housing
Perhaps we’ve been too quick to put the blame for the current drywall shortage at the feet of our largest construction and building materials company
Winstone Wallboards was a company most of us didn’t know much about until earlier this year, when it was unable to produce enough of its drywall product – Gib – to meet construction industry demand. Since then, the company has hardly been out of the news. In the past week alone, the deficit has turned into a “nationwide crisis”, a former banker turned housing company has called on Fletcher’s management to roll over, the Shareholders’ Association weighed in on the action and the new Minister of Construction and Housing Megan Woods has set up an emergency task force.
So what exactly has the Fletcher Building done – or not done?
Winstone Wallboards is a local manufacturer, founded in the 1920s. So far, that’s a good thing; experts often complain about the lack of local value-added production in New Zealand. In recent years, the company has built up a near monopoly (94-95 percent) share of the New Zealand drywall market.
It turns out that having a monopoly supplier isn’t great when it comes to a scarcity situation.
But is that Winstone’s fault?
There is an argument that the main reason why Gib has gained such a large market share in New Zealand is that it is a pretty good product that builders and architects like to use, and people who give permission from the local government feel safe when seeing plans.
“It’s no mistake that the word Gib has become a generic name for drywall,” said Steve Bohling, group editor of the New Zealand Hardware Journal† “Winstone Wallboards got where they are because they have great products and great support.”
Bohling hosts the annual Hardware Awards. Winstone Wallboards has won the ‘Building Products Supplier of the Year’ category for the past 18 years.
It’s not just the products, Bohling says. Winstone’s claims of trying to provide customer service are true. One of the features builders refer to is what the company calls “deliver-to-site.” That means Winstone employees load different pieces of Gib on their trucks in the correct order and then unload them on site, taking the correct pieces of Gib to the room where they are needed.
That’s pretty handy.
Meanwhile, the trademarked color-coding system, which has been derided so loudly by opponents in recent days as an import deterrent, could be seen as a simple and clever way to show customers at a glance which piece of drywall would otherwise look similar. which.
For example, yellow for standard Gib, blue for wall reinforcing product, green for water-resistant Gib for bathrooms, red for fire-resistant – and so on.
Bohling says the fact that foreign companies have found it nearly impossible to gain a foothold in the New Zealand market, despite more than one attempting to do so over the years, has more to do with the good products and service from Fletcher than with dirty tactics.
“I don’t believe there is anything anti-competitive going on. Gib has become entrenched with builders, architects and municipalities because the company is really good at what they do.”
The Commerce Commission reached a similar position when it investigated Winstone’s subsequent complaints in 2013 and 2014.
“The evidence does not support a conclusion that Winstone de [Commerce] Act,” the final report said.
“We recognize that Winstone’s market share is very high and has been for many years. However, this does not appear to be driven by exclusive agreements with merchants, discounts offered to merchants or builders, or an anti-competitive predatory strategy.
“Rather than new entrants failing to make attractive enough offers to merchants to encourage them to keep their product in stock, or ask builders for delivery, it seems that building code compliance, coupled with those involved in the design, approval and construction of homes, contribute to Winstone’s continued high market share.”
Government intervenes
The Commerce Commission is re-examining Fletcher Building as part of a wider government-ordered market inquiry into housing supplies, which is due to deliver its preliminary report next month.
Meanwhile, Megan Woods, the minister responsible for construction and housing, announced her drywall task force this week, pointing to Winstone’s monopoly position and the need to facilitate more imports.
“The task force has a very clear goal: to increase industry productivity as quickly as possible and remove unnecessary barriers, including around certification, to facilitate the use of different types of drywall,” Woods said.
The first meeting will take place next week.
Woods has previously weighed in in a national debate on deficits – as it turned out in retrospect. When winter temperatures plummeted and power went out in thousands of homes last August, Woods was quick to blame private electricity generators, especially Genesis Energy.
Ultimately, an investigation concluded that the fault was largely with Transpower, a state-owned company, and the market regulator, the Electricity Authority.
An industry source questioned whether Woods’ current focus on Fletcher Building might be a way to divert attention from any negative findings about MBIE or government regulation that could emerge from ComCom’s housing supply market survey.
“The government wants to blame someone else.”
‘Forward orders doubled’
During Fletcher Building Investor Day this week, CEO Ross Taylor spoke about the development of the drywall shortage. Without blaming customers, he painted a picture of minor shortages leading to more serious shortages as customers able to build up inventory did so. It was the lockdown-induced run on supermarket toilet paper all over again, but this time with more serious consequences.
“After the Auckland lockdown [in August 2021]Industry shortages for a range of key building supplies, including wood, insulation and drywall, prompted customers to bring their orders forward to ensure they had stock,” Taylor said.
In March of this year, with building material shortages coupled with record levels of construction work, Gib customers were moving their drywall orders forward, said David Thomas, general manager of Winstone Wallboard at the time.
“To give you some context, the number of forward orders we have received for Gib drywall has resulted in daily orders being more than double what they were in July 2021.
“That volume was about double the industry’s current capacity,” Taylor said. “We were able to meet some additional demand during this period by reducing inventory below normal levels and importing some additional volume from Australia. Our supplier stopped supplying us in November 2021 due to high demand from the industry in Australia.”
Fletcher Building was able to prevent imports from being stopped when the seriousness of the shortages became clear. Whether a local manufacturer should be responsible for importing products if its own factory cannot meet demand is a moot point. It wouldn’t necessarily be Fonterra’s job to import butter if supplies were to decline for some reason.
Meanwhile, Winstone’s would also have been well aware of making sure every sign they imported met their own quality standards, the industry source says. When the Australian supplier withdrew due to high demand at home, Winstone’s doesn’t seem to have found another.
‘Equilibrium’ probably in October
Taylor said he expects supply and demand to rebalance in late September or early October.
“We reconfigured our factory between March and May 2022 to increase production from July, and our import availability will resume from August as international capacity issues begin to ease,” he said.
The company’s new Tauriko drywall plant in Tauranga should be operational by May 2023 and will increase local production by 30 percent, Taylor said.
Hamish McBeath, CEO of Fletcher’s Building Products, says the company has lost market share and customer confidence in recent months, but history suggests this won’t be permanent.
†[Over the past few years] no one has been able to replicate our offering in terms of products and delivery options. With the new factory coming on board, we will be competitive with other products coming in and will be able to provide new boards and more flexibility in terms of product changes.
“I’m confident we’ll get our share back.”