Innovation on tap
Water is at the heart of everything Grohe does, and its CEO is determined to be a leader in terms of both technology and sustainability. By Erich Parpart
published : 27 Nov 2017 at 12:30
newspaper section: Asia focus
Being able to drink water straight from the tap in your kitchen is a brilliant solution that can save you the hassle of buying plastic bottles and lugging them home every week. And of course, using less plastic is good for the environment. But can you trust the quality of the water, will it taste as good as bottled water, and can you afford it?
For Michael Rauterkus, the CEO of the Germany-based sanitary fittings maker Grohe AG, the answer is definitely "yes" if the source water is of drinking quality. A quality filtering system will ensure that your water is cooler and tastes even better. And as the adoption of filtering systems catches on, prices will come down.
"The product that I'm most passionate about is Grohe Blue," he tells Asia Focus.
He's referring to a system that offers filtered water straight from a kitchen faucet, with an integrated filter, cooler and carbonator that can fit in a cabinet that's just 30 centimetres wide. The system was introduced in August this year and has already won the Green Good Design Award from the European Centre and the "Best of Best" Iconic Award from Iconic World.
"Bottled water is a nightmare for the environment. By 2050 there will more plastic in the ocean than fish and everyone is talking about this but who is changing it?" Mr Rauterkus asks rhetorically.
It's a question that is especially critical in the five countries -- China, Indonesia, the Philippines, Thailand and Vietnam -- that are responsible for 60% of all the plastic dumped into the world's seas, according to the US-based Ocean Conservancy. Reducing the number of plastic bags and bottles we use every day would go a long way to preventing a growing environmental catastrophe.
"Clearly, the water [to be filtered] will need to be of a certain quality which might not be the case everywhere but there are enough markets in the world where the water is of [the required] quality," says Mr Rauterkus.
Few consumers in Thailand have any trust in tap water, and weaning them off bottled water won't be easy. But it is a fact that tap water in Bangkok has been certified as clean by World Health Organization standards since 1999. Its levels of turbidity, iron and chloride are within the WHO's 2011 guidelines for drinking water quality. Some middle-class consumers who are aware of this are now using home filtration systems.
However, just sending out a feel-good message about the environment did not help sales of Grohe Blue as much as the company had expected.
"First we tried to advertise the product based on sustainability but we changed it to taste. We did blind tests against the premium drinking waters in Europe, I will not tell you the names," Mr Rauterkus with a smile before revealing that one was from Italy and one was from France.
"In a blind taste test, people cannot differentiate … and in areas where the tap water is of drinking water quality, you can absolutely do this."
Apart from humour, attention to detail and determination to help are the qualities one observes in Mr Rauterkus, who was especially gratified to see the company among the 50 firms in the Fortune "Change the World" rankings this year. The magazine praised the company's commitment to saving water and energy and reducing waste, and for its ongoing effort to recycle 99% of the water needed to manufacture its products.
Still, water filtration systems remain a tough sell as they are perceived to be expensive. Mr Rauterkus takes up the cost argument by framing it in a different way.
"For private households, I would say that here, in most cases it is a luxury product but I do not accept this in public areas or in offices, because our selling argument is that the square metre you need in the building to store all the bottles is more expensive than what you would pay for the systems," he points out.
"Every square metre costs you a fortune in Bangkok, not to mention facility management on the top and all the bottles that are lying around. I have had the system for five years at home and it is a life-changing product because now I drink more water."
Grohe's manufacturing plant in Klaeng district of Rayong is one of five production sites around the world. The others are in Germany and Portugal. Photos courtesy of Grohe AG
Mr Rauterkus, 51, seems to have been destined for Grohe, having grown up near the company headquarters in Duesseldorf. It was there that an iron works factory was established in 1911 under the name Berkenhoff & Paschedag, and later taken over by Friedrich Grohe in 1936. The company has been making faucets there ever since.
Now the world's leading sanitary fittings manufacturer with revenue of €1.3 billion in the 2016 fiscal year, Grohe was acquired for US$4 billion in 2014 by Lixil Group Corp, a Japanese building products group listed on the Tokyo Stock Exchange. The company has spent more than US$100 million in the past five years to expand its five production sites in Germany, Portugal and in Rayong province in Thailand.
"I was born in North Rhine-Westphalia which is actually very close to where our main factory is and when I was a child Grohe was already the name that I had in my head because it is very close by," says Mr Rauterkus.
However, after attending the nearby University of Munster, the young business administration graduate and sometime pianist did not start his career with Grohe. Instead, he went into the food business with Kraft Jacobs Suchard, the former producer of Milka chocolate, for seven years before trying his hand in the fashion industry with Levi Strauss & Co.
"I started with food and I changed to a totally different business with fashion, where I was not wearing a suit and I was putting on jeans instead, and my wife was laughing at me at the time," he recalls of his seven years in the fashion industry with Levi Strauss.
"I always worked for great brands including Milka and Levi's which is a fantastic brand with a lot of heritage, a lot of innovations, and the company was a lot about care taking of people, about celebrating people's cultures. Then I went to work for Hasbro for another three years. It is also a great maker of toys, where Monopoly is just one of the 25 brands that it has across the world."
Mr Rauterkus observes that every brand he has worked for does something "very specific, very good", yet it is not always obvious to outsiders what these exceptional qualities are. For example, Hasbro is well known for its focus on toy safety but what is less well known to the general public is how good it is at supply chain management. For a toymaker that experiences a huge demand spike during the gift-giving season, this is critical.
"You cannot postpone Christmas even if you want to," he says. "If you are late in supply, the year is gone. So I have never seen such rigour in forecasting and in the manufacturing process. While all of this might look nice and fanciful on the surface when it comes to the end products, the back office is super-professional."
In fashion, meanwhile, "it is about how they go to market", he says, reflecting on his time with Levi Strauss. The fashion industry understands how to inspire consumers by the way it launches products with big shows. "They understand this better than any other industries."
For sanitaryware, when he first came into the business, Mr Rauterkus found much to admire on the design and technology side, and he saw a bit of fashion in it as well because people always like a "cool brand", but the industry was a little bit "sleepy" in his view.
"They were allowing such things as 'if the product comes three months late, it's okay' but for us, that is not okay, so we have really put a lot of rigour into that. When we promise our customer that the launch will be on Jan 1, then the launch is on Jan 1," he said.
"Keeping promises, being professional, creating demand, putting energy into creating relationships with the consumers ... I would say that at the end of the day, I landed at Grohe because I could see it has a lot of these elements," he notes.
Grohe is one of the world's leading manufacturers of sanitaryware and water treatment products. Photo courtesy of Grohe AG
DIVERSITY AND INNOVATION
Mr Rauterkus believes the sanitaryware industry could learn a lot from the fast-moving consumer goods (FMCG) business and he has adapted some of the traits of the latter to Grohe. As well, he believes diversity is another quality that "makes Grohe different" from its competitors.
With an American wife and as the adoptive father of an Ethiopia-born teenage son, Mr Rauterkus personally has an international perspective, which helps when working with a variety of people. He proudly notes that 17 of his company's 20 top managers, including himself, came to Grohe from outside the sanitaryware business.
"I came from the outside and I have to read in the newspaper that 'yeah, he came from the chocolate business which means that he would not understand [Grohe]', and this might be true. But we can ask the right questions, therefore we now have an atmosphere with a combination of real experts from various industries," he says.
His chief marketing officer came from Sony, the operations manager was formerly in charge of Mercedes S-Class car production and knows "what quality and speed are all about", while major markets in Germany, the Middle East and China are now led by women in a male-dominated industry.
"What I am trying to do is create a culture of diversity where we respect different opinions, different insights, and we try to bring people from different industries. Our head of digital, for example, comes from Amazon in the retail business, which means he understands what consumers are thinking since he can see things through the eyes of consumers," he says.
"For me, I have been at the company for 11 years but because of this diversity, it is still day one to me."
In terms of innovation and digital adaptation, Mr Rauterkus warns "not to assume that the market will stay as it is". In the fashion market, he notes, where there used to be two seasons a year there are now as many as 12, with a complete switch in focus from a manufacturing-led to demand-led model. Even the sanitaryware business is changing.
When he joined Grohe as senior vice-president for North Central Europe in 2006, Mr Rauterkus asked about the possibility of sending newsletters out to his customers and plumbers and the answer was "plumbers do not read newsletters". Today, Grohe has more than 100 people working in its digital division, undertaking demand-driven activity on social media.
"Before, products were being driven by engineers but now it is about what the customers need," he says.
Based on the company's research and work with various startups, the "next big thing" that will revolutionise the sanitaryware industry is a product that Grohe has designed and is now marketing in Europe.
Grohe Sense is a water sensor that detects water in places where it should not be, and then notifies the customer via the Grohe Ondus app in time before the leak becomes a flood. If a pipe actually bursts, the sensor and app could shut down the affected section to prevent further damage.
"In Germany, there are 1.1 million water leakage cases per year which means there could be around 5 million in Europe and 20 million worldwide. This is not the exact number but there are about 15,000 cases just in the US every day," says Mr Rauterkus.
"Smoke detectors are important because they can save lives but there is no alarm for water leakage and it always seems to happen when you are not home. This can cost a fortune to fix and rebuild, not including the memories that could be lost from a flood."
Insurance companies are very interested in the product, which means Grohe now has "new friends" to work with. It has yet to be launched in Asia Pacific but the company plans to do in the near future.
Saving water is one of Grohe's chief environmental goals, and it does so by way of both big innovations and small tweaks. For example, its single-faucet products have been modified so that cold water comes out before warm water to save energy. Mr Rauterkus urges other industries to also do whatever they can to help the environment, save the oceans and reduce climate change, one step at the time.
"Around 50% of energy in your home is for heating up the water supply not for heating up the house, and it is small things like this which every industry could try to do now for the long run, because it is something we should do," he says.
"Changing company cars to save energy, throwing out personal printers at each desk to save paper and stimulating energy-saving behaviour in the office are things we can do, and all of a sudden it becomes part of the culture."