Tuesday, June 19, 2018
Business

In lead crises, a maker of water-filtration pitchers sees opportunity clearly

PHILADELPHIA — Drip by drip, disclosures about unsafe levels of lead in drinking water have been made in U.S. cities and towns, prompting alarm and outrage.

At one Philadelphia-area company, those findings have been met with a respectful sense of opportunity.

In every headline about lead contamination in Flint, Mich., Newark, N.J., Sebring, Ohio, and the like, and every condemnation of its dangers by health officials and presidential candidates, Zero Technologies LLC sees growth potential — and more distance from its own near-death experience.

The 10-year-old company produces flow-through pitchers whose patented five-stage ion-exchange filters will, it says, render a glass of water more than 99.6 percent free of total dissolved solids, including lead. ZeroWater, as the product's name suggests.

The lead claim is certified by NSF International, which develops public health standards and testing programs.

An "I Donated for Flint" pin worn by Zero Technologies CEO Douglas Kellam during a recent interview refers to an ongoing campaign that has resulted in $200,000 in private and company-match donations to fund distribution of ZeroWater pitchers and replacement filters in Michigan. The 23-cup pitcher sells for $40 on ZeroWater.com, and the two-pack of replacement filters sell for $30.

Kellam makes no apologies for an effort that, while aiding those in crisis, also helps ZeroWater boost brand awareness.

"If you do something good, hopefully it reflects good on you," he said.

Momentum at the privately owned company has been positive in recent years, Kellam said, with $30 million in annual revenue and 39 percent sales growth in 2015, up from 26 percent in 2014.

It wasn't that way when the startup and turnaround expert left vacuum company Dyson to join Zero Technologies in June 2008. "We were pretty close to running out of money," he said.

Zero Technologies' main product then was a filtration system for office and home water coolers sold at Home Depot, among other places. That national distribution presence alone required an army of salespeople, Kellam said.

With manufacturing and shipping done in-house, the company — founded by inventors Rajan Rajan and a son, Mathu, who are no longer involved with it — Zero Technologies had 180 employees in the Philadelphia area and insufficient sales to support such infrastructure.

Retail opportunities for its pitchers were few. Industry leader Brita, whose U.S. distribution rights are owned by Clorox Co., dominated shelf space and sales where ZeroWater wanted to compete: Target, Wal-Mart and Bed Bath & Beyond stores.

"It was kind of ugly," Kellam, 57, said of his early days at Zero Technologies. "A lot of angry investors."

Understandably so. Seven months before he arrived, investors put up $25 million to help fund a national rollout of products. Of that, $14 million came from NutriSystem Inc.

The company "was going to go out of business if we didn't change it," said Kellam, who recalled similar circumstances at Dyson. "It's a category that has never had any serious performance improvements for decades. ZeroWater had a performance aspect that was demonstrable and valuable to the consumer."

So Kellam shifted focus from water coolers to pitchers, going head-to-head with Brita, which has about 60 percent of the market, according to a 2015 industry analysis by Freedonia Group Inc. Zero Technologies' share is about 10 percent, he said.

Freedonia estimates demand for flow-through water-treatment systems will grow 4.3 percent annually, to 4.8 million units and a value of $81 million in 2019, up from $51 million in 2004.

Needing to devote time to cleaning up its own balance sheet, Nutrisystem divested from Zero Technologies in 2009, Kellam said. To help support a launch of ZeroWater pitchers and two-packs of replacement filters that summer, he appealed for "a few million dollars" from a subgroup of the original investors who continue to support the company, he said.

They include Thomas Mendell, a New York venture capitalist and former partner at Goldman Sachs, where he ran the investment arm, GS Capital. In the water-filtration market, he sees pipe fulls — literally — of opportunity on the lead front alone.

"We haven't touched the surface on that," Mendell said, maintaining that "80 percent of the housing stock have lead solder in their pipes. That doesn't include the pipes coming in from the street."

Then there's chromium, he said. NSF has certified that ZeroWater's filters reduce its presence in water by up to 99.6 percent.

In overall sales, "we don't have any illusions about surpassing Brita. They're well ahead of us at this point," Mendell said. "But there is a niche for a quality we do fill."

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