Ecolab Inc.

views updated Jun 11 2018

Ecolab Inc.

370 North Wabasha Street
Saint Paul, Minnesota 55102-1390
U.S.A.
Telephone: (651) 293-2233
Fax: (651) 293-2092
Web site: http://www.ecolab.com

Public Company
Incorporated: 1923 as Economics Laboratory
Employees: 12,007
Sales: $1.89 billion (1998)
Stock Exchanges: New York Pacific
Ticker Symbol: ECL
NAIC: 325611 Soap and Other Detergent Manufacturing; 325612 Polish and Other Sanitation Good Manufacturing; 325999 All Other Miscellaneous Chemical Product and Preparation Manufacturing; 333319 Other Commercial and Service Industry Machinery Manufacturing; 561710 Exterminating and Pest Control Services; 561990 All Other Support Services

Ecolab Inc. is a leading supplier of cleaning, sanitizing, and maintenance products and services for the institutional, hospitality, healthcare, and industrial markets. The company’s institutional division, which is its largest unit, provides cleaners and sanitizers for washing dishes, glassware, utensils, and other kitchen equipment and for laundering needs to restaurants, lodgings, and educational and healthcare institutions. Other Ecolab units offer water and wastewater treatment programs, commercial pest elimination and prevention, and kitchen equipment repair services. The company operates in virtually every country in the world either directly, or through distribution and licensing agreements, or via its Henkel-Ecolab joint venture with the German firm Henkel KGaA. Through its “Circle the Customer—Circle the Globe” strategy, Ecolab aims not only to be a worldwide operator but also to offer a full range of products and services to its core customers.

Early Decades

For the first 60 years of its existence Ecolab was managed by members of the Osborn family. Merritt J. Osborn, founder of the original Economics Laboratory, abandoned his occupation as a salesman and organized a specialty chemical manufacturer in 1923. The company’s first product was a rug cleaner for hotels. Its first key product, however, was Soilax, a chemical detergent for mechanical dishwashers. Economics Laboratory entered the equipment sector in 1928 with the introduction of its first product dispenser; this marked the beginning of the company’s “systems” approach to meeting its customers’ needs. In the 1930s the company began a nationwide expansion. Sales passed $500,000 by the end of the decade, then reached $5.4 million by the end of the 1940s.

In the 1950s the company’s product line grew to include consumer detergents and institutional cleaning specialties for restaurants, food processors, and dairies. This area of business came to represent the cornerstone of the company’s success; between the years 1970 and 1980 the chemical specialties business quadrupled, generating $640 million by the end of the ten-year period. Yet early in its history the company actively pursued customers outside of the consumer and institutional markets.

By purchasing the Magnus Company in the early 1950s, Economics Laboratory gained access to the industrial specialty market. Magnus’s primary business, the selling of cleaning and specialty formulas to numerous industries, including pulp and paper, metalworking, transportation, and petrochemical processing, contributed $12.1 million in sales during 1973.

Meanwhile, international expansion began in the 1950s, with the establishment of the company’s first overseas subsidiary in Sweden in 1956. The company grew large enough by 1957 to become a public corporation. Earnings per share rose higher than an average 15 percent annually for the next 20 years. The mid-1960s marked a high point in the company’s history as earnings grew 16 percent every year. This was exceeded only by a three-year performance between 1974 and 1977, in which profits eventually reached a 19 percent growth rate. By 1973 Economics Laboratory was divided into five divisions. The Magnus division produced items for the industrial market, while the institutional division manufactured dishwasher products and sanitation formulas. In the consumer division, home dishwasher detergent as well as coffee filters, floor cleaners, and laundry aids were produced. The Klenzade division provided specialty detergents to the food processing industry (Klenzade had been acquired in 1961). Overseas sales were controlled by the international division, founded by future chairman and chief executive officer Fred T. Lanners, Jr., who, it was said, paid his first employees out of his own expense account.

Of all the company’s products, detergents for household dishwashers became its bestseller. Second only to Procter & Gamble’s automatic dishwasher detergent in domestic sales, Economics Laboratory’s detergents were preeminent in overseas markets. In the early 1970s, despite the fine company performance, Economics Laboratory attempted to expand its business by offering several new service and equipment packages. One such package offered on-premise laundry services for hospitals and hotels. This business was strengthened by the purchase of three subsidiaries all engaged in the laundry industry. Another package offered sanitation and cleaning service to the food industry. The company’s dishwashing operation service, for example, addressed every aspect of the procedure from selecting the detergent to training the employees.

This trend toward offering services to supplement specialty chemical products represented Economics Laboratory’s new market strategy. According to Fred Lanners, then president of the firm, service activity was indispensable to building markets and the single most important asset to offer customers. Prospective company employees were hired according to whether they had the ability to give an impression of total commitment to the needs of clients. Aside from laundry and sanitation, future plans included offering a comprehensive cleaning service to food establishments and a chemical surveillance service to food manufacturers and handlers. The ideas for the structure and implementation of these service packages emerged from Economics Laboratory’s research and development department. The increasing importance of this department resulted in a staff of 200 by 1973.

Late 1970s and Early 1980s: A Time of Change

In 1978 the company underwent a number of changes as the profit margin dipped to ten percent. Sales of dishwashing detergent had slowed and the expansion of international operations had a temporary adverse effect on profits. Both causes for the reduced profit gains appeared easily correctable and no major reorganization was in order. Yet the disappointing figures happened to occur at the same time new executives filled positions in Economics Laboratory’s management.

E. B. Osborn, son of the founder Merritt J. Osborn, ended his long tenure as chief executive officer in 1978 so that Lanners, the first nonfamily member to achieve such high executive status, could assume the new title. Lanners began at Economics Laboratory in the research and development department, becoming first the chief scientist and then the assistant to the research and development director. At the time of the management shift, E.B. Osborn’s experience at the company covered 50 years. The third-generation descendant, S. Bartlett Osborn, stepped up to the positions of executive vice-president and chief operating officer.

By 1979 business had resumed at an accelerated pace. Sales increased 16 percent and earnings per share rose 16.6 percent over the previous year. International sales now increased at a faster pace than domestic sales. Profits, however, did not substantially increase; the unimpressive 6.6 percent was traceable to the effects of a large hiring campaign. The 130 new employees in marketing represented the firm’s largest sales personnel increase ever in the course of one year.

The hiring of new staff marked only one tactic in management’s strategy for growth. In addition to a larger sales force and continued expansion into foreign markets, Economics Laboratory announced plans to use some of its supply of cash to acquire Apollo Technologies for $71.2 million. This manufacturer of chemicals and pollution-control equipment was purchased in 1979 to improve the company’s industrial market share. As the company’s traditional lines of business in consumer and institutional products neared the limits of market penetration, Economics Laboratory looked for ways to supplement the operations of the Magnus division. Company management hoped that the acquisition of Apollo could offer that supplement.

At first the subsidiary served this function well, and both companies found the relationship mutually beneficial. Apollo gained the financial backing necessary to enter new markets, particularly overseas, and Economics Laboratory broadened its business in the industrial sector. The Apollo subsidiary now held the responsibility for selling all Economics Laboratory’s industrial chemical specialties. In addition to marketing coal additives, catalysts, and dust-control products to the electrical utility and mining industries, Apollo’s sales staff was given the added task of selling lubricants, pulp-processing compounds, and temperature reducers to the metal processing and paper industries.

The major advantage Apollo’s business activities held for its parent company was the ability to raise the industrial service operations to the same level of success as the Economics Laboratory’s institutional services. Prior to the acquisition, Economics Laboratory’s industrial business suffered from an inability to offer comprehensive services to its customers. With the purchase, Economics Laboratory acquired not only a company, but also technical service engineers to supervise product implementation.

Company Perspectives:

Our business is to be a leading innovator, developer and marketer of worldwide services, products and systems, which provide superior value to our customers in meeting their cleaning, sanitizing and maintenance needs, while conserving resources and preserving the quality of the environment and providing a fair profit for our shareholders.

In 1981 Philip T. Perkins assumed the title of president and chief operating officer. The new top executive had joined Economics Laboratory in 1968 as vice-president of the company’s consumer division. As a graduate of Michigan State University, Perkins used his self-created bachelor’s degree in food distribution to assume a number of positions in consumer operations both at Economics Laboratory and other companies. His experience in Economics Laboratory’s consumer division attracted the attention of his colleagues; after three years of employment he was chosen as the company’s most valuable employee. Prior to becoming president and chief operating officer, Perkins held the position of executive vice-president and chief operating officer of the international division.

As a new top executive, Perkins was considered particularly useful in overseeing the international operations. Before assuming his new title he had developed a plan to consolidate the program into a highly efficient network. His plan was credited with helping to maintain the division’s impressive growth rate. Aside from continuing to expand international operations, Perkins planned to increase research and development spending by 25 percent.

The last remaining promotion entitled to Perkins was the advancement to chairman and CEO. Although it was generally assumed that Perkins was being prepared for this final promotion, tradition at the company protected the incumbency of its older chairmen. For this reason, no one expected the 62-year-old Lanners, then chairman and chief executive officer, to be relinquishing his duties in the near future.

Perkins’s promotion, however, never materialized. In a surprise move Economics Laboratory recruited and hired its new top executive from outside the company. This abrupt shift in 1982 was said to have been management’s response to a sharp decline in sales of pollution-control chemicals. In attempting to remedy the situation, operating units were restructured and a new leader was sought with a strong background in chemistry and experience in the industrial sector. The recruitment process singled out Richard C. Ashley, former president of Allied Chemical and a group vice-president of the parent company. Ashley’s degree in chemistry and his successful experience in the chemical field met the company’s qualifications.

Ashley’s talents were expected to be particularly useful in addressing the ailing Apollo subsidiary. Sales, dropping precipitously to $5 million, had been adversely affected by the depressed industrial sector and by revisions in the Clean Air Act. The move to realign operating units represented the first in a series of steps devised to increase Apollo’s business. Soon after assuming his new position, however, Ashley was tragically killed in a car accident.

Mid-to-Late 1980s: Restructuring and ChemLawn Acquisition

Once again Economics Laboratory recruited outside the company for a new chairman and CEO. Early in 1983 Pierson M. “Sandy” Grieve, a 55-year-old executive from the consumer goods company Questor, filled the position. Grieve’s experience in acquisitions and corporate planning, as well as his aggressive and articulate management style, were his most valuable assets.

Just a week after assuming his new title, Grieve displayed his talent for decisive strategic planning; the Apollo subsidiary was to be shut down. The closing of the operation caused a $43 million writeoff but eliminated the possibility of continuing adverse effects on profits. Grieve’s next strategic move involved reorganizing the Magnus division, issuing ultimatums on sales performance for certain foreign markets not up to standards, and hiring 100 new salespeople to market expanded product lines. Although sales had reached $670 million, ranking the company fourth among the top manufacturers of domestic cleaning products, debts over the past years had accumulated, and the institutional market, representing Economics Laboratory’s largest customer base, had shrunk.

Grieve’s decision to close Apollo was just one of the many major decisions required early in his tenure. Only months later, a significant attempt by an industry competitor to replace the nation’s top dishwashing detergents caused Economics Laboratory’s product to slip from second to third place. Lever Brothers, a large consumer product company, released its Sunlight brand detergent and captured a sizeable portion of the market. To prevent any further erosion of the company’s market share, Grieve issued a plan to develop new products internally. Moreover, for the first time in ten years, he increased allocations for product promotion by adding $5 million to the soap products’ advertising budget.

Key Dates:

1923:: Merritt J. Osborn founds Economics Laboratory as a specialty chemical manufacturer.
1957:: Company goes public.
1978:: Fred T. Lanners, Jr., is named CEO.
1979:: Apollo Technologies is acquired.
1982:: Richard C. Ashley is named CEO but soon after is killed in a car accident.
1983:: Pierson M. “Sandy” Grieve is named CEO; Apollo subsidiary is shut down.
1986:: Company changes its name to Ecolab, Inc.
1987:: Company sells its consumer dishwashing detergent unit, and purchases lawncare servicer ChemLawn for $376 million.
1991:: Ecolab and Henkel KGaA form Henkel-Ecolab European joint venture.
1992:: ChemLawn is sold to Service Master L.P. for $103 million.
1994:: Kay Chemical, maker of cleaning and sanitizing products for the fast-food industry, is acquired.
1995:: Allan L. Schuman is named CEO.
1997:: Company acquires Australia-based Gibson Chemical Industries Limited for $130 million; company enters the commercial car wash cleaning products sector.
1998:: GCS Service Inc., provider of repair services for commercial kitchen equipment, is acquired.

A final cause for concern emerged with the aggressive maneuvers of the Molson Companies Ltd., a Canadian brewing concern. In an attempt to capture a share of Economics Laboratory’s U.S. institutional and industrial markets, Molson puschased the Diversey Corporation, a specialty chemical company. Diversey successfully increased Molson’s presence in the United States and in five years the company tripled its sales.

Despite these concerns, Grieve’s strategy to regain certain markets appeared effective. By 1986 $55 million in assets had been sold, including the pulp and paper division, the domestic portion of Magnus, the coffee filter business, and several plants. Other consolidation measures involved the laying off of employees and the implementation of new packaging processes. Long-term debt was reduced by an equivalent of $10 million and the company once again controlled a comfortable amount of cash. With the acquisition of Lystads, an exterminating service, and ICE, a pest control operation, Economics Laboratory attempted to broaden its customer base in its institutional division. Similarly, with the purchase of Foussard Associates, a laundry product and service operation, the company sought to augment growth in its institutional division. In 1986, the company also changed its name to Ecolab Inc.

Although its institutional and industrial customers had always comprised Ecolab’s core markets, the consumer market had also figured into the product mix. In 1987, Grieve would take the company in two directions at the same time in regard to the consumer market. The firm abandoned its battle with Procter & Gamble and other dishwashing detergent makers, selling its dishwashing unit because it simply could no longer compete. About the same time, Ecolab purchased the lawncare servicer ChemLawn for $376 million, a move that would prove to be the biggest disappointment of Grieve’s years at the company’s helm.

Industry analysts contended that Ecolab paid too much to acquire ChemLawn, which set off an unfortunate chain of events. In its initial couple of years under Ecolab, ChemLawn was unable to generate enough revenue to pay back the costs of the acquisition. Ecolab management decided to increase revenues through price increases, hoping its focus on delivering a quality service would mitigate any negative effects. But ChemLawn’s customers turned out to be much more price-sensitive than expected. Grieve later noted that part of this sensitivity stemmed from consumers considering lawncare a discretionary purchase. Moreover, he observed, an increase in environmental awareness in the late 1980s hit the industry just after Ecolab acquired ChemLawn. Overall, the ChemLawn acquisition was eventually regarded as an ill fit. In fact, after losing money under Ecolab, ChemLawn bounced back to profitability under Service Master L.P., which purchased ChemLawn in 1992 for $103 million. With the sale, Ecolab had to take a $263 million writeoff against 1991 earnings.

Late 1980s and Beyond: “Circle the Customer—Circle the Globe”

Ecolab was able to recover from its ChemLawn disaster through a program that Grieve began in the late 1980s during the initial stages of the ChemLawn debacle. This strategy, eventually known as “Circle the Customer—Circle the Globe,” brought the firm to its strong position of the early 21st century. The “Circle the Globe” part of the program emphasized Ecolab’s intention to become a worldwide leader in its core businesses. Initially the firm concentrated on the Asia-Pacific region, moving into the area in the late 1980s—one of the first U.S. firms to do so in a concerted way. Ecolab also significantly increased its presence in Latin America, Africa, and the Middle East, particularly in the early 1990s. Growth was achieved through setting up operations in these regions, or via distribution and licensing agreements.

Ecolab then entered into a joint venture with the German firm Henkel KGaA. Established in mid-1991 and called Henkel-Ecolab, the 50-50 joint venture initially experienced some difficulties as a result of a poor European economy, but in a few short years became the leader in Europe in institutional and hospitality cleaning, sanitizing, and maintenance. The joint venture operated throughout Europe, including Russia and other former republics of the Soviet Union. The agreement between Ecolab and Henkel creating this joint venture also transferred ownership of Henkel’s Latin American and Asian cleaning and sanitizing operations to Ecolab. By 1994, 22 percent of Ecolab’s net sales originated outside the United States.

Ecolab’s “Circle the Customer” strategy was intended to maximize its investment in its core businesses by broadening the range of products and services it offered its customers. By concentrating on the institutional, industrial, and hospitality industries, which it knew best, Ecolab extended its base of core customers in an incremental fashion, most notably with its late 1994 acquisition of Kay Chemical. Ecolab was already a leader in cleaning and sanitizing products for the full-service restaurant industry and added, through this acquisition, the leader in this area for fast-food restaurants—an industry experiencing rapid worldwide growth. A similar expansion occurred through the late 1994 formation of the water care division, which was built through a series of acquisitions and offered water treatment programs to Ecolab’s institutional and industrial customers.

Ecolab enjoyed steady growth in net sales and net income in the early 1990s, culminating in 1994 sales of $1.21 billion and $90.5 million in net income—evidence that Grieve’s focus on the firm’s core businesses and worldwide expansion had begun to pay off. The health of the firm was also evidenced by the smooth transition to new leadership in 1994 and 1995 brought on by Grieve’s retirement after 12 years in charge. Allan L. Schuman—who had been president and chief operating officer—became president and CEO early in 1995. Michael E. Shannon—who had served as vice chairman and chief financial officer—became chairman of the board at the beginning of 1996. The two essentially acted as dual leaders, an arrangement that evolved more by accident than by design, based on Schuman and Shannon’s strong achievements in their previous positions, complementary personalities and skills, and ability to work as a team.

Under the new leadership team, Ecolab continued with its Circle strategy, expanding its product and service offerings and its geographic reach through several late 1990s acquisitions. In February 1996 Ecolab purchased Huntington Laboratories, Inc. of Huntington, Indiana, a supplier of janitorial products to the healthcare and education markets. When added to Ecolab’s janitorial division, Huntington doubled the annual revenues of the division, which was soon renamed the professional products division. Ecolab’s second largest division, food and beverage, was similarly bolstered through the purchase of two makers of cleaning products for the North American food processing industry. In August 1996 the company bought the Monarch division of H.B. Fuller Company, then one year later acquired the Chemidyne Marketing division of Chemidyne Corp.; Monarch had annual sales of $30 million, while the Chemidyne operations generated about $17 million. In October 1997 Ecolab acquired Melbourne, Australia-based Gibson Chemical Industries Limited for about $130 million. A maker and marketer of cleaning and sanitizing products for the Australian and New Zealand institutional, healthcare, and industrial markets, Gibson had fiscal 1996 sales of $122 million. Ecolab hoped that Gibson would provide it with a base from which to gain a larger share of the Asia-Pacific market.

Starting in late 1997, Ecolab’s institutional division rapidly gained, through acquisition, a significant share of the market for commercial car wash cleaning products. This was a logical extension of the division’s dishwasher cleaning product offerings; Schuman, in fact, told Chemical Market Reporter that a car wash is “really nothing but a big dishwasher.” Two key acquisitions in this area were the December 1997 purchase of the specialty chemical business of Grace-Lee Products Incorporated, which had sales of $16 million, and the February 1999 purchase of Blue Coral Systems, a subsidiary of the Pennzoil-Quaker State Company with sales of about $30 million. Ecolab next moved into the repair of commercial kitchen equipment through the July 1998 acquisition of Danbury, Connecticut-based GCS Service Inc., which reported 1997 sales of $48 million. Ecolab intended to turn GCS Service, which became a division of Ecolab, into a national service company for its commercial foodservice customers. Ecolab aimed to grow both its car wash and equipment repair businesses into $100 million-per-year operations by about 2004.

At year-end 1999, Shannon retired. Schuman was elected by the company board to the additional post of chairman to replace him. Ecolab continued to post record results, with revenues exceeding $2 billion for the first time in 1999, while the company also reported its 19th consecutive quarter of double-digit earnings per share increases and paid common stock dividends for the 63rd straight year. Ecolab continued to churn out successful new products, such as a line of water filters for use in ice machines, juice machines, and coffee makers. The company was also investigating potential new areas of early 21st-century growth, such as selling its institutional products to apartment buildings and complexes. By continually evolving and expanding its array of products and services as well as seeking out new customers for its offerings, Ecolab appeared to have hit upon a strategy for unending success.

Principal Subsidiaries

Ecolab S.A. (Argentina); Ecolab Australia Pty Limited; Ecolab Finance Pty Limited (Australia); Ecolab Pty Limited (Australia); Gibson Chemical Industries Limited (Australia); Gibson Chemicals Limited (Australia); Gibson Chemicals (NSW) Pty Limited (Australia); Gibson Chemicals Fiji Pty Limited (Australia); Gibson Chemicals Great Britain Pty Limited (Australia); Intergrain Timber Finishes Pty Limited (Australia); Leonard Chemical Products Pty Limited (Australia); Maxwell Chemicals Pty Limited (Australia); Nippon Thermochemical Pty Limited (Australia; 60%); Puritan/Churchill Chemical Holdings Pty Ltd. (Australia); Vessey Chemicals (Holdings) Pty Limited (Australia); Vessey Chemicals Pty Limited (Australia); Vessey Chemicals (Vic.) Pty Limited (Australia); Ecolab Limited (Bahamas); Ecolab (Barbados) Limited; Kay N.V. (Belgium); Ecolab Quimica Ltda. (Brazil); Ecolab Ltd. (Canada); Ecolab S.A. (Chile); Ecolab Colombia S.A. (Columbia); Ecolab Sociedad Anonima (Costa Rica); Ecolab, S.A. de C.V. (El Salvador); Ecolab S.A. (France); Ecolab GmbH (Germany); Ecolab Export GmbH (Germany); Ecolab, Sociedad Anonima (Guatemala); Quimicas Ecolab, S.A. (Honduras); Ecolab Limited (Hong Kong); P.T. Ecolab Indonesia (80%); Ecolab Export Limited (Ireland); Ecolab Co. (Ireland); Ecolab Limited (Jamaica); Ecolab K.K. (Japan); Ecolab East Africa (Kenya) Limited; Ecolab Korea Ltd.; Ecolab Lebanon S.a.r.l.; Ecolab Sdn. Bhd. (Malaysia); Ecolab S.A. de C.V. (Mexico); Ecolab Holdings Mexico, S.A. de C.V.; Ecolab Morocco; Ecolab Finance N.V. (Netherlands Antilles); Ecolab International B.V. (Netherlands); Ecolab Limited (New Zealand); Ecolab Nicaragua, S.A.; Ecolab S.A. (Panama); Gibson Chemicals (PNG) Pty. Limited (Papua New Guinea); Ecolab Chemicals Ltd. (People’s Republic of China; 85%); Ecolab Philippines, Inc.; Ecolab Pte. Ltd. (Singapore); Klenzade South Africa (Proprietary) Ltd.; Ecolab Ltd. (Taiwan); Ecolab East Africa (Tanzania) Limited; Ecolab Limited (Thailand); Ecolab East Africa (Uganda) Limited; Ecolab Foreign Sales Corp. (U.S. Virgin Islands); Ecolab S.A. (Venezuela; 51%); BCS Sales Inc.; Kay Chemical Company; Kay Chemical International, Inc.; Ecolab Finance (Australia) Inc.; Ecolab Manufacturing Inc.; Ecolab Holdings Inc.; Ecolab Investment Inc.; Ecolab Foundation; Ecolab Leasing Corporation; FastSource Leasing, Inc.; GCS Service, Inc.; Jackson MSC Inc.; Puritan Services Inc.

Principal Divisions

Institutional; Food and Beverage; Kay; Pest Elimination; Textile Care; Professional Products; Water Care; GCS Service.

Principal Competitors

ABM Industries Incorporated; ARAMARK Corporation; Chemed Corporation; Colin Service Systems, Inc.; CPAC, Inc.; Healthcare Services Group, Inc.; IS S-International Service System A/S; Katy Industries, Inc.; National Service Industries, Inc.; Rollins, Inc.; The ServiceMaster Company; SYSCO Corporation; The Tranzonic Companies; Unicco Service Company; Unilever PLC/Unilever N.V.; Unisource Worldwide, Inc.

Ecolab Inc.

views updated May 14 2018

Ecolab Inc.

370 Wabasha Street North
Saint Paul, Minnesota 55102-1390
U.S.A.
Telephone: (651) 293-2233
Toll Free: (800) 352-5326
Fax: (651) 293-2092
Web site: http://www.ecolab.com

Public Company
Founded: 1923 as Evaporato Company
Incorporated: 1924 as Economics Laboratory, Inc.
Employees: 22,400
Sales: $4.53 billion (2005)
Stock Exchanges: New York
Ticker Symbol: ECL
NAIC: 325611 Soap and Other Detergent Manufacturing; 325612 Polish and Other Sanitation Good Manufacturing; 325999 All Other Miscellaneous Chemical Product and Preparation Manufacturing; 333319 Other Commercial and Service Industry Machinery Manufacturing; 333411 Air Purification Equipment Manufacturing; 561710 Exterminating and Pest Control Services; 561720 Janitorial Services; 561790 Other Services to Buildings and Dwellings

Ecolab Inc. is a leading supplier of cleaning, sanitizing, pest elimination, maintenance, and repair products and services for the global hospitality, foodservice, health-care, and industrial markets. The company's institutional division, which is its largest unit, provides cleaners and sanitizers for washing dishes, glassware, utensils, and other kitchen equipment and for laundering needs to restaurants, lodgings, and educational and healthcare institutions. Other Ecolab units offer water and wastewater treatment programs, commercial pest elimination and prevention, kitchen equipment repair services, cleaning and sanitizing products and services for commercial laundries, and vehicle cleaning products and services for commercial car wash operations and corporate-owned transportation fleets. The company has direct operations in nearly 70 countries and reaches another 100 markets through distributors, licensees, and exports. Nearly half of Ecolab's sales are generated outside the United States. Through its "Circle the Customer—Circle the Globe" strategy, Ecolab aims not only to be a worldwide operator but also to offer a full range of products and services to its core customers. The German firm Henkel KGaA, former partner in the Henkel-Ecolab European joint venture, owns a stake in Ecolab of nearly 29 percent.

FOUNDING

For the first 55 years of its existence Ecolab was managed by members of the Osborn family. Merritt J. Osborn, the founder of the company, had worked for 15 years in sales and promotions for various companies around the country before settling in St. Paul, Minnesota, in 1908 with a job at Hamm's Brewing Company. After running an automobile dealership for White Steamer Touring Cars from 1911 until the beginning of World War I, and then selling tractors during the war, Osborn next became a dealer for Ford Motor Company, starting at the end of the war. In 1923, however, Henry Ford, through his financial machinations, forced Osborn out of business at age 44.

Undeterred, Osborn quickly moved on to his next venture. His inspiration came from his many travels as he recalled that hotels often had to take their rooms out of service for up to two weeks when they sent room carpets out to cleaners. Osborn hired a chemist to create a product that could be used to clean carpets in the rooms. He named the product Evaporato and created a St. Paul-based firm called the Evaporato Company. These names were quickly changed, however, to Absorbit and Economics Laboratory, respectively. Economics was meant to convey that the company intended to save customers time, labor, and money; the company's products were to be developed through laboratory research.

Evaporato proved to be only moderately successful, and the $5,000 Osborn had used to start up the business was soon dissipated. In 1924 the founder incorporated the company and soon rounded up $10,000 from outside investors. This infusion kept Economics Laboratory afloat long enough for Osborn to find a better-selling product. Leonard H. Englund, a University of Minnesota chemistry student, had developed a simple but effective cleaning compound, and Osborn acquired it and named it Soilax, combining the words soil and lax, or loosen. He marketed it as detergent for automatic dishwashers, providing Economics Laboratory with its first key product and its foundation for future growth. Core customers were comprised of hotels and restaurants.

Economics Laboratory entered the equipment sector in 1928 with the introduction of its first product dispenser, one that injected Soilax into a dishwashing machine; this marked the beginning of the company's "systems" approach to meeting its customers' needs. The late 1920s also saw the company open its first factory, which was sited in Chicago.

In 1933, during the depths of the Great Depression, Economics Laboratory nearly went under and was saved only through extraordinary measures, such as employees taking a pay cut and forfeiting a month's salary. After two years in the red, the company returned to profitability in 1934, when it netted $98.19. At the same time, Economics Laboratory embarked on a nationwide expansion of its sales force and by 1937 had salespeople in 35 cities across the country.

In the meantime, the company contended with a new challenge in 1934 when Calgon Corporation developed a superior automatic dishwashing detergent called Calgonite, which incorporated a water-conditioning chemical called sodium hexametaphosphate that significantly reduced the filmy deposits left by other detergents. Osborn managed to persuade Calgon to make Economics Laboratory the exclusive distributor of Calgonite, and the new product was soon outselling Soilax three to one. In 1936, however, scientists at Economics Laboratory incorporated a new chemical, sodium tetraphosphate, into an improved detergent dubbed Super Soilax. The company terminated distribution of Calgonite to concentrate on its new product. Calgon subsequently filed a patent lawsuit against Economics Laboratory in regard to Super Soilax, a move that ultimately failed.

In 1937 Economics Laboratory paid its first dividend, a $1 per share payout. By the end of the decade, sales had passed $500,000, and the company had purchased and begun operating a second plant in Newark, New Jersey. Sales reached the million dollar mark for the first time in 1942, but by that time Economics Laboratory had shifted its focus to support the nation's war effort. The company entered into a contract with the U.S. government to produce MikroKlene, a hand dishwashing compound used as a germicidal disinfectant that had been developed by Economics Laboratory in 1935. MikroKlene kept the company going during the four years of the war.

COMPANY PERSPECTIVES

A straightforward and clearly defined strategy guides Ecolab's daily actions. Referred to as Circle the Customer—Circle the Globe, this describes Ecolab's corporate strategy to continually expand the range of related products and services it offers to existing customers, no matter where they do business around the world. Proven successful for more than a decade, Circle the Customer—Circle the Globe has guided Ecolab's associates and its business development across complementary business lines to create a range of additional products and service solutions for its customers. This has been—and remains today—key to Ecolab's continued success and growth.

POST-WAR GROWTH

Returning its focus to Soilax and related products after the end of the war, Economics Laboratory saw its sales reach $5.4 million by the end of the 1940s. The post-war period of growth was aided by new product introductions, including the 1946 introduction of the first electronic dishwashing dispenser and the 1948 development of the first rinse additive, a product that caused water to roll off dishes in sheets, thereby speeding up the drying process in automatic dishwashers. Also during this period, Economics Laboratory more vigorously targeted the consumer automatic dishwasher market by introducing a version of Super Soilax under the name Electrosol, which became an immediate hit.

In 1950 Osborn stepped down from his position as company president while remaining chairman. Taking over the presidency was one of the founder's sons, Edward Bartley Osborn. In 1953 the company opened a plant in Santa Clara, California, its third factory, operating alongside the existing facilities in Chicago and Lyndhurst, New Jersey. On the institutional side, Economics Laboratory expanded its operations to include specialty cleaning products for restaurants, food processors, and dairies. This area of business came to represent the cornerstone of the company's success; between the years 1970 and 1980 the chemical specialties business quadrupled, generating $640 million by the end of the ten-year period.

Meanwhile, international expansion began in the 1950s, with the establishment of the company's first overseas subsidiary in Sweden in 1956. The company grew large enough by 1957, when annual sales reached $28 million, to become a public corporation; Economics Laboratory went public through an offering of 100,000 shares at $15 per share. Earnings per share rose higher than an average 15 percent annually for the next 20 years. The mid-1960s marked a high point in the company's history as earnings grew 16 percent every year. This was exceeded only by a three-year performance between 1974 and 1977, in which profits eventually reached a 19 percent growth rate.

In the meantime, by purchasing Magnus Chemical Company Inc. in 1964, Economics Laboratory gained access to the industrial specialty market. Magnus's primary business, the selling of cleaning and specialty formulas to numerous industries, including pulp and paper, metalworking, transportation, and petrochemical processing, contributed $12.1 million in sales during 1973. By that year, Economics Laboratory was divided into five divisions. The Magnus division produced items for the industrial market, while the institutional division manufactured dishwasher products and sanitation formulas. In the consumer division, home dishwasher detergent as well as coffee filters, floor cleaners, and laundry aids were produced. The Klenzade division provided specialty detergents to the food processing industry (Klenzade Products, Inc., had been acquired in 1961). Overseas sales were controlled by the international division, founded by future Chairman and Chief Executive Officer Fred T. Lanners, Jr., who, it was said, paid his first employees out of his own expense account.

KEY DATES

1923:: Merritt J. Osborn founds the Evaporato Company, maker of a carpet cleaner; company name is changed to Economics Laboratory.
1924:: Company is incorporated; Soilax detergent for automatic dishwashers is introduced.
1948:: Economics Laboratory introduces the first dishwasher rinse additive.
1957:: Company goes public.
1961:: Economics Laboratory purchases Klenzade Products, Inc.
1964:: Magnus Chemical Company Inc. is acquired.
1978:: Fred T. Lanners, Jr., becomes the first non-Osborn to head the company.
1979:: Apollo Technologies, Inc., is acquired.
1983:: Apollo subsidiary is shut down.
1986:: Company changes its name to Ecolab Inc.
1987:: Company sells its consumer products division and purchases lawncare servicer ChemLawn for $376 million.
1991:: Ecolab and Henkel KGaA form Henkel-Ecolab European joint venture.
1992:: ChemLawn is sold to Service Master L.P. for $103 million.
1994:: Kay Chemical Company, maker of cleaning and sanitizing products for the fast-food industry, is acquired.
1997:: Company acquires Australia-based Gibson Chemical Industries Limited for $130 million; company enters the commercial car wash cleaning products sector.
1998:: GCS Service, Inc., provider of repair services for commercial kitchen equipment, is acquired.
2001:: Ecolab acquires full control of the Henkel-Ecolab joint venture for $433 million.

Of all the company's products, detergents for household dishwashers became its bestseller. Second only to Procter & Gamble Company's automatic dishwasher detergent in domestic sales, Economics Laboratory's detergents were preeminent in overseas markets. In the early 1970s, despite the fine company performance, Economics Laboratory attempted to expand its business by offering several new service and equipment packages. One such package offered on-premise laundry services for hospitals and hotels. This business was strengthened by the purchase of three subsidiaries all engaged in the laundry industry. Another package offered sanitation and cleaning service to the food industry. The company's dishwashing operation service, for example, addressed every aspect of the procedure from selecting the detergent to training the employees.

This trend toward offering services to supplement specialty chemical products represented Economics Laboratory's new market strategy. According to Fred Lanners, then president of the firm, service activity was indispensable to building markets and the single most important asset to offer customers. Prospective company employees were hired according to whether they had the ability to give an impression of total commitment to the needs of clients. Aside from laundry and sanitation, future plans included offering a comprehensive cleaning service to food establishments and a chemical surveillance service to food manufacturers and handlers. The ideas for the structure and implementation of these service packages emerged from Economics Laboratory's research and development department. The increasing importance of this department resulted in a staff of 200 by 1973.

A TIME OF CHANGE

In 1978 the company underwent a number of changes as the profit margin dipped to 10 percent. Sales of dishwashing detergent had slowed and the expansion of international operations had a temporary adverse effect on profits. Both causes for the reduced profit gains appeared easily correctable and no major reorganization was in order. Yet the disappointing figures happened to occur at the same time new executives filled positions in Economics Laboratory's management.

E. B. Osborn ended his long tenure as chief executive officer in 1978 so that Lanners, the first nonfamily member to achieve such high executive status, could assume the new title. Lanners began at Economics Laboratory in the research and development department, becoming first the chief scientist and then the assistant to the research and development director. At the time of the management shift, E. B. Osborn's experience at the company covered 50 years. The third-generation descendant, S. Bartlett Osborn, stepped up to the positions of executive vice-president and chief operating officer.

By 1979 business had resumed at an accelerated pace. Sales increased 16 percent and earnings per share rose 16.6 percent over the previous year. International sales increased at a faster pace than domestic sales. Profits, however, did not substantially increase; the unimpressive 6.6 percent was traceable to the effects of a large hiring campaign. The 130 new employees in marketing represented the firm's largest sales personnel increase ever in the course of one year.

The hiring of new staff marked only one tactic in management's strategy for growth. In addition to a larger sales force and continued expansion into foreign markets, Economics Laboratory announced plans to use some of its supply of cash to acquire Apollo Technologies, Inc., for $71.2 million. This manufacturer of chemicals and pollution-control equipment was purchased in February 1980 to improve the company's industrial market share. As the company's traditional lines of business in consumer and institutional products neared the limits of market penetration, Economics Laboratory looked for ways to supplement the operations of the Magnus division. Company management hoped that the acquisition of Apollo could offer that supplement.

At first the subsidiary served this function well, and both companies found the relationship mutually beneficial. Apollo gained the financial backing necessary to enter new markets, particularly overseas, and Economics Laboratory broadened its business in the industrial sector. The Apollo subsidiary held the responsibility for selling all Economics Laboratory's industrial chemical specialties. In addition to marketing coal additives, catalysts, and dust-control products to the electrical utility and mining industries, Apollo's sales staff was given the added task of selling lubricants, pulp-processing compounds, and temperature reducers to the metal processing and paper industries.

The major advantage Apollo's business activities held for its parent company was the ability to raise the industrial service operations to the same level of success as the Economics Laboratory's institutional services. Prior to the acquisition, Economics Laboratory's industrial business suffered from an inability to offer comprehensive services to its customers. With the purchase, Economics Laboratory acquired not only a company, but also technical service engineers to supervise product implementation.

In 1981 Philip T. Perkins assumed the title of president and chief operating officer. The new top executive had joined Economics Laboratory in 1968 as vice-president of the company's consumer division. As a graduate of Michigan State University, Perkins used his self-created bachelor's degree in food distribution to assume a number of positions in consumer operations both at Economics Laboratory and other companies. His experience in Economics Laboratory's consumer division attracted the attention of his colleagues; after three years of employment he was chosen as the company's most valuable employee. Prior to becoming president and chief operating officer, Perkins held the position of executive vice-president and chief operating officer of the international division.

As a new top executive, Perkins was considered particularly useful in overseeing the international operations. Before assuming his new title he had developed a plan to consolidate the program into a highly efficient network. His plan was credited with helping to maintain the division's impressive growth rate. Aside from continuing to expand international operations, Perkins planned to increase research and development spending by 25 percent.

The last remaining promotion entitled to Perkins was the advancement to chairman and CEO. Although it was generally assumed that Perkins was being prepared for this final promotion, tradition at the company protected the incumbency of its older chairmen. For this reason, no one expected the 62-year-old Lanners, then chairman and chief executive officer, to be relinquishing his duties in the near future.

Perkins's promotion, however, never materialized. In a surprise move Economics Laboratory recruited and hired its new top executive from outside the company. This abrupt shift in 1982 was said to have been management's response to a sharp decline in sales of pollution-control chemicals. In attempting to remedy the situation, operating units were restructured and a new leader was sought with a strong background in chemistry and experience in the industrial sector. The recruitment process singled out Richard C. Ashley, former president of Allied Chemical and a group vice-president of the parent company. Ashley's degree in chemistry and his successful experience in the chemical field met the company's qualifications.

Ashley's talents were expected to be particularly useful in addressing the ailing Apollo subsidiary. Sales, dropping precipitously to $5 million, had been adversely affected by the depressed industrial sector and by revisions in the Clean Air Act. The move to realign operating units represented the first in a series of steps devised to increase Apollo's business. Soon after assuming his new position, however, Ashley was tragically killed in a car accident.

RESTRUCTURING AND CHEMLAWN ACQUISITION

Once again Economics Laboratory recruited outside the company for a new chairman and CEO. Early in 1983 Pierson M. "Sandy" Grieve, a 55-year-old executive from the consumer goods company Questor, filled the position. Grieve's experience in acquisitions and corporate planning, as well as his aggressive and articulate management style, were his most valuable assets.

Just a week after assuming his new title, Grieve displayed his talent for decisive strategic planning; the Apollo subsidiary was to be shut down. The closing of the operation caused a $43 million writeoff but eliminated the possibility of continuing adverse effects on profits. Grieve's next strategic move involved reorganizing the Magnus division, issuing ultimatums on sales performance for certain foreign markets not up to standards, and hiring 100 new salespeople to market expanded product lines. Although sales had reached $670 million, ranking the company fourth among the top manufacturers of domestic cleaning products, debts over the past years had accumulated, and the institutional market, representing Economics Laboratory's largest customer base, had shrunk.

Grieve's decision to close Apollo was just one of the many major decisions required early in his tenure. Only months later, a significant attempt by an industry competitor to replace the nation's top dishwashing detergents caused Economics Laboratory's product to slip from second to third place. Lever Brothers Company, a large consumer products company, released its Sunlight brand detergent and captured a sizeable portion of the market. To prevent any further erosion of the company's market share, Grieve issued a plan to develop new products internally. Moreover, for the first time in ten years, he increased allocations for product promotion by adding $5 million to the soap products' advertising budget.

A final cause for concern emerged with the aggressive maneuvers of the Molson Companies Ltd., a Canadian brewing concern. In an attempt to capture a share of Economics Laboratory's U.S. institutional and industrial markets, Molson purchased the Diversey Corporation, a specialty chemical company. Diversey successfully increased Molson's presence in the United States and in five years the company tripled its sales.

Despite these concerns, Grieve's strategy to regain certain markets appeared effective. By 1986 $55 million in assets had been sold, including the pulp and paper division, the domestic portion of Magnus, the coffee filter business, and several plants. Other consolidation measures involved the laying off of employees and the implementation of new packaging processes. Long-term debt was reduced by an equivalent of $10 million and the company once again controlled a comfortable amount of cash. With the acquisition of Lystads, Inc., an exterminating service, and ICE, Inc., a pest control operation, Economics Laboratory attempted to broaden its customer base in its institutional division. Similarly, with the purchase of Foussard Associates, Inc., a laundry product and service operation, the company sought to augment growth in its institutional division. Economics Laboratory also gained the foundation of its janitorial division through the 1986 purchase of the Airkem Professional Products Division of Airwick Industries, gaining a leading supplier of floor maintenance and odor controls products for institutional housekeeping, particularly in the healthcare sector. Also in 1986 the company changed its name to Ecolab Inc.

Although its institutional and industrial customers had always comprised Ecolab's core markets, the consumer market had also figured into the product mix. In 1987 Grieve would take the company in two directions at the same time in regard to the consumer market. The firm abandoned its battle with Procter & Gamble and other dishwashing detergent makers, selling its consumer products division to Joh. A. Benckiser G.m.b.H. for $240 million because it simply could no longer compete. About the same time, Ecolab purchased the lawncare servicer ChemLawn for $376 million, a move that would prove to be the biggest disappointment of Grieve's years at the company's helm.

Industry analysts contended that Ecolab paid too much to acquire ChemLawn, which set off an unfortunate chain of events. In its initial couple of years under Ecolab, ChemLawn was unable to generate enough revenue to pay back the costs of the acquisition. Ecolab management decided to increase revenues through price increases, hoping its focus on delivering a quality service would mitigate any negative effects. However, ChemLawn's customers turned out to be much more price-sensitive than expected. Grieve later noted that part of this sensitivity stemmed from consumers considering lawncare a discretionary purchase. Moreover, he observed, an increase in environmental awareness in the late 1980s hit the industry just after Ecolab acquired ChemLawn. Overall, the ChemLawn acquisition was eventually regarded as an ill fit. In fact, after losing money under Ecolab, ChemLawn bounced back to profitability under Service Master L.P., which purchased ChemLawn in 1992 for $107 million. With the sale, Ecolab had to take a $263 million writeoff against 1991 earnings.

"CIRCLE THE CUSTOMER—CIRCLE THE GLOBE"

Ecolab was able to recover from its ChemLawn disaster through a program that Grieve began in the late 1980s during the initial stages of the ChemLawn debacle. This strategy, eventually known as "Circle the Customer—Circle the Globe," brought the firm to its strong position of the early 21st century. The "Circle the Globe" part of the program emphasized Ecolab's intention to become a worldwide leader in its core businesses. Initially the firm concentrated on the Asia-Pacific region, moving into the area in the late 1980s, one of the first U.S. firms to do so in a concerted way. Ecolab also significantly increased its presence in Latin America, Africa, and the Middle East, particularly in the early 1990s. Growth was achieved through newly established operations in these regions, or via distribution and licensing agreements.

Ecolab then entered into a joint venture with the German firm Henkel KGaA. Established in mid-1991 and called Henkel-Ecolab, the 50-50 joint venture initially experienced some difficulties as a result of a poor European economy, but in a few short years became the leader in Europe in institutional and hospitality cleaning, sanitizing, and maintenance. The joint venture operated throughout Europe, including Russia and other former republics of the Soviet Union. The agreement between Ecolab and Henkel creating this joint venture also transferred ownership of Henkel's Latin American and Asian cleaning and sanitizing operations to Ecolab. By 1994, 22 percent of Ecolab's net sales originated outside the United States.

Ecolab's "Circle the Customer" strategy was intended to maximize its investment in its core businesses by broadening the range of products and services it offered its customers. By concentrating on the institutional, industrial, and hospitality industries, which it knew best, Ecolab extended its base of core customers in an incremental fashion, most notably with its late 1994 acquisition of Kay Chemical Company of Greensboro, North Carolina. Ecolab was already a leader in cleaning and sanitizing products for the full-service restaurant industry and added, through this acquisition, the leader in this area for fast-food restaurants, an industry experiencing rapid worldwide growth. A similar expansion occurred through the late 1994 formation of the water care division, which was built through a series of acquisitions and offered water treatment programs to Ecolab's institutional and industrial customers.

Ecolab enjoyed steady growth in net sales and net income in the early 1990s, culminating in 1994 sales of $1.21 billion and $90.5 million in net income, evidence that Grieve's focus on the firm's core businesses and worldwide expansion had begun to pay off. The health of the firm was also evidenced by the smooth transition to new leadership in 1994 and 1995 brought on by Grieve's retirement after 12 years in charge. Allan L. Schuman, who had been president and chief operating officer, became president and CEO early in 1995. Michael E. Shannon, who had served as vice-chairman and chief financial officer, became chairman of the board at the beginning of 1996. The two essentially acted as dual leaders, an arrangement that evolved more by accident than by design, based on Schuman and Shannon's strong achievements in their previous positions, complementary personalities and skills, and ability to work as a team.

Under the new leadership team, Ecolab continued with its Circle strategy, expanding its product and service offerings and its geographic reach through several late 1990s acquisitions. In February 1996 Ecolab purchased Huntington Laboratories, Inc., of Huntington, Indiana, a supplier of janitorial products to the healthcare and education markets. When added to Ecolab's janitorial division, Huntington doubled the annual revenues of the division, which was soon renamed the professional products division. Ecolab's second largest division, food and beverage (formerly Klenzade), was similarly bolstered through the purchase of two makers of cleaning products for the North American food processing industry. In August 1996 the company bought the Monarch division of H.B. Fuller Company, then one year later acquired the Chemidyne Marketing division of Chemidyne Corp.; Monarch had annual sales of $30 million, while the Chemidyne operations generated about $17 million. In October 1997 Ecolab acquired Melbourne, Australia-based Gibson Chemical Industries Limited for about $130 million. A maker and marketer of cleaning and sanitizing products for the Australian and New Zealand institutional, healthcare, and industrial markets, Gibson had 1996 sales of $122 million. Ecolab hoped that Gibson would provide it with a base from which to gain a larger share of the Asia-Pacific market.

Starting in late 1997, Ecolab's institutional division rapidly gained, through acquisition, a significant share of the market for commercial car wash cleaning products. This was a logical extension of the division's dishwasher cleaning product offerings; Schuman, in fact, told Chemical Market Reporter that a car wash is "really nothing but a big dishwasher." Two key acquisitions in this area were the December 1997 purchase of the specialty chemical business of Grace-Lee Products Incorporated, which had sales of $16 million, and the February 1999 purchase of Blue Coral Systems, a subsidiary of the Pennzoil-Quaker State Company with sales of about $30 million. Ecolab next moved into the repair of commercial kitchen equipment through the July 1998 acquisition of Danbury, Connecticut-based GCS Service, Inc., which reported 1997 sales of $48 million. Ecolab intended to turn GCS Service, which became a division of Ecolab, into a national service company for its commercial foodservice customers. Ecolab aimed to grow both its car wash and equipment repair businesses into $100 million-per-year operations by about 2004.

At year-end 1999, Shannon retired. Schuman was elected by the company board to the additional post of chairman to replace him. Ecolab continued to post record results, with revenues exceeding $2 billion for the first time in 1999, while the company also reported its 19th consecutive quarter of double-digit earnings per share increases and paid common stock dividends for the 63rd straight year. Ecolab continued to churn out successful new products, such as a line of water filters for use in ice machines, juice machines, and coffee makers. The company was also investigating potential new areas of early 21st-century growth, such as selling its institutional products to apartment buildings and complexes.

TAKING FULL CONTROL IN EUROPE

In 2000 Ecolab completed several smaller acquisitions and also sold its Jackson dish-machine manufacturing business for $36 million to Enodis Corp. The biggest deal of the early 2000s, however, and the firm's largest acquisition yet, came the following year when Ecolab purchased the 50 percent of the Henkel-Ecolab owned by Henkel. Taking full control of the joint venture, which had operations in more than two dozen European countries and annual sales of approximately $869 million, cost Ecolab about $433 million in cash and stock. Following completion of the deal in November 2001, Henkel's stake in Ecolab increased from a little more than 25 percent to more than 28 percent. During 2002 Ecolab recorded charges of $51.8 million to restructure its European operations, including the closure of several facilities and a workforce reduction of approximately 450 jobs.

Also in 2002 Ecolab further bolstered its European operations by expanding its pest elimination business to that continent. This move was jump-started through the September 2002 acquisition of Terminix Ltd. from ServiceMaster Co. Based in London with annual revenues of $65 million, Terminix provided commercial pest elimination services throughout the United Kingdom and the Republic of Ireland. Ecolab in 2002 also launched EcoSure Food Safety Management, a business service offering evaluations of food safety procedures in foodservice and hospitality facilities.

At the beginning of 2004 Ecolab elected to separate out from its professional products division those operations serving the healthcare market, to form the new healthcare division. The professional products division thus began focusing exclusively on janitorial products and services for the retailing, building services, and industrial markets. The company further bolstered its European pest elimination business in January 2004 by acquiring Nigiko, a Paris-based firm providing pest services throughout France and generating annual sales of $55 million. In July of that year, Schuman stepped down from his post as CEO, having managed a tripling of the firm's revenue during his tenure, to $3.78 billion, and a fivefold increase in its market capitalization, to $7 billion. Taking over as CEO was Douglas M. Baker, who had joined Ecolab in 1989 as marketing director in its institutional division and had served as president and COO since August 2002.

Under Baker's leadership, Ecolab continued to roll out new products and pursue smaller, strategic acquisitions. In the former category, the company in Baker's first year launched new lines of environmentally friendly cleaners, drain sanitizers, and surgical hand antiseptics. On the deal-making front, Ecolab expanded its water care services division in January 2005 by purchasing Kansas-based Midland Research Laboratories Inc., a provider of water treatment products, process chemicals, and services serving the commercial, institutional, industrial, food, and sugar-processing markets. That year, Ecolab also opened a new research, development, and engineering facility in Eagan, Minnesota. The company enjoyed yet another strong year in 2005: $4.53 billion in revenues, an 8 percent increase over 2004, and net income of $319.5 million, up 13 percent. Ecolab paid a common stock dividend for the 69th consecutive year. In May 2006 Schuman retired after 49 years at Ecolab, with Baker adding the chairmanship to his duties. By continually evolving and expanding its array of products and services as well as seeking out new customers for its offerings, Ecolab appeared to have hit upon a strategy for unending success.

Updated, David E. Salamie

PRINCIPAL SUBSIDIARIES

Ecolab S.A. (Argentina); Ecolab Australia Pty Limited; Ecolab Finance Pty Limited (Australia); Ecolab Pty Limited (Australia); Ecolab Water Care Services Pty Limited (Australia); Gibson Chemical Industries Pty Ltd. (Australia); Robust Chemicals Pty Limited (Australia); Vessey Chemicals Pty Limited (Australia; 95%); Ecolab Ges.m.b.H. (Austria); Ecolab B.V.B.A./S.P.R.L. (Belgium); Kay N.V. (Belgium); Ecolab Emprecendimentos E Participacoes Ltda. (Brazil); Ecolab Quimica Ltda. (Brazil); Ecolab EOOD (Bulgaria); Ecolab Co. (Canada); Ecolab S.A. (Chile); Ecolab Colombia S.A. (Columbia); Ecolab, Sociedad Anonima (Costa Rica); Ecolab d.o.o. (Croatia); Ecolab Hygiene s.r.o. (Czech Republic); Ecolab ApS (Denmark); Ecolab, S.A. de C.V. (El Salvador); Oy Ecolab AB (Finland); Ecolab SAS (France); Ecolab SNC (France); Ecolab Deutsch-land GmbH (Germany); Ecolab Technologies GmbH (Germany); Ecolab A.E.B.E. (Greece); Ecolab, Sociedad Anonima (Guatemala); Quimicas Ecolab, S.A. (Honduras); Ecolab Limited (Hong Kong); Ecolab Hygiene Kft. (Hungary); P.T. Ecolab Indonesia; Ecolab Co. (Ireland); Ecolab Limited (Ireland); Ecolab JVZ Limited (Israel); Ecolab Holding Italy Srl; Ecolab Srl (Italy); Ecolab K.K. (Japan); Ecolab East Africa (Kenya) Limited; Ecolab Korea Ltd.; Ecolab SIA (Latvia); Ecolab Sdn Bhd (Malaysia); Ecolab S. de R.L. de C.V. (Mexico); Ecolab Holdings Mexico, S.A. de C.V.; Ecolab Maroc S. A. (Morocco); Ecolab (Proprietary) Limited (Namibia); Ecolab International B.V. (Netherlands); Ecolab B.V. (Netherlands); Ecolab Limited (New Zealand); Ecolab Nicaragua, S.A.; Ecolab A/S (Norway); Ecolab S.A. (Panama); Ecolab Chemicals Ltd. (People's Republic of China); Ecolab Perú Holdings S.R.L.; Ecolab Philippines Inc.; Ecolab Sp.z. o.o. (Poland); Ecolab S.R.L. (Romania); ZAO Ecolab (Russia); Ecolab Hygiene d.o.o. (Serbia/Montenegro); Ecolab Pte. Ltd. (Singapore); Ecolab s.r.o. (Slovakia); Ecolab d.o.o. (Slovenia); Ecolab (Proprietary) Ltd. (South Africa); Ecolab Hispano-Portuguesa, S.A. (Spain); Ecolab AB (Sweden); Ecolab GmbH (Switzerland); Ecolab Ltd. (Taiwan); Ecolab East Africa (Tanzania) Limited; Ecolab Ltd. (Thailand); Ecolab Temizleme Sistemleri A.S. (Turkey); Ecolab East Africa (Uganda) Limited; Ecolab LLC (Ukraine); Ecolab Limited (U.K.); Peter Cox Limited (U.K.); Ecolab S.A. (Uruguay); Ecolab S.A. (Venezuela; 74%); Associated Chemicals & Services, Inc.; Daydots Inc.; Ecolab Manufacturing Inc.; Ecolab Marketing LLC; GCS Service, Inc.; Ecolab Foundation; Kay Chemical Company; Kay Chemical International, Inc.; Midland Research Laboratories, Inc.; ProForce Inc.; Wabasha Leasing LLC.

PRINCIPAL DIVISIONS

Institutional; Kay; Food & Beverage; Textile Care; Professional Products; Healthcare; Vehicle Care; Water Care Services; Pest Elimination; GCS Service.

PRINCIPAL COMPETITORS

ISS A/S; JohnsonDiversey, Inc.; Rentokil Initial plc; ABM Industries Incorporated; Rollins, Inc.; Acuity Brands, Inc.

Ecolab Inc.

views updated Jun 08 2018

Ecolab Inc.

370 Wabasha Street
Ecolab Center
Saint Paul, Minnesota 55102-1390
U.S.A.
(612) 293-2233
Fax: (612) 293-2814

Public Company
Incorporated: 1924 as Economics Laboratory
Employees: 8,206
Sales: $1.21 billion
Stock Exchanges: New York Pacific Boston Cincinnati
Midwest Philadelphia
SICs: 2841 Soap &Other Detergents; 2842 Polishes & Sanitation Goods; 7342 Disinfecting & Pest Control Services

Ecolab Inc. is the world’s leading supplier of cleaning, sanitizing, and maintenance products and services for the institutional, hospitality, and industrial markets. The company operates in virtually every country in the world either directly, or through distribution and licensing agreements, or via its Henkel-Ecolab joint venture with the German firm Henkel KGaA. Ecolab aims not only to be a worldwide operator but also to offer a full range of products and services to its core customers.

For the first 60 years of its existence Ecolab was managed by members of the Osborn family. Merrit J. Osborn, founder of the original Economics Laboratory, abandoned his occupation as a Michigan salesman and organized a specialty chemical manufacturer in 1924. The company’s first product was a rug cleaner for hotels. While the Osborns no longer held management positions at Ecolab in the mid-1990s, many of the company’s products remain directed toward institutional markets.

In the 1950s the company’s product line grew to include consumer detergents and institutional cleaning specialties for restaurants, food processors, and dairies. This area of business came to represent the cornerstone of the company’s success; between the years 1970 and 1980 the chemical specialties business quadrupled, generating $640 million by the end of the ten-year period. Yet early in its history the company actively pursued customers outside of the consumer and institutional markets.

By purchasing the Magnus Company in the early 1950s, Economics Laboratory gained access to the industrial specialty market. Magnus’s primary business, the selling of cleaning and specialty formulas to numerous industries, including pulp and paper, metalworking, transportation, and petrochemical processing, contributed $12.1 million in sales during 1973.

The company grew large enough by 1957 to become a public corporation. Earnings per share rose higher than an average 15 percent annually for the next 20 years. The mid-1960s marked a high point in the company’s history as earnings grew 16 percent every year. This was exceeded only by a three-year performance between 1974 and 1977, in which profits eventually reached a 19 percent growth rate. By 1973 Economics Laboratory was divided into five divisions. The Magnus division produced items for the industrial market, while the institutional division manufactured dishwasher products and sanitation formulas. In the consumer division, home dishwasher detergent as well as coffee filters, floor cleaners, and laundry aids were produced. The Klenzade division provided specialty detergents to the food processing industry. Overseas sales were controlled by the international division, founded by future chairman and chief executive officer Fred T. Lanners, Jr. who, it was said, paid his first employees out of his own expense account.

Of all the company’s products, detergents for household dishwashers became its bestseller. Second only to Procter & Gamble’s automatic dishwasher detergent in domestic sales, Economics Laboratory’s detergents were preeminent in overseas markets. In the early 1970s, despite the fine company performance, Economics Laboratory attempted to expand its business by offering several new service and equipment packages. One such package offered on-premise laundry services for hospitals and hotels. This business was strengthened by the purchase of three subsidiaries all engaged in the laundry industry. Another package offered sanitation and cleaning service to the food industry. The company’s dishwashing operation service, for example, addressed every aspect of the procedure from selecting the detergent to training the employees.

This trend toward offering services to supplement specialty chemical products represented Economics Laboratory’s new market strategy. According to Fred Lanners, then president of the firm, service activity was indispensable to building markets and the single most important asset to offer customers. Prospective company employees were hired according to whether they had the ability to give an impression of total commitment to the needs of clients. Aside from laundry and sanitation, future plans included offering a comprehensive cleaning service to food establishments and a chemical surveillance service to food manufacturers and handlers. The ideas for the structure and implementation of these service packages emerged from Economics Laboratory’s research and development department. The increasing importance of this department resulted in a staff of 200 by 1973.

In 1978 the company underwent a number of changes as the profit margin dipped to ten percent. Sales of dishwashing detergent had slowed and the expansion of international operations had a temporary adverse effect on profits. Both causes for the reduced profit gains appeared easily correctable and no major reorganization was in order. Yet the disappointing figures happened to occur at the same time new executives filled positions in Economics Laboratory’s management.

E. B. Osborn, son of the founder Merrit J. Osborn, ended his long tenure as chief executive officer so that Lanners, the first nonfamily member to achieve such high executive status, could assume the new title. Lanners began at Economics Laboratory in the research and development department, becoming first the chief scientist and then the assistant to the research and development director. At the time of the management shift, E. B. Osborn’s experience at the company covered 50 years. The third-generation descendant, S. Bartlett Osborn, stepped up to the positions of executive vice-president and chief operating officer.

By 1979 business had resumed at an accelerated pace. Sales increased 16 percent and earnings per share rose 16.6 percent over the previous year. International sales now increased at a faster pace than domestic sales. Profits, however, did not substantially increase; the unimpressive 6.6 percent was traceable to the effects of a large hiring campaign. The 130 new employees in marketing represented the firm’s largest sales personnel increase ever in the course of one year.

The hiring of new staff marked only one tactic in management’s strategy for growth. In addition to a larger sales force and continued expansion into foreign markets, Economics Laboratory announced plans to use some of its supply of cash to acquire Apollo Technologies for $71.2 million. This manufacturer of chemicals and pollution-control equipment was purchased to improve the company’s industrial market share. As the company’s traditional lines of business in consumer and institutional products neared the limits of market penetration, Economics Laboratory looked for ways to supplement the operations of the Magnus division. Company management hoped that the acquisition of Apollo could offer that supplement.

At first the subsidiary served this function well, and both companies found the relationship mutually beneficial. Apollo gained the financial backing necessary to enter new markets, particularly overseas, and Economics Laboratory broadened its business in the industrial sector. The Apollo subsidiary now held the responsibility for selling all Economics Laboratory’s industrial chemical specialties. In addition to marketing coal additives, catalysts, and dust-control products to the electrical utility and mining industries, Apollo’s sales staff was given the added task of selling lubricants, pulp-processing compounds, and temperature reducers to the metal processing and paper industries.

The major advantage Apollo’s business activities held for its parent company was the ability to raise the industrial service operations to the same level of success as the Economics Laboratory’s institutional services. Prior to the acquisition, Economics Laboratory’s industrial business suffered from an inability to offer comprehensive services to its customers. With the purchase, Economics Laboratory acquired not only a company, but also technical service engineers to supervise product implementation.

In 1981 Philip T. Perkins assumed the title of president and chief operating officer. The new top executive had joined Economics Laboratory in 1968 as vice-president of the company’s consumer division. As a graduate of Michigan State University, Perkins used his self-created bachelor’s degree in food distribution to assume a number of positions in consumer operations both at Economics Laboratory and other companies. His experience in Economics Laboratory’s consumer division attracted the attention of his colleagues; after three years of employment he was chosen as the company’s most valuable employee. Prior to becoming president and chief operating officer, Perkins held the position of executive vice-president and chief operating officer of the international division.

As a new top executive, Perkins was considered particularly useful in overseeing the international operations. Before assuming his new title he had developed a plan to consolidate the program into a highly efficient network. His plan was credited with helping to maintain the division’s impressive growth rate. Aside from continuing to expand international operations, Perkins planned to increase research and development spending by 25 percent.

The last remaining promotion entitled to Perkins was the advancement to chairman and chief executive officer. Although it was generally assumed that Perkins was being prepared for this final promotion, tradition at the company protected the incumbency of its older chairmen. For this reason, no one expected the 62-year-old Lanners, then chairman and chief executive officer, to be relinquishing his duties in the near future.

Perkins’s promotion, however, never materialized. In a surprise move Economics Laboratory recruited and hired its new top executive from outside the company. This abrupt shift in 1982 is said to have been management’s response to a sharp decline in sales of pollution-control chemicals. In attempting to remedy the situation, operating units were restructured and a new leader was sought with a strong background in chemistry and experience in the industrial sector. The recruitment process singled out Richard C. Ashley, former president of Allied Chemical and a group vice-president of the parent company. Ashley’s degree in chemistry and his successful experience in the chemical field met the company’s qualifications.

Ashley’s talents were expected to be particularly useful in addressing the ailing Apollo subsidiary. Sales, dropping precipitously to $5 million, had been adversely affected by the depressed industrial sector and by revisions in the Clean Air Act. The move to realign operating units represented the first in a series of steps devised to increase Apollo’s business. Soon after assuming his new position, however, Ashley was tragically killed in a car accident.

Once again Economics Laboratory recruited outside the company for a new chairman and chief executive officer. Early in 1983 Pierson M. “Sandy” Grieve, a 55-year-old executive from the consumer goods company Questor, filled the position. Grieve’s experience in acquisitions and corporate planning, as well as his aggressive and articulate management style, were his most valuable assets.

Just a week after assuming his new title, Grieve displayed his talent for decisive strategic planning; the Apollo subsidiary was to be shut down. The closing of the operation caused a $43 million write-off but eliminated the possibility of continuing adverse effects on profits. Grieve’s next strategic move involved reorganizing the Magnus division, issuing ultimatums on sales performance for certain foreign markets not up to standards, and hiring 100 new salespeople to market expanded product lines. Although sales had reached $670 million, ranking the company fourth among the top manufacturers of domestic cleaning products, debts over the past years had accumulated, and the institutional market, representing Economics Laboratory’s largest customer base, had shrunk.

Grieve’s decision to close Apollo was just one major of the many decisions required early in his tenure. Only months later, a significant attempt by an industry competitor to replace the nation’s top dishwashing detergents caused Economics Laboratory’s product to slip from second to third place. Lever Brothers, a large consumer product company, released its Sunlight brand detergent and captured a sizeable portion of the market. To prevent any further erosion of the company’s market share, Grieve issued a plan to develop new products internally. Moreover, for the first time in ten years, he increased allocations for product promotion by adding $5 million to the soap products’ advertising budget.

A final cause for concern emerged with the aggressive maneuvers of the Molson Companies Ltd., a Canadian brewing concern. In an attempt to capture a share of Economics Laboratory’s U.S. institutional and industrial markets, Molson purchased the Diversey Corporation, a specialty chemical company. Diversey successfully increased Molson’s presence in the United States and in five years the company tripled its sales.

Despite these concerns, Grieve’s strategy to regain certain markets appeared effective. By 1986 $55 million in assets had been sold, including the pulp and paper division, the domestic portion of Magnus, the coffee filter business, and several plants. Other consolidation measures involved the laying off of employees and the implementation of new packaging processes. Long-term debt was reduced by an equivalent of $10 million and the company once again controlled a comfortable amount of cash. With the acquisition of Lystads, an exterminating service, and ICE, a pest control operation, Economics Laboratory attempted to broaden its customer base in its institutional division. Similarly, with the purchase of Foussard Associates, a laundry product and service operation, the company sought to augment growth in its institutional division. In 1986, the company also changed its name to Ecolab Inc.

Although its institutional and industrial customers had always comprised Ecolab’s core markets, the consumer market had also figured into the product mix. In 1987, Grieve would take the company in two directions at the same time in regard to the consumer market. The firm abandoned its battle with Procter & Gamble and other dishwashing detergent makers, selling its dishwashing unit because it simply could no longer compete. About the same time, Ecolab purchased the lawn care servicer ChemLawn, a move that would prove to be the biggest disappointment of Grieve’s years at the company’s helm.

Industry analysts contended that Ecolab paid too much to acquire ChemLawn, which set off an unfortunate chain of events. In its initial couple of years under Ecolab, ChemLawn was unable to generate enough revenue to pay back the costs of the acquisition. Ecolab management decided to increase revenue through price increases, hoping its focus on delivering a quality service would mitigate any negative effects. But ChemLawn’s customers turned out to be much more price-sensitive than expected. Grieve later noted that part of this sensitivity stemmed from consumers considering lawn care a discretionary purchase. Moreover, he observed, an increase in environmental awareness in the late 1980s hit the industry just after Ecolab acquired ChemLawn. Overall, the ChemLawn acquisition was eventually regarded simply a matter of an ill-fit. In fact, after losing money under Ecolab, ChemLawn bounced back to profitability under Service Master L.P., who purchased ChemLawn in 1992 for $103 million. With the sale, Ecolab had to take a $263 million write-off against 1991 earnings.

Ecolab was able to recover from its ChemLawn disaster through a program that Grieve began in the late 1980s during the initial stages of the ChemLawn debacle. This strategy, now known as “Circle the Customer—Circle the Globe,” brought the firm to its strong position of the mid-1990s. The “Circle the Globe” part of the program emphasized Ecolab’s intention to become a worldwide leader in its core businesses. Initially the firm concentrated on the Asia-Pacific region, moving into the area in the late 1980s—one of the first U.S. firms to do so in a concerted way. Ecolab also significantly increased its presence in Latin America, Africa, and the Middle East, particularly in the early 1990s. Growth was achieved through setting up operations in those countries, or via distribution and licensing agreements.

Ecolab then entered into a joint venture with the German firm Henkel KGaA. Called Henkel-Ecolab, the 50-50 joint venture, although experiencing some difficulties as a result of a poor European economy, had in a few short years become the leader in Europe in institutional and hospitality cleaning, sanitizing, and maintenance. The joint venture operated in both Western and Eastern Europe, including Russia and other former republics of the Soviet Union. By 1994, 22 percent of Ecolab’s net sales originated outside the United States.

Ecolab’s “Circle the Customer” strategy was intended to maximize its investment in its core businesses by broadening the range of products and services it offered its customers. By concentrating on the institutional, industrial, and hospitality industries, which it knew best, Ecolab extended its base of core customers in an incremental fashion, most notably with its late 1994 acquisition of Kay Chemical. Ecolab was already a leader in cleaning and sanitizing products for the full-service restaurant industry and added, through this acquisition, the leader in this area for fast-food restaurants—an industry experiencing rapid worldwide growth.

Since its sale of ChemLawn in 1992, Ecolab has enjoyed steady growth in net sales and net income, culminating in 1994 sales of $1.21 billion and $90.46 million in net income—evidence that Grieve’s focus on the firm’s core businesses and worldwide expansion had begun to pay off. The health of the firm was also evidenced by the smooth transition to new leadership in 1994 and 1995 brought on by Grieve’s retirement after 12 years in charge. Allan L. Schuman—who had been president and chief operating officer—became president and chief executive early in 1995. Michael E. Shannon—who had served as vice-chairman and chief financial officer—became chairman of the board at the beginning of 1996. The two essentially acted as dual leaders, an arrangement that evolved more by accident than by design, based on Schuman and Shannon’s strong achievements in their previous positions, complementary personalities and skills, and ability to work as a team. Ecolab thus appeared to be poised for even greater achievements in the later 1990s.

Principal Subsidiaries

Ecolab Pty. Ltd. (Australia); Ecolab Canada; Soilax S.A. (France); Soilax de Mexico S.A.; Ecolab New Zealand Ltd.; Ecolab Pte. Ltd. (Singapore); Soilax AB (Sweden); Soilax Benelux N.V. (Sweden); Ecolab Ltd. (U.K.); Ecolab Institutional Group; Ecolab Manufacturing Inc.; Klenzade; Pest Elimination.

Ecolab Inc.

Ecolab Inc.

Early Decades

Late 1970s and Early 1980s: A Time of Change

Company Perspectives:

Mid-to-Late 1980s: Restructuring and ChemLawn Acquisition

Key Dates:

Late 1980s and Beyond: “Circle the Customer—Circle the Globe”

Principal Subsidiaries

Principal Divisions

Principal Competitors

Further Reading

Ecolab Inc.

Ecolab Inc.

FOUNDING

COMPANY PERSPECTIVES

POST-WAR GROWTH

KEY DATES

A TIME OF CHANGE

RESTRUCTURING AND CHEMLAWN ACQUISITION

"CIRCLE THE CUSTOMER—CIRCLE THE GLOBE"

TAKING FULL CONTROL IN EUROPE

PRINCIPAL SUBSIDIARIES

PRINCIPAL DIVISIONS

PRINCIPAL COMPETITORS

FURTHER READING

Ecolab Inc.

Ecolab Inc.

Principal Subsidiaries

Further Reading

More From encyclopedia.com

About this article

Ecolab Inc

You Might Also Like

NEARBY TERMS