MASTERBRAND CABINETS

HAWAII TERRITORYREVIEW

February 2011

Susan Wagner spends 70% of her time dealing with Hawaii◦ 30% of time on administrative duties, payroll, ordering product for training, etc.

◦ 15 year relationships with Hawaii dealers

◦ Handles many routine calls from dealers as well as all correspondence and administration

◦ Pam, Dick and Chris copied and Hawaii discussed at Highline-Southwest meetings

◦ Derrick makes regular sales calls/warranty service

◦ Quarterly visits by Susan, Dick, Pam, Chris Last visit: Susan, October 2010 Next visit: Chris and Pam, February 27, 2011

Rep Coverage

Derrick Partain◦ 20 year Hawaii resident

◦ Former Kitchen Craft, Diamond, Decora’, & Omega dealer

◦ Accomplished, award-winning designer: kitchen featured on cover of Hawaii Home

◦ Active member of Honolulu chapter of NKBA • Maintains contacts and relationships within the industry

◦ NAHB Certified Green Professional

◦ 20/20 trainer

Derrick spends about 40% of his time on MBCI◦ Flexible time as construction project manager

◦ Provides intensive 20/20 training for dealers

Local Rep Coverage

All Plywood Construction STRONGLY preferred due to consumer

perception that APC holds up better in Hawaii’s humidity ◦ Small percentage of builders will accept MDF, usually on lower-end projects

Frameless cabinets much more prevalent than on Mainland -

over 50% in dealer channel

Miter-corner doors pretty much not sold due to joint separation

There is demand for exotic woods i.e. Bamboo, African mahogany

Hawaii Cabinet Market Trends

THE HAWAII MARKETDemographics and Economy

Significant population and kitchen dealers:

OahuMaui

Hawaii

Permanent population – 1,380,300◦ 48% Asian/Pacific Islander

Government is 23.7% of economy◦ 2nd highest after Washington DC◦ Heavy military presence ◦ Lends stability but under-performs in construction spending

Tourism is third largest industry after real estate/construction◦ Dependent on overall U.S. and Asian economies

Unemployment rate – 6.4% ◦ 7th best in U.S.

Hawaii Market Size

58th ranked market in U.S. for overall consumer spending◦ 2009 Buying Power Index - .4571

95th ranked market for building materials and supplies ($948.8 million)

A.C. Neilson media market ranking - 71

Hawaii Market Size

Hawaii Housing Construction Market

2010 Total Permits – 3,430 + 31% from 2009

In a recent survey of 33 dealers on Oahu, 13 had gone out of business ◦ Most featured high-end lines, but mid-priced lines affected as well

Hawaii is first US stop for low-end Chinese lines, resulting in an even higher penetration than in Southern California

Hawaii Kitchen Dealer Market

Moody’s economy.com predicts “robust” construction industry job growth in Hawaii through 2013, ◦ Leading the nation in percentage terms◦ +2.8% in 2010

The Good News

Most frameless competition is from West Coast Manufacturers DeWils

◦ Framed and Frameless: Washington◦ Market leader

Columbia

◦ Frameless : British Columbia

Canyon Creek Aristocratic Huntwood Pacific Crest Hertco

Kama'aina Local Hawaiian Cabinet Manufacturer◦ used by 10% of dealers

All feature “GREEN PRODUCT” on their websites 

West Coast Competiton

Came to Hawaii early with both framed and frameless and developed a good reputation

Plywood construction only – no MDF Framed: Alder, Maple, Cherry, Hickory, Red

Oak, Qtr Sawn White Oak, all at the same price

Frameless: Alder, Maple, Cherry, Oak, African Mahogany and Bamboo all at the same price

DeWils is Primary Competitor

Consumer recognition due to full page monthly advertising in Hawaii Home magazine, listing local dealers

Frameless 15% higher than Framedo The list price is higher on the frameless line

4 week lead time framed

6 week lead time frameless

DeWils

Mods: 2 prices ◦ $175 for all minor mods, i.e. moving a rail on an oven cabinet.◦ $350 for major mods requiring engineering.◦ Increased width, height in 1/8” increments - flat charge◦ Reduced width or height – next price up.◦ Mods are the same price for both framed and frameless

Special pricing on projects only

No promos because of all wood species same as oak

Product to Hawaii is will-called at plant by freight forwarder; dealer arranges for ocean shipment

DeWils

6 simple price buckets based on door style.

Good Customer Service ◦ “Easy to work with”◦ “Fair with credits”

DeWILS

Less expensive than Decora in popular wood species◦ Cherry is priced like oak

¾“ APC construction, with 1/8” solid wood edge banding◦ DT, full extension, soft close drawer standard

Frameless - ¾” box, solid wood edge banding

De Wils

Small, privately-held company◦ $25 million in sales

No co-op. Provides monthly magazine ad for dealers

Mainland rep visits every 2-3 months. No help with ocean freight Express Response program

◦ Small items are sent Fed-Ex ◦ ER cabinets picked up by the freight forwarder◦ Dealer may wait until the next full order is ready to be picked up, otherwise expensive

DeWils

Kona Kitchen and Bath

Kona Building Supply

Shared MBCI/DeWils Dealers

Hawaii Planing Mill (4 locations – Big Island) Hawaii Carpet One Highline Kitchen Systems Island Home Building Materials Emee Kitchen and Bath Busekrus Pacific Source- packaged sales – 3 island

locations

DeWils Dealer Targets

Privately held =flexibility and fast reactions

Higher-priced than DeWils

Normally 15-25% higher than KC on standard sku’s ◦ with 10% off promo can get pretty close, depending on

the style

Becomes less expensive than KC on many jobs because of no charge or “next-size-up” mods

Columbia

Satin finish similar to Medallion, preferred by many over the higher KC sheen

5/8” box, good joints, very nice satin finishes

Kitchen Craft has better paints, but not sold much in Hawaii due to joint expansion in humidity

Aggressive Promos:◦ $5800 vacation contest entered with points from sales ◦ On-going$20 a box spiff

Columbia

Wellborn Very aggressive approach with Homeowners

Design Center

◦ Wellborn owner flew to Hawaii for personal pitch and then flew owner, manager, and designers to Alabama for plant tour

◦ Free displays

◦ Owners returned feeling obligated to Wellborn and Rutt

HAWAII DEALERS

Homeowners Design Center

New in 2010◦ $10,000 sales in 2010

Kitchen Craft, Schrock, AOK, Omega Competition in showroom: Wellborn, Rutt, Canyon Creek

Ready to order Kitchen Craft Display◦ Offer free display

Costco call with Mike Land well received Filling out Costco questionnaire

MSA planning proposed to be presented by Brad in Hawaii◦ Free displays for Kitchen Craft, Omega, Schrock selection center◦ No-upcharge APC Feb 28 – May 27◦ $10 spiff matched by $5 Highline-Southwest◦ Patrick Littel sent to Hawaii for formal training

Secured Brookfield Homes 98 home project with Kitchen Craft on the Big Island◦ Aggressive SDA

Model home order has been placed, with 3

to 4 to follow every few weeks.

Projected as $615,000.◦ Most projected to ship in 2011 ◦ 2010 sales $178

Maui Homes

An MBCI dealer for 10 years◦ Diamond, Kitchen Craft, Decora, AOK

Competition in showroom: DeWils, Hertco

Has struggled the last couple of years, however, he has revived State of Hawaii Diamond project ◦ 22 unit third phase of a state project. A SPA has been approved at .2045 collect, to

help secure this project that the state sent back to vendors to re-bid.

Ran January pre-select for 10% off cherry, maple, alder and rustic alder

DeWils is major competitor

MSA Planning No up-charge APC all brands Feb 28 – May 27

$25,000 Diamond sales in 2010 ◦ down from $80,000 2008

Kona Kitchen & Bath

10 year Kitchen Craft dealer ◦ $76,000 2010 sales, mostly from the Oahu main branch

Competition◦ Local custom “house” brand, used for projects◦ Canyon Creek.

Locations on all major islands. MSA planning • Free KC sales centers for branches • No up-charge APC February 28 – May 27, 2011• $10 MBCI spiff

‣ January Pre-select : 5% off $10 spiff

Honsador Lumber

Nicest showroom on Maui with many brands

10 year MBCI showroom

Columbia taking market share due to $20 a box spiff

$70,000 in Decora business in 2009, $120,000 in 2008 ◦ Took Decora out 3rd qt 2010 because of presence at Home Depot ◦ Took Schrock out with introduction into Lowes

Target this account for Omega/Dynasty

MSA Planning◦ No up-charge APC Feb 28- May 27◦ MBCI $15 spiff matched with $5 Highline-Southwest◦ Kitchen Craft display 70% off credit memo 30% 12 mo◦ Free Omega Dynasty display◦ Promote Costco

Exclusively Yours

New in 2010 Brought container load of Contractor’s Choice

into stock Bringing in APC product from Indiana adds too

much freight to compete with local Chinese cabinets◦ Re-visit when CC APC available from Las Vegas

Recently multi-branded this account with Diamond and Decora’◦ Secured Decora’ for NAHB “New Hawaiian Home”

MSA Planning◦ No up-charge APC Feb 28 – May 27

Collaborative Solutions

New in 2010 with Kemper

Just multi-branded with Kitchen Craft

MSA Planning◦ No up-charge APC Feb 28-May 27

Concepts 2 Completion

Mostly project work with Kitchen Craft◦ $92,000 sales in 2010

Current approval for an SDA of .23 to secure a 93 home upscale project in Waikaloa

Six kitchens and baths ordered for 3rd phase of HR Horton project◦ Request for SDA at .23 wood and .22 thermofoil to prevent these 60 homes from going to local

competition

Using January pre-select to try to “get him into our book” for other than project work.

Competition in showroom: DeWils, Canyon Creek

Obstacle: He doesn’t sell maple. Alder is preferred and KC only offers APC on maple and cherry

MSA Planning ◦ Offer free KC display◦ No up-charge APC Feb 28 – May 27

Kona Building Supply

TARGETS

Honolulu location

Not currently selling cabinets

Interested, but some hesitation because they are very close to Homeowner’s Design Center, which refers appliance sales to Ferguson’s

Target Omega, KC and Schrock as National Account

Ferguson Design Center

Decided to stay with local Ohana product for low end.

Target with Decora’ for higher end market

MSA planning• Offer no UP-charge APC• Free display

Hardware Hawaii

Target with Kitchen Craft

Looking for something less expensive than Columbia

MSA planning◦ Offer no up-charge APC on all wood species◦ Free display or sales center

Emee Kitchen & Bath

Target this DeWils dealer with Omega & Diamond

Discuss Costco program

Offer free display Offer no up-charge APC

Hawaii Carpet One

Oahu and Maui locations:

Interested in Contractor’s Choice, Diamond◦ MSA planning

Offer no up-charge APC Free sales center for each location

Mikake Concrete

Addition of All Plywood Construction for Aristokraft available from Las Vegas May 2011 potential game-changer for Hawaii

Will open up new opportunities in the Hawaii market

Offering a no up-charge for APC in Hawaii would help compete with the Chinese product

APC for Aristokraft

Only line with resident representation Five member rep team alternating visits will

bring individual expertise to Hawaii market MSA Planning to grow territory

◦ Aggressive promos◦ Free displays◦ No up-charge APC for Hawaii territory Feb 28 – May 27◦ NEED: SDA for KC dealers to order APC on all wood species◦ Approach Homeowners Design Center as partner◦ Provide factory training on island◦ Target new dealers with above plan to take market share

Attack the competition!

Summary