[Startup Interview] Seth Wessels, Co-Founder, Tungston Trading, South Africa

[Startup Interview] Seth Wessels, Co-Founder, Tungston Trading, South Africa

Published: 26-06-2020 15:05:00 | By: Bob Koigi | hits: 1900 | Tags:

Tungston Trading based in South Africa is a business involved in the supply of cast iron range of products to the retail merchants for home improvements and plumbing. Seth Wessels the company’s Sales and Marketing Manager explains the journey, business model and the growth strategy.

Introduce your company

Tungston Trading Closed Corporation started as a one man business supplying cast iron access covers to a very limited market segment, within the construction and civil's industry.

It was a small operation fulfilling a local need and the owner used it to carry himself into retirement. Therefore it was not looked at from a strategic or growth perspective at all, but rather from a static income generation vehicle.

Seth got involved with the company to help the founder run the business, while the latter was undergoing surgery.

He soon realized its growth and market potential and that it needed to diversify its product range.

Who are the founders and what are their professional backgrounds?

The business was founded by Iain Lundie who has since retired. Seth Wesssels was then involved in the takeover. Siegmund Wessels then joined the company in 2018.

Iain was in various roles, mainly sales representative, in the construction and supplies industries.

Seth Wessels has both local and international sales and marketing experience mainly from the medical industry.

Siegmund Wessels has 40 years’ experience, mainly in the finance and strategic functions of manufacturing companies. He has given strategic and administrative support to a variety of companies over this time.

How is your company financed?

The company uses a small medium term loan of $75 000 and an overdraft facility to operate currently.

What industry does your company operate in?

Tungston Trading currently supplies its products to the retail merchants for home improvements and plumbing suppliers operating in the immediate vicinity of Gauteng, The merchants in turn supply the plumbing, civil and construction industries end user markets.

What in your opinion are the dynamics that currently define the industry you work in?

The industry has until the start of the pandemic been dominated by the large multi-national importers such as Saint-Gobain. These importers bring cast iron and ductile iron products into the market place.

Local manufacturer has not been an option as the capital required to carry stocks of product has been a barrier to entry.

Unless a foundry is willing to support the product the cost can be another barrier to entry.

Why did you start your Tungston Trading? What opportunities did you see?

Seth through his family ties had taken over the startup from his father in law, looking after operations to help him to cope.

Siegmund joined him in the business as they both saw the first two opportunities.

First the company had been built around being the supplier of the small quantity (one-off items) that were a hassle factor for the larger importers. These items were not being supplied by the large multinational importers because of their sporadic nature and limited quantities for effective imports.

It was felt that the business could grow into being able to supply the larger volume items as well, but it would require capital outlay for stocks

Secondly there was a growth opportunity to supply the cash business market that the merchants currently supplied with imported product.

These customers were not willing to wait for the goods to be manufactured, especially, if they had paid cash up front for the items.

It was felt that if Tungston could build inventory levels to enable it to service this market segment, it could, eliminate the reliance on the merchants to reach the market and thereby grow its market from these direct sales,

Thirdly, this small company only supplied the local (immediate region mainly within 100 km radius) merchants due to infrastructure constraints.

Seth and Siegmund soon realized, that the company could be grown into the national locally manufactured supplier of these products, competing against the larger multi-national importers, if it could get the funding for the necessary inventory.

Lastly, but possibly most importantly, the covid-19 pandemic created a serious problem for the company during the national lockdown. This inter alia has put the company on the backfoot depleting any resources it had to operate and has eaten up the small reserves it had managed to build.

In addition at least 10 people (FTE's and WTE's) were now in danger of losing their livelihood.

However, it also created a window of opportunity to significantly change the market place, a silver lining in the storm clouds.

The pandemic caused the imports of the competitors' products to become unreliable, due mainly to production constraints elsewhere in the world, caused largely by the shutdown of foundries in both China and India. These foundries were the source for the competitors to import their products.

In addition, the foreign currency exchange rate between the ZAR and the US dollar has depreciated to the extent that the imported material costs have grown by almost 30% (from ZAR13.50/S$ to ZAR 17.30/$).

Both these factors have made the locally produced product, far more competitive and desirable in the market place and the demand has increased for Tungston's cast iron product range of products.

As Tungston only supplies about 10% of the current market in the country the growth could be far larger.

Tungston also could start to make (via the foundry) the ductile iron range of products if it had the funding to procure these inventory raw materials. Tungston would have to pay for the raw materials in order to have the items manufactured locally.

What problem or problems does Tungston Trading solve?

The pipe infrastructure used for dealing with water, cabling and effluent handling on any site, requires access points to maintain and service the infrastructure.

These access points (covers) can be made from a variety of materials dependent on functionality and available budget capital.

Traditionally cast iron has been the norm for strength and reliability, while ductile (a mix of cast iron and manganese) is an alternative form, that is lighter and stronger. the foundry has the capacity to manufacture these products.

Low cost product solutions are composite (a resin based) alternative. Concrete access covers are also periodically utilized.

Although these last two forms of product are far cheaper to manufacture, the lack of quality control and the durability of the materials makes these only as viable short term solutions that cannot withstand traffic such as vehicles etc. They are therefore only conducive for low cost light traffic (where safety is not a concern) environments.

Tungston manufactures cast iron products and has negotiated an exclusive supply agreement for its raw materials with a local foundry. The foundry has grown its own capacity on the back of Tungston's growth. It is capable of making the first two types of access covers, i.e. the cast iron and the ductile iron products.

Although the foundry does make cast iron products for other industries as well, Tungston makes up about 70% of this foundry's current production outputs.

The foundry currently has more than double the output capacity available which could easily be fulfilled by producing Tungston products.

Tungston can and does source and supply the cheaper alternatives (the resin based and concrete products) via other local suppliers.

This initiative to manufacture or fulfil the ductile and cast iron products nationally (seen as a "startup"/expansion project), would create local employment opportunities in a country that has extremely high unemployment rates.

Currently, the bulk of the cast iron and all the ductile iron products are imported. Tungston only supplies a little over 10% of the consumption in the country.

What gives Tungston Trading the competitive edge?

Our company can supply all four forms of access covers. All of these products would therefore become locally manufactured and supplied giving continuity of service and maintaining and creating local jobs).

Who are your customers?

Currently, Tungston only supply to the retail merchants, who in turn supply the end user (civils and construction companies, the plumbers and sub-contractors). This amounts to just over 10 % of the total estimated market.

These merchants are mainly found in the immediate +/- 100 km radius, with the odd exception where a longer distance merchant has been developed specifically.

The identified market/customers that we have seen is are the direct supply of the end users and for the whole country of South Africa. This means that the potential market is about ten times the size of Tungston's share.

Once this national market has been established, Tungston has a strategy to then grow into the countries within the Sub-Saharan African market.

What does your company need in order to grow?

Tungston requires a capital investment of approximately $300,000 to place it in the position to supply the national market.

This financing can take the form of either an unsecured loan to be repaid over the next five years or as an equity stake within the company.

Around two thirds of this would be invested into working capital stocks (inventory to maintain continuity of supply) and the other one third would be invested into the infrastructure of production equipment of patterns and tools to enhance production capacities especially with regard to the ductile range of products.

What is your growth strategy?

Tungston has identified a strategic growth path that would encompass the following specific actions.

Establish an internet presence on the established buying platforms such as Takealot. This would increase the current margins experienced from the current merchants as it would be directly supplying the end user and therefore could lift its own selling prices.

Secondly it would help establish the market growth of selling nationally, utilizing the existing infrastructure of these forums (e.g. courier and delivery infrastructure).

Build the inventory levels to increase delivery service for the "walk-in" cash trade of the end user. Currently these customers are going to the likes of Saint Gobain as they have the finances to carry a variety of stock in their working capital specifically to satisfy such demands.

Expand into markets not previously manufactured by Tungston. The Ductile iron range of products . This will influence the growth of both the end user market development as well as enabling the development of the national national foot print.

Expand the areas of supply (growing the national footprint) in a systematic growth pattern, starting with the KZN region first, thereafter, Eastern Cape and then around to the Western Cape.

In which markets are you looking to establish your presence?

The identified market/customers that Tungston has identified is primarily for the end users and for the whole country of South Africa. Tungston has a strategy to then grow into the countries within the Sub-Saharan African market via an agency network (along the lines of country franchising).

Immediate market places would be Namibia, Botswana and Mozambique. Thereafter it would be mainly into the mining sectors and related civils around those industries within Zambia and the DRC.

What are your plans for the coming 12 months?

The forecast that has been put together shows the initiatives discussed above to grow the business by 25% within the first year.

Tungston wants to open a Durban, Port Elizabeth Bloemfontein and Cape Town depot system to increase service delivery into these areas.

Tungston wants to establish an internet presence for the products to enhance our ability to reach the end user , eliminating the reliance on the merchants and thereby growing our market size.

In addition, it wants to establish smaller satellite BEE suppliers in the outlying areas, where it will supply and set up micro depot's with a local "business owner".

In order to achieve this it needs to build the inventory levels to support the service delivery required for such trade.

Tungston sees a growth potential in excess of 25% on the current market share, within the following 9 months where after, it has set targets to grow our market share by +/-15% per annum,which could mean that it becomes a dominant player in the market within the next three years.

www.tungstontrading.com

 

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