The following interview, in edited form, appeared in the April 2004 issue of the British MI trade magazine, MI Professional.
 

INTERVIEW: JIM D'ADDARIO, PRESIDENT OF D'ADDARIO STRINGS, USA

If D'Addario is one of those names that seems to have been around the music industry forever, then it won't come as too much of a surprise to learn that this is, indeed, the case. Though there is a twist. While it's true that the family's involvement with music strings reaches back to 1680, when Donato D'Addario filled out a baptismal record in the small Italian town of Salle, proclaiming his trade as 'cordaro' - Italian for 'string maker' - the D'Addario company we know today only came into being in 1974 - since when it has grown into a $90 million business.

Of course, there were D'Addario strings before the 1970s. The company's US establishment began when two members of the family moved to the USA in 1905, laying the foundations of what eventually became two string-making companies, which finally merged in 1962 when D'Addario & Son and the wonderfully named Archaic Musical String Mfg Co became Darco. Later in that decade, Darco itself became a part of US guitar maker C.F. Martin and it was out of that, that D'Addario as we know it today was formed, when three members of the family decided once more it was time to go back on their own.

But, interesting (and complex) as its history as a string maker might be, what elevates D'Addario & Co to the fascinating category, is the way it has grown since being started by John D'Addario senior and his two sons, John Jr and James. In 1981 it purchased the long established Kaplan Musical String Company, thus adding one of the great names in bowed strings to its portfolio. In 1995, it acquired Evans, the US drum head manufacturer. It followed this with the purchase of the Planet Waves guitar accessories business in 1998, and this year alone it has acquired HQ Percussion and the prestigious Rico reeds business. It is James (Jim) D'Addario who heads the company today and who offered us his insights into the hows and whys of its considerable expansion.

Jim D'Addario is President of that most unusual of businesses in this day and age - a nuts and bolts engineering company that still makes things in the West, is expanding and turning in a healthy profit. Based in Farmingdale in suburban New York, the company currently employs 923 people and is unusually vertically integrated - to the extent that one of its pride and joys is a $1.5 million Heidelberg printing press, on which it prints all its own material.

D'Addario seems to have succeeded by swimming against the tide, so we began by asking Jim D'Addario about that initial breakaway from Martin - and why Darco had ended-up in its clutches, in the first place..

'There was a multitude of reasons. One of them was that my Dad, when he sold the business to Martin in 1969, made a kind of naive deal. He was slightly inexperienced and didn't have good legal advice, so really he made a silly decision, which was to give up his company for stock in the Martin Company, which was supposed to go public in '70 or '71. If you look at the chronology it was kind of an acquisition era, when Fender was acquired by CBS, as was Steinway, and Norlin was accumulating Gibson, Lowrey and all those other companies. He kind of got caught-up in the idea and thought he'd be able to see some real growth and be part of something that was going public. He was also fearful because he was mostly making strings to be sold under private labels for marketing companies and for guitar companies and didn't have a marketing and sales organization to sell his own brands. Martin had embarked on an aggressive string marketing programme at the time - mostly at the recommendation of my Dad - and had grown very successful as a result, taking 30-35 per cent of Darco's business. They'd also made it very clear that they wanted to acquire a string company.

'So he made the deal with a five year employment contract for him and my brother. I wasn't an equity owner at the time, just being a part-time employee while I was at college. So, after working three to five years for someone else, having sent his entire working life working for himself, my Dad really found he didn't enjoy it. There was nothing negative about the Martin company or its people. I have a tremendous respect for their products and the way they run their business. We didn't always see eye to eye, but they weren't our decision any more, we were working for somebody, so when those conflicts arise you have to make the decision of whether you stick it out and be a soldier, or whether you'd prefer to start over again and be your own boss. And that's what we chose to do.'

Did the way he and his family had felt when their own business had been taken over, condition the way he handled the companies D'Addario has bought?

'I don't think there's any generalisation. Each acquisition we've done has been so different and required a different plan and way of handling the present staff. For example, in 1995 when we acquired Evans, Bob Beals was looking to retire, so it wasn't an issue that there was management that wanted to stay in place. That was an outright purchase with a plan to migrate the business to New York pretty much right away. In 1998, when we took over the Planet Waves guitar strap business, that was pretty much the same thing. The Silagi brothers had other business plans not in the music business and wanted to cash out of the guitar strap business and it was a pretty clear cut thing - six sewing machines came over here from literally round the corner in Hicksville, so that was that. HQ Percussion, the practice pad company that we acquired in December - that was another situation, where the owner, Rob Birenbaum, couldn't take it any further with his resources and wanted to concentrate on his retail operation, but wanted to see it go to someone he thought could do something with it. He'd liked the way we'd handled Evans and has worked with us and consulted for us and helped us make the transition.

'Now Rico is a whole other story, because this is an acquisition that is around 20 times the magnitude of any that we've done before and it's been a very sobering and complicated process for us. We're really excited about it and we know that in this particular case there's a very good organization already in place. They have facilities in Sun Valley, California, with about 150 employees down there. They have facilities in Argentina where they grow and handle the cutting of the cane, and the same in France. So there are no plans at all to disrupt what is a successful business. What we plan on doing is probably migrating some of the creative tasks, like some engineering and marketing and sales into our infrastructure, so that we can utilize the vertical integration that we've put into place here, but we don't have any plans to shut down or move these factories, or replacing a lot of those people.

'In fact we think Rico has very good people who've just been unfortunately caught in a bad timing situation. The families that owned the business did a fabulous job with it over a 50 or 60 year period and, in '96 when Boosey took it over, that could very well have been an excellent association. However, Boosey got into financial trouble, for reasons nothing to do with Rico and there was no money to do the marketing they needed to do, or to rebuild the factories like they needed to do. These were people with good ideas but didn't have the owner support.'

On the face of it, there may seem to be nothing at all in common between products as diverse as drum heads, reeds and guitar strings, other than that they are in that basket of miscellaneous goods labeled 'accessories'. So what is it that appeals to Jim D'Addario about them? What is the grand strategy here?

'Our mission as a company is to be the player's choice in accessories. We like the accessory business and we think we're one of the best in the industry at it. So, we now sell in about 109 countries. We have a major share of the fretted string market, we've grown to be a major player in the bowed string market, at least in the top three worldwide. In drum heads we're anything between 30 and 45 per cent market share and now, with Planet Waves, which is a very broad line, we're also doing very well. Adding a reed company to that is right in our sweet spot. A string, a drum head, a reed - they all make the sound in the instrument and they need to be replaced and people are always looking for a better solution. It's a perfect fit for us.'

While this is, clearly, true, presumably it imposes a significant marketing cost. If, instead of maintaining individual brand integrity, the company had chosen to make D'Addario heads and D'Addario reeds, it could have used the consolidated brand strategy of, say a Fender, or Yamaha. Had that approach appealed?

'When we started to expand, in the very beginning we were a little confused, so the question you're asking is a very pertinent one. In 1998, when we decided to expand our accessory mix, we already had some under the D'Addario brand, which we'd had previous to buying Planet Waves. We even had D'Addario straps. We had to decide how to handle that, so we spent a lot of time and energy doing marketing studies on how to re-brand and now we treat each brand as a separate business.

'For example, D'Addario is a legacy brand, like Zildjian. Planet Waves is not a legacy brand - Planet Waves is more of a lifestyle and innovation brand. But Rico is a legacy brand - so we hire brand managers for each brand, sometimes more than one brand manager, and we focus our energies and stick to the brand.'

Isn't that expensive?

'Well, each one these brands can exist on its own and be a successful business, so the budget for marketing each one is as if it was a sperate business. Now the sales effort, on the other hand, is where you've got economies of scale, because the same sales guy can easily sell four or five accessory lines, so that's where we get efficiencies. Similarly, by using the same graphic artists in our own department, our on printing facility, and so on. So all of this vertically integrated stuff can be shared across the brands, but managing the brand in the marketing department or in engineering and product development is a different subject. That's where you have to keep them separate in your mind and treat them as separate businesses.'

Presumably, another benefit is that if one market sector, say guitars, takes a fashion dive, another might rise to compensate? 'Yes, that's a very important factor - also picking items that aren't going to be here today and gone tomorrow.'

Another important consideration, Mr. D'Addario says, is the enhanced leverage having so many major accessory brands gives his company with the major retail chains, who like being able to deal with a single supplier, rather than half a dozen perhaps less together individuals.

Clearly, another attraction that binds all these apparently diverse product lines together is their wonderful impermanence: they all need regular replacement so that, even in a recession, there is business to be had. After all, a player may not be able to afford to change his guitar, or his snare drum, but when he needs new strings or a new head, he simply doesn't have a choice but to buy. Doesn't this make accessories the real profit centre of the industry, both for manufacturers and retailers alike?

'There's no question that money is made on selling accessories on both the retail and distribution level. Larger gross and net profits are made selling these items and studies have been done, articles have been written in American trade journals frequently in recent years pointing out to our retailers that devoting a small footprint of your store to promote a profitable accessory is, in a lot of ways, a better way to make a profit than trying to sell a drum set.

'We came up with a display that a bass drum fits under. Above the display it holds the bass drum heads along with the story about the new bass drum head that we launched last year. It was a demo, so the dealer could put the head on the bass drum with a pedal so they could try it out. In that little square footprint he makes more money selling drum heads than he does the drums - by far - and the numbers are astronomical.'

While distribution in a small country like the UK is a relatively straightforward proposition logistically, the same cannot possibly be true in a country as large as the USA. Particularly if their reps are selling low cost items, how can D'Addario employ sufficient staff to cover every single shop from sea to shining sea?

'The United States is too big for any one distributor to properly market a product, except for some big ticket items like high-priced guitars where you have selected dealerships. But in the accessory business, we're Gillette, we need to be in every store. We know that we cannot possibly cover this country, you're absolutely right - it's huge geographically and no one distributor could possibly service an accessory brand. So we supplement our direct to dealer distribution with a really select group of high quality distributors. We promote our products on the telephone and with regional sales managers out on the road, we have four of them, so that way we promote directly to the retailer, but if he would rather buy from a distributor, he has that option, too, from seven of the best distributors in the United States. So we kind of give them the best of both worlds.'

Importantly, Jim D'Addario feels, the company also has a team of merchandisers, whose job is to visit shops with some of the display material on which the company sets increasing store.

'We feel this is really going to be the thing of the future and that we're going to end up with many more people merchandising out in the field. As we have more brands and more money available to do that, we think that is an area that will grow.'

For export, D'Addario uses exclusive or semi-exclusive distributors in every major market. Could he, therefore, see himself having merchandising people on the road in, for example Germany or the UK, over and above what his national distributors contribute?

'I don't think we could have one in each country, because the markets aren't big enough. But we've just hired a full-time person working out of Nice, in France, to cover Europe and we have people in other areas too, including South America, Australia and the other Pacific countries, including Japan, so we have begun a process of creating a roadforce for the global market, though it can only remain pretty limited in size and scope because we're only selling accessories.

'Does he see some sort of move to pan-European distribution on the horizon, and could that help?

'It's something we talk about but don't really see happening overnight - though it is happening slowly. There are some distributors of course whom we see stepping our of their territories. We've never had formal contracts concerning territories and we might have to start considering that if we want to protect a guy's territory. Or we might consider it like the American market, where our distributors don't have territories and overlap. These are questions that I'm hoping get asked in the next few years. But at the moment, I don't have any conclusions.'

Speaking of poaching territories, while Joe Public may not be willing to buy a drum kit or acoustic guitar off the web, a packet of D'Addario strings is the same in New York as it is in Berlin or Newcastle - and the same goes for most of D'Addario's products, so how much impact is this having?

'It is growing, there's no question. But while it's growing, the regular brick and mortar sales are growing too, so maybe we're just creating more market? But, yes, the numbers of some of the e-business guys here in the States are growing very fast.

'That said, perhaps it is growing the total market? We know, for example that the more strings a guy buys, the more he uses. I'm sure you change your razor blade without thinking about it when there are four in the case, but when you're down to the last one, you think maybe you'll get one more shave out of it and it's the same thing with strings. So we think that making it easy for a guy to get his strings will actually grow the market, and that's why we pioneered multiple packs.'

Unusually, at a time when so much manufacturing is being exported to China, Jim D'Addario keeps the faith that he can continue to make his products in the West.

'We try to be very honest with ourselves,' he says. 'If we don't think we can do it competitively, we don't do it. So most of Planet Waves is made in China, in fact 95 per cent. But the strings and the drum heads and the reeds are very specialised products that have significant automation in place already and I have a team of eight engineers - and this is something I like to work on personally, too- always pushing the automation and quality control envelopes on our factory floor. That does two things. It helps us reduce the labour content and also gives us a lot of proprietary knowledge that we would be very, very unwilling to share. We are not going to go out and teach somebody else what we've learned about making strings since 1680 - and the same goes for drum heads and reeds. We'll try to keep that manufacturing under our own roof and I'm not afraid to invest a lot of money to reduce the labour content so we can do that.'

One thing that everyone knows about the string business is that, traditionally, it has been a hotbed of OEM activity (to the extent that playing 'who makes what for whom' has always been a fun pastime). It transpires that D'Addario still undertakes OEM string manufacture (some eight per cent of its business, he reveals), but does Jim D'Addario feel that is still as important as it once as?

'There is still a bit of that but it's not as mystical as it was years ago. As you look on the shelves of a music retailer, I think you see the amount of brand names boiling down to fewer and fewer each year and the ones it is boiling down to are primarily manufacturers now. And the reason for that is price. We're just not allowed to raise our prices. You can buy a set of electric guitar strings on the street for the same price today that you could 15 years ago and that means somehow some middle guys have to fall out of the equation.'

Thinking through the implications of what Jim D'Addario has said, one question lingers. Does the way he has snapped-up so many tiddlers mean that a tiddler can no longer exist in this increasingly globalised industry? Does the small independent stand a chance?

'Well, no. I don't think you have to be big to make it in our industry. What you have to be is great. You take a little company like Shubb - they make a great capo and a great slide and that guy has a nice business. When I pick his products up, they're great and they're not going to go out of business, because he makes a great product he's always going to have a slice of the pie. I think it's sour grapes when people say, "You can't survive unless you're big". You just need to be great at what you're doing.'

According to Jim D'Addario the company has no immediate plans for further acquisitions, pointing out just how big a proposition Rico is for the company - though he is quick to point out that if the right offer came along, the guys from Farmingdale wouldn't exactly run the other way. The company's business, he says, is up 25 per cent in the first quarter of this year, so there's no actual need. But you can hear the clear implication that the game is, by no means, over yet.

And the conclusion? Inevitably that what makes money for this sharply focused, clever and industrious Yankee business has to percolate as a business principle right down to the shop floor in any town, in any country. As Jim D'Addario says: 'A guy has to figure out how to maximise what it is he has in his store, so people can touch it, feel it. It's got to be clean, neat - you just have to be great. You can't be just OK anymore.'

To that end, D'Addario has spent hundreds of thousands of dollars developing revolutionary (and patented) wall and floor display systems which are currently being test-marketed across the USA. In January 2005, they will be coming either to a store near you, or in fact directly to you, if you get there first. 'You have to be better than the other guy,' says Jim D'Addario. 'We try to do that with our business and the retailers who partner with us are going to share in that.'

Ends.

2005 Gary Cooper