Lancer Corporation

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Lancer Corporation

235 West Turbo
San Antonio, Texas 78216
U.S.A.
(210) 344-3071
Fax: (210) 341-7507

Public Company
Incorporated: 1967
Employees: 1,375
Sales: $102.31 million (1996)
Stock Exchanges: American
SICs: 3585 Refrigeration and Heating Equipment; 3561 Pumps and Pumping Equipment; 3589 Service Industry Machinery, Not Elsewhere Classified

Lancer Corporation manufactures and designs soft-drink beverage dispensers and related food service equipment such as syrup pumps, coffee brewing equipment, and ice dispensers. The company is a leading supplier of beverage dispensing equipment worldwide. In addition, Lancer develops new equipment and machinery for the food service and beverage industries, and re-manufactures used equipment. The company’s Vaculator Division manufactures industrial and commercial coffee brewers.

Company Origins and the Schroeder Brothers

Two brothers, George and Alfred A. Schroeder, founded Lancer Corporation on December 18, 1967 in San Antonio, Texas. Alfred A. Schroeder, the older brother, served as chairman of the board and assumed responsibility for conceptual engineering design, new product development, and corporate planning. George Schroeder, the younger brother, acted as Lancer’s president and chief executive officer. He handled strategic planning, marketing, overall production management, and corporate administration. Their company began with three employees and was “slightly profitable,” earning $50,000 in its first year.

The Schroeders began their business simply by manufacturing parts for beverage dispensing equipment. Later, the company’s product line evolved to include the manufacture of frozen beverage and beer dispensers. Some of Lancer’s most important products included mechanically cooled fountain soft-drink dispensing machines, ice-cooled fountain soft-drink dispensing systems, citrus dispensing systems, post-mix dispensing valves, carbonators and fittings, as well as ice baggers, dispensers, and bins.

Lancer’s headquarters and highly integrated manufacturing centers were originally located in San Antonio, Texas. Later, the company branched out internationally, eventually establishing facilities in Adelaide, Australia; Sydney, Australia; Auckland, New Zealand; Brussels, Belgium; Monterrey, Mexico; Piedras Negras, Mexico; Moscow, Russia; and Sao Paulo, Brazil, by the end of 1996. Lancer also repeatedly expanded existing facilities. The company’s San Antonio manufacturing facility and the Maquiladora plant in Mexico underwent extensive refurbishing during 1997.

Three Product Categories

Lancer eventually offered three major product categories. The company’s primary line consisted of a variety of beverage dispensing systems. In particular, Lancer developed mechanically cooled and ice-cooled, non-coin-operated systems for dispensing soft drinks, as well as the post- and pre-mix dispensing equipment for each type of system. In addition, Lancer developed and marketed electronically controlled counter-top citrus dispensing systems. Such systems dispensed juice concentrates through preset mix ratios. Sales from dispensing systems grew steadily for the company. In 1994, 49 percent of total net sales came from beverage dispensing systems. Within two years, complete dispensing systems totaled 53 percent of total net sales.

Post-mix dispensing valves and related parts comprised Lancer’s second product line. Such valves mixed syrup and water for dispensing systems at a preset ratio. Lancer created valves for use with Coca-Cola products, notably the LEV, Coca-Cola’s standard valve for the U.S. market. Utilized by Lancer in other company dispensing systems, the LEV also was sold to competing manufacturers for use in their equipment.

Lancer’s third product line included products and services related to beverage dispensing. Lancer produced a carbonator for beverage systems requiring the production of carbonated water, and, through an agreement with Packaged Ice, Inc., Lancer manufactured an ice bagger machine. Lancer also rebuilt its own soft-drink dispensing equipment, as well as that of other manufacturers, since re-manufactured fountain beverage equipment extended the life of equipment for customers and offered reliable, durable equipment at lower costs.

Lancer’s other products included syrup pumps, stainless steel and brass fittings, carbon dioxide regulator components, disconnect sockets for five-gallon syrup tanks, quality control testing equipment, recirculating beer equipment and accessories, and water filtering systems. The company’s Vaculator Division also manufactured and marketed commercial coffee brewing equipment. Lancer also manufactured and maintained molds and fixtures needed in the production of components for its products.

Equipment Innovations

Within four years of its founding, Lancer became known for designing and manufacturing state-of-the-art equipment for the fountain beverage industry. In 1971 Lancer designed, engineered, produced, and sold the first mechanically cooled dispensers. The company went on to develop ice-cooled beverage dispensing systems, syrup pumps, and carbonators. In 1996 Lancer launched a new line of ice and beverage dispensers, as well as a new high-tech, front-loading, microprocessor-controlled citrus counter-top dispenser. Occasionally, Lancer developed new products through agreements with its customers.

Competition in the beverage dispensing industry hinged on rapidly changing technology. Lancer’s research and development activities therefore proved to be “the backbone of Lancer’s growth over the years,” according to the Schroeders in the company’s 1996 annual report. Investment in technology for research and development continued as a priority for the company throughout its history. In the early 1990s financial commitment to research and development grew by more than $200,000, from $695,000 in 1994 to $913,000 in 1996.

The company’s leaders sought to improve Lancer’s existing product line, as well as to develop new items demanded by the industry through its research and development activities. “Lancer has the in-house capability to take an idea from the conceptual design phase to full production while optimizing cycle times, ensuring total quality control, and enhancing operational efficiencies,” explained an annual report. “Company-sponsored research and development efforts create a core of knowledge that frequently leads to patented concepts and new products.” As of 1996, Lancer owned 36 U.S. patents, with 13 additional patents pending. The company also owned corresponding foreign patents or patents pending. Its patents covered food, beverage, and ice beverage dispensing equipment and components.

The Coca-Cola Company

Lancer was associated closely with the Coca-Cola Company since 1967. In fact, the company’s domestic marketing activities focused on Coca-Cola. Coca-Cola selected Lancer as a preferred supplier, although the soft drink manufacturer was not contractually obligated to maintain minimum volumes of purchases from Lancer. Lancer negotiated a master development agreement with Coca-Cola that ensured that the soft drink manufacturer (or its designated agent) would obtain exclusive sales of Lancer’s citrus dispensers, post-mix dispensing valves, and syrup pumps. For example, Lancer manufactured a self-contained, mechanically cooled citrus dispenser for counter tops. Lancer agreed to sell the dispenser only to the Minute Maid Company, a division of Coca-Cola.

The master development agreement entitled Coca-Cola to the rights to new products and innovations which were designed, developed, and produced by Lancer engineers and re-search-and-development staff. Such products typically were warranteed by Lancer for one year. Lancer also warehoused certain products for the Coca-Cola Company. The companies expanded this agreement in 1996.

In 1991, Lancer’s sales to Coca-Cola accounted for 71 percent of the company’s total revenue. By 1995 direct sales to Coca-Cola dropped to about 59 percent of Lancer’s total revenue, or about $45 million. By 1996, direct sales to Coca-Cola increased 15.4 percent. Lancer’s total sales that year, however, increased 20.9 percent. E. J. O’Brien IV observed in the Hilliard Lyons Corporate Profile that “Lancer’s future is clearly tied to Coca-Cola’s fountain growth; however, the company appears to be successful in balancing its Coca-Cola relationship with other, new growth opportunities.” Lancer’s other customers included soft-drink bottlers, syrup manufacturers or their parent companies, beverage equipment distributors, food service distributors, original equipment manufacturers, and coffee equipment distributors.

Company Perspectives:

Lancer is a vertically integrated manufacturer employing approximately 1,375 associates in a number of facilities in the United States, Mexico, Australia, Western Europe, the Far East, Russia, and, most recently, Brazil. Product innovation and design, which remain hallmarks of the company, have been made possible by teams of dedicated associates focused on continuous improvement and world-class customer service.

International Sales

Customer satisfaction was a priority since Lancer’s founding. As Alfred and George Schroeder noted in the 1996 annual report: “Throughout all those years, we never lost track of who we were serving. We have always followed a well-established tradition of providing quality products and service at competitive prices to our customers.” Lancer worked to develop strategic distribution locations throughout the world in order better to serve its customers abroad—whether large bottlers such as Coca-Cola or small regional fast-food chains. Lancer manufactured its products in both Mexico and Australia, and maintained a warehouse in Russia. Lancer serviced its clients through its sales force and through independent distributors throughout Latin America, Europe, and Asia.

The company developed its international sales in part because of the global activities of the Coca-Cola Company. For instance, two-thirds of Coca-Cola’s sales were generated outside of the United States in 1996 whereas only one-third of Lancer’s sales were in foreign countries that year. By 1992, Lancer was active in 74 countries in Europe, Central America, South America, the Middle East, and the Far East. In 1995, 30 to 35 percent of the company’s sales were overseas. Though domestic sales accounted for 57 percent of Lancer’s sales in 1996, overseas sales grew to 43 percent: 16.8 percent in Asia, 9.5 percent in Australia, 8.8 percent in Latin America, and 7.8 percent in Europe.

Lancer expected to be active in 100 countries during 1997. “Lancer,” the Schroeders revealed in an annual report, “is poised to strengthen its presence and its product offerings in those areas of the world that have the highest growth rates for dispensed beverages.”

The company’s strategy for the future included partnerships with local international bottlers. “It is clear that, through strategic global positioning,” wrote Alfred and George Schroeder in the 1996 annual report, “Lancer has responded to customer requirements to gain a major presence in key world markets.”

A Public Company

Lancer became a public company in 1985. By 1997 the company’s stock had undergone three three-for-two splits. The first occurred in 1995 after ten years as a public company. Another followed in 1996, the year Lancer upgraded its integrated manufacturing and management and financial reporting systems. Lancer’s board of directors approved a third three-for-two stock split, effected as a 50 percent dividend, in 1997. Directors hoped to establish more attractive pricing of Lancer stock for new investors. They felt the move showed Lancer’s confidence in the future and anticipated increased trading activity from the offer.

Mergers and Acquisitions

In 1995, Lancer acquired the Australian company Glenn Pleass Holdings Pty. Ltd., a manufacturer and distributor of beverage dispensing systems, to expand its core business. According to E. J. O’Brien IV in a 1996 Hilliard Lyons Corporate Profile, “This acquisition increases Lancer’s presence in the fast-growing Pacific Rim and adds some complementary products to its offerings.”

During October 1996, Lancer launched its first joint venture to manufacture and market technologically advanced frozen beverage dispensing systems. Though Lancer’s partner in this venture developed the new technology, Lancer retained a 50 percent interest in Lancer FBD Partnership Ltd. Later in 1996, Lancer purchased Comercial Vila Formosa Ltda., a manufacturer and distributor of soft-drink fountain and beer dispensing equipment, for $6.1 million. Based in Sao Paulo, Brazil, Comercial Vila Formosa earned $14 million in 1996. Lancer’s Brazilian subsidiary, Lancer do Brasil, began operations in January of 1997. Commenting on the joint venture and acquisition of 1996, the Schroeders wrote in the company’s annual report: “Both of these businesses offer strategic locations and product lines which will enhance our product offerings and provide opportunities to further service the demands of our customers on a global basis.”

In February, 1997, Lancer acquired Auckland based Applied Beverage Systems Ltd., which manufactures soft drink and beer dispensing systems in New Zealand. The projected purchase price of this acquisition was $3.5 million. Applied Beverage Systems complemented Lancer’s product line and continued the company’s growth internationally.

Outlook for the Future

In 1996, Lancer sales topped $100 million for the first time. Entering 1997, the company embraced a three-pronged strategy for increasing sales. First, Lancer intended to step up its development and manufacture of technologically superior products. Secondly, the company expected to develop new or enhanced products in advance of market demand, and thirdly, Lancer hoped to expand its strategic international manufacturing and distribution network. With these strategies in place, Alfred and George Schroeder predicted in a 1997 quarterly report: “The outlook for the company continues to be favorable as new products are introduced in a number of rapidly emerging international territories, as we continue to expand our existing product lines, and as we focus on the company’s overall competitive positioning.”