Our GIB monopoly has run into trouble. Are there lessons to be learned?
GIB. It’s almost 100 years old, Kiwi-made, and steady as the Rock of Gibraltar, after which it is named. It’s also ubiquitous; the company which makes it, Fletcher Building subsidiary Winstone Wallboards, has an approximately 95 percent market share in the New Zealand construction sector.
And recently that’s become a big problem. As Newsroom reported last month, some building projects have ground to a halt because Fletchers hasn’t got enough plasterboard supply to meet demand.
If you ordered GIB now, you wouldn’t get anything until at least July.
So what happened, and what could we do to avoid this in the future?
What happened was the impact of Covid on a market dominated by one player. The first 2020 lockdown, coming off the back of WInstone’s routine annual Christmas holiday maintenance shutdown, reduced supplies of GIB in the market. Stock got depleted even more when most of the country moved out of lockdown and started ramping up construction, but Auckland - and its GIB factory - was forced to remain shuttered.
Word-of-mouth news of a possible shortage triggered the toilet paper effect among builders. The bigger companies in particular - with warehouse space and available cash - started stockpiling GIB, making the shortage worse.
Meanwhile the construction industry kept going at record levels.
Even running its two plants 24/7, Winstone production couldn’t keep up.
By February, Fletcher was saying it was moving towards an allocation model for GIB plasterboard. Around the same time, single sheets of GIB started appearing on TradeMe for ridiculous prices.
There’s little doubt having more competition could have eased the situation somewhat.
The five or so percent of the market not in the hands of Fletcher Building is shared between:
- Elephant Plasterboard, which imports product from Thailand and has perhaps 3 percent of the market,
- ProRoc, which imports a small amount of product from French multinational Saint-Gobain and sells through Bunnings, and
- Youngman Supply Group, set up by Nick Youngman in September last year when USG Boral (now Knauf) pulled the plug on its New Zealand import operations after four years. The market had presented “several significant challenges” to a new market entrant, Youngman said at the time.
- A handful of small Chinese importers.
While none of the other suppliers can scale up their imports dramatically to meet the crazy demand - global supply chain problems have seen to that - even a small increase in plasterboard imports coming from a player with a reasonable market share would have made a bigger difference.
Market forces
So what needs to happen for other players to get a foothold in the market?
First, builders need to start branching out and using equivalent products. Start recognising there are other products that do the same thing from other suppliers.
“The word GIB has become generic. People think if it’s not GIB it’s a different product." Kevin van Hest, Elephant Plasterboard
Elephant Plasterboard managing director Kevin van Hest has been importing his equivalent products for 34 years. He no longer gets angry when people ring him up and ask if he’s got any GIB. With the panic over plasterboard shortages, it’s happening every day.
“The word GIB has become generic. People think if it’s not GIB it’s a different product. People should call it ‘plasterboard’ on building consents and people should have a choice.”
One of the things that frustrates van Hest is council rules mean only one brand of product can be specified on the plan at the consenting stage.
And once the plans have been approved, it’s hard to change the specified product - particularly when it comes to plasterboard.
“For some reason plasterboard is the holy grail of not to switch.”
In other countries the consent documents use the term ‘or equivalent’, or you can specify more than one brand,” van Hest says.
“In New Zealand for years it said ‘no substitution allowed’. We still see that sometimes.”
There’s a reason for that. The leaky building scandals in the 1990s arose partly because less stringent regulations allowed developers and builders to use cheaper, less suitable construction materials.
Councils which were often the last man standing for liability, had to fork out millions of dollars and became unsurprisingly unwilling to consent anything but the tried and true.
“Council risk aversion, caused by liability rules, creates a regulatory barrier to entry against novel building materials." Eric Crampton, The NZ Initiative
But when it comes to the competing plasterboards, these are approved and certified products and there shouldn’t be any issue from consenting officials, van Hest sayd.
“We had Palmerston North council saying Elephant Board doesn’t comply with the New Zealand building code. Thirty four years we’ve been here, and we’d argue our bracing board is slightly stronger than GIB.”
New Zealand Initiative chief economist Eric Crampton argued a similar point in his submission to the Commerce Commission market study into residential building supplies last month.
“Council risk aversion, caused by liability rules, creates a regulatory barrier to entry against novel building materials unless those materials provide a very substantial advantage over existing materials in large-scale developments.”
Dan Heyworth, founder of architect/building company Box, says council comfort with GIB feeds down the chain to specifiers and builders, who just want the quickest, least problematic consent and build process.
“It’s far too easy to go to the GIB guide and just use those specifications.”
Certifications and rebates
Nick Youngman, who shut USG’s local arm down in late 2021 but has the rights to import the Knauf product for 10 years, says there are several other competition constraints in the plasterboard market here.
For example, it’s not enough for a product to be certified under the Australia/New Zealand building standards, the market expects everything to go through an appraisal process by industry body Branz.
“It’s historic, but the Branz appraisal has become a gateway. We had to do that with our products - and it all costs time and money.”
Another thorny issue that has long upset construction materials importers is the use of rebates. Particularly those offered by manufacturers to retailers.
Youngman and others argue merchant rebates for plasterboard incentivise DIY/building supplies chains to buy from the incumbent, WInstones.
In 2013, the Commerce Commission investigated complaints that “the rebates Winstone pays to merchants effectively prevent other plasterboard suppliers from accessing merchants and competing... and Winstone has or is engaging in predatory pricing, either through its rebates or by targeted price reductions when a competing plasterboard supplier is tendering for a job.”
The commission, in a ruling in 2014, found Winstone had not breached the Commerce Act.
Since then GIB’s market share has remained at around 95 percent.
A bracing plan
Heyworth says another thing that draws builders into using GIB not other products is that Winstones has developed a very specific expertise - making plasterboard that’s used to brace walls.
New Zealand is the only mature market in the world where plasterboard is a structural product - used to hold houses up, Youngman says. But that idea has taken hold with builders, who have come to see GIB as standard.
This puts a brake on innovation, he says, and has been part of the problem with the supply shortage - everyone’s chasing the same product.
Heyworth says that's a shame.
“At Box, we try not to use plasterboard as part of the structure of the house. We find other ways to provide bracing, so we can use a larger range of plasterboard products to line our houses.”
A longer term impact
So will the current plasterboard shortage change the structure of the market longer term - in particular will it break GIB’s seemingly unassailable hold?
Nick Youngman hopes so.
“It could go either way,” he says. “Most businesses are feeling exposed and looking for other parties to be involved. A number of end-use customers are looking to have vibrant, active competition, so they aren’t subservient to just one supplier.
“It could just return to how it was, but most of the market participants I’m dealing with are saying we should never go back.”
