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Hearth & Home October 2017

CabanaFire PL42VO.

Canadian Leaf Meet Jonathan Burke

By Richard Wright

One year ago, in July of 2016, Burke became CEO of Montigo when a private equity group purchased the company; as you will see, in one year he’s learned a lot.

Photos: ©2017 Colleen Burke Photography (CFB Ventures).

In 1972, Dan Binzer started a company he called Montigo del Rey (he liked the sound of the name); much later it was changed to just Montigo. That was very early. The first Arab oil embargo didn’t occur until October 1973, and that was the impetus for many manufacturers to begin producing wood-burning products. When the natural gas infrastructure started to emerge in British Columbia, Binzer saw the opportunity. He was – and is – a real pioneer, and a real engineer although he is entirely self-trained.

His initial focus was entirely residential; later he recognized the possibilities of contract sales and creating custom products – for high-end, custom homes, commercial accounts such as healthcare facilities and stadiums, and the hospitality industry – hotels, restaurants, etc.

Of course, his bread and butter was, and remains, his standard line of fireplaces. All of the products Binzer constructed were of the highest quality and well designed. Montigo has always been in the forefront of product development.

Hearth & Home: Let’s begin with your background.

Jonathan Burke: “Prior to becoming the CEO of Montigo, I ran a family-owned aviation business for a little over three years. We operated a mix of helicopters and jets going to Alberta, and we also had operations in the U.S. We did everything from putting out forest fires to building and maintaining power lines throughout western North America, as well as search and rescue, heli-skiing, and a variety of things you can do with helicopters and jets.”

That sounds like an ideal job.

Burke: “It was a lot of fun, but this opportunity came along and I decided it was time for a change. I launched my career after high school. I was a helicopter pilot for a little over 11 years. The last occupation I had flying helicopters was doing helicopter logging, extracting trees from the woods in western Canada.

“Prior to running the aviation business I spent about eight years running the heavy-duty truck unit of a company that sold natural gas engines for trucks and buses. We also worked on locomotives and mine-haul trucks and automobiles, all looking to convert vehicles from diesel and gasoline over to natural gas.

“I was in charge of Europe, the Americas and Asia, and I was also responsible for setting up manufacturing in Asia and setting up partnerships and distribution channels in Europe and also in South America because I speak Spanish. It was a very successful business and now there are hundreds and hundreds of trucks running around North America on liquefied natural gas as well as compressed natural gas. That was my foray into the gas business where I was involved on the boards of a number of trade associations and not-for-profit associations trying to advance clean technology in transportation.”

That also sounds very interesting and exciting.

Burke: “It was. We were always at the mercy of the price of oil, though. So if the price of oil was high, natural gas was preferential for a lot of the trucking fleets. But with oil down at $40 a barrel, the economics are not as compelling as they are when oil is at $100.

“That’s my background. I’ve got an MBA and have done some other executive education at Wharton and Stanford, but otherwise I got a lot of education from the school of hard knocks as well.”

Production facility.

I’m interested in your view of the hearth industry, coming in as an outsider.

Burke: “I think it’s quite a substantial industry. Clearly we have one major player that we all know about, and then we have medium-sized players like Empire and Travis, and then smaller players like ourselves. I think there have been some bad experiences in the industry with financial buyers coming in and thinking they are smarter than everyone else.

“Some were very unsuccessful. I think the one thing the industry is very good at is frequently returning to fundamentals, which is to make great products that are well made, that work well, that are built to last and that are sold through dealers who are reputable, stand by their word and are willing to support the products and install them well and do right by their customers. To me, that’s the foundation of a solid business.

“Our business (Montigo) was built back in the early ’70s on fundamentals around quality, sticking by our word, innovation, always looking ahead at what the customer might want, trying to deliver that product, and then being loyal to our dealer network that is ultimately going to spell our success or failure. Dealers who are out in the markets, with the ability to select a decent product and to support that product, and to maintain nice showrooms with up-to-date product are the key to our success.”

In what year did Dan Binzer start the company?

Burke: “There is a little bit of debate about it internally, but it was around 1972.”

Through the years, he has kept a very low profile. I can’t tell you how many times we tried to get an interview with him.

Burke: “Dan is not an extrovert by any means. What he loves is to innovate and come up with new and creative ways of getting flame safely into peoples’ homes, offices and hotels, and he is obsessed with the quality of the flame. Knowing that a gas fireplace is not quite the same as a wood fireplace, but it can be made to wow people if it is done right, is his obsession.

“He loves to come in every day and he is doing all the things now that he has always wanted to do, which is to design great products, make sure they can be made at a reasonable price and make sure that they can work safely and last a long time. Now that we have taken over the business from him, he doesn’t have to mess around with Human Resources and checking the bank account and hiring and firing and all that kind of stuff. He gets to do just what he loves.”

So he got rid of the stuff that we all hate, right? (Laughing).

Could you describe the present financial structure, the ownership structure, of the company?

Burke: “One hundred percent of the company was bought by a private equity group based in the United States and Canada called CAI Private Equity. CAI currently owns about half a dozen different businesses in a variety of industries both in the U.S. and Canada. They are not your typical private equity group where the first order of business is cut your losses and eke out every last dollar like you would squeeze juice out of an orange. Instead they invest in new juicing machines and more orange groves and more people to pick the oranges and more people to figure out how to grow more oranges.

“Just in this first year they will put almost $2 million dollars into the business in capital and plant equipment, and in people, marketing, and sales expenditures. We just made a major investment at our Ferndale, Washington, plant. We’ve installed a significant amount of new equipment for increasing our capacity. We’ve grown our production capacity by about 30% with the investments we’ve made in Ferndale, and there are more investment to be made.

“The business is there already, but we’re also expanding through a number of partnerships, specifically in the U.S. We’ve got a new two-step distributor in RMI, Ray Murray, Inc., in Massachusetts. They are a fantastic partner, with a long-standing track record in the Northeast of the U.S., but they’ve also bought Best and Langston, which is in the Southeast. They are very well represented on the eastern seaboard with a great team of field sales reps and they know the market well. So they have become our two-step distributor.”

L to R: Konrad Komuniecki, Vice President of Product Development; Karen Hammersley, Vice President, Custom Products and Marketing; Ron Urquhart, Controller; Pat Bradley, Chief Financial Officer; Jonathan Burke, President and CEO; Romer Vivas, Vice President of Production and Operations.

How many employees do you have right now?

Burke: “We have a little over 120 employees in the U.S. and Canada.”

If I asked about the company’s gross sales in 2016, would I get an answer?

Burke: “I can give you a ballpark. We are less than $50 million.”

(Laughs) Okay. That’s good enough. What percent of Montigo’s business is custom work?

Burke: “By dollar value our custom business is about 30% of our business. And our residential or standard business is about 70%. It varies month-to-month, quarter-to-quarter, but that’s basically the running average.”

Is your custom work heavily weighted toward hospitality and commercial, as opposed to residential?

Burke: “When we look at it across the board, it depends on the region. In some regions we see a lot of custom units going into very high-end residential applications. But in other regions it’s exclusively traditional commercial installs – hotels, restaurants, sports facilities, healthcare facilities, universities, casinos. Now, it’s very common that we’ll do a custom unit or two in a penthouse, and the lobby might have a custom unit. Then the rest of the smaller units in the building would have our standard fireplace.

“The nice thing about doing that for our reps in the field is we can work with the general contractor and engineering and plan out all of the equipment as opposed to having a mix of different suppliers where your standard installs might fit with your vent runs for a power-vented, large custom unit. We can integrate all that together.

“So, for example, if someone is buying in a large, residential, multi-unit dwelling, they can have the option of putting in a power-vented, Cool Pack-equipped fireplace in their unit, or they can opt for a lesser heating appliance-style fireplace, and we can accommodate them with either.”

Through the years, very few hearth manufacturers handled custom work at all, so Dan basically had that business to himself.

Burke: “We’ve got some great competitors out there now. Stellar (Hearth Products) is just doing a phenomenal job in the marketplace, and I must say it is actually good to have some competition, especially a competitor like Stellar because they do it right. They are a good competitor and make a great product. What doesn’t kill you makes you stronger in the market, and I think competition is a good thing.”

They’re a very nice bunch of people. But a lot of their stuff now might be in the $70,000, $80,000 range.

Burke: “As is a lot of our custom.”

Do you consider DaVinci a competitor?

Burke: “Yes, although they have a variety of different dimensions of a pretty standard design, whereas with our custom units almost no two fireplaces are the same, and we certify them all here on site. We do all our own certification of each individual unit, and we’ve been asked to do some pretty extraordinary things. Dan and the team feel that the more extraordinary the better. We really enjoy pushing the envelope to figure out what can be done.”

What about dealers?

Burke: “We have about 200 dealers in the United States and about 130 in Canada.”

Is that sufficient or are you always trying to increase that number?

Burke: “We would probably like about 50 or 60 more dealers in Canada and would like to get to 400 or 500 dealers in the U.S. We do have pretty aggressive goals there, but we are being mindful of the need to be patient. We’re not going to try to blow ourselves up acquiring new dealers and then not be able to satisfy the demands of the marketplace.

“As we are growing capacity here at our facility, we don’t want to make some errors that can happen in manufacturing where you get ahead of yourself on sales and all of a sudden you’re disappointing your long-time, very loyal dealers as well as your new ones. It’s kind of one step at a time, put one foot in front of the other and slowly grow that base knowing that you’ve got to be able to supply them with the product.

“As we move forward in the marketplace, and given the fact that we are quite labor intensive compared to many of our peers in that pretty much every fireplace is hand-built, ramping up does take a little bit of time. But the nice thing about being labor intensive is you can be quite flexible in terms of product going out, whereas more automated plants have to run a certain type of product in large batches. We can be very, very flexible in the type of products on the loading dock.”

You mentioned going through Ray Murray, but are you going through distribution throughout North America or do you go dealer-direct in some places?

Burke: “It’s a little bit of a mix. Along the western part of the continent we pretty much go dealer-direct, then as we work our way east, we typically make the switch over to two-step distributors. We have a large two-step distributor in eastern Canada called Powrmatic, and then Ray Murray is our largest two-step distributor in the eastern United States.”

Standard products assembly station.

What percent of your business is in Canada?

Burke: “Again, it varies depending on the season and other variables, but it’s about 30% in Canada and 70% in the United States.”

How many reps do you have in Canada versus the U.S.?

Burke: “Combined, we’ve got about 10 reps on the ground in a variety of locations.”

That’s not a lot for North America, is it?

Burke: “No, and we’re looking to expand that. But just like looking to expand our dealer network, we’re trying to do it one step at a time. It would be a shame to put reps in a territory where we can’t adequately service the product. So we want to be very careful on how quickly we grow them.

“But we have reps on the ground that have been working with us for decades; they know our products really well. We’ve had such long-standing relationships that in many cases, in those territories, we don’t really need reps because we’ve got such great coverage with the local dealers.”

In Canada, which areas are the strongest, or could I just assume it’s any place you have a big city such as Toronto or Vancouver?

Burke: “Right now, Canada is kind of a two-speed economy. The major metropolitan centers like Toronto, Vancouver, and Montréal to a lesser degree are really firing on all cylinders. Given the resource downturn and the post economic recession, some of the rural communities are still recovering. It’s the urban areas where we’re seeing the most growth.”

What would you say are your strongest areas in the U.S.?

Burke: “That would be California and basically the western U.S. Washington, Oregon and California have been very good to us for a very long time. Given the fact that we’ve always been ahead of the curve on custom and linear units, and the more contemporary units, it speaks to that. That being said, in Colorado and parts of the eastern U.S., we’re starting to see significant growth as well.

“We’re seeing growth and high demand across the board. It’s just nice to see housing starts and renovations ticking along nicely, given low interest rates and a healthy economy. They are not absurd like in pre-2007 where people were throwing up houses, but it’s a nice, steady investment that people are making in either new homes or in updating existing homes that are carrying the market very nicely.”

What is the advantage of having two manufacturing facilities, one in Langley, British Columbia, and the other in Ferndale, Washington, only about 30 miles apart?

Burke: “The advantage is we buy all of our steel in the U.S. It’s all milled in the U.S. We buy 100% U.S. steel and we cut it all at our Ferndale facility. Our Ferndale facility is where the raw materials all converge, and then at both facilities we assemble fireplaces. We put finished product together at both facilities and we import cut steel from our Ferndale facility up to Langley for fireplace manufacturing up there as well.

“The real benefit is we are able to take advantage of the mixed labor pools on both sides of the border, and it gives us flexibility where we have 100,000 sq. ft. and we have about 65,000 sq. ft. here in Langley. We’ve got a pretty flexible workforce that is heavily cross-trained, so we can ramp up fireplace assembly in Ferndale relatively quickly, and we can change the product mix relatively quickly to answer our customers’ demands. Having facilities on both sides of the border just makes that even more flexible.”

Final assembly.

What percent of your business is contemporary design versus traditional or transitional?

Burke: “We’re about 30-35% traditional and 70% contemporary, both on the custom side and the stock side, and whether it’s got brick and logs versus the standard covered linear burner. On the East Coast, for example, you’ll see a bit of a mix where it’s a brick interior but with a linear burner. You’ll see porcelain panels go with a different type of burner and some logs or some driftwood. People are really getting innovative about what is contemporary versus what is traditional.”

Tell me why your CabanaFire is revolutionary?

Burke: “Sure. First and foremost it’s an outdoor fireplace with a cool touch body. You can put combustible material right up to its edge. But the most revolutionary aspect of the CabanaFire is that it radiates the heat well out into the space in front of the fireplace through the use of a very quiet fan. Think of your traditional outdoor fireplace. In many areas, unless you’re standing right next to it, you’re not getting any heat from it.

“With an outdoor fireplace, you want it to create ambiance, definitely, but you also want it to produce some heat. You want to be able to use some of the heat the fireplace is producing and radiate it into the space. It’s wind-proof up to 40 miles an hour, so it works brilliantly in many conditions. You can put a TV directly above it.

“We had an installation at the Ray Murray open house where we put drinks on a built-in, stainless-steel enclosure literally right on top of the fireplace and the ice didn’t melt. It is really getting a tremendous amount of traction in the marketplace. We’ve currently got a 42-in. version for sale, and we’re working on a 60-in., so it’s going up another 18-in. in size. The new 60-in. is going to produce even more heat for the larger spaces.”

I assume that you don’t need to put a CabanaFire under a roof or porch. This is a true outdoor fireplace.

Burke: “It’s a true outdoor unit and 100% stainless steel.”

Do you have a screen that is not offensive, something that is very transparent?

Burke: “We have come up with an Invisimesh screen from our supplier, and it’s almost as invisible as the name implies. It’s a bit of a step up in price, but when you’re spending the kind of money that some our fireplaces cost it’s a significant improvement over the classic screen where you can quite clearly see the screen within five or 10 feet.

“With the Invisimesh you really need to look for the screen because it’s beautifully done. It’s great to see it on the unit because you don’t see it. It’s currently a standard item on our top of the line model, but we’re going to be including it as available on all of our products as an option.”

Talk to me a bit about power venting with your cool pack system.

Burke: “Sure. With the custom fireplaces we power vent all of them; the reason we do that is because there are pretty significant Btus to begin with and to create the kind of flame quality we want, power venting is the only way to do it. So we’ve got two separate systems. The Cool Pack is our basic power venting system, and both of our systems operate with two layers of glass, making sure that the outer layer of glass stays cool to the touch so there are no safety concerns whatsoever.

“The standard Cool Pack and Power Cool Pack both utilize a power vent. The difference is the integral fans in the base of the Power Cool Pack unit that increase the speed of air moving between the two layers of glass. The Power Cool Pack is so cold to the touch you can’t imagine there is a fire in there; temperatures can get as low as 90 degrees.”

What are your price ranges for Montigo?

Burke: “We have units ranging from an MSRP of $1,400 all the way to over $20,000 on our residential standard line.”

Manufacturer’s Suggested Retail Pricing

CabanaFire 42-in. Outdoor Unit

Unit – PL42VONE – $3,933 (glass media included)

Remote – RXM5010VO – $342

LED lights – MCLEDVO – $363

Total price for the above – $4,638

Fully loaded other than the driftwood log & speckled stone option that would add $326 to the above total.

Distinction 63-in. Linear Indoor Unit

Distinction D6315NI-2 Full load – $7,495 (50,000 BTUH 50% turn-down,

Ceramic glass, Fans, Reflective ceramic black panels, LED lights, glass media)

Distinction DL6315NI Basic unit – $5,995 (40,000 BTUH no turn-down just on/off,

Glass media, Borosilicate main glass, everything else optional)

Both versions of the Distinction can use the CWA kit (Cool Wall Advantage).

Talk to me a bit about Net Zero in the States, but particularly up around Vancouver. Is that becoming a very serious problem for you?

Burke: “It is not becoming a serious problem because we have, in many cases, technical solutions to a lot of that. The challenge is getting our consumers properly informed on what the implications would be. For example, here in the city of Vancouver, the city is not disclosing all the information that consumers need for decisions about what their government is doing.

“What the government is doing to them is (a) eliminating their choice for new home construction and (b) driving up costs for consumers. They are not telling them that. They are telling them that (Vancouver is) going to be the Greenest city, and it’s all going to be rosy and we’re all going to be happy and dancing among the daisies.

“The city of Vancouver has a huge natural gas infrastructure. It was built in the ’60s and ’70s and ’80s. The average home in the city of Vancouver is heated with natural gas. They heat their water with natural gas. They’ve got a gas grill inside their home. They’ve got a gas barbecue outside their home, and they’ve got one or two gas fireplaces.

“So if they were to switch the heating and cooking loads for that home, if they just eliminated their fireplaces and put plywood in front of the opening, and if they were to take their existing hot water heating, cooking and home heating and switch it to electricity tomorrow morning, for example, they would more than triple their cost of energy.

“The city of Vancouver is not telling them that. All of a sudden, you’re telling consumers who presently have the choice in their home either to heat with propane, natural gas, electricity, geothermal, solar, any variety of mixes of energy, that they have no choice, they have to buy electricity from the local electricity supplier – to heat their home, heat their water, cook their food, fuel their barbecue, and they have no other choice.

“That’s the problem, and then they are taking a very short-sighted approach. Natural gas and propane are very clean fuels. They are the cleanest of the available fossil fuels and, in the interim while we are trying to make the switch away from perhaps high carbon fuels to a lower carbon fuel, the city of Vancouver is foolishly thinking this can be done by a regulatory switch and then everyone miraculously will wake up one morning and just make the switch.

“The reality is that economies don’t work that way. So it’s just bad government is what it is. Our concern with it here in British Columbia is that all of a sudden, maybe another community right next to Vancouver is going to say, ‘Hey look what they’re doing and they’re getting all sorts of publicity for it. Maybe we’ll try that.’ Then maybe a community across the border in Seattle or Tacoma or Portland says, ‘Hey, look at what Vancouver did. It looked easy. Let’s do it.’” At that point we’ve got a major problem.”

I imagine that a number of consumer groups already have been formed to oppose this action.

Burke: “We are involved with a group here in Vancouver that is actively lobbying against this and, to be clear, we’re not lobbying against the goal, which is to reduce our carbon footprint and to be more efficient with our use of energy. We think that is laudable.

“We’re working with the community and federal government on new regulations regarding fireplace efficiency, and we think that is a great thing because we believe it will make us all better. High efficiency is a great goal. But to entirely eliminate an energy source is foolish when we have all of this infrastructure to deliver natural gas, which is a very clean fuel, to homes throughout southern British Columbia. And suddenly we’re just going to cut it off?”

What’s happening in the U.S., in California, with Net Zero is dramatically different from what is happening in Vancouver. It has everything to do with making each new home responsible for creating as much energy as it uses, and many, if not most, of the major builders in the U.S. have already figured out how to do that.

Burke: “That’s the right way to approach it, because you know we can make fireplaces incredibly efficient. We can make them both beautiful and an incredibly efficient heating appliance. We can utilize almost all of the energy produced by a large custom fireplace with a power vent in other parts of the building. It’s not rocket science. It can be done. People just need to be prepared to pay for it.”

You can do that, become that efficient and still have a fire that looks like a wood fire?

Burke: “We can still make a fire beautiful, absolutely.”

My understanding is that the HPBA is going to wade into this situation in the fall.

Burke: “Yes. We’re working with the HPBA on this as well, so we’re all working together as an industry and it’s great. This is why being part of HPBA and being part of the HPBA Canada is so important to Montigo, and why we’re happy to be a part of these organizations because it’s strength in numbers, right?

“When the whole industry wakes up and gets together on these things, with a single minded purpose, it’s amazing what can be done. No single manufacturer has the resources to fight a municipal government or a federal or provincial or state government.”

What have I not asked that you would like to get out, Jonathan?

Burke: “I think you’ve asked pretty much everything. I’m loving the industry. I’m new to it, but I’m really loving it. I’ve still got a lot to learn and appreciate interacting with fellow industry members at the HPBA and other events around the country.

“We will be at the HPBExpo next year. I’m not sure if we’re going to be displaying, or if we’re going to do what we did this year, which was just having a meeting room where we get together with customers. But that is still to be decided.”

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