You can sell only so many water filters to campers. Now Brian Sullivan is taking on competitors like Clorox and Teledyne in home markets.

Thirst For Success -- Brian Sullivan Develops PUR Filters into World Beater

By Stephan Herrera

BRIAN SULLIVAN HAD a pretty good little business going in 1992. His Minneapolis, Minn.-based Recovery Engineering was hawking a line of lightweight, handheld water purifiers, priced between $50 and $500, to the backpacking and sailing crowd in stores like Eddie Bauer and Eastern Mountain Sports. Using glass fiber and carbon filters, the devices screened out microbes and chemicals down to 0.3 microns, exceeding federal standards for drinking water. That year PUR filters netted $804,000 on sales of $7 million.

But Sullivan, then 31, thought he could make a bigger splash in the home market—where $1 billion worth of faucet- and under-the-sink water filters, pitchers and replacement parts will be sold this year. Those markets were dominated by Culligan, Teledyne WaterPik and Clorox's Brita division. Yet they seemed stuck in slow motion. "The pitcher was slowly evolving over the years," says Sullivan. "But nobody was doing anything in the faucet and sink market—except sitting back and milking it."

The public was suddenly obsessed with clean water, too. The Environmental Protection Agency started warning people to test their tap water for lead. Then in April 1993 111 people died and another 403,000 got sick in Milwaukee after the chlorine-resistant cryptosporidium parasite invaded the public water supply.

Time to act. With $4 million raised in March 1993 from the first of three public offerings, Sullivan planned a new line of household products based on his established technology. But first he did a little market research to see what consumers knew about their tap water. Not a lot, it turned out, except that they distrusted it. Most had heard about the Milwaukee outbreak. Those who used filters complained they were confused about when to change them. All good news to Sullivan. "The market was not yet defined, poorly served and barely 5% penetrated," he says.

For the next three years Sullivan spent $13 million developing prototypes, and another $25 million tooling up for custom filter manufacturing. He learned from weekly focus groups that early models offered near-perfect filtration; but people hated the packaging and assumed the product was junk. So Sullivan farmed out the package design and later on the advertising to an outside agency.

Automating the plant was trickier. Sullivan literally went from card tables and hand assembly to complex injection molders, filter fabricators and robotic assembly lines. Production quickly fell behind, just as demand was climbing. Losses piled up—$4.8 million in 1995 and $12.5 million in 1996. The stock got hammered, too, falling to a low of $6.50 in April 1997, 7% below the offering price. Sullivan's production team had the most basic incentive of all to put in round-the-clock shifts, even assemble the units by hand—they had stock options. It wasn't until late 1997 that they got all the bugs out.

Meantime Sullivan had to get his filters to market. They were radically simple products. Instead of making you read a tiny meter or guess how many gallons of water you'd filtered, Sullivan's devices shut down water flow entirely when they needed replacing. PUR was also the first to filter herbicides, pesticides and a broad range of microbes. (It also removed lead from water.) Replacing the filter was as easy as changing a battery.

"Nobody was doing anything at all in the faucet and sink market—except milking it."

Taking aim at department stores, Sullivan hired a sales chief from Sunbeam and ten sales managers to handle another 100 independent reps. Places like Macy's, Bloomingdale's and Dayton Hudson offered a reasonable transition between the well-informed, super-energetic retail environment of Eddie Bauer and the hardscrabble aisles of Wal-Mart, where a product must sell itself immediately or die. PUR filters sold well—200,000 units in 1995, priced $30 to $50 each, and 500,000 the next year—helped by the slogan "Get more out of your water." Between 1995 and 1996 the company spent $15 million on ads in Time and People, and on the most popular cable TV channels. The ads preyed on the same anxiety that inspires people to buy bottled water, all the while playing up PUR's role as the underdog.

By 1997 PUR faucet and sink products had swiped 70% of the market. That year the company cut losses to $3.4 million on revenues of $71 million. Now for the big enchilada—the $350-million-a-year water pitcher and filter market, virtually owned by Brita. Sullivan himself paid a call on Wal-Mart officials, pitching his pitcher's monitoring device, which tells when to replace a cartridge. "I told them this was a hot new market that was going to pass them by unless they jumped on it," he recalls.

Wal-Mart spent nine months scrutinizing sales and marketing reports before deciding to stock PUR products in all 2,000 stores, a pat on the back rarely given to new brands, and to let Sullivan install a display with brochures. Wal-Mart now generates 15% of the company's sales.

Losses ($10 million last year on sales of $77 million) continue as Sullivan pumps so much into promotion. Last year Recovery Engineering spent $28 million on advertising and marketing, up from $500,000 in 1993. PUR products are now in 37,000 retail outlets in the U.S. and Canada; Sullivan has locked up 85% of the faucet and sink market and 20% of the pitcher and replacement filter market, catapulting it to the number two spot (behind Brita) in a year's time.

Wouldn't it be nice if Wall Street extended the Internet pricing model—in which a moneylosing company is automatically valued at a multiple of sales—to the water-filter business? No such luck. Recovery Engineering's stock has recovered only to $10.

But Sullivan is working hard to boost it with new products. His PUR Plus pitchers are the first to remove cryptosporidiumce and Giardia, parasites that can cause diarrhea and worse. The PUR Plus dispenser is in a sense a 2-gallon water cooler.

And for environmental sophisticates, there are PUR Plus faucets, which filter more chemicals and PUR Ultimate, which screens out various organic chemicals. The biggest hit with retailers: a combination PUR Plus faucet unit packaged with a free pitcher.

None of these refinements means much unless Sullivan can make even more dramatic headway against Brita, a far-better-known and widely distributed brand (it's in 45,000 stores). "You typically have about three years to make a dent in a market," he says. And every one of those years is like pushing water up a hill.