Canadian company Foamco Industries enjoying robust growth just two years after devastating fire.
BY DOROTHY WHITCOMB
Two years after a fire destroyed its manufacturing facility and cast serious doubt on the survival of the company itself, Foamco Industries has come roaring back. Executives of the Concord, Ontario-based company credit lessons learned while managing the crisis for the renewed vigor. Key among them, they say, is the power of cooperation. Collaboration—both within the company and with competitors—allowed Foamco to quite literally resurrect itself from the ashes.
Founded as a foam converter in 1987 by two brothers, C.J. and M.J. Shah, Foamco entered the bedding industry in the late 1990s and now produces foam components, as well as finished mattresses under its Dreameasy brand and for private labeling. It currently is led by C.J. Shah’s son, Adarsh Shah, who has served as president and chief executive officer since 2009.
“When Chinese imports (of upholstered furniture) took hold in the Canadian market, they decimated the upholstery industry and took many of our customers down,” Shah says. “Foamco had to pivot and diversify to survive. That’s when the business plan for Dreameasy was born and we became a manufacturer of specialty sleep products.”
Up in flames
Foamco was at the top of its game on March 27, 2014, when an electrostatic spark from a machine ignited a piece of thin quilting foam. Shah describes what happened next: “Video footage, recovered about a month later, showed that the operator did nothing out of the ordinary. He was running the machine the same way that he had eight hours a day for the past 10 years.”
Things happened quickly after that. “Gurmail Mann, a trained health and safety leader, rushed to the scene with an extinguisher,” Shah says. “He put out the fire on the operator and tried to stop the fire on the machine, but within seconds it had traveled to nearby foam and fabric and was already out of control.”
Shah is proud of the way Mann and other employees responded to the crisis.
“Heroes were born that day,” Shah says. “Surinder Singh, another veteran employee, was one of the last ones out, ensuring that no one was left behind. Vaishali Patel and Prem Emmanuel gathered and consoled the shocked workforce, while Tracey Gagnon, Suresh Bala and Madhukar Mathur organized food, transportation and communications.”
The fire destroyed Foamco’s 48,000-square-foot facility, as well as the inventory, machinery, computers and business records inside. Much later, losses from the fire were estimated at about $6 million*, which the company’s insurance covered. At the time, however, all Shah knew was that he had to start somewhere.
The day following the fire, Shah gathered his management team at a nearby Holiday Inn. “I honestly had no idea if we were covered sufficiently by insurance, if our customers would ever come back to us,” he says. “It just felt right to show solidarity, provide support for the labor force that would be out of jobs and have an action plan. I had no idea that, for each of us, our job description had changed overnight.”
Ram Satija, Foamco general manager, and Arun Bhatt, key account manager for bedding, prioritized tasks and went to work. In order to minimize disruptions to customers, Foamco signed agreements with four competitors and, within a week of the fire, the company was receiving purchase orders from customers, subcontracting the work, making deliveries and sending invoices.
That turned out to be the easy part. “We were assaulted by the foreign language of lawyers, insurance brokers and adjusters, claim consultants, forensic accountants, equipment valuation consultants and forensic engineering firms,” Shah recalls. “New hurdles would appear every few weeks, and questions would go unanswered for months, making decisions difficult.”
Foamco didn’t manufacture product again for a full year after the fire. Shah emerged from that period with a new understanding of crisis management. Dealing with issues surrounding insurance coverage consumed much of his time. Shah learned the importance of covering equipment at full replacement value and that time can be a business owner’s greatest ally.
“In the event of a loss, give yourself breathing room to rebuild your business or maximize your claim. Buy insurance that extends your loss of profits period to at least 18 months, rather than the standard 12 months,” he advises.
Shah also realized the importance of careful communication. “I learned to beware of media, competitors and politicians. You will always have critics and people will distort facts to serve their purposes,” he says. “In today’s age of sensational media and Twitter, respond swiftly. Spread a consistent, honest, positive message.”
But the key lesson learned, Shah says, was that his company’s most powerful resource—its people—remained, despite the fire. “I’ve realized that the personal bonds with our employees were really the structure that held the company together. The building, our machinery and all our contents may have crumbled to ashes, but those physical objects never represented our organization. Our employees did.”
To build on that resource, Shah says Foamco is investing more time and money in employee advancement and training, including top-tier workplace safety, career development, incentives and empowerment.
Rebuilding the bottom line
Although Foamco’s annual sales of foam components and finished bedding dropped by about 40% after the fire, the company is once again on track for robust growth. Shah expects combined 2016 foam and bedding sales to be 15% higher “than any other year in the past 10 years” and forecasts that combined sales in 2017 will be “60% higher than prefire sales.” The company is enjoying especially strong bedding sales. Those currently account for about 40% of Foamco’s annual sales; Shah expects that to jump to 50% in 2017.
Foamco’s customer bases on both the foam components and finished bedding sides are growing, and the company is benefitting from the success of its e-commerce bedding dealers. “We started making private-label mattresses for some small e-commerce players in 2012. But last year, we began seeing increased demand from the new modern breed of mattress e-commerce retailers,” Shah says. “By the end of 2016, we expect 40% of our total foam sales will come from this channel.”
The company’s new and larger 64,000-square-foot facility, along with new machinery, increased automation and faster processes, are ready to support such growth. Post-fire, the company’s vertical foam-cutting capacity has increased by about 800%, horizontal cutting capacity by roughly 400% and gluing capacity by 500%. The company produces a wide range of polyurethane and polyethylene foams, which it sells to the bedding, military, upholstery, seating, medical, athletic and packaging industries.
Foamco also has acquired exclusive rights to use a new, patented lateral roll-packing technology that, Shah says, “enables us to pack both foam and spring mattresses smaller than any other company in Canada.” The compression technology, which is especially popular with e-commerce dealers, also adds value to Foamco’s own line of Dreameasy mattresses.
Each of Foamco’s 15 collections of finished Dreameasy mattresses includes six to 12 models. Half the offerings are foam; the other half innerspring, with innerspring models starting at $200 retail for queen size and topping out at $1,500. The company does especially well with hybrids priced in the $799 to $899 range. The majority of the company’s foam beds include a gel component. Prices in this category also open at $200 but top out much higher, at $4,000. A $599 gel-infused memory foam model is a best-seller, Shah says. It’s available in a compressed and an uncompressed version.
Four premium models feature a foam core with air channels, a gel-infused memory foam layer and a layer of branded, pure NanoGel columns. “The NanoGel columns have the same benefits as pocket coils,” Shah says. “There is no motion transfer and the air channels diffuse heat.”
Foamco sells its finished mattresses to regional sleep shops, furniture stores and institutions in eastern Canada. About 25% of its production is private-label brands.
Bright future ahead
With the fire behind him, Shah is confident about his resurrected company’s future.
“In five years, we expect to have tripled our size through organic growth and acquisitions,” he says. “Our 10-year vision is to be the largest foam converter in North America and the fastest manufacturer of the most comfortable and beautiful cushioning and sleep products in Canada and the USA.”