Powerboating's New Powerhouse
With a shrewd marketing strategy and lots of advanced technology, CEO George Buckley turned 160-year-old Brunswick into the biggest player in the pleasure craft business.
By Georgia Flight

(Business 2.0) – You know the adage about owning a boat: Your two happiest moments are the day you buy and the day you sell. In between it's usually a monotonous cycle of upkeep and waiting for parts. The problem isn't that powerboats lack technical sophistication. Quite the contrary--it's that the companies that manufacture and sell them operate like industrial-age dinosaurs. Many boats are sold without an engine or instruments, parts aren't standardized, and buyers wait months for the boat they want to emerge from the factory.

When he became CEO of Brunswick, then a $3 billion boating and sports-equipment conglomerate, George Buckley asked his 25,000 employees to imagine a world where the boat business ran as smoothly as the auto industry. "Why not become the Toyota of boating?" asked Buckley, a former engineer who brims with nervous energy.

Five years later he's well on his way to accomplishing the task. By marshaling the company's resources, he's built the industry's largest parts-distribution network, added 13 new boat brands to a lineup that spans aluminum fishing skiffs and 100-foot yachts, invented a breakthrough outboard engine, and begun testing the first nationwide certified used-boat market. Sales at Brunswick, based in Lake Forest, Ill., hit $5.2 billion last year, a 27 percent jump from 2003, and profits have doubled to $269 million. "This old company," Buckley says, "is reinventing itself at the atomic level."

Bolstering the Brands

Long before Buckley took over in 2000, boats had pushed some of Brunswick's traditional products to the sidelines. Founded in 1845 and soon the country's chief maker of billiard tables, Brunswick eventually turned to bowling gear. In 1960 it acquired Larson Boats and Owens Yacht; a year later it bought Kiekhaefer, the predecessor to Brunswick's Mercury Marine engine brand; and in 1986 it added what were then the world's two largest boat companies, Bayliner and Sea Ray.

In the late 1990s, growing pains slowed Brunswick's ascent. Then-CEO Peter Larson had spent an estimated $900 million acquiring new camping, cycling, and fitness brands in an attempt to further expand Brunswick's leisure-sports presence. But profits sank 80 percent from 1998 to 1999, largely because of an expensive restructuring of the company's bicycle division and a series of antitrust lawsuits charging Brunswick with monopolizing the boat-engine market. (A $133 million ruling against Brunswick was later overturned, and several smaller claims were settled out of court for a reported $71 million.) Sales of boats and boat engines, meanwhile, continued to boom: By 2000 they were generating more than 75 percent of Brunswick's revenues.

Enter Buckley, a veteran of Emerson Electric and General Motors, who had already shaken things up with a bold new engine design as president of Brunswick's Mercury Marine division. Buckley refocused the company on its boating products, arguing that Brunswick had the opportunity to dominate the industry. Neither of Brunswick's closest rivals--$1 billion Wisconsin-based Genmar or Italy's legendary Ferretti Group--aspired to do much more than build boats.

His first move as CEO was to stockpile capital for the coming expansion by selling off unprofitable businesses. Next came a shopping spree. Buckley sought to offer powerboats to every type of customer at every price level, the way Toyota and GM do. With Bayliner and Sea Ray, Brunswick already dominated the market for midlevel cruisers, but the brands lacked a unified front and openly competed with each other in the market.

Within four years Buckley had spent an estimated $600 million adding niche brands like Crestliner, Sea Pro, and luxury yacht Hatteras. Then he and Dusty McCoy, head of the newly formed Brunswick Boat Group, opened up communication across brands. Bayliner and Sea Ray were separately developing closed-mold hull technologies; when the two began working together, they created a groundbreaking design that combined the best innovations of both. Buckley also repositioned his brands to make sure they weren't cannibalizing one another. The united front helped boost the boat group's revenues by 40 percent to $2.3 billion in 2004, while its operating margins more than quadrupled from 1.4 to 6.6 percent in three years.

The New Sales Engine

Adding more boats under the Brunswick umbrella didn't just help the boat division; Buckley knew it would also spike sales for Mercury Marine, the top-selling U.S. recreational boat-engine maker. Brunswick encouraged dealers selling its new boat brands to equip them with Mercury motors, rather than installing outboards from Bombardier, Evinrude, and Johnson.

But not just any motors. The marine industry hadn't seen a breakthrough engine in decades. But Brunswick's new Verado line of quieter and more fuel-efficient engines--which Buckley began developing at Mercury in 1997--is now doing for Brunswick what the hybrid engine has done for Toyota. As the first turbocharged outboard, the Verado outperforms Evinrude, Yamaha, and others in horsepower while coughing up 18 percent fewer emissions and, by some estimates, generating 50 percent less noise.

"The Verado is whisper-quiet, smokeless, and the power is unbelievable," says Oakland, Calif., boat dealer Reinhard Boost. Boating Life deemed the Verado the biggest advance in outboards in 30 years, and based on strong sales of the engine, JPMorgan analyst Dean Gianoukos recently raised Brunswick's earnings-per-share estimates. Though Brunswick will not break out sales figures for the Verado, the engine division's sales are up 23 percent since the launch in 2004.

What Buckley has pulled off with engines he's also started to do with boat instrumentation--depth sounders, GPS navigation units, wind-speed indicators, and other essential equipment. Together these make up an annual market of $1 billion or so, but most boat builders leave it to dealers to purchase and install instruments and accessories. "You wouldn't dream of walking into a BMW dealer and buying a car without a dashboard," Buckley says, "but that's the way it's been."

Not anymore. Of the 150,000 new boats Brunswick will turn out this year, as many as 65 percent will arrive at dealerships with Brunswick-built instruments and gauges already installed. Brunswick New Technologies, a division Buckley created in 2002, has become a dominant player in marine electronics. With projected revenues of $350 million in 2005, Brunswick New Technologies is the company's fastest-growing business.

Dealing With the Dealers

Streamlining the sales and manufacturing of boats may not matter much to boat owners, but easier servicing sure does. So Buckley also set out to create the industry's first major parts and service network. After acquiring two of the largest boating-parts distributors in the country--Land 'N' Sea in 2003 for $54 million, and Kellogg Marine in 2005 for an undisclosed sum--Brunswick slashed parts-delivery times. In the Northeast, where boating seasons are achingly short, fast deliveries make a big difference to Long Island marine mechanic Jeremy Somero. "I can get Mercury parts tomorrow," he says, "but for others I have to wait a week."

Allegiance to a single manufacturer has never sat well with the nation's boat dealers, most of whom are small-time operators stuck with expensive, highly seasonal inventory and short-term partnerships with manufacturers. Brunswick has offered increased commitments to its best dealers in exchange for higher sales volumes at their dealerships. According to Buckley, MarineMax, its largest dealer, now has a 10-year agreement to carry Brunswick boats.

By muscling his way into a position of dominance, Buckley has earned his share of criticism. "He's taken a dangerous and aggressive approach," says Irwin Jacobs, the CEO of Genmar, Brunswick's leading rival. And, notes Michael Verdon, who covers the industry for trade publication International Boat Industry, "there's a lot of speculation about the acquisitions they've made, and whether their strategy of vertical integration will ultimately work."

Buckley dismisses the skeptics. "This isn't some great Machiavellian plan to run everybody out of business," he insists. "Today you've got Toyotas, Fords, and GMs, but you've still got TVRs and Morgans and Porsches. There's room for everybody." True--as long as the others adapt quickly enough to stay afloat.

How Brunswick Became the Toyota of the High Seas

Fitness Equipment $558 million 11% Bowling and Billiards $442 million 8% Boat Group $2.2 billion 40% Mercury Marine $2.3 billion 41%

Total net sales: $5.2 billion[1]

Boat Group: Operating Margin Up 60%

Through smart acquisitions, Brunswick owns a slice of every boating niche.

Marine Engine Segment: Sales Up 23%

A new outboard and industry-leading marine electronics leave competitors in Brunswick's wake.

[1)] Excludes intercompany sales. [2)] Estimated.