The U.S. Interior Decorative Coatings Market

By Tim Wright, Editor | December 23, 2009

Major U.S. paint manufacturers including Benjamin Moore, Kelly-Moore, Rodda Paint and Dunn-Edwards discuss key issues in the interior decorative coatings market.

Coatings World: What are the newest interior decorative coating products and technologies your company is offering? Why were they designed for this market and what makes them unique?

Rod O'Neal, corporate product manager, Kelly-Moore Paint Company, Inc., San Carlos, CA/USA: Kelly-Moore has been engineering a new generation of low- and zero-VOC interior coatings to meet upcoming changes in the state of California's VOC regulations and to meet ongoing market demands for "green coatings."

Lis Weller, marketing manager, Rodda Paint Co., Portland, OR/USA: Rodda Paint Wood Master was initially developed for a set of contractors looking for a higher quality, faster drying latex millwork product that would give the look and feel of an alkyd or lacquer without the mess. Our lab had a product in research and development that when tweaked, fit the bill nicely. The self cross-linking acrylic resin combined with a special mix of additives resulted in an easy to apply, non sagging film that dried fast and resisted blocking getting rave reviews from the applicators and the look and feel of the finished work satisfied the customers as well. Other benefits include a highly durable/washable film and VOCs under 180 grams per liter making it ideal for using in residential as well as commercial applications. Rodda's lab didn't stop there. They modified another single component cross-linking acrylic with VOCs under 140 grams per liter and a direct to metal application called Multi Master. This fit another niche for progressive waterborne products that out perform and outlast conventional films especially in areas that require quality while remaining occupied-hospitals, hotels, schools and specialty care facilities. Both Rodda products were developed in conjunction with our direct contractor market, are available in low and semi gloss sheens, which are most prominent in our market, and can be tinted in any color-white to black-by traditional colorants.

Dana Autenrieth, director, product marketing, Benjamin Moore & Co., Montvale, NJ/USA: For 2009, Benjamin Moore introduced Natura, our zero VOC premium interior paint that has the lowest emissions of any coating on the market. We also introduced ben interior, a low VOC-under 50 grams per liter after tinting-paint that provides both performance and low VOC at a value price. In 2010 we will introduce Arborcoat, our best waterborne exterior deck and siding stain line that outperforms alkyd technology and is compliant in all 50 states. We will also introduce Advance, our under 50 grams per liter water dispersible alkyd that offers alkyd-like flow and level with the convenience of soap and water clean up. As VOC regulations continue to tighten, we think Advance will offer our professional customers that prefer alkyds for doors and trim an ideal migration path.

Brad Wheeler, product manager, Dunn-Edwards Corporation, Los Angeles, CA/USA: Dunn-Edwards has just launched Enso, a new premium low odor, zero VOC paint. Enso has virtually no odor during or after application, making it ideal for use in occupied spaces, such as homes, hotels, schools, and hospitals. There are so many situations in public spaces and residences where fresh paint can be distracting, so very low odor paint is needed to address the range of individual sensitivities in occupied spaces. Unlike many low odor products that leave a surface tacky or soft, Enso offers top performance, comparable to that of premium conventional paints. Enso uses a new resin technology that allows for a harder surface than that of many low odor products, and it achieves this hardness without using organic solvents. It is easy to apply and has excellent flow and leveling for a smooth finish. It also offers great hide, so fewer coats are needed, and provides excellent washability. Enso is available in a primer and in flat, eggshell and semi-gloss finishes. Enso also comes in a full range of light to dark colors. In other company news, effective January 1, Dunn-Edwards' line of premium interior and exterior paints will be getting new names, a new look, and new gloss levels. All of the premium interior paints will fall under the umbrella name Suprema and the premium exterior paints will be named Evershield. Suprema will be available in flat, velvet, eggshell, low sheen and semi-gloss. Evershield will be available in flat, eggshell, low sheen, semi-gloss and gloss. Dunn-Edwards has made a significant investment in re-packaging these products. New metallic gold labels were designed to give them a distinctive, high-end look that differentiates them from other brands of paint.

CW: How did the interior decorative coatings market perform in 2009 in the U.S.? How does this compare to 2008? What is your forecast for this market in the U.S. in 2010 and beyond? What is driving the market, or hindering it?

O'Neil, Kelly-Moore: In the regions that the Kelly-Moore Paint Company markets its products, we have realized a reduction in sales of interior decorative coatings as compared to the same period 2008. There is no question that the decrease in sales was a result of the economic climate we have all experienced during the year of 2009, but more specific, new housing starts of were dramatically down, the high rate of foreclosures and how the credit crisis affected residential or commercial restoration and/or remolding projects. As far as forecasting the market for the year of 2010, the economic indicators affecting our industry are still showing little change.

Weller, Rodda: As with most companies we felt a distinct change in outlook-and some sales-in 2009 but started identifying opportunities, protecting investments and shifting our focus early on resulting in a less devastating outcome. We continue to work closely with various market segments in accessing needs, services, products and potential opportunities as well as timelines into production. Since late October this year we have seen and heard a brighter tone in the forecast for the coming year. As we watch competitors consolidating and competition heating up we also see the effects of more of our customers vying for fewer jobs and diversifying into more market segments to compensate. Rodda has taken steps in the last couple of years to work on this diversification with trainings, product reviews and consolidations while keeping our employees working smart, strong and at our elevated service levels. 2010 will be another challenge and those that have made the shift in their paradigms will continue to see improvements and we plan on being in that group.

CW: What will be the greatest challenge for 2010?

O'Neil, Kelly-Moore: Kelly-Moore's single greatest challenge for 2010 is the health of our national and regional economies. Our sales growth and/or product demand will increase as the economy recovers from the current recession. I also believe this to be true of any of our competitors.

Weller, Rodda: As we see the consolidation of competition, the lone standout is value-more directly price. We have already seen it on the contractor end with more companies bidding for fewer jobs. The manufacturing end of the industry is trimming the fat and being overly aggressive on quotes.

Autenrieth, Benjamin Moore: The economy will pose the greatest challenge in 2010. If jobs and consumer confidence do not pick up, it will continue to put downward pressure on the industry, especially for contractors.

CW: How is the ongoing recession affecting business? How will this year be different from last?

O'Neil, Kelly-Moore: In general, the ongoing recession has negatively affected the health of any company that manufacturers and distributes products to the construction industry. The year of 2010 will mirror the difficulties we have all experienced during the year of 2009 unless the credit crisis is alleviated, foreclosures drop dramatically, and the residence housing and commercial building markets rebound significantly.

Weller, Rodda: 2010 looks to be slightly better than 2009 mostly looking towards the end of the year. With one year under our belts and already tighter than recent memory it will be a time to focus on efficiencies, consolidate products and rotate inventories to their maximum potential.

Autenrieth, Benjamin Moore: There are signs that things have bottomed out so we believe 2010 should see the beginning of industry wide expansion. As our Gennex portfolio of Green Promise designated products continues to expand and the focus on environmentally friendly products gains more traction, it ideally positions Benjamin Moore to capture a larger share of the market as it recovers.

CW: In addition to the negative impact of the recession, are climbing raw material and energy prices impacting the market? Will this trend continue?

O'Neil, Kelly-Moore: Increases in the cost of raw materials and energy is the second greatest challenge that the Kelly-Moore Paint Company will face moving into the future. I would challenge domestic and world producers of raw materials that are utilized by the paint and coatings industry and the producers of the energy that we all use to manufacture and transport our products to market, to make every effort possible to control costs at current levels. It is not going to be productive or speed the economic recovery if we are forced to pass on substantial increases on finished products to the professional applicator or consumer.

Weller, Rodda: The most significant changes have already occurred although with instability comes guesswork and with less demand often comes price adjustments. Until there is consistency in development again, I think you'll see the fluctuations and consolidations continue.

Autenrieth, Benjamin Moore: The only upside of the recession and reduced demand was downward pressure on raw materials. As demand and the price of oil begins to pick up, we would expect to see upward pressure on raw materials once again.

CW: What strategies has your company adopted to deal with these issues? Have interior decorative coatings manufacturers been able to pass on price increases to customers to maintain margins?

O'Neil, Kelly-Moore: All manufacturers and tradesmen supporting the construction industry are either being asked or forced to reduce costs. The Kelly-Moore Paint Company must continue to find innovate and cost effective ways to engineer and produce architectural coatings the are competitively priced and provide the performance and service life that is required and expected by consumer.

Weller, Rodda: Our last price increase was late in 2008 and at some point we'll need to consider our future options. 2009 was a year of reviewing and tightening policies and procedure to pare down costs and try to maintain limited margin control. The Northwest is an extremely competitive marketplace and I think we will continue to see some erosion in competitors, prices and job costing.

Autenrieth, Benjamin Moore: Benjamin Moore's focus during the recession has been on building our portfolio and making investments in the business to position ourselves for strong growth once the market turns around. For the most part, yes, except in certain sectors where price is the driving factor.

CW: Please discuss how consolidation among paint and coatings manufacturers as well as within the paint and coatings industry supply chain is affecting the market?

O'Neil, Kelly-Moore: Over the last two decades, and what I believe to be the affect of governmental regulations and environmental issues, the paint industry has lost a substantial number of regional paint manufacturers through attrition or consolidation. As a result, the work force has experienced substantial reductions, the U.S. has lost a number of quality small businesses and the innovative and competitive edge that this industry was known for, has been seriously compromised. Future industry consolidation and stricter governmental regulations will continue to affect innovation, performance and variety of coatings that are available to the professional applicator or consumer.

Weller, Rodda: We have already experienced both global and local versions from takeovers and absorption to disappearances and consolidations. This next year will be a testing ground to see who's been paying attention and who we may not be dealing with next year. With limited production left on the West Coast, inventories being limited throughout the supply chain effect both costing and manufacturing and could possibly be an area of great impact.

Autenrieth, Benjamin Moore: Consolidation should serve to make the industry more efficient and better able to cope with advancing regulations while still providing the consumers with many brand and channel choices. We would not expect the paint industry to be different from any other. It is simply the natural progression in any mature industry.

CW: What are the most recent regulatory developments and how are they impacting the market? What is the industry doing to prepare for increasing regulations?

O'Neil, Kelly-Moore: Regulatory developments continue to impact the paint industry. The Kelly-Moore Paint Company is based in and manufacturers architectural coatings in the State of California. We know first hand the impact of regulatory requirements. California has some of the most stringent environmental regulations in the U.S. if not the world. Regulatory requirements for limiting VOCs and chemical use have certainly impacted the engineering of our architectural coatings. The Kelly-Moore Paint Company is proud of the positive impact we have contributed to the environment. We have worked extremely hard to develop a manufacturing process that is environmentally sound and to engineer architectural coatings that are safe to apply and are friendly to the environment. The ongoing challenges are the availability of new raw material technologies that will allow us to produce substrate specific interior and exterior coatings that will perform and still meet all current and future regulatory requirements.

Weller, Rodda: Regulation discussions should be monitored at all times. There is a constant ebb and flow of changes that you must be on top of or already working towards just to stay in business in this industry. Our greatest challenge is always the interpretation and education of these changes such as Oregon's new Paint Stewardship law which goes into effect in 2010.

Autenrieth, Benjamin Moore: Expansion of OTC regulations in Canada in 2010 as well as other areas of the U.S. are significant upcoming changes. Several years ago, Benjamin Moore made a significant investment in developing our patented Gennex waterborne platform, which serves as the foundation of a growing line of products that already meet the most stringent regulations in the U.S.-the SCAQMD regulations. We expect that in time the regulations will be the standards across the U.S. and Canada and that they will eventually regulate VOCs added from colorant in retail. If regulations go where we predict, the industry will need to make similar investments in technology.

Wheeler, Dunn-Edwards: In California, local air districts other than SCAQMD are in the process of amending their architectural coatings rules to implement the California Air Resources Board's 2007 Suggested Control Measure for Architectural Coatings (SCM). New, lower VOC limits for many major coating categories will become effective on January 1, 2011, with a few additional limits taking effect a year later. Affected categories include flats, non-flats, wood coatings, rust preventative coatings, specialty primers, and primers, sealers and undercoaters. SCAQMD Rule 1113 is more stringent than the SCM. Paint manufacturers are already reformulating current products, or formulating new products, to meet the future effective limits. As always, the overwhelming challenge is to maintain product performance while radically changing the organic solvent content of coatings. Dealing with increasing costs and potential hazards are also challenges. For example, one low VOC formulating strategy is to replace ordinary paint thinners with acetone, an exempt compound that is more expensive and greatly more hazardous because of its extreme flammability.

CW: What are you looking for from your raw material suppliers during these tough economic times?

O'Neil, Kelly-Moore: We would encourage raw material producers and/or providers to continue to produce and make available quality raw materials at a competitive and/or reasonable cost. In addition, we would also encourage all raw material producers to maintain a high level of commitment to continue their research and development efforts to make available to the paint industry, safe and effective raw material enhancements or new technologies. This would allow us to continue to build quality, environmentally sound and safe architectural coatings for the professional applicator as well as the consumer.

Weller, Rodda: Supply is the main issue when it comes to raw materials. We need to be able to cut down the timing from order to receiving and to create better turns when manufacturing and distributing to the field while maintaining our cost controls.

Autenrieth, Benjamin Moore: We source from industry leaders who drive technologyand innovative products supporting our requirements for superior performance and low and zero VOC products. These suppliers must also demonstrate sustainability in their processes and supply chain.

CW: Are there any other trends or issues you see impacting the interior decorative coatings market in the years ahead?

O'Neil, Kelly-Moore: Regulatory developments and health concerns will continue to impact the interior decorative coatings market. The paint industry must face up to the reality that environmental regulations and exposure concerns are here to stay and will become more restrictive as time goes on.

Weller, Rodda: Inferior products can be a factor especially in times of price erosions. It is hard to compete with "price only" products while maintaining your relationship with customers and reputation of quality in the maintenance field. Greenwashing is another factor trying to decipher which goal to hit and lack of on-site education and testing to maintain that the original specification is being met. As a regional manufacturer we continue to persuade consumers to shop locally and support our local economies and help ourselves recover faster from the slower economic times.

Wheeler, Dunn-Edwards: One emerging issue is product stewardship, or "extended producer responsibility." For the paint industry, this means manufacturers taking responsibility for managing post-consumer paint; that is, unwanted leftover paint, which may be a burden to local waste management agencies that operate "household hazardous waste" collection programs. Recent legislation in Oregon will bring about the nation's first industry-run post-consumer paint management program as a pilot project. Other states are expected to follow suit after the results of the pilot project are collected and analyzed. Another issue is the increasing interest, among both industry and regulatory agencies, in using VOC reactivity-based standards in paint rules. "Reactivity" refers to the ability of a VOC to promote the formation of ozone, a key ingredient of urban smog. Different VOCs have different degrees of reactivity; they may differ by more than an order of magnitude. This is why regulating VOC content in the conventional way-by limiting the weight of VOC per volume of coating-may have little or no beneficial effect on air quality, or may actually be counterproductive, when a smaller amount of high-reactivity VOC replaces a larger amount of low-reactivity VOC.

CW: What must the interior decorative coatings industry do to be successful in the years ahead?

O'Neil, Kelly-Moore: Innovation is really the key to a successful interior decorative coatings market in the future. We must continue to engineer interior coatings that will provide excellent performance and durability, ease of application and will maintain aesthetic value for an acceptable period of time.

Weller, Rodda: The paint industry must continue to develop quality products and educate consumers on their value to be successful in the future.

Autenrieth, Benjamin Moore: Industry must invest in technology and avoid the temptation to "greenwash." Claiming a product is zero VOC and green if it has more than 100 grams per liter after tinting will come back to haunt the industry as consumers become better educated about paint.

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