing the facility was definitely daunting; we couldn't have done it alone," he says. "But we were certain that there was still a need for domestic production of ceramic dinnerware and other ceramic products, as well as ceramic processing, and we were confident that this facility could service those markets."
Pulling it All Together
The deal wasn't cheap. The factory buildings and equipment, materials and supplies came with a price tag of $5.5 million, and the Buffalo China name and all other Buffalo China trademarks and logos, along with the Buffalo China warehouse, weren't even on the table. The "new" company-with Lupica as president and chief executive officer, Karl Franz as vice president of engineering, Rick Reichard as chief financial officer, Tom Ziolkowski as vice president of operations, and Joe Bronco as vice president of decorating services-would basically be starting from scratch as Niagara Ceramics Corp., without any name recognition. But there were some incentives. For example, state and local government officials, eager to keep the jobs and tax base provided by the Buffalo facility, had been hard at work devising assistance packages from the time Oneida first announced its plans to close the plant."Buffalo China and the Buffalo plant have a long history here," Lupica explains, noting that the facility was founded in its current location in 1901. (The plant began as Buffalo Pottery owned by the Larkin Soap Co., and was purchased by Oneida Ltd. in 1983.) "I think the city sees it as a cornerstone. Obtaining state and local assistance was key to being able to keep the manufacturing facility in operation," he says.
However, even with government grant money and tax incentives, BC Acquisition Co. still fell far short of the necessary funds-and basic acquisition knowledge-needed to move forward. Fortunately, the group was able to partner with Chris Collins of Cobblestone Inc., a local entrepreneur who is well known for investing in undervalued companies that have a high potential for future growth.
"Chris has the same ideals we do in recognizing that there will be continuing opportunities for manufacturing in the U.S.," says Lupica. "He believed that with our plant and management team, we had a good chance of succeeding. His assistance with funding and his expertise in developing the deal and putting it together was crucial to making the buyout successful."
Devising a business plan was the group's next objective. Fortunately, Niagara Ceramics was able to secure a five-year contract with Oneida to continue supplying the company with the renowned Buffalo China dinnerware. As part of the purchase, the group also acquired three automated machines (two for cup making and one for handle casting) from the plant Oneida closed in Juarez, Mexico, that would help Niagara Ceramics eliminate some of its more labor-intensive processes. Added to the company's existing equipment and advanced decorating capabilities-the plant has a full-scale analysis lab; operates a sophisticated material processing area with silos, spray dryers and pressing equipment; and also has its own art department, which prints its own decals and formulates its own glazes-the relocated machinery opened the door for additional dinnerware manufacturing and decorating opportunities. But the management team knew that they had to look at other markets if the company was truly going to thrive.
"Dinnerware is one area that we'll hang on to and will continue to invest in. But we also really felt that our facility and equipment could provide a great amount of value in advanced/technical ceramics. We wanted to bridge from being a standard dinnerware ceramic factory to using our equipment and capabilities to service other parts of the ceramic industry," Lupica says.
Making it Work
The buyout was officially completed in March 2004. While Niagara Ceramics still had a long way to go before reaching its goals, the company was fortunate enough to have a dedicated workforce behind its efforts. In addition to the management team, all of whom had come from Buffalo China, 30-40 key employees were carefully selected to run the operation."We looked at the employees who had been working in the plant and identified the individuals whom we thought would be necessary for us to be successful. We secured their help and have matched all of our growth around those key people, using them as the nucleus to create and operate the facility," explains Lupica.
The plant opened with 250-300 employees in all, which is close to what it had under Oneida's ownership. But there was one significant change-that of the management structure. "The plant supervisors originally reported to two or three layers of management. Since we've taken over, we've streamlined the factory and eliminated a lot of overhead. The supervisors now have complete oversight and involvement in the day-to-day operations, but it's really a self-directed workforce. We treat our employees the way we would want to be treated-it's pretty simple, and everyone responds really well," Lupica says.
The company has faced some basic challenges since it began operating as Niagara Ceramics. As in other ceramic manufacturing facilities, rising energy costs are squeezing profits. The plant operates six gas-fired tunnel kilns and has had to make a concentrated effort to reduce energy consumption wherever possible. While the company has been able to take advantage of some lower-cost hydropower due to its proximity to Niagara Falls, Franz points out that energy costs will continue to be a challenge going forward.
"Right now we have our hands full just getting some of these new operations up and running, but certainly in the future we'll be investigating a number of things on our kilns and in other areas to improve cost efficiency," he says.
The company also faces pressures due to the high cost of workers' compensation. "Our base rate for worker's comp in this type of industry in New York State is one of the highest anywhere. We stress safety throughout the facility and try to do everything in the most ergonomically correct way possible to avoid worker injury and ensure a safe work environment. We're hoping to see those rates drop, but they've been consuming a major portion of our revenues in the first year of our operation," notes Franz.
Staying Flexible
Despite these challenges, Niagara Ceramics is optimistic about its potential for growth going forward. In the dinnerware sector, the company believes that its domestic location will continue to be an asset rather than a liability."In our game, service is everything," says Lupica. "A lot of companies are sourcing products from Asia, but we believe that people who start looking hard at the whole supply chain will see that domestic manufacturing will shorten the inventory cycle and reduce the amount of capital needed to distribute products. Our product is very artistic; we have a full complement of decorating capabilities, and the ability to model new items and produce small runs. Additionally, our proximity to the market will enable us to ship and supply more quickly."
The company has also been approached by several organizations with requests to prepare spray-dried bodies-a service that Niagara Ceramics hopes to expand. It is also looking at contract manufacturing in a variety of different areas, from refractories and grinding media to tablet pressing and other high-tech applications. According to Lupica, Niagara Ceramics' capabilities, equipment and capacity give the company virtually limitless possibilities in what it can offer potential customers. And it's precisely this flexibility that Lupica and the rest of the management team plan to capitalize on to make Niagara Ceramics successful in the long term.
"Ultimately, we really want to keep this plant open. We're all young people; none of us are ready to retire yet. We constantly remind ourselves that our goal is to be here. We understand that we're going to have to continually change to ensure that we're meeting customer and market demands. We aren't going to stay stagnant," Lupica says.
For more information about Niagara Ceramics, contact the company at (716) 821-5600 or e-mail rlupica@niagaraceramics.com . More information about Oneida can be found at http://www.oneida.com .