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Hiram Walker Resources, Ltd. Business Information, Profile, and History

company canadian whiskey distillery

1 First Canadian Place
Toronto
Ontario
M5X IC5
Canada

History of Hiram Walker Resources, Ltd.

Hiram Walker began as a small grocery business in 1856. Today it is one of the three largest distilleries in the world, exporting products to over 150 countries. Through growth and expansion, the company now consists of three Canadian distilleries and four American marketing subsidiaries, as well as a bottling facility, a glass company, and a distillery. It owns 11 Scottish distilling plants and has holdings in France, Mexico, Argentina, and Spain. The diversified Hiram Walker Resources has two businesses besides the distilling unit: an oil company and a gas distribution facility.

The founder of the distilling company, Hiram Walker, was born in Massachusetts in 1816. It is ironic that an American did more than anyone else to give Canadian whiskey a distinct identity. Young Walker learned about grain on his family's farm and at the age of 22 moved west to the Detroit area. In Michigan he started a grocery business; one of the commodities he sold was whiskey, in bulk and unbranded. Through his business Walker became a successful grain merchant selling to Canadian millers and distillers.

In the 1850's United States temperance laws were uncertain. Concerned about prohibitionist activities and legal licensing, and attracted to the potential of Canada's markets and natural resources. Walker decided to move his business across the river to Canada. With some of the $40,000 he had earned in Michigan, Walker purchased 468 acres of Canadian land. By 1858 he was operating a combined mill and distillery in Ontario, using his perfected grain for whiskey and turning the rest into flour. Walker believed that the purity of the yeast in a whiskey's fermentation is responsible for the whiskey's flavor.

After Walker opened his business in 1858 he began to build a town around it for his workers. Walkerville included schools, a church, a music hall, modest homes for company employees, and mansions for company executives. Walker personally hired the members of the town's police force and fire department. In 1890 he commissioned construction of a new set of executive offices in the Florentine style.

In its time, Walkerville created quite a stir. An 1890 Detroit Journal article entitled "Neither Town Nor City: The Queerest Place in All Christendom" attacked the town's lack of government, officials, and taxpayers, and contended that Walker was as much a dictator as was the Russian czar. It appears, however, that Walker's employees--the inhabitants of Walkerville--were treated fairly and were content. Walker was known as a charitable man who would pay an employee's medical bills, and he also provided most of the funds for the Children's Free Hospital in Detroit. Walkerville became a part of Windsor, Ontario in 1935.

A year after Walker began his business, John McBride joined it as a salesman. In 1863 McBride and Walker formed a partnership, and the business became known as Hiram Walker and Company. McBride left the company four years later, and in the 1870's, after Walker's sons Edward Chandler and Franklin Harrington joined the enterprise, its name was changed to Hiram Walker and Sons.

The company then introduced its Walker Club Whiskey in the United States, cleverly giving a name to a product that previously had been sold generically. The whiskey's popularity caused American distillers to complain that consumers were unable to differentiate between American and Canadian products. Toward the end of the 1880's, Congress passed legislation requiring the country of origin to be shown on all labels. Walker abided by the law naming his product "Canadian Club." This trademark became such a success that some retailers began falsely to label their whiskies "Canadian." In the courts and in advertisements, Walker accused them of fraud. Soon afterward, Walker faced another obstacle when the Pure Food and Drug Act of 1906 defined blended whiskey as imitation whiskey. Three years later the law was reinterpreted so that blended whiskey would be considered true whiskey as long as its type was specified.

By the beginning of the 20th century Canadian Club was an established favorite in Canada and the United States, and the company had opened offices in Paris and London to introduce its whiskey to the rest of the world.

Hiram Walker retired in 1895 after suffering a stroke that left him paralyzed; he died in 1899. The business remained in the Walker family until 1926, run by Walker's sons and grandsons, including Edward Chandler, Franklin Hiram, James Harrington, and Harrington Walker. During this time the Walker family held all 50,000 of the company's shares. The successful enterprise was earning a yearly average of $1.5 million.

The Walkers faced a problem, however, when Prohibition went into effect in the United States in 1919. While they were Canadian distillers, they were still American citizens and, it seemed, ought to comply with the American law. They found their position uncomfortable, and decided to sell control of the company. Not burdened by the guilt over border trade that so bothered the Walkers, Harry C. Hatch, a Canadian businessman from Toronto, purchased the distillery in 1926. He paid $14 million for the company, $9 million of which was for the "goodwill" associated with the Canadian Club trademark.

Hatch, born in 1883, was the son of a Canadian hotelkeeper. By the time he was 20 years old Hatch was the proprietor of whiskey stores in Whitbey, Toronto, and Montreal, and the general manager of the Corby distillery of Consolidated Distillers Ltd., Montreal. He was a lively and jovial man with a natural flair for sales. He sold liquor by delivery service to customers he could not reach over the counter; he survived Canada's fluctuating prohibition laws by selling by mail order when he could not sell liquor directly; and he sold Corby's overseas when he lacked home markets. By 1923 he was a millionaire. With two friends Hatch purchased Canada's oldest distillery, Gooderham and Worts, which had been established in Toronto in 1832. With his purchase of Hiram Walker and Sons and the consequent merger of the two companies, Hatch came to own the largest distillery in Canada. Together the Walkerville and Toronto plants had a capacity of eight million gallons a year, exceeding that of Distillers Corporation-Seagrams Limited. The combination formed the kernel of the enterprise that exists today, Hiram Walker Gooderham & Worts, Ltd. Hatch, with a penchant for growth, continued to expand the company until his death in 1946.

For three years after Hatch's takeover the company was highly successful. In 1929, however, the Canadian government decided to help the U.S. enforce the Volstead Act, which governed prohibition. The price wars among Canadian distillers, who now had to continue their cross-border traffic via the French islands of St. Pierre and Miquelon, caused Hiram Walker's profits to fall from their 1929 high of $4 million to $255,000 the next year.

The company's fortunes changed when U.S. prohibition of liquor sales ended in 1933. Hatch had 14 million gallons of whiskey accumulating and ripening in warehouses, and $5 million in Canadian government bonds available to purchase property for an American plant. By opening a plant in the United States, Hiram Walker would avoid the tariffs imposed on sales across the Canadian-American border. William Hull, formerly a member of Congress, persuaded Hatch to locate the new plant in his home town, Peoria, Illinois. Peoria seemed a perfect site for the Walker facility: it had excellent limestone water just below the ground; it was situated in the center of the midwestern cornbelt and a large coal region; and it was on 15 rail lines and the Illinois River, which links the Great Lakes and Mississippi River shipping routes. The Peoria distillery opened in 1934 with William Hull serving as sales manager in the United States.

In 1936 the company purchased Ballantine & Son Ltd., a Scotch whisky maker. Two years later the firm completed Europe's largest distillery, in Dumbarton, Scotland. In 1943 Walker bought a distilling company in Buenos Aires which produced Old Smuggler and a distinctive Argentinian whiskey, and in the mid-1940's Walker built a bottling company in California.

After Hatch's death in 1946, Howard Walton assumed the presidency. He remained in the post for the next 15 years, during which the company acquired Courvoisier and Salignac Cognacs and established associations with Drambuie and Peter Heering. Walton's successor, Burdette E. Ford, retired in 1964. An important expansion during Ford's years was the purchase of a small plant in Mexico City which today produces Kahlua, the best-known name in coffee liqueurs. H. Clifford Hatch, son of Harry C. Hatch, then took over the presidency of the parent company.

In the 1960's the company formed Hiram Walker International, which introduced the distiller's products in markets outside the U.S. and Canada. Based in London, the international company accounts for 24% of Hiram Walker's sales. By 1969 Hiram Walker's total sales had increased 8.8%, and the company's earnings surpassed $47 million. Canadian Club remained Walker's best-selling brand, but Imperial Blended Whiskey also became very popular.

In 1971 the company built its Okanagan Distillery in British Columbia. The plant handles the company's full domestic line, as well as Canadian Club for Canada and the west coast markets of the U.S. In the same year Hiram Walker (Europe) S.A. completed a distillery in Spain. The operation manufactures a variety of products for the Spanish market, Doble-V being the best known. In 1972 expansion doubled the production capacity of the Walkerville Distillery; seven years later the Peoria plant closed and a new ultra-modern distillery opened in Fort Smith, Arkansas. The plant was better equipped to produce the cream liqueurs that were becoming a large part of Hiram Walker sales.

In 1975 Time magazine reported that Hiram Walker and other distilleries had reduced the proof of their whiskeys from 86 to 80 (the lowest legal proof of a whiskey) without lowering prices or publicizing the change. Whiskey sales had been slow for three years, and production costs had soared. Distillers were suffering financially, but were hesitant to raise the price of their products for fear their customers would turn to less expensive beer and wine.

Of growing importance during the 1980's was the company's emphasis on advertising and marketing. Sales had dropped significantly between 1980 and 1984, largely because of widespread public concern over issues of health and drunk driving, and the company recognized the need to update the image of its products. With advertising of Canadian Club directed toward the young, upwardly mobile consumer, the new marketing strategy focused on the changing roles of men and women and the obsession with calories and fitness. One advertisement depicted a woman with a glass of the drink in her hand asking her husband/boyfriend what he was making for dinner. Noted for its light taste, Hiram Walker now began to emphasize this aspect of its product for the first time to attract the young and health-conscious public.

Hiram Walker continued its tradition of growth and expansion in the 1980's. Research began for Canadian Club Classic, a 12-year-old barrel-blended whiskey that was introduced in 1984 and advertised in prestigious magazines. Every aspect of the production of Canadian Club Classic was influenced by market research results. Thirty-two formulas were tried before the final one was chosen. In the same period, the company bought a bourbon distillery in Kentucky, producer of Maker's Mark, and control of Tia Maria Limited. The company entered the cream liqueur category when it introduced the Haagen Dazs line. Hiram Walker also acquired Callaway Wines in California. The growing duty-free business led to the organization of Hiram Walker Consolidated International Brands Limited, which covers duty-free shops, military bases, and airlines. In 1983 Courvoisier received a prestigious French award, Diplome du Prestige de la France, honoring its sales performance, progressive personnel policies, and consistently high production standards.

To further consumer recognition throughout the world, Hiram Walker began sponsoring many well-known sporting events. Canadian Club sponsors the annual Golf Challenge Award, Kahlua promotes cross-country skiing events, and Ballantine Scotch supports Scottish highland games in Canada. Hiram Walker also associates its name with rodeos, Lobster fishing, and sailing.

In 1980, under pressure from HCI Holdings Ltd., which had begun making large purchases of Hiram Walker's stock in 1979, president Hatch merged his company with Home Oil Company Ltd. and Consumer's Gas Company Ltd. The former is a major presence in the Canadian oil and gas industry and has investments in the United States, the North Sea, Indonesia, and Australia. The latter is a large and efficient gas distribution utility. Hiram Walker Resources is also the largest shareholder in Interprovincial Pipeline Ltd., a major oil pipeline operator. 29 percent of the company's assets are accounted for by its distilled spirits division, with 40% and 31% of its assets in Home Oil and Consumer Gas, respectively.

Falling oil prices in 1981 forced Hiram Walker Resources to make several valuation write-downs on petroleum assets (one $737 million portfolio proved to be worth only about half that amount). Management therefore decided to strengthen the company's financial position by reducing debt, curtailing acquisitions, and reinvesting a greater share of profits. This process depressed short-term earnings and caused share prices to fall. As a result, Hiram Walker was undervalued and began to attract the interest of corporate raiders.

In March 1986 the Reichmann family of Toronto began bidding for shares of Hiram Walker through Gulf Canada, a petroleum resources company they controlled. On April 1, Hiram Walker agreed to sell its liquor operations (Gooderham & Worts) to Allied-Lyons plc for C$2.64 billion. The sale raised cash which Hiram Walker used to resist the Reichmann bid, and at the same time helped Allied-Lyons mount its own defense against a hostile takeover by the Australian conglomerate Elders IXL.

A week later, TransCanada Pipelines made a C$4 billion counter-offer for Hiram Walker. The offer still permitted the sale of liquor operations to Allied-Lyons. By May, however, Gulf Canada had prevailed in its acquisition of Hiram Walker, yet refused to respect the terms of the sale of liquor operations to Allied-Lyons. The matter was taken to court, but was later settled when Allied-Lyons agreed to sell 49% of the liquor division to Gulf Canada for C$800 million. Late in 1987 Allied-Lyons announced it would buy back full control of Hiram Walker. Under the terms of the deal, a 10% stake in Allied-Lyons would go to GW Utilities. Ltd., which took over the assets of Gulf Canada in 1986.

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