Friedrich Grohe Ag & Co. Kg Business Information, Profile, and History

Company Perspectives:

Grohe is the leading global brand for high-quality fittings and sanitary systems. We continue to expand our brand's presence in all economic regions worldwide in order to strengthen its competitiveness and safeguard our company's independence. We focus on water technology products and systems, continually advancing the standards of quality, functionality and design. Our products and services respond to our customers' expectations and increase their willingness to buy. This ensures that our services are in line with market trends and guarantee high levels of customer satisfaction. Our corporate culture actively promotes innovation and ensures the swift translation of good ideas into new products.

History of Friedrich Grohe Ag & Co. Kg

Friedrich Grohe AG & Co. KG is one of the world's leading manufacturers of bathroom fixtures and sanitary products and systems with a global market share of about 10 percent. Grohe produces faucets, shower heads, and plumbing fixtures, as well as flush toilet systems and thermostats. The company provides major international hotel chains with its bathroom fittings and equips public buildings with automatic faucets and concealed on-the-wall systems. Headquartered in Hemer, Germany, Grohe operates nine production plants in Germany and four abroad, in Portugal, Thailand, Canada, and China. Among Grohe's production facilities in Germany is Europe's largest brass foundry. Grohe still manufactures most of its products in Germany, but exports about 72 percent of the company's output. The company maintains 19 sales subsidiaries and sales offices in 140 countries. Investment firm BC Partners owns a 51-percent majority stake in Grohe.

Modest Beginnings and Postwar Construction Boom

Grohe's history began in the first half of the 20th century in Germany. Company founder Friedrich Grohe was the second son of German entrepreneur Hans Grohe. Hans Grohe, the sixth son of a weaver, grew up near Berlin and learned the weaving craft himself. However, in 1901 he started his own business in Schiltach, a small town in the Black Forest. At first he made metal casings for alarm clocks for the German firm Junghans, then the largest watchmaker in the world. Soon his business grew into a mini-factory for stovepipe rings, shower heads, spigots, faucets, and other bathroom fixtures, and employed about 100 people by 1928.

Friedrich Grohe joined his father's company for a time, but left in 1934 to strike out on his own. In 1936 he acquired Berkenhoff & Paschedag, a manufacturer of bathroom fixtures that had been in business since 1911 and was located in the small German town Hemer near Dortmund in Westphalia. Two years passed before Grohe's company received its first orders from abroad. World War II then interrupted the firm's development.

After the war, in 1948, the company was renamed after the owner: Friedrich Grohe Armaturenfabrik. Grohe greatly benefited from the postwar construction boom. The exploding demand for kitchen and bathroom fixtures put the company on the track to dynamic growth. In 1956 Grohe bought Carl Nestler, a manufacturer of thermostats which was located in the small town Lahr in the Black Forest. Grohe's first subsidiary was renamed Grohe Thermostat GmbH. In 1957, to help promote his products, Grohe started providing special training for retailers that carried Grohe's kitchen and bathroom fixtures and for the plumbers who installed them. Six years later, a brand-new manufacturing plant for thermostats was erected in Lahr.

New Ownership and Global Expansion after 1960

The 1960s brought a major change in the company's ownership. In 1961, Friedrich Grohe became CEO of his father's firm in Schiltach, which his brother Hans had been in charge of until his death. Although the two firms had coordinated their product lines to minimize direct competition--Hans Grohe focused on drains and shower heads, Friedrich Grohe on faucets and hot-and-cold-water mixers--and although they used the same distribution channels, the two families decided not to merge the two businesses. Instead, Friedrich Grohe sold a 51 percent majority stake in his company to the American telephone giant ITT (International Telephone & Telegraph) in 1968. In the same year Hans Grohe's third son, Friedrich's brother Klaus, entered the older Grohe family enterprise, while Friedrich Grohe kept a 27-percent stake in his brother's firm.

During the 1960s and 1970s Friedrich Grohe expanded internationally. In 1961 the company founded its first foreign subsidiary, in France. A second was established in Austria in 1965, followed by a third subsidiary abroad in Italy two years later. In 1973 Grohe set up its fourth European subsidiary, in the Netherlands. Five years later, the company expanded into Great Britain and Spain, and in 1979 into Belgium.

The death of company founder Friedrich Grohe in 1983 closed a chapter in the firm's history. The following year, Friedrich Grohe's heirs bought back ITT's majority stake in Friedrich Grohe and sold their 26-percent stake in Hansgrohe to the American Masco Corporation in Indianapolis. Due to growing competitive pressures, the two companies abandoned the idea of staying off each other's turf. To the contrary, over a period of several years they fought over the Grohe brand name rights. The conflict would not be settled until the early 1990s when it was decided that Friedrich Grohe would use the brand name Grohe while Hans Grohe would market its products under the Hansgrohe label.

Entering the U.S. Market in 1975

The establishment of Friedrich Grohe's first subsidiary in the United States in 1975 marked a new chapter in the company's history. A small office was opened in the outskirts of Chicago, and the first sales representative, Urell, Inc. in Massachusetts, started selling the European-style kitchen and bathroom fixtures to American builders, retailers, and plumbers. In 1976 the new venture was incorporated as Grohe America, Inc. and moved into a small warehouse-office complex. Two years later Al Corwin became Grohe America's CEO and successfully steered the young company through its initial growth phase, establishing Grohe as one of the leading brands in the top price segment for upscale bathroom design. Trying to catch up with the steadily rising demand, Grohe America kept moving to bigger facilities. In 1978 the company occupied one section of a larger warehouse facility; in 1986, it moved to a new 64,000 square foot warehouse in Wood Dale; and finally it settled into a brand-new custom-built 90,000 square foot facility in Bloomingdale, Illinois, in 1993. Calvin retired in 1995 and was succeeded by Bob Atkins as CEO.

Although the faucets Grohe started selling in 1975 in the United States had a different look and functioned a little differently from the ones American consumers were used to, they increasingly gained acceptance. Grohe's single-hole fixtures were easy to use and install. Another factor that contributed to sales figures doubling every year was the constant stream of innovations in cutting-edge designs that Friedrich Grohe introduced to the market. In 1983 Grohe America launched Ladylux, the first pull-out spray kitchen faucet in the U.S. market. In 1989 Europlus, another pull-out spray kitchen faucet was introduced, which became a bestseller. While the first models had a plastic finish, they were replaced by the industry's first versions in solid stainless steel in the late 1990s. Another innovation, the Grohmix thermostat line, was launched in 1992. Equipped with a new kind of valve that automatically regulated water temperature as well as pressure, consumers could set the desired water temperature just as they would do for their heating or air conditioning systems. With an accuracy within one degree Fahrenheit, the Grohmix line allowed bath safety for households with small children, the physically disabled, or elderly persons. Depending on their budget, consumers could choose between a chrome, white, polished brass, or 23-karat gold finish. In the late 1980s Grohe became known for its innovative custom shower systems.

During this time Grohe America invested in a range of marketing efforts to increase the company's reach and boost sales. To promote the company's custom shower systems, Grohe began advertising directly to consumers. The print campaign featured the image of a naked couple taking a shower together in a large custom shower. In 1989 Grohe introduced a new product line for commercial customers. Five years later the company introduced its Select Showroom program for wholesalers. In 1996 Grohe America launched its first television ad campaign and introduced a limited lifetime warranty in 1997. By the mid-1990s Grohe America sold European-style fixtures worth $38 million, reaching a market share of approximately 1.7 percent.

Newly Positioned in the Changing Market of the 1990s

By the end of the 1980s Friedrich Grohe had become one of Europe's top manufacturers of kitchen and bathroom fixings. Sales had climbed to over DM 700 million and exports accounted for 70 percent of the total. Up until that time, the company's main concern had been on adjusting production capacity and logistics to meet an ever-growing demand. The situation changed fundamentally in the 1990s. After the unexpected construction boom brought about by the reunification of East and West Germany in 1990 began drying up, the German market stagnated. Moreover, the company was suffering significant losses from volatile exchange rates caused by weakening currencies in several countries around the world.

To secure further growth, Friedrich Grohe had to develop a new strategy. After a brief and ultimately unsuccessful attempt to venture into other bath-related products such as ceramics in the late 1970s, the company had stuck to its niche. This niche was nearing its growth limits. There were two types of enterprises competing in the international market--specialists and all-arounders. Although Grohe had become the leader among the specialists, the top players in the global league of bathroom outfitters offered the complete range of products from the shower divider to the floor tiles. Becoming an all-arounder would have required enormous investments. Friedrich Grohe decided to keep its focus on an expanded range of fixtures. The company grew through a number of acquisitions, continued to expand its international reach, and positioned itself as a world leader in water technology.

In 1991 Friedrich Grohe was transformed into a public stock company under the name Friedrich Grohe AG. The Grohe family retained a majority stake in the enterprise, while the IPO filled the company's bank account with cash to finance further growth. In the first half of the 1990s Friedrich Grohe acquired the German plumbing fixture makers H.D. Eichelberg & Co. GmbH, Herzberger Armaturen GmbH, and DAL-Georg Rost & Soehne GmbH Armaturenfabrik, including its subsidiaries Aqua Butzke AG and Eggemann GmbH. The acquisition of the privately owned DAL/Rost group catapulted Friedrich Grohe's sales over the DM 1 billion mark. DAL/Rost's line of bathroom installation and flushing systems and Aqua Butzke's automatic bathroom fixtures for public buildings complemented Grohe's product range. As part of the deal, the Grohe family--which owned all the company's common stock--gave up 26 percent to the Rost family.

In the mid-1990s increasing numbers of Asian competitors flooded the European markets with less expensive plumbing fixtures, putting established manufacturers, including Friedrich Grohe, under growing price pressure. At German building centers, do-it-yourself customers could buy a cheaper Asian fixture for around DM 50. Friedrich Grohe, by comparison, sold its high-quality fixtures through specialized retailers and directly to plumbing firms, with prices starting at DM 200. As a countermeasure, Grohe started moving a part of its production abroad. A new factory in Thailand started putting out cheaper fixtures for the southern Asian mass market in 1996. Two years later Friedrich Grohe's second foreign production plant in Portugal started operations. In 1997 the company bought a 70-percent majority stake in Rotter GmbH & Co. KG, a supplier of sanitary equipment to businesses and public institutions.

To position Friedrich Grohe as a "world leader in water technology" the company invested over DM 50 million in a massive marketing campaign. Under the auspices of the Grohe name, the firm established four sub-brands: bathroom fixtures for consumers, such as faucets and hot-and-cold-water mixers, were sold under the label Groheart; thermostats, valves and other plumbing fixtures for kitchens and bathrooms were marketed under the Grohetec label; flush toilet fittings and tanks were labeled Grohedal; fixtures for professional water management in public buildings were sold under the brand name Groheaqua. The marketing campaign included ads in German plumbing trade magazines, as well as special interest and general interest consumer titles. The campaign not only raised Friedrich Grohe's public recognition but received a German marketing award in 1996. In addition to the ad campaign the company also initiated the Profi Club, which not only offered training to Germany's plumbing firms in how to use Grohe products and innovations, but also offered training in making their own enterprises more efficient. Up to 10,000 plumbers annually attended such training sessions and received the quarterly club magazine.

Going Private in 2000

In June 1999, to the surprise of the business community and shareholders, Charles R. Grohe, chair of Friedrich Grohe's advisory board and majority shareholder, announced that he and the Rost family were selling their stakes in the company. A few weeks later, the European investment firm BC Partners won out in the auction organized by Credit Suisse First Boston, over counterbidders including American equity house Kohlberg Kravis Roberts and U.S. plumbing supplier Kohler. BC Partners acquired all common shares from the two families, representing a 51 percent stake in Friedrich Grohe, and these shares were transferred to Grohe Holding GmbH. BC Partners went on to buy back all but 0.4 percent of the preferred stock that was publicly traded. On March 29, 2000, the public trading of Friedrich Grohe shares ceased. Ultimately, the company was transformed into a private entity--Friedrich Grohe AG & Co. KG.

During the next two years, measures were taken to strengthen Friedrich Grohe's position in the world market. The United States had become the company's most important market outside of Germany, generating DM 200 million--or about $160 million--in sales in 2000. The company also invested in new subsidiaries in Eastern Europe, specifically Poland and Russia, as well as in Asia, where Friedrich Grohe was planning to open a new production plant in Shanghai and to cooperate with a Chinese tile manufacturer. On the internal front the company reorganized its sales divisions and pushed its designer line of fixtures with higher profit margins. With a world market share of roughly 10 percent in 2001, Friedrich Grohe aimed at becoming the global leader in bathroom fixtures and sanitary installations.

Principal Subsidiaries: Friedrich Grohe AG & Co. KG; Grohe Deutschland Vertriebs GmbH; Grohe America Inc. (United States); Grohe Gesellschaft m.b.H. (Austria); ALPIGRO OÜ (Estonia); Grohe N.V. S.A. (Belgium); GROSAN ineniring d.o.o. (Slovenia); Giersch GmbH (Croatia); Alfred Hili & Co. Ltd. (Malta); Grome Marketing (Cyprus) Ltd.; Grohe Hungary Kft; Vertretung Friedrich GROHE AG & Co. KG (Bulgaria); EU RO International S.R.L. (Romania); Friedrich Grohe AG & Co. KG (Russia); TONGRO (Ukraine); Grohe A/S (Denmark); Grohe Nederland B.V. (Netherlands); Friedrich Grohe A.G. (Norway); Grohe S.A.R.L. (France); N. Sapountzis SA (Greece); Grome Ic ve Dis Ticaret Ltd. Sti. (Turkey); Grohe Limited (United Kingdom); Grohe Espana, S.A. (Spain); Friedrich Grohe Portugal, Lda.; Grohe Pacific Pte Ltd (Hong Kong); Grohe Pacific Pte. Ltd. (Singapore); Orgal A.L.F. Trade Ltd. (Israel); Grohe S.p.A. (Italy); Grohe Japan Ltd.; Grohe Canada; Grohe Polska Sp.zo.o. (Poland); Zastoupení Friedrich Grohe AG & Co. KG pro CR a SR (Czech Republic); GROHE Switzerland SA.

Principal Competitors: Hansa Metallwerke AG; Gerber Plumbing Fixtures Corporation; American Standard Companies Inc.; Kohler Co.; Moen Inc.; Masco Corporation; TOTO Ltd.

Chronology

• Key Dates:
• 1936: Friedrich Grohe acquires plumbing fixtures manufacturer Berkenhoff & Paschedag.
• 1948: The company is renamed Friedrich Grohe Armaturenfabrik.
• 1961: Grohe establishes its first foreign subsidiary in France.
• 1968: International Telephone & Telegraph (ITT) becomes majority shareholder.
• 1975: The company establishes a subsidiary in the United States.
• 1984: Friedrich Grohe's heirs buy ITT's majority stake back after the company founder's death.
• 1991: Company goes public.
• 1994: The company takes over the German DAL/Rost group.
• 1999: The Grohe and Rost families sell their holdings in Friedrich Grohe to investment firm BC Partners.
• 2000: Public trading is discontinued and the company is transformed into Friedrich Grohe AG & Co. KG.