Late in 2011, Watkins Manufacturing acquired the assets of American Hydrotherapy Systems (AHS), maker of FreeFlow portable spas. With the purchase Watkins added a new price point to its line of spa brands, which includes Caldera and Hot Spring Spas. Terms of the transaction were not disclosed.
"The addition of Freeflow Spas to our family of quality hot tub brands fits perfectly with our consumer strategy to deliver the right products to the right markets at the right prices," said Steve Hammock, president of Watkins Manufacturing, at the time. "We want our Watkins-brand retailers, whenever possible, to be a one-stop-shop in fulfilling the hot water relaxation needs of today's discriminating consumer. Integrating this quality selection of Freeflow Spas products into our retail offering will allow shoppers to get the hot tub they want from us, whether they choose an entry level model or the most premium spa."
We caught up with Hammock recently to delve deeper into the new alliance, and what it means to Watkins, its dealers and the buying public.
Tell us about the decision to acquire AHS.
We've been talking with these guys for a number of years. I think it probably goes back to 2007 or 2008, so quite a long time. They compete in a segment of the market where we've never really participated — in the entry-level segment. And we were just really impressed with what they've done. They've made a very attractive product line, they hit all the price points, they're well regarded — they're small, obviously, but the people who buy from them respect them and speak kindly of them, and that's important to us. We thought it was a logical fit with our organization.
Over the course of the years that we've spoken with them, they didn't really have an interest in selling their business. They were growing it and happy with that. So we sort of stayed in touch and, then early in 2011 we were touching bases and both figured it was a good time to get serious. So we've been working on that since about the middle of 2011.
Was there some urgency in trying to gain a competitive advantage over other acrylic spa makers by adding this price point?
I don't think we looked at it that way. We never really thought to ourselves, 'We need to add roto molding.' That didn't have a role in this at all. It really had everything to do with how we segment the market. We look at the hot tub market and there are various price points that we categorize into various market segments. And we've never really done a lot of activity in that opening price point area.
The opportunity with these guys — and I don't mean with roto mold in general — looked like a tremendous opportunity to us. So the roto mold sort of came along with our view of consumers and how we could best satisfy those folks and expand our reach.
Are you going to rebrand them?
No. We bought the business as is. That's why you buy a business rather that starting a business on your own. They've done a good job of protecting their brands and establishing a name within the trade. So that was all part of what we acquired, and we're going to continue on with that.
Is this going to also help Watkins get into some new markets, too?
Perhaps. There are very few markets — in North America, anyway — where we are not doing business, but it's an opportunity for a cross section of our customers. It's not going to be a perfect fit for all of our customers, for sure. But it will give a lot of our customers a way to get more reach locally, and we'll certainly give them every consideration. But if we've got markets that we haven't fully penetrated, this brand is part of our portfolio and if it's appealing to people we're talking to, and that helps us get our foot into some doors for everything else we make, then that's a benefit, too. Although I think that sort of thing would be a secondary benefit rather than a primary benefit.
Do you anticipate this changing the way Watkins salespeople operate or the stores promote their product line?
I'm not going to speak to how the individual stores will sell. They all have their own programs. My favorite way to promote and sell is the way that works. So the retailers can decide how to market the products that they're going to carry. We still make our living selling high-end spas, and we certainly aren't interested in diluting that effort. We're looking to complement that effort.
Aside from adding this entry level line, are there other things Watkins has done to address changing customer buying habits?
We've had two very strong years of growth here, and I think that goes right to the heart of our offering being very broad and hitting the right price points with the right products. We're very well distributed, so we're available. We're very well marketed where people are shopping, which is online. When they find us online, they read our story, and that leads them to a showroom, and when they visit a showroom they're not disappointed. We've tried to have something for everyone, and I think we've done a very good job of it, even before adding the roto line.
The consumer is definitely a different person than he used to be, and we've addressed that through our product strategy. I won't get into a lot of details, but we've had a great deal of success with it.
Any changes in facilities?
Over time we will be relocating the business to Vista, Calif., which is where we're located. That's primarily because this is our distribution point, and the new product is a price-point product, and if we can make it at our point of distribution, that's the most economically feasible solution.
Do you think if the economy hadn't changed people's buying habits recently, that you still would have looked at getting into an entry-level price point?
Absolutely. Like I said, we started talking to these guys in 2007. We're not necessarily dwelling on economics right now; our goal is to try to mainstream hot tubs. To do that you would like to have a broader total number of consumers that have access to the product. If you're only selling to the people at the top of the pyramid, we're not going to have much of an industry. And so we're trying to make them available for a larger number of consumers, and that means we're going to have to cover some price points. We've always done well at the premium and luxury end of the business, and the opportunity is there for us to expand our reach. It's not about timing. We're not thinking, "Times are tough. We need to reduce our prices." It's not how we work. We're long-term oriented, and if you've got a price that will let in millions more people, that's an opportunity we want to exploit. That's really what it's about. We're not trying to sell more low-end spas; we're trying to sell more spas.
The idea is that everyone out there that thinks they might want a hot tub will be able to find something with us.
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