The Clorox Company History
Oakland, California 94612
Telephone: (510) 271-7000
Fax: (510) 832-1463
Incorporated: 1913 as the Electro-Alkaline Company
Sales: $2.53 billion (1997)
Stock Exchanges: New York Pacific
SICs: 2035 Pickled Fruits & Vegetables, Salad Dressings, Vegetable Sauces & Seasonings; 2819 Industrial Inorganic Chemicals, Not Elsewhere Classified; 2841 Soap & Other Detergents, Except Specialty Cleaners; 2842 Specialty Cleaning, Polishing & Sanitation Preparations; 3999 Manufacturing Industries, Not Elsewhere Classified; 5141 Groceries, General Line; 8731 Commercial, Physical & Biological Research
We are a dynamic international organization whose principal business is building brand franchises in categories where we can best use our core strengths. Our products provide excellent value for consumers, and are sold primarily in grocery stores and other retail outlets in many parts of the world. Our line of domestic retail products includes many of the country's best known brands of laundry additives, home cleaning and automotive appearance products, cat litters, insecticides, charcoal briquets, salad dressings, sauces, water filtration systems. The great majority of our products either lead or are a strong second in their categories.
Although best known for the household bleach that bears the firm's name, The Clorox Company is a diversified international manufacturer and marketer of a variety of consumer products ranging from household cleaners to salad dressings and from insecticides to cat litter. The company's professional products unit manufactures and markets cleaning and food products for institutional and professional markets and the food-service industry. About 16 percent of Clorox's sales are derived outside the United States through marketing channels in more than 70 countries. German conglomerate Henkel KGaA holds about a 28 percent stake in Clorox.
One-Product, Independent Company, 1913--57
Clorox was founded in 1913 as the Electro-Alkaline Company by five Oakland, California-area businessmen, only one of whom had any knowledge of chemistry. Their objective was to convert brine from ocean water into sodium hypochlorite bleach using an electrolytic process considered to be technologically advanced for its time. Each partner invested $100 in the new venture, and in August 1913 they purchased a plant site. The company's first product, Clorox liquid bleach, was packaged in five-gallon returnable containers and delivered by horse-drawn wagon to local breweries, dairies, and laundries for cleaning and disinfecting their facilities. Labels for the new product identified it as being "made by electricity."
An initial stock issue of 750 shares at $100 each provided $75,000 in start-up capital. The company struggled through its early years and often depended upon personal loans from its directors to pay expenses.
In 1916 a less concentrated liquid bleach product--5
In the 1920s Clorox's manufacturing plant could produce about 2,000 cases, or 48,000 bottles of bleach per day. Assembly line workers filled bottles by hand using hoses attached to overhead tanks. After being filled, the bottles were sealed with rubber stoppers and labeled, also by hand.
As demand for Clorox household bleach grew, the company expanded its manufacturing and distribution capabilities nationwide. By the early 1930s Clorox had become the best-selling liquid bleach in the country. The company was known by its amber glass bleach bottle, which continued to be used with minor adaptations in size and design until the early 1960s, when Clorox became the first bleach manufacturer to use plastic containers.
In 1929 Murray became president of Clorox Chemical Company, a name that had replaced the company's original name in 1922. He served in that capacity until his sudden death in 1941, just prior to the United States's entry into World War II and was succeeded by William J. Roth. In contrast to Murray's relatively uneventful tenure, Roth immediately had to deal with the impact of the country's wartime involvement on the company. Due to the decreased availability of chlorine, the U.S. government permitted bleach manufacturers to reduce the concentration of sodium hypochlorite in their products. Roth, however, opted to decrease production rather than change the quality of Clorox bleach and jeopardize customer satisfaction. He also terminated a number of contracts for chlorine that had been negotiated before the war because those agreements paid suppliers too little for a substance now in such short supply. Although these decisions were costly at the time, the company retained the respect of the industry and customer loyalty once the war was over.
Subsidiary of Procter & Gamble, 1957--68
By the mid-1950s Clorox, still a one-product company, held the largest share of the domestic market for household bleach. The Procter & Gamble Company, a successful manufacturer of consumer products, viewed Clorox bleach as a compatible addition to its existing line of laundry products, and acquired the company in 1957.
Procter & Gamble changed the firm's name to The Clorox Company. However, within three months of the purchase, the Federal Trade Commission challenged the Clorox acquisition on the grounds that it might lessen competition or tend to create a monopoly in household liquid bleaches, a violation of the Clayton Act. Even though Procter & Gamble allowed Clorox to handle its own affairs, in 1967 the U.S. Supreme Court upheld the commission's order that Procter & Gamble divest itself of the Clorox operation. By 1969 Clorox had been spun off as a public company and was once again independent.
Diversified Following the Regaining of Independence in 1969
Clorox's new president, former Procter & Gamble executive Robert B. Shetterly, and his top management team faced a more competitive marketing environment in which enzyme laundry products were rapidly encroaching on Clorox's core business. Realizing that diversification beyond bleach was essential to the company's survival, Clorox management implemented a three-pronged strategic plan aimed at the acquisition and internal development of a line of nonfood grocery products, the acquisition of a food specialty business, and the development of a line of institutional food and cleaning products. They drew up a list of potential targets for acquisition, many of which were purchased within the year, including Jiffee Chemical Corporation, the manufacturer of Liquid-plumr drain opener; Shelco, which manufactured Jifoam aerosol oven cleaner; and the 409 division of Harrell International, which produced Formula 409 spray cleaners. One year later the company introduced Clorox 2, its first entry in the dry, nonchlorine segment of the bleach market.
In 1971 Clorox purchased McFadden Industries, makers of Litter Green cat litter. Clorox had first tested McFadden's product in the market with an option to acquire the entire company if the product proved successful. Clorox also acquired Grocery Store Products Company, which manufactured such specialty food products as B&B mushrooms, Kitchen Bouquet gravy thickener, and Cream of Rice cereal. A year later Clorox added a line of salad dressings and party dips to this operation by buying Hidden Valley Ranch Food Products. Sales of the company's chlorine bleach rebounded in the first years of the decade as concerns arose over the health and environmental effects of enzyme and phosphate detergents.
In 1972 Clorox met the third objective of its strategic plan with the acquisitions of Martin-Brower Corporation, a manufacturer and supplier of disposable packaging and paper goods for the food-service industry, and Nesbitt Food Products, a manufacturer and distributor of soft drink concentrates. Joining the fold the following year was Kingsford Corporation, a leading manufacturer of charcoal briquettes.
The company soon encountered a series of setbacks, however. Just after the Kingsford acquisition, a cool and wet summer depressed sales of charcoal and the recreational products manufactured by other parts of the Kingsford operation. Clorox's introduction of a new product, Mr. Mushroom, coincided unexpectedly with a nationwide botulism scare, which adversely affected Mr. Mushroom and the company's B&B brand. Mushroom production at its newly acquired Country Kitchen Foods subsidiary in England decreased significantly due to a virus in the fertilizer used. Sales of Clorox's cleaning products also fell because of consumers' fears of recession.
Although these problems led to a temporary halt in further acquisitions, the company successfully negotiated an agreement in 1974 with Henkel, a German producer of consumer and industrial food and cleaning products. Clorox gained access to Henkel's research-and-development capabilities and acquired manufacturing and marketing rights to Henkel-developed products in the United States, Canada, and Puerto Rico. Henkel in turn became a minority shareholder in Clorox. In 1975 a civil antitrust suit brought against both Clorox and Procter & Gamble by Purex Corporation, a competitor in the bleach market, came to trial. The suit sought over $520 million in damages, which Purex claimed had resulted from Procter & Gamble's acquisition of Clorox in the late 1950s. Purex admitted defeat in 1982, when the Supreme Court refused to hear the case. Both a federal court and federal appeals court had ruled that Purex had failed to prove that either company had caused it to suffer any loss of business.
Shetterly retired as chief executive officer in 1980 and was succeeded by Calvin Hatch, another former Procter & Gamble executive. Under Shetterly's leadership, the company had diversified beyond bleach into a number of other areas; however, most of these new ventures never became profitable. Conceding that Shetterly's growth plan had failed, Clorox sold its Martin-Brower subsidiary at a loss in 1979 to the U.K.-based Dalgety PLC, and Country Kitchen Foods--its British mushroom canning operation&mdashø H.J. Heinz Company, Ltd., the U.K. subsidiary of the U.S. company. These divestitures gave Clorox plenty of capital to use in its search for niches in the consumer packaged-goods market in which the company could develop its own products and capture a dominant share.
Clorox devoted a significant amount of money and corporate support to research and development. Until the company was able to come up with a breakthrough product of its own, however, it continued to rely upon outside acquisitions to diversify its business and fill its new-product pipeline. Some of the acquisitions made under Hatch's leadership, such as the 1979 purchase of the Emil Villa chain of barbecue restaurants, paralleled Shetterly's mistakes in fueling growth but not profits, while other products gained through earlier acquisitions, such as Cream of Rice cereal, fell short of the company's goals and were eventually sold. Efforts to generate and rapidly build a base of international business were also stymied by solidly entrenched competition.
In 1981 the company acquired Comerco, a Tacoma, Washington-based producer of stains and wood preservatives marketed under the Olympic brand name to hardware and home-improvement stores. Two years later, the company purchased Lucite house paints from E.I. Du Pont de Nemours Company. Clorox attempted to model these acquisitions after its successful Kingsford charcoal operation, using marketing techniques and heavy advertising to produce premium-priced, brand-name products. The subsidiary formed to manage these businesses was never effectively able to integrate the operations of these two product lines nor to attain the company's sales expectations, however. It was sold to PPG Industries in 1989 at a loss of $20 million.
Over the years, Clorox had retained leadership of the laundry-bleach market despite numerous attempts by competitors to chip away at its share with other brand-name, private-label, and generic products. In 1982 Clorox faced its toughest challenge when Procter & Gamble decided to launch its own bleach product called Vibrant in a test market. Clorox quickly responded by introducing a new bleach with a similar formula called Wave. Although Vibrant never made it out of the test-market stage due to manufacturing problems, this competitive advance against Clorox set the stage for future attempts by each company to invade the markets for products long dominated by the other.
In 1986 Calvin Hatch retired as chairman, a post he had held since 1982, and was succeeded by president and CEO Charles R. Weaver. Jack W. Collins, the company's executive vice-president and chief operating officer, was promoted to Weaver's former positions. Beginning in 1987, the company diversified into another new business area by purchasing a number of bottled-water companies, including the Deer Park Spring Water Company and Deep Rock Water Company, followed by the Aqua Pure Water Company and Emerald Coast Water Company in 1988.
After several years of uneasy coexistence after the Vibrant incident, the battle between Clorox and Procter & Gamble for dominance of the consumer marketplace erupted. In 1988 the company introduced its Clorox Super Detergent brand of laundry soap powder in four western states and was quickly attacked by Procter & Gamble's new Tide With Bleach brand. Procter & Gamble also began the market test of a new brand of liquid bleach targeted at Clorox customers, a move intended to warn Clorox against entering the laundry detergent market. By mid-1989 Procter & Gamble had withdrawn its bleach product due to disappointing sales. Clorox kept its detergent on the market but continued to face an uphill battle against the entrenched brands. The fact that consumer preferences were slowly moving away from powders toward liquid detergents added to the company's marketing problems. In an attempt to inject new life into its consumer products business, the company acquired the Pine Sol cleaner and Combat insecticide lines of American Cyanamid Company in 1990 for $465 million, a price generally considered to be too high. That same year, Robert A. Bolingbroke became president, succeeding the retiring Collins.
After spending more than $225 million over three years developing and marketing its detergent, and having thereupon achieved only a three percent market share, Clorox in May 1991 abandoned this aggressive but misguided venture. The company took a $125 million pretax charge, largely to exit the detergent business, a charge that cut net earnings to $52.7 million for fiscal 1991, a 65.7 percent drop from the $153.6 million of the previous year. Clorox's entree into detergent was doubly damaging since Procter & Gamble's counterpunch--Tide With Bleach--also cut into sales of Clorox bleach, with Clorox 2 particularly hard hit, its sales falling 10 percent in fiscal 1991 alone. In addition to exiting the detergent business, Clorox around the same time pulled the plug on other ill-advised products it was testing, including a bar soap called Satine and Hidden Valley Ranch microwavable frozen entrees.
Sullivan Turned Company Around in the Mid-1990s
In the aftermath of the company's largely self-inflicted difficulties, Weaver retired in mid-1992. His selection for a successor, Bolingbroke, was rejected by the company board, who instead chose Craig Sullivan to be the new chairman and CEO. Bolingbroke soon resigned; Sullivan, a 21-year Clorox veteran who had been a group vice-president, eventually assumed the position of president as well; and the position of COO was eliminated in order to flatten the management structure.
Under Sullivan's leadership and with the help of a surging economy in the United States, Clorox achieved a remarkable turnaround during the mid-1990s. The largely single-digit year-on-year increases in net sales of the early 1990s gave way to 11.8 and 14.2 percent increases in fiscal 1996 and 1997, respectively, with net sales hitting a record $2.53 billion in 1997. Net earnings were on the rise as well, with another 1997 record of $249.4 million. Cleaning up and bolstering the company's product portfolio and expanding internationally fueled the resurgence.
Soon after becoming chairman, Sullivan ordered a comprehensive financial and strategic review of the company's entire line of products. The study identified three businesses--the Prince Castle restaurant equipment subsidiary, Deer Park bottled water, and the Moore's and Domani frozen food businesses--that accounted for 10 percent of company sales, 24 percent of its workforce, but none of its profits; these businesses also did not mesh well with the rest of Clorox's portfolio. All three were soon divested: Prince Castle was sold in June 1993; the following month, the bottled water business was sold; and in September 1993 Clorox sold Moore's and Domani to Ore-Ida Foods, a division of H.J. Heinz Co. The bottled water and frozen food businesses were sold for a combined $159.3 million.
The company's portfolio was subsequently shored up through a series of acquisitions and a renewed commitment to new product development. Clorox's strong balance sheet--with relatively low long-term debt and plenty of cash&mdash+aced it in perfect position to grow through acquisitions. In January 1994 the company acquired the S.O.S. brand of cleaning products from Miles Inc. for $116.5 million. Building on a joint venture it had been involved in since 1988, Clorox in fiscal 1995 purchased Canada-based Brita International Holdings, Inc., a manufacturer and marketer of Brita water filtration systems. In late 1995 the company extended its presence in the bug-killing business by purchasing the Black Flag line of insecticides from London's Reckitt & Colman Plc. Clorox then added Lestoil heavy-duty cleaner to its portfolio in mid-1996 in a deal with Procter & Gamble. And in December 1996 the company spent $360.1 million to acquire Armor All Products Corporation and its leading line of automotive cleaning products. Armor All became a wholly owned subsidiary of Clorox.
Meanwhile, notable new product successes included Floral Fresh Clorox, introduced in October 1995, and Lemon Fresh Pine-Sol, which debuted in February 1995 and was formulated after a survey discovered that many consumers did not like the smell of pine. During fiscal 1997 Formula 409 carpet cleaner was introduced, while the flagship Formula 409 all-purpose cleaner was reformulated to kill bacteria. The Clorox 2 color-safe bleach brand was revitalized in 1996 and 1997 through the relaunch of Clorox 2 liquid bleach as a concentrate and with the debut of Floral Fresh dry and liquid formulas.
In the long run, Sullivan's emphasis on international growth was perhaps the most important aspect of his multipronged revitalization program. During the early 1990s, Clorox derived only four percent of its net sales outside the United States. Sullivan created an international team to tackle overseas markets and set an ambitious goal of deriving a full 20 percent of sales from these markets by 2000. By 1997 Clorox was well on its way to meeting this goal as international sales reached 14 percent. Much of this growth was fueled through acquisitions, particularly in Latin America, where the company was able to quickly gain half of the bleach markets in Argentina and Colombia and 90 percent of the bleach market in Chile. Overall, Clorox spent $1 billion acquiring 26 companies from fiscal 1993 through fiscal 1997--23 of these were non-U.S. companies, primarily Latin American.
Of course, not everything has gone smoothly in the mid-1990s. In September 1997 the company recalled and stopped production of QuickSilver, an automotive wheel-cleaning product, after it was blamed for the death of a Canadian child. The company planned to eventually replace the product with a less-toxic alternative. Despite such setbacks, the future looked bright for Clorox. By continuing to make smart extensions of its product lines, aggressively seeking out strategic acquisitions, and taking continued advantage of overseas opportunities--with Asia the company's next major beachhead--Clorox's renaissance was likely to last well into the new millennium.
Principal Subsidiaries: Armor All Products Company; The Brita Products Company; The Clorox Company of Puerto Rico; The Clorox International Company; Clorox Products Manufacturing Company; Clorox Professional Products Company; The Clorox Sales Company; Clorox Services Company; The HV Food Products Company; HV Manufacturing Company; Kingsford Manufacturing Company; The Kingsford Products Company; Clorox Argentina S.A.; Clorox do Brazil Ltda.; Brita (Canada) Inc.; The Clorox Company of Canada, Ltd.; Clorox Chile S.A.; Tecnoclor S.A. (Colombia); Clorox (Guangzhou) Company Limited (China); Clorox Korea, Ltd.; Clorox de Mexico S.A. de C.V.
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