Health O Meter Products Inc.

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Health O Meter Products Inc.

24700 Miles Road
Beford Heights, Ohio
U.S.A.
(216) 464-4000
Fax: (216) 464-5629

Public Company
Founded: 1919 as Continental Scale Works
Employees: 993
Sales: $69.45 million
Stock Exchanges: NASDAQ
SICs: 3596 Scales and Balances, Except Laboratory; 3634
Electric Housewares and Fans; 6719 Holding Companies,
Not Elsewhere Classified

Health O Meter Products Inc. designs, manufactures, markets, and distributes a comprehensive line of consumer and professional products. As of 1995, it was the leading U.S. producer of weighing instruments, including bathroom, kitchen, and diet scales. It was also the top manufacturer of automatic drip coffeemakers through its venerable Mr. Coffee subsidiary. Health O Meter purchased Mr. Coffee in 1994, increasing its sales more than fourfold.

Founded in 1919, Health O Meter was a pioneer in the personal scale industry. The Germans introduced the first household, or bathroom, scale in the early 1910s. The Juraso, named after German inventors Jas Raveno and son, incorporated a small mirror suspended on chains at a forty-five degree angle to allow users to read the dial while standing on the scale. The scale became a popular novelty item and was selling worldwide within a few years. Importantly, Chicago’s Marshall Field’s department store began carrying the scale in 1913. At the same time, household kitchen scales were gaining in popularity, and a number of U.S. and European companies had entered that market. Thus, when World War I started and the supply to the United States of Juraso bathroom scales was cut off, Marshall Fields began looking to U.S. kitchen scale manufacturers for a replacement.

Marshall Field’s new bathroom scale would ultimately be designed and manufactured under the direction Mathias C. Weber, superintendent of the Chicago Scale Company. Weber had come to the United States as a teenager in 1906 from his native Hungary. His background as a scale mechanic helped to land him a job in New York working on commercial scales for $16 per week. He soon developed a reputation within the industry as a talented mechanic and tradesman. He was even called on by the New York City Bureau of Weights and Measures, at the age of 21, as a technical expert to give advice. In 1912 Weber was lured away by another scale manufacturer, Osgood, to manage its service department. Two years later he was hired by Chicago Scale Company as superintendent of operations—Chicago Scale’s president had ordered a subordinate to hire “the best scale man in the country.”

Shortly after Weber started his job at Chicago Scale, Marshall Fields approached the company about supplying a bathroom scale to replace the Juraso. “Theirs was an ordinary, ballbearing action mechanism. I had conceived a superimposed parallelogram platform scale using a spring suspension, something I later patented,” Weber recalled in The Housewares Story. “And we also made a big change in the arrangement of the dial…. I happened to glance at the speedometer on the [car] dashboard … ‘That’s it!’ I shouted … ‘we’ll place the dial in such a position that it can be easily read when you’re standing on the scale.’ “The innovative scale was introduced in 1917 and marketed at a price of $7.50—about $2.50 less than the Juraso. “We got a letter [from the maker of the Juraso] warning us of the serious consequences if we copied their scale! We had a good laugh and went back to work.”

For some time Weber had considered starting his own scale business. At home, he had even developed a new scale that he called the “Health-O-Meter.” Through his barber, Weber met a wealthy investor named Irving King Hutchinson. In 1919, Irving, Irving’s brother Alfred, and Weber formed the Continental Scale Works to begin manufacturing Weber’s design. That same year they began building and selling the Health-O-Meter model no. 100. The scale had a cast-iron frame and incorporated an accurate rack and pinion system with hardened bearings. Selling for $16, the scale was finished in white, weighed 20 pounds, and stood eight inches tall. Its accuracy was guaranteed to within one pound.

The scale was quickly accepted in the marketplace and Continental’s sales surged. The demand growth was partly attributable to the dieting fad that began in the United States following World War I. Prior to World War I, most people measured their weight at novelty machines that cost a penny. After the war, though, a slim figure was considered fashionable for women and the concept of an at-home scale was appealing. Continental Scale Works also benefited from Weber’s inventive product introductions. In 1921, for example, Weber patented the horizontal clock-face scale dial. In addition, he patented the doctor’s-type beam scale, which eventually became a standard fixture in doctor’s offices and medical facilities throughout much of the world.

Continental, with its patented Health-O-Meter line, became the leading household scale manufacturer in the world during the 1920s and 1930s. It gradually lost much of its market dominance, however, as imitators introduced similar scales. Among the best-known imitations was the short-lived “Princess” scale, which was a low-platform scale developed by a young German immigrant named Carl Burkhardt. Burkhardt was working for Narlor Heather Company of Indiana when that company introduced his Princess scale design in 1934. Narlor unveiled the low-slung scale at a home show in Chicago. Incredibly, the scale was priced at only $1.25. It became the talk of the home show, and Narlor won a huge order for 50,000 of the scales from Sears, Roebuck and Company. When Weber was finally able to examine the scale, he was dismayed to discover that its internal mechanism was a direct copy of the one he patented for the Health-O-Meter. After a difficult fight, Weber succeeded in getting a court order to stop the company from selling the Princess.

Throughout the 1920s, 1930s, and 1940s Weber spent a significant amount of his time and resources working to protect his patents. Other scale makers did, however, introduce their own innovations and competition in the industry intensified. For example, despite its early demise, the Princess scale did become an important influence on the bathroom scale industry because of its unique low-profile design. During the 1930s, in fact, scalemakers worked to distinguish their scales from the growing herd of models by focusing on fashion. The high, box-like scales were eventually replaced by low platform designs that were offered in a number of colors, shapes, and styles. Continental met market demands with new and better scales and remained an industry innovator and leader for several years.

During the post-World War II U.S. economic and population boom, demand for bathroom scales rocketed and sales of Health-O-Meter scales increased. By the 1960s, in fact, bathroom scales had become a common fixture in American homes. By the early 1970s, moreover, Americans were purchasing more than 6 million bathroom scales annually. The bathroom scale market began to slow in the 1970s, though, and by the late 1970s had reached a level of zero growth. As competition in the bathroom scale arena heated up during the 1960s and 1970s, Continental focused its resources on the less crowded market for beam scales sold to doctor’s offices and other commercial markets. Meanwhile, another company that would become an important part of the Health O Meter story was taking shape: North American Systems.

North American Systems was founded in 1968 by Vincent Marotta and Samuel Glazer. Shortly thereafter, they began to market their Mr. Coffee automatic drip coffee maker. The company got in early on the move away from percolator and other types of coffeemakers and toward more convenient drip and filter coffeemakers. By 1975 North American was the leading U.S. manufacturer of drip-type coffeemakers. As the drip concept was popularized in the late 1970s and early 1980s, the company rode a wave of success as the leading supplier. In fact, to many consumers the brand name ‘Mr. Coffee’ was synonymous with the drip coffeemaker. Mr. Coffee gradually suffered a reduction in its fat share of the coffeemaker market as a slew of competitors entered the industry. Competition became particularly intense during the early and mid-1980s, when low-cost foreign producers began undercutting prices on Mr. Coffee’s domestic, union-manufactured machines.

Despite increased competition, the company retained its industry lead with a 30 percent share of the drip coffee market and continued to post sales and profit gains into the mid-1980s. By 1986, the still privately held North American Systems was generating roughly $120 million in annual sales. North American was purchased from Marotta in 1987. John Eikenberg, with the help of New York investment firm McKinley Allsopp Inc., bought the company through a leveraged buyout. Eikenberg, who became president of the enterprise, was a 26-year veteran of the housewares industry. He had formerly served as president of Revere Ware Group and, among other credits, headed the National Housewares Manufacturing Association. He was working as a private consultant prior to the Mr. Coffee LBO. After taking control, Eikenberg quickly changed the name of the company to Mr. Coffee and made clear his intent to exploit the popular Mr. Coffee brand name in other segments of the housewares market.

Mr. Coffee languished under the control of Eikenberg and McKinley Allsopp. Sales dropped to about $102 million in 1988 during the management transition, partly because the bungled LBO had left the once financially healthy Mr. Coffee laden with more than $80 million of debt. Mr. Coffee got a $55 million loan from Chrysler Capital Corp. early in 1988 but still was unable to pay its bills. A stock offering later in the year allowed the company to avert disaster, but Mr. Coffee still posted a pitiful $7.6 million net loss for the year. In 1989, Peter Howell, another housewares industry insider, was promoted to chief executive to turn the situation around. Sales jumped to $128 million in that year and net income recovered to a positive $1.07 million. Also in 1989, Mr. Coffee began to introduce new products, including The Quick Brew microwave coffeemaker and the Iced Tea Pot, a teamaking device. Mr. Coffee’s profits leaped to $5.7 million in 1990 from sales of $173 million.

Like Mr. Coffee, Continental also experienced turbulence during the 1980s—Continental became Lee-Continental Corp. after investment company Thomas H. Lee Co. purchased a major interest. Indeed, the scale market stagnated in the early 1980s and remained that way throughout the decade. By the early 1980s Health O Meter had, in effect, become a semi-successful manufacturer of high-end scales for doctors’ offices. Annual sales were mired in the $15 million range, and growth prospects appeared negligible. Health O Meter had long ago ceded dominance of the bathroom scale market, which had become dominated by Sunbeam-Oyster and by Illinois-based Counselor Co., a division of Newell Co., in the mid-1980s. Attempting to boost sales and earnings, Health O Meter purchased some other companies through leveraged buyouts in 1984 and 1988, which expanded its presence in markets for household scales and timers. The LBOs were conducted under the direction of Lawrence Zalusky, who became president of the company in 1984.

By expanding into new markets, lowering prices, and chasing the mass retail market, Zalusky managed to regain some of Continental’s old glory. Sales rose at an approximate rate of 19 percent annually, reaching a respectable $46 million by the early 1990s. Much of the gain was the result of Continental’s reemergence as a leader in bathroom scales. Importantly, in 1989 Continental borrowed an idea from a successful scale importer to design the Bigfoot bathroom scale. The Bigfoot series of bathroom scales featured speedometer-like, oversized readouts that were an instant hit. Within three years the Bigfoot scales were accounting for about 30 percent of Continental’s revenues. Continental’s gains in the bathroom scale industry were made largely at the expense of Counselor Corp. Counselor suffered a long slide in the market that was capped by the loss of most of its giant K-Mart account to the increasingly competitive Continental.

Despite sales gains, Continental suffered net losses in both 1990 and 1991. The company went public in 1992 as Health O Meter Products Inc. as part of an effort to raise cash. Zalusky used the $30 million in proceeds to pare the company’s debt and, among other things, invest in new marketing and product development. By early 1993 Health O Meter was boasting a dominant 60 percent of the U.S. scale market and was also enjoying success with new overseas operations. Meanwhile, Mr. Coffee stumbled again in 1991 and lost money. However, completely revamped coffeemaker lines combined with successful new product launches helped the company to raise annual sales and profits to $175 million and $6.68 million, respectively, by 1993.

In 1993, Thomas H. Lee Co., the same investment enterprise that owned 35 percent of Health O Meter, engineered the purchase of a controlling interest in Mr. Coffee. The $135 million deal resulted in Health O Meter taking over the operations of Mr. Coffee. The merger also entailed restructuring Health O Meter’s debt and a $ 19 million stock offering designed to bring cash into the newly formed concern. Lee moved Health O Meter’s corporate offices to Mr. Coffee’s headquarters in Ohio and named Howell president of the new concern—Zalusky became a director on the board. Lee planned to combine the two companies to benefit from economies of scale related to both administrative and manufacturing activities. The company also planned to reduce expenses at Mr. Coffee by increasing automation and overseas manufacturing, among other initiatives.

Combined sales for Health O Meter and Mr. Coffee during 1994 approached $250 million and were rising steadily going into 1995. By 1995, Health O Meter was employing a work force of about 1,000 in all of its operations. Its two primary divisions were Mr. Coffee and Health O Meter/Pelouze. The latter division comprised a wide array of mechanical and digital scales, massagers, and timers for home use, as well as high-end scales for professional use. Those goods were sold primarily through discount merchandise chains, but also through catalogs, department stores, and mail order companies. The larger Mr. Coffee Division still emphasized drip coffeemakers and teamakers, but during the early 1990s also branched out into various kitchen appliance products, including water filters, potato baking devices, juicers, food dehydrators, and breadmakers. Although the company was still battling a relatively heavy debt load from the Mr. Coffee acquisition, improving sales and cash flow boded well for Health O Meter’s short-term future.