Elkay plunges into cabinet market.

Renowned stainless steel sink manufacturer makes a big splash with its acquisitions of Yorktowne and Medallion.

Number eight with a bullet. That's where the newly formed Elkay Cabinet Group ranked in Wood & Wood Products seventh annual survey of the Top 25 cabinet manufacturers published in May.

The combined $75 million in sales reported for the group's two divisions -- Yorktowne Cabinets and Medallion Kitchens -- represented a strong resurgence for both manufacturing enterprises. In the six years preceding the Elkay buyouts, each struggled to hold market share in the highly competitive cabinet arena. In the case of Yorktowne of Red Lion, Pa., sales dipped from $48 million in 1987 to as low as $38 million during the recession-wary 1991. Waconia, Minn.-based Medallion, which now has its fifth owner in five years, reported sales of $27 million in 1989 and as low as $21 million in 1991.

Even before Elkay's purchase, though, business was on the upswing for both companies, especially Yorktowne, said Jack Edl, president of Elkay Cabinet Group. "Because Elkay did not finalize purchase of the two companies before the fall of 1993, we cannot take too much credit for the sales growth recorded last year. That's mostly a reflection of the quality of the two businesses and their products, and of the improvement in the economy."

The cabinet and sink link

Two years before Elkay purchased Yorktowne last August, Edl was hired by Elkay as a consultant to study the cabinet marketplace, determine which cabinet manufacturers might be for sale and most importantly, which of these companies would be a good buy.

"There is a definite linkage between selling sinks and selling cabinets. As the world's largest manufacturer of stainless steel sinks, Elkay already has a major presence in the kitchen," Edl said. He added, "Elkay has had an ongoing interest in the cabinet industry dating back to the late 1980s. It's an industry that is largely fragmented despite consolidation during the last 15 years. Companies who have good marketing and general business plans seem to do well despite what's going on with the overall economy."

Assuming the role as president of the Elkay Cabinet Group has afforded Edl a rare opportunity to be reunited with two past careers in one fell swoop. Between 1976 and 1981, Edl was Yorktowne's president, and between 1982 and 1988 he served as Elkay's vice president of marketing.

"It's kind of like going home," Edl said. "It's given me a chance to reacquaint myself with a lot of good people that I worked with at Yorktowne. Believe it or not, the average employee tenure at Yorktowne from shop floor to senior management is 19 years."

Stability in production and management, plus its position as a major player in the cabinet industry, were two of the qualities that piqued Elkay's interest, Edl said. "What attracted us to Yorktowne is that while they have had some ups and downs, they have overall been very successful. Yorktowne was the first manufacturer to market modular cabinetry based on standard 3-inch increments. The company is positioned well geographically to serve the higher end of stock and semi-custom cabinets to customers in the Northeast."

Other strengths cited by Edl include Yorktowne's vertically integrated manufacturing base and ability to meet delivery times. Yorktowne operates its own dimension plant, which Edl said has excess capacity to support its own growth and that of potential future acquisitions of the Elkay Group. "The biggest change today compared to when I was president is that Yorktowne has developed a production scheduling system that has helped them provide 99.9 percent on-time delivery of product with no inventory," Edl said.

In contrast, Medallion is a company that had teetered on the brink of instability for most of this decade. "Medallion has historically been underfunded," Edl said. After Medallion's founder sold the company five years ago, it changed hands three times before being bought by Elkay. "The three owners in between us and the founder had little experience with cabinet production or the industry. They bought it on the cheap and thought they might make miracles.

"The Medallion scenario is the absolute reverse of Yorktowne. When we acquired the company, there were no managers -- no sales executives, no marketing executives, not even a plant manager. The first thing we had to do was put together a senior level team," Edl said, adding, "The one thing we did inherit was a great group of people in production. They were the ones responsible for holding the company together despite great turmoil."

In spite of the "turmoil," Edl said, "Medallion attracted us for its very well thought-out product line and extraordinary quality serving the high-end stock and semi-custom product points. Medallion has a broader base, as it sells to home center chains, whereas Yorktowne sells mainly through traditional kitchen and bath stores and some independent home improvement retailers. Medallion's product also tends to be more expensive than Yorktowne's at the high end."

Lessons learned

The buyout of Yorktowne and Medallion by Elkay is somewhat reminiscent of the late 1980s purchases of Merillat, Kraftmaid, Fieldstone and Starmark by Masco Corp. and the mid-1980 purchases of St. Charles and Mastercraft by Whirlpool.

Asked if those two scenarios taught him anything, Edl said, "The main difference between the approaches used by Masco and Whirlpool in entering the cabinet industry is that Masco bought quality companies and let them do what they were doing while Whirlpool bought quality companies and tried to tell them what to do," Edl said. Whereas Masco has emerged as the dominant player of the cabinet stage, Whirlpool abandoned the cabinet market after only two years.

"Our basic strategy is to let the companies run autonomously in a day-to-day business sense, but of course report to the parent company. Each has its own business plan and its own organization plan. The companies, however, do share ideas for cost savings for such things as workmen's compensation."

In addition, the Yorktowne dimension plant supplies Medallion with some wood components including face frame and drawer parts.

Reflecting on the cabinet group's first year, Edl said, "I think things went really well, as expected. We've been able to begin strategic plans for both businesses that will continue to emphasize the development of programs aimed at expanding our customer partnerships and focus on becoming an even more important cabinet supplier."

As to the possibility of Elkay acquiring other cabinet companies, Edl said, "We have a continued interest of adding to our strength, but are not actively looking."

ELKAY'S 'PLUNGE' AT A GLANCE

Elkay Manufacturing Co. was founded by Louis Katz in 1920 in a 2,100-square-foot building. Today, Katz's grandson Ron runs the still privately owned company, which operates six manufacturing plants, employs 1,400 people and lays claim to the title of world's largest manufacturer of stainless steel sinks and water coolers.

In August of 1993, Elkay acquired Yorktowne Cabinets of Red Lion, Pa. Yorktowne was founded in 1908 as a manufacturer of horse-drawn carriage bodies, radio cabinets and institutional furniture. In the 1920s, it was among the first cabinet companies to manufacture modular or stock kitchen cabinets. Today, Yorktowne operates cabinet manufacturing plants in Red Lion and Mifflinburg, Pa., as well as a dimension plant in Mifflinburg. The three plants total 780,000 square feet; Yorktowne employs 730, including at its three branch distribution centers in York, Pa.; Philadelphia; and East Brunswick, N.J.

A month after buying Yorktowne, Elkay added Medallion Kitchens of Waconia, Minn., to its newly created cabinet group. In so doing, Elkay became Medallion's fifth owner in five years. Medallion, founded in 1969, operates a 100,000-square-foot facility in Waconia, and has a distribution center in Gurnee, Ill.

For Wood & Wood Products Top 25 Cabinet Survey published in May 1993, Yorktowne reported 1992 sales of $40 million and Medallion 1992 sales of $23 million. For this May's Top 25 Cabinet Survey, the Elkay Cabinet Group reported total sales of $75 for 1993.

SALES TRACK RECORDS
($ in millions)

          Yorktowne     Medallion       Combined

1987         $48           $26            $74
1988         $45           $25            $70
1989         $45           $27            $72
1990         $40           $24            $64
1991         $38           $21            $59
1992         $40           $23            $63
1993         N/A           N/A            $75

Source: Wood & Wood Products Top 25 Cabinet Surveys 1988-94.