Sub-Zero Freezer Co., Inc.

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Sub-Zero Freezer Co., Inc.

4717 Hammersley Road
Madison, Wisconsin 53711
U.S.A.
Telephone: (608) 271-2233
Toll Free: (800) 444-7820
Fax: (608) 270-3339

Private Company
Incorporated: 1945
Employees: 500
Sales: $100 million (1998 est.)
NAIC: 335222 Refrigerator and Home Freezer Manufacturing

Sub-Zero Freezer Co., Inc., is the leading manufacturer of built-in refrigerators, which can be fronted with cabinetry to blend in with any kitchen decor. Sub-Zero initiated the “built-in” trend in home appliances and once held a virtual monopoly in the category. Priced at thousands of dollars above most other refrigerators, with as much as 50 percent of the work on each product done by hand, Sub-Zeros are marketed to America’s wealthiest households and are found in the homes of many celebrities. While most of the company’s customers are on the East Coast, the West Coast, and in the Sun Belt, Sub-Zero also has international distributors, with a concentration of customers in the Middle East. The company is privately held by the family of founder Westye Bakke. In addition to refrigerators, Sub-Zero also manufactures freezers and a line of wine storage products.

Early Years

Westye Bakke was born on a farm near Rice Lake, Wisconsin, one of ten children. Shortly before World War I, Bakke and his brother Oscar went into business together selling a winterized motorcycle they had invented. The motorcycle, which had a ski on its front wheel so it could go through deep snow, was purchased by Canada’s Northwest Royal Mounted police and by other customers as far away as Russia. In addition to their motorcycle business, the brothers also ran a livery service for doctors; however, when it became apparent that there wasn’t enough money in the combined enterprises to support two families, Westye ceded the business to Oscar and moved to Madison in 1926. He began working as a refrigerator salesman, first for Frigidaire, and later for York, an industrial refrigeration company.

Not satisfied with selling someone else’s refrigerators, in 1943 Bakke built a home deep-freeze, a product that was not commercially available at the time. He applied for a permit from the War Production Board to make freezers, and then returned to his native Rice Lake with $2,000 in savings to begin producing freezers on a small scale. His Rice Lake factory was in an abandoned potato machinery, and in 1945 he opened a plant in Madison. The building was a converted two-car garage which could barely accommodate Bakke and two employees. When it rained, they had to close down, because it got too wet inside. The firm turned out about three freezers a day.

Sub-Zero incorporated in 1945, and began making many specialty freezers, with Bakke capitalizing on his extensive contacts in the refrigeration industry to secure orders. Bakke’s son Lawrence “Bud” Bakke joined the company in 1948 after graduating from the University of Wisconsin with a degree in mechanical and agricultural engineering, and his expertise allowed the company to move beyond its usual markets. When General Electric, Westinghouse, and other major appliance manufacturers moved into the home freezer market, the tiny firm lost its competitive advantage, so Sub-Zero concentrated instead on specialty freezers and refrigerators for commercial use. Sub-Zero became known as a firm with particular know-how in low-temperature refrigeration. It worked on projects including simulators for the Air Force to test rocket engines in conditions of high altitude and low temperatures. Sub-Zero did work for the Atomic Energy Commission, the Argonne National Laboratory, and scores of university science laboratories with specialized refrigeration needs. Sub-Zero contributed to the modernization of the animal breeding industry with innovative equipment designed for handling frozen bull semen. Sales gradually increased, and the company plowed most of its profits back into the business, allowing it to expand its facilities several times. By 1972 Sub-Zero had moved into a 100,000 square-foot facility in Madison and employed about 100 people.

New Direction in the 1970s

Westye Bakke died in 1973, and the leadership of the company passed to his son. Sales stood at about $2.5 million annually. Most top executives at Sub-Zero had been promoted from inside the company, but the year before the founder’s death, the company reorganized and hired experienced managers from elsewhere in the industry. The firm divided into four units: sales and marketing; finance; engineering; and manufacturing. Sub-Zero hired an executive from another firm to head quality control, and brought in a kitchen design expert with 20 years’ experience to head its new marketing division.

Through the 1960s, Sub-Zero had been primarily dedicated to commercial refrigeration, but had had some small success building units for family homes. In 1953 a friend of Westye Bakke’s who lived in a Milwaukee suburb asked the company to build him a refrigerator that would blend into his kitchen cabinetry, and Sub-Zero responded with a special refrigerator that was only 24 inches deep, just the size of the standard kitchen cabinet. This slim unit that didn’t look like a refrigerator was the design that was to make the company famous. One other company, Michigan-based Revco, had made similar refrigerators, but their units were difficult to service and plagued with technical problems. Revco declined by the 1960s, leaving Sub-Zero the only American manufacturer of this type of appliance, and word of mouth soon built up the company’s reputation. By the early 1970s, the company was focused almost exclusively on its retail business. Several factors seem to have occurred at once to invigorate Sub-Zero. The reorganization of the company, with a new emphasis on professional marketing, happened just as the Sun Belt of the Southwestern United States was beginning to explode with new housing, especially for affluent buyers. President Bud Bakke gave television celebrity Dinah Shore a Sub-Zero to use on the cooking segment of her show, providing exposure that set the Sub-Zero on the road to being the refrigerator of the stars. The list of celebrities who owned Sub-Zeros began to grow, and before long, the Sub-Zero was the highest status appliance a home kitchen could boast. The Sub-Zero was considered to be an exceptionally high-quality machine, with two compressors—one for the refrigerator and one for the freezer—and patented door and shelving systems. The refrigerators were finished at the factory with a simple white coat of paint, but customers paneled them to match their kitchen cabinets or ornamented them with etchings, murals, or mirrors. This made the Sub-Zero unique: there was no other refrigerator, no matter how costly or technologically advanced, that didn’t look like a refrigerator. Designers and architects loved the Sub-Zero because it was not a big, ugly metal box.

By 1982, the company was firmly entrenched as the leader in luxury refrigerators. It was called variously the “Rolls-Royce of refrigerators,” the “Ferrari of refrigerators,” and other appellations that pronounced it the necessary choice of the very wealthy. Sub-Zero’s customers were found mainly in the top five or six percent of American households in terms of wealth. Johnny Carson owned several Sub-Zeros, as did Bob Hope and Danny Thomas. Politicians too adored the Sub-Zero: Richard Nixon and Henry Kissinger each had one. As many as eight yacht manufacturers used Sub-Zero as their refrigeration equipment supplier. In the early 1980s the company had more than 50 distributors, who sold principally on the East Coast, in Southern California, and in Texas. Sub-Zero also had several overseas distributors, with a cluster in the wealthy countries of the Middle East. Sub-Zero’s sales were around $25 million in 1980, and by 1985 they stood at $50 million. In the mid-1980s, a Sub-Zero cost around $3,000, which was about $2,000 more than the top-of-the-line Amana refrigerator. In fact, the Sub-Zero was in a class by itself, and in its market niche, price was not a consideration. In terms of total refrigerator market share, Sub-Zero took up only one to two percent. The company was very small compared to other makers such as General Electric and Amana, but it was quite profitable. Envious manufacturers attempted to imitate Sub-Zero. By the mid-1980s, Whirlpool was introducing a similar product, and Sears introduced a built-in refrigerator made for it by Sanyo. But Sub-Zero’s president, Homer Price, noted in a March 3, 1986, Business Week profile of the company that “None of our customers would set foot in a Sears store.” Sub-Zeros belonged with the class of people that had limos and private planes, and competition from mainstream brands didn’t seem to be a problem.

Challenges in the 1990s

By 1990, sales at Sub-Zero had surpassed $100 million. The majority of its sales—65 percent—still came from the East and West Coasts. The typical Sub-Zero customer was a 45- to 50-year-old college-educated professional with a salary of at least $100,000 and a home worth at least $400,000. While the 1980s had been a period of conspicuous consumption, by the early 1990s spending had declined, and Sub-Zero struggled to maintain a steady growth rate. The company intensified its marketing and public relations, giving top kitchen designers Sub-Zeros so the machines could be photographed for articles in upscale magazines like Architectural Digest and Town & Country. Nevertheless, sales slowed in the early 1990s. The company’s factories had to shut down in February 1991 as the start of the Persian Gulf War hurt its sales, and workers were laid off again in April. To shore up sales, the company offered rebates. The firm also took good care of its dealers, spending $3 million to $4 million on a trip to Europe for 500 dealers, who were the essential link between the company and the architects and builders who recommended the product to homeowners. Despite its best efforts, by the mid-1990s, Sub-Zero was no longer the only high-end refrigerator, as General Electric and Whirlpool had managed to position products to appeal to Sub-Zero’s market. At the same time, Sub-Zero retained a sprawling 70 percent of the upscale refrigerator market, and its sales were still growing at twice the pace of the refrigerator market overall.

Company Perspectives:

Welcome to Sub-Zero. We make the ultimate built-in, integrated, and undercounter refrigerators and freezers, and the ultimate wine storage. Hidden refrigerators is an idea we invented; it’s an idea we continue to define. For hundreds of designers and hundreds of thousands of homeowners, a kitchen is neither right nor complete without a Sub-Zero.

Attempting to expand the product line, the company developed smaller refrigerators, some the size of cabinet drawers, which could be employed around the kitchen or in other rooms. Michael Jordan, star of the Chicago Bulls basketball team, had 13 installed in his mansion. The company expanded its facilities in 1993, building a new 60,000-square-foot building next to its Madison headquarters. Sub-Zero employed roughly 600 people, with about 400 in Wisconsin and the remainder at a second plant in Phoenix, Arizona. While the company had grown dramatically in sales and expanded its manufacturing facilities several times, it had not significantly modernized the basic construction of its products. About 50 percent of the assembly work on each Sub-Zero was still done by hand.

In order to maintain its edge with consumers, Sub-Zero began using data from focus groups in the late 1990s. These groups helped tell the company’s designers what features people considered most valuable in their refrigerators, and what features should be enhanced. As a result of this customer input, in 1998 Sub-Zero released a new series, the 600, with more feature options. The 600s used advanced microprocessors that adjusted the temperature setting inside the unit and employed “fuzzy logic” to make changes based on the temperature in the room and how often the refrigerator door was opened. The electronic processor also ran a self-checking program and could instruct service technicians in making repairs. Some units offered a Sabbath mode, that allowed the refrigerator to be programmed to perform certain chores for Jewish customers who abstained from work on the Sabbath.

The company began building a huge warehouse near Madison in 1998. The 200,000-square-foot building was split between a distribution center and new manufacturing facilities. By that time, Sub-Zero was making 30 different models of refrigerators, and it anticipated further growth. The company had been looking for a line extension for some time (though President James Bakke remarked in an April 8, 1996, article in Forbes that the Sub-Zero name just didn’t work on a stove). In early 1999 the company introduced wine storage and cooling units. To prepare for more production, Sub-Zero acquired more land in Phoenix, near its earlier site, and also made plans to add to its Madison headquarters.