Zurn Elkay Water Solutions Corporation (ZWS): 5 FORCES Analysis [Nov-2025 Updated]

You're trying to map out the competitive landscape for ZWS as we close out 2025, and frankly, the structural attractiveness isn't a layup. While regulatory needs keep the threat of substitutes low-especially since 86% of revenue comes from sustainable products-the competitive rivalry is intense against established names. We see customer power as moderate to high, given one buyer took 20% of 2023 sales, but ZWS is actively de-risking its supply chain, aiming to cut China COGS reliance to just 2%-3% by late 2026 despite a potential $45 million to $55 million tariff hit this year. Let's dig into the details of these five forces to see where the real defense lies.

Zurn Elkay Water Solutions Corporation (ZWS) - Porter's Five Forces: Bargaining power of suppliers

You're analyzing Zurn Elkay Water Solutions Corporation's supplier landscape as of late 2025, and honestly, the power held by their suppliers looks to be in the low to moderate range. This isn't because raw materials are cheap, but because Zurn Elkay Water Solutions has been aggressively optimizing its supply chain. They are actively pursuing a dual-sourcing strategy, which inherently reduces the leverage any single supplier can exert. Plus, their focus on supplier diversity shows they are broadening their base; for instance, they had a goal of reaching 8% diverse domestic spending by 2025, up from 5.6% in 2024.

A major driver in managing supplier power is the ongoing, multi-year strategy to de-risk the sourcing geography. Zurn Elkay Water Solutions is making serious progress on reducing its reliance on China for Cost of Goods Sold (COGS). The company has a clear target to bring China direct material spend down to under \$30 million, which translates to just 2% to 3% of COGS, by the end of 2026. That kind of structural shift definitely weakens the bargaining position of any single China-based supplier.

Still, the core inputs for Zurn Elkay Water Solutions-like brass, copper, and stainless steel-are fundamentally commodities. While the company is diversifying where it buys, it can't escape the market price of the metal itself. For example, copper prices in mid-to-late 2025 showed significant volatility, dropping between July and August but remaining above prior-year levels, with announced tariffs being a main cause. To be fair, this price volatility remains a constant factor that suppliers can try to pass through.

The most concrete evidence of supplier-side pressure comes from the tariff situation. Management estimated an expected tariff cost impact of \$45 million to \$55 million for 2025. Zurn Elkay Water Solutions countered this by implementing price increases in rounds, such as those effective April 15 and May 15, 2025, to offset these costs. This proactive pricing action helps neutralize the supplier's ability to demand higher prices due to external duties. However, the fact that they had to implement such large price adjustments shows the material cost pressure was real.

The company's focus on long-term strategic partnerships is a direct lever to stabilize input costs and quality, moving away from transactional, spot-market purchasing. They are working to build mutually beneficial relationships across their supply base. Here's a quick look at some of the key financial and strategic metrics related to this force:

The push for resilience and quality is also seen in their supplier management programs:

• 100% of new suppliers screened using ESG criteria.
• Supplier Excellence Manual governs conduct and quality expectations.
• Focus on value creation and economic inclusion in partnerships.
• Accelerating non-China capacity through optimized facilities.

If onboarding takes longer than expected, supply chain stability could suffer, which would definitely give existing suppliers more leverage. Finance: draft 13-week cash view by Friday.

Zurn Elkay Water Solutions Corporation (ZWS) - Porter's Five Forces: Bargaining power of customers

The bargaining power of customers for Zurn Elkay Water Solutions Corporation sits in a space that feels moderate to high, largely because of how the demand gets aggregated before it reaches the company. You're dealing with powerful intermediaries in the distribution channel.

The concentration risk is definitely present. Look at the numbers: the single largest customer accounted for 20% of consolidated net sales in the 2023 fiscal year. That dependency dipped slightly but remained significant, with the largest customer representing 19% of consolidated net sales for the year ended December 31, 2024. Honestly, having one customer represent nearly a fifth of your revenue gives them a loud voice at the negotiating table.

Zurn Elkay Water Solutions Corporation products move through a system where wholesalers and specialized distributors do the heavy lifting of aggregating demand. This structure inherently empowers those distributors. Zurn Elkay Water Solutions Corporation supports this channel with an extensive sales and marketing network, which, as of late 2024, included approximately 1,100 independent sales representatives operating across 180 sales agencies spanning about 30 countries. These agencies are the gatekeepers to the end-users.

Here's a quick look at the customer concentration metrics we have:

Switching costs are not zero, which offers some defense. For specification-driven products-the kind that must meet strict building codes or project designs-once a Zurn Elkay Water Solutions Corporation product is specified into a blueprint, the cost and time to change that specification mid-project can be moderate-to-high. This is especially true for their professional-grade water safety and control products.

The leverage held by large buyers is amplified because Institutional and Commercial markets form a major part of the revenue base. When you see Q3 2025 sales improving 11% organically year-over-year, driven by strength in the non-residential market, it confirms that large-scale projects are a key revenue driver. These large buyers-think major construction firms, hospital systems, or university campuses-have significant purchasing power.

Key factors influencing customer power include:

• The largest customer share was 20% in 2023.
• The largest customer share was 19% in 2024.
• Sales are elevated by the non-residential market (Q3 2025 context).
• Products must meet specific specifications and regulatory demands.
• The distribution network involves 180 sales agencies.

To manage this, Zurn Elkay Water Solutions Corporation focuses on innovation to keep its products ahead on sustainability and efficiency, which helps lock in demand based on performance rather than just price.

Zurn Elkay Water Solutions Corporation (ZWS) - Porter's Five Forces: Competitive rivalry

You're looking at the competitive landscape for Zurn Elkay Water Solutions Corporation, and honestly, it's a tough fight. The water solutions and plumbing fixtures market is definitely fragmented; Zurn Elkay is ranked just 25th among 876 active competitors, based on data from late 2024. That scale difference against some players means rivalry is high, and you see it in the pressure on growth rates.

Zurn Elkay Water Solutions is squaring off against some big, established names. We're talking about players like Watts Water Technologies (WTS) and A. O. Smith (AOS). When you look at the Q3 2025 numbers, the scale disparity is clear, but Zurn Elkay Water Solutions is still managing to take share, which is impressive in this environment.

Competition is definitely intensifying, which feeds into analyst concerns about what they call underwhelming organic revenue growth. For instance, Zurn Elkay Water Solutions' CEO noted that the market outlook for 2026 is expected to look a lot like 2025, suggesting a low-growth environment where every point of market share is hard-won. Plus, both Zurn Elkay Water Solutions and its rivals are managing external pressures, like the estimated $50 million in tariff costs Zurn Elkay Water Solutions expects for the full year 2025.

To defend its position, Zurn Elkay Water Solutions leans hard on its brand recognition-think Zurn and Elkay-and its massive installed base. It's not just about new sales; it's about servicing what's already in the ground. This installed base helps create a stickiness that smaller players can't easily replicate. Still, you have to look at the results to see if the defense is working.

The company reported 11% core sales growth in Q3 2025, which is a strong signal of successful short-term share capture against those larger rivals. Management raised the full-year 2025 core sales growth projection to approximately 8% based on this performance. Here's a quick look at how the Q3 2025 top-line results stack up for the key players:

The competitive intensity is also reflected in capital deployment. Zurn Elkay Water Solutions deployed $25 million to repurchase 0.6 million shares in the quarter and increased its annual dividend by 22% to $0.44 per share, while also increasing the share repurchase authorization up to $500 million. This aggressive return of capital is often a tactic used when organic growth prospects are muted by rivalry.

The differences in scale and growth trajectory are important context for rivalry:

• Zurn Elkay Water Solutions TTM Revenue (ending Sep 30, 2025): $1.66B.
• A. O. Smith 2026 Revenue Consensus Forecast: $3.99b.
• Zurn Elkay Water Solutions Net Margin (Q3 context): 11.59%.
• A. O. Smith North America Operating Margin (Q3 2025): 24.2%.
• Zurn Elkay Water Solutions Q3 2025 Adjusted EBITDA: $122 million.

Ultimately, Zurn Elkay Water Solutions is fighting for every basis point of growth, as evidenced by its strong 11% core sales growth in Q3 2025, which is a direct result of successfully outperforming the general market pace.

Zurn Elkay Water Solutions Corporation (ZWS) - Porter's Five Forces: Threat of substitutes

You're analyzing the competitive landscape for Zurn Elkay Water Solutions Corporation (ZWS) and the threat of substitutes is generally low for the core, specification-driven segments. This is because the substitution risk is heavily constrained by non-negotiable requirements in the construction and municipal sectors.

Core Infrastructure Products: Mandates Create a Floor

For essential water safety and control products, the threat of substitution is minimal because alternatives are effectively blocked by law. All U.S. building and plumbing codes require the installation of a backflow preventer. The International Building Code (IBC) explicitly mandates protection against backflow to prevent contamination of the potable water supply. This regulatory underpinning means that for new construction or significant retrofits, Zurn Elkay Water Solutions' backflow preventers and drainage systems are specified, not chosen over a non-existent alternative.

The market dynamics reflect this necessity. The global backflow preventer market grew from $9.37 billion in 2024 to $9.80 billion in 2025. Furthermore, Zurn Elkay Water Solutions implemented a commercial price increase of 13% for Backflow products effective September 15, 2025, showing pricing power in this non-substitutable category.

Here's a quick look at the financial scale and market context as of late 2025:

Drinking Water: The Bottled Water Threat is an Opportunity

The most direct substitution threat comes from the consumer choice between purchasing single-use bottled water and using filtered water from a station. Honestly, this is a dynamic where Zurn Elkay Water Solutions is actively winning. The increased usage of refill bottle stations poses a threat to bottled water sales. The global water bottle filling station market is projected to reach $652 million in 2025.

Zurn Elkay Water Solutions mitigates this substitution risk by being a leader in the solution. Their filtration products, integrated into Elkay bottle filling stations, offer a direct, sustainable alternative. Each filter deployed eliminates the use of an estimated 14,400 single-use 20-ounce plastic water bottles annually. To be fair, the company noted its entry into the residential drinking water segment with the Elkay Liv product is not expected to be a major growth driver, suggesting the commercial/public space focus is where the primary substitution battle is being won.

Regulatory Tailwinds Favor Certified Filtration

Regulatory evolution, especially concerning contaminants, strongly favors Zurn Elkay Water Solutions' specification-driven portfolio. The focus on Per- and polyfluoroalkyl substances (PFAS) is a major trend shaping 2025 environmental and legal discussions. Zurn Elkay Water Solutions has responded by launching its first combined lead-, PFOA-, and PFOS-reducing filter integrated into its bottle filling stations and faucets.

This alignment with regulatory needs creates a competitive moat. You see this focus reflected in the company's overall strategy:

• Surpassed the 2024 goal for sustainable revenue, hitting 86%.
• Maintained a goal to save at least 30 billion gallons of water annually through product use.
• Invested $74 million by the end of 2024 toward the $90 million goal for sustainable R&D by 2025.
• The product portfolio is designed to help customers meet their sustainability goals, which is a key driver for specification over substitution.

Zurn Elkay Water Solutions Corporation (ZWS) - Porter's Five Forces: Threat of new entrants

The threat of new entrants for Zurn Elkay Water Solutions Corporation (ZWS) remains in the low to moderate range. This is primarily due to the substantial, structural barriers to entry that protect the established players in the specification-driven water management solutions market.

New competitors face significant hurdles related to market access and scale. A key barrier is the necessity of a significant, established distribution network. Zurn Elkay Water Solutions leverages a broad footprint, including 17 Distribution Centers in North America and 8 internationally, to serve a market where North American Revenue accounted for 87.4% of total company revenue in the last reported period.

Product development also demands deep pockets. The products require high capital investment in both manufacturing scale and ongoing Research & Development (R&D). Zurn Elkay Water Solutions had an R&D investment of $42.3 million in 2023, and the company has a stated goal to invest a total of $90 million by 2025 in engineering and R&D to enhance sustainable product aspects, having progressed to $74 million in 2024. This level of sustained investment immediately raises the bar for any startup.

Furthermore, brand equity and regulatory compliance create sticky customer relationships. New entrants must contend with strong brand loyalty, as Zurn Elkay Water Solutions competes against established names like Kohler, Moen, American Standard, TOTO, and Delta Faucet Company. Additionally, products must secure necessary product certifications, such as compliance with NSF/ANSI standards, a process that is time-consuming and costly.

The financial strength of Zurn Elkay Water Solutions acts as a defensive moat. The company's balance sheet is robust, evidenced by a net debt leverage ratio of 0.6x as of September 30, 2025. This low leverage, down from 0.9x on March 31, 2025, provides substantial capital flexibility for defensive maneuvers, including funding strategic acquisitions to neutralize emerging threats before they gain traction.

Here is a breakdown of the primary barriers to entry:

• Requires significant capital for manufacturing.
• Need to build a vast wholesaler/rep distribution network.
• Mandatory compliance with NSF/ANSI standards.
• Overcoming entrenched customer brand loyalty.
• Sustained, high-level R&D spending is necessary.

The capital required to effectively compete against Zurn Elkay Water Solutions' existing infrastructure and financial standing can be summarized as follows: