Lancaster Colony Corporation Business Information, Profile, and History

Company Perspectives:

Lancaster Colony Corporation is a diversified manufacturer and marketer of consumer products including Specialty Foods for the retail and foodservice markets; Glassware and Candles for the retail, industrial, floral and foodservice markets; and Automotive products for the original equipment market and aftermarket. These groups operate autonomously, allowing each to focus on their specific customer base and market opportunities.

History of Lancaster Colony Corporation

Lancaster Colony Corporation's subsidiaries manufacture a wide variety of products, including automotive floor mats, aromatherapy candles, and salad dressings. These products are sold to such steady retail and food industry customers as Albertson's, Ford Motor Company, and the fast-food chain Arby's. The company consists of three largely autonomous divisions: Specialty Foods, Glassware & Candles, and Automotive Accessories.

Early History

The corporation was founded in 1961, when Ohio entrepreneur John B. Gerlach decided to organize the companies in which he was a major stockholder. He chose to incorporate them in Delaware as subsidiaries under a central holding company he called Lancaster Colony Corporation.

Individually well-established, profitable companies, the new subsidiaries together represented a hodgepodge of manufactured items. Indiana Glass in Dunkirk, Indiana, specialized in decorative gifts and stemware, and Jackson Corporation was an Ohio-based producer of injection-molded plastic housewares. Lancaster Glass Corporation, an industrial supplier concentrating on components for televisions and scientific instruments, was also part of the lineup, as were National Glove, a source of work gloves, and Pretty Products, which turned out "Rubber Queen" kitchen and bath accessories and industrial components.

Although Lancaster Colony had no readily apparent focus, Gerlach, an experienced investor, had deliberately assembled this collection of manufacturers according to a personal maxim: all of his companies operated with common production techniques and distribution channels. This pragmatic principle also brought Pitman-Dreitzer & Company into the fold in the early 1960s. A manufacturer and importer of gift items and decorative glassware, Pitman-Dreitzer fitted the Gerlach strategy perfectly and offered merchandise suitable for giftware departments of retail outlets and boutiques.

Variations on Gerlach's corporate theme came in 1966, when the string of Lancaster Colony subsidiaries was expanded by two. The newcomers, both targeting retail chain outlets, were Enterprise Aluminum, a manufacturer of cookware, and Barr, Inc., which produced balls and other sporting equipment. Both settled comfortably into their designated market slots, as did August Barr, acquired in 1969.

Finely honed market and production strategy was only half of the 1960s success story for Lancaster Colony's consumer products. Just as important were cutting-edge production techniques, state-of-the-art facilities, and creative design, all of which kept the company's glassware and bath accessories competitive in a market whose products rapidly became obsolete due to the trendy tastes of home decorators.

Other segments of the company inventory were constantly updated to keep pace with scientific advances. Glass envelopes for small television sets, cathode ray tubes, and parts for oceanographic equipment, lighting systems, and other industrial components with secure market niches made up a healthy 30 percent of company inventory by the end of the decade. Net sales figures for all these, plus housewares (contributing 60 percent of company inventory) and recreational equipment (about 7 percent) rose steadily through the 1960s, soaring from $24.2 million in fiscal 1963 to $63.5 million by 1969. This success prompted Lancaster Colony to go public on May 7, 1969, and by the end of the fiscal year, the corporation boasted about 1,250 shareholders.

Enormous Growth in the 1970s

In 1970 the company finalized a $4.6 million purchase of the T. Marzetti Company, a Columbus-based salad dressings manufacturer. Encouraged by the increase in public demand for salad bars, the new Marzetti owners soon broadened their range with seven new flavors and spent $1 million on a line called Frenchette, previously the property of the Carter-Wallace Company. The two moves added 26 percent to sales by 1972.

In other new marketing ventures, Tiara Exclusives, launched in 1970, began selling Lancaster Colony glassware through a party-plan marketing strategy that provided part-time jobs for homemakers. Along with several other similar businesses, such as Avon and Tupperware, Tiara enjoyed an undisputed success, employing 750 active party-plan counselors by 1972.

Candles also were added to the growing string of Lancaster Colony products during this period. Candle-Lite Inc., costing 87,550 adjusted shares, was added to Lancaster Colony's holdings in 1972, while Christian & Company came aboard the following year. Between them, the two companies were equipped to supply a full range of tapers as well as scented and hand-decorated candles, all of which were eagerly snapped up by longtime wholesale customers such as florists' supply houses and retail outlets.

Loma Housewares, a company based in Fort Worth, Texas, and a division of Vistron Corporation, was purchased for $6.2 million, a price Lancaster Colony gladly paid in order to open up the lucrative new Texas market area to established Lancaster Colony houseware lines.

Automotive products also hit the spotlight during the early 1970s. Splash guards and heavy-duty bumpers for trucks now came from newly acquired Koneta Rubber, a leading manufacturer in the industry. Also in the automotive line, management chose to enhance their aftermarket accessories sales at the same time, by offering Pretty Products' "Rubber Queen" line of auto mats on new hanging racks that made selection easier for shoppers.

All new products received the in-house support of a huge new warehousing facility in Georgia, from which merchandise was issued nationwide. Slowed only slightly by a nine-week strike at Barr, Inc. in addition to higher prices for raw materials at the Marzetti subsidiary, the net earnings for 1973 reached $130.7 million.

As the decade progressed, Lancaster Colony began to pay close attention to its food-producing subsidiaries. In 1977, in accordance with its custom of acquisitions offering products saleable in existing markets, the corporation bought Quality Bakery Company, whose annual turnover of $5.5 million made its price of 210,000 common shares worthwhile. The following year the addition of New York Frozen Foods fleshed out the food division along with Frozen Specialty Bakers and Bakery Equipment Leasing Company.

Not all of Lancaster Colony's acquisitions were successful. One effort doomed to failure was a 1977 attempt to buttress glass-manufacturing operations through the $45 million purchase of the Columbus-based Federal Glass Division of the Federal Paper Board Company. The deal fell under the scrutiny of the Federal Trade Commission (FTC), which regarded the purchase as providing Lancaster Colony with an unfair competitive advantage. The FTC eventually allowed the purchase to proceed on the grounds that it would provide hundreds of needed jobs for the community. Still, the company faced further difficulties. The subject of wages for unskilled workers brought an impasse, as the American Flint Glass Workers Union insisted on the wages equal to those paid by the previous owners. Lancaster Colony concluded that it could not pay the same wage and still make a profit and, on this sour note, the deal was finally scrapped in 1979.

Further Internal Growth and More Acquisitions in the 1980s

Although sales figures for many of Lancaster Colony's products dipped due to an economic recession in the early 1980s, its automotive products division actually benefited during this period. Nearly 30 percent of the division's 1982 inventory was shipped to Ford, General Motors, and Chrysler, even though the market for new automobile equipment was declining. On the other hand, the automotive "aftermarket" grew, as many drivers passed up new cars, choosing instead to refurbish their older vehicles with relatively inexpensive accessories, of which car mats were a prime example. Both channels were an important earning force for the company, bringing in $105 million in sales for 1982 alone.

The specialty foods division also maintained profitability. By the end of 1982, 11.5 percent of company profits came from frozen pies, partially baked frozen breads, noodles (courtesy of Inn Maid Products, acquired in 1981), and salad dressings. Lancaster Colony continued to look for ways to expand in the food market. Just as it had opened new vistas in Texas by buying Loma Housewares, it now chose to enter the Atlantic seaboard area by acquiring a local manufacturer. In 1983 New York-based Pfeiffer salad dressing operations, previously a subsidiary of Hunt-Wesson Foods, joined the Lancaster Colony lineup.

While most products were finding ready markets, cookware, which had comprised 12 percent of houseware sales and 10 percent of profits in 1982, began to lose steam in the mid-1980s. In 1985, the housewares division lost $3.05 million on sales of 1986, to allow for the closing of several facilities, and the consolidation of Housewares and Candles into a single unit under a single team.

Furthermore, due to overseas competition, the company closed the Fosteria Glass plant in West Virginia but kept the name to be used on products from other facilities. By the end of March, production had ceased at National Glove Inc. in Mount Sterling, Ohio. The Loma Housewares plant in Texas was the next to go, along with the Barr, Inc. unit at Sandusky, Ohio, where inflatable plastic balls, rubber bumper parts, and automobile components had been produced. Such products remained lucrative, however, and their production was moved to other manufacturing facilities, the automotive parts now coming from the plant in Coshocton, Ohio, where rubber housewares had been made originally. The Nelson McCoy Pottery Company, a 1974 acquisition, was sold to a Columbus-based group headed by Intercoastal Investments Corporation.

Lancaster Colony now focused attention on the profitable automotive and food specialty divisions. By the end of 1986 the company had purchased LRV Corporation of Elkhart, Indiana, in exchange for 700,000 shares of stock. With affiliates in Utah and Canada, LRV broadened the Lancaster Colony line of truck accessories with bed liners sold under the Protecta and Line-A-Bed names, and tool boxes, also for trucks. The same year Lancaster Colony bought a second auto accessories company called A-Mar, Inc., changing the subsidiary's name to Dee Zee. It proved to be a profitable acquisition, adding aluminum running boards, side rails, kick plates, and tailgate protectors, all of which were soon on display in custom auto stores.

These two acquisitions enhanced sales considerably. Reflecting the plant closings and sales, 1987 net sales were $429.6 million, sinking slightly from the 1986 total of $456.8 million, but by 1988 the figures had begun to rise again, reaching $453.4 million.

By the late 1980s, corporation President John Gerlach, Jr., had become concerned over the possibility of a hostile takeover attempt by Newell Company, an Illinois-based home furnishings company to which Lancaster Colony had sold its aluminum cookware division in 1986. Newell, with a 5.6 percent share of the company, wanted more, and in 1990 it challenged federal antitrust legislation to seek as much as a 15 percent stake in Lancaster Colony, by combining its own consumer glassware operations with Lancaster Colony's $100 million operations. Although at least one quarter of Lancaster Colony stock was controlled by management, who would not part with it easily, caution was exercised since Newell had recently been successful in acquiring the Anchor Hocking glass company after a hostile takeover bid. As a precautionary measure the company's Employee Stock Ownership Trust borrowed $10 million to increase its ownership. Newell was undeterred, but Gerlach did not lose heart.

Gerlach speculated that the solution might lie in shifting incorporation from Delaware to Ohio. The State of Ohio had passed antitakeover laws in the wake of British financier Sir James Goldsmith's attempted hostile takeover of Goodyear Tire and Rubber and had given their antitakeover law protective shields, in the form of two tough statutes. The first of these required that a hostile acquirer wait three years before an actual merger could be documented. The second allowed for backup support for any threatened company, demanding board or stockholder approval before 20 percent of company stock could be acquired. The 10,000 or more Lancaster Colony stockholders could certainly provide such a bulwark of support, in the unlikely event of a problem.

Reaching Billion-Dollar Sales in the 1990s; Maintaining After the Millennium

Although Newell had evidently lost hope for a takeover by March 1991, reducing its stake to less than 5 percent, Gerlach did not drop the idea of shifting incorporation. At the stockholders' meeting in November 1991, he requested approval for this move, pointing out that it would bring the company an annual tax savings of between $30,000 and $40,000. The move was approved, and Lancaster Colony was incorporated in Ohio on January 2, 1992.

By 1994, Lancaster Colony's sales exceeded $700 million and continued to grow steadily. In 1998, the company, for the first time, celebrated billion-dollar sales. The overall sales increase of $85 million was attributed mostly to the company's Specialty Foods division, which contributed more than $60 million to this amount. A large factor in this growth was the division's 1997 acquisition of Chatham Village Product Lines, a maker of croutons. Other factors included Lancaster Colony's cash-flow strategies for growth, including internal investing and repurchasing common shares.

In the same year, Glassware & Candles' sales increased by more than $27 million. The division had recently added upscale Lancaster Colony Candles to its product line. The Candle-Lite product, the largest line of candles and potpourri available through mass merchants, was the division's main source of growth. Alternatively, Lancaster Colony's Automotive division, in 1998, suffered a loss in sales exceeding $2 million. A General Motors strike was to blame, in part, for the loss.

For the next two years, Lancaster Colony's sales continued to rise steadily: to $1.04 billion in 1999 and $1.09 billion in 2000. During this time, the company introduced a number of new products, including cream-cheese fruit dips for Marzetti. It also acquired, in 2000, Sister Schubert's Homemade Rolls, Inc.

In 2001, Lancaster Colony's sales barely increased and earnings dropped to $89.2 million (from the previous year's $99.3 million). The company blamed the figures on a slowing economy and high energy costs. Still, having recently acquired Sister Schubert's, as well as Mamma Bella Frozen Breads, Specialty Foods experienced strong growth for the year. Overall the division's sales increased to $464 million, from $420 million in 2000.

In 2002 more challenges surfaced for Lancaster Colony, particularly for its Glassware & Candles division. For one, Kmart Corporation--to which the company sold candles--filed for bankruptcy, costing Lancaster Colony $8.8 million. Overall, Glassware & Candles lost more than $20 million for the year. Alternatively, Specialty Foods experienced another solid year, increasing sales $60 million from the previous year. Sales from Automotive decreased slightly, though the division won two awards for its service: Kia's Most Valued Partner Award and Toyota's Most Improved Supplier Award.

The 2003 fiscal year ended with a sales decrease of 2 percent to $1.1 billion; however, the company set a record net income of $113 million (increased from $92 million in 2002) and concluded the year with no debt. Lancaster Colony also celebrated its 41st consecutive year of cash dividend increases, being one of only 23 companies to have done this. The year 2003 also marked the 33rd consecutive year in which Specialty Foods increased its own sales. Its 2003 fiscal sales were $610 million, a 5.2 percent gain over 2002.

Glassware & Candles, in 2003, closed down its glass manufacturing operations in Dunkirk, Indiana, to consolidate its manufacturing operations in its consumer glassware business. Automotive experienced a positive year for sales, increasing its operating income by 12 percent. This was attributed, in large part, to increased sales in aluminum light truck accessories.

Lancaster Colony ended 2003 by acquiring Warren Frozen Foods, Inc., a privately owned producer of frozen noodle and pasta products. With annual sales exceeding $18 million, Warren's products were expected to enhance Lancaster Colony's already lucrative Special Foods Division. Glassware & Candles also looked ahead, with plans to introduce a new line of aromatherapy candle products, as well as new seasonal items. Automotive's plans included the introduction of new products for a fast-growing import car market. Growth within all three divisions of Lancaster Colony reflected its belief in thorough market research, as well as a concentration on internal growth.

Principal Subsidiaries: Candle-Lite Inc.; Chatham Village Foods Inc.; Colony Printing and Labeling Inc.; Dee Zee Inc.; Fostoria Factory Outlet Co.; Koneta/LRV; La Grange Molded Products Inc.; Lancaster Colony Corporation Automotive and Truck Group; Lancaster Glass Corporation; T. Marzetti Company; Warren Frozen Foods, Inc.; Waycross Molded Products.

Principal Divisions: Specialty Foods; Glassware and Candles; Automotive.

Principal Competitors: Blyth Industries, Inc.; Collins & Aikman Corporation; Kraft Foods, Inc.

Chronology

• Key Dates:
• 1961: Lancaster Colony Corporation is formed.
• 1966: The company purchases Enterprise Aluminum and Barr, Inc.
• 1969: Lancaster Colony goes public; it purchases T. Marzetti Company and August Barr.
• 1972: The company purchases Candle-Lite, a small candle business.
• 1977: The company purchases Quality Bakery Company.
• 1983: The company buys Pfeiffer salad dressing operations.
• 1986: The company buys LRV Corporation and A-Mar Inc.
• 1992: Lancaster Colony is incorporated in Ohio.
• 1997: John G. Gerlach, founder of Lancaster Colony, dies; the company acquires Chatham Village Croutons.
• 1998: The company's sales exceed $1 billion.
• 2001: The company acquires Mamma Bella Frozen Breads.
• 2003: Lancaster Colony acquires Warren Frozen Foods, Inc.; it celebrates its 41st consecutive year of cash dividend increases, becoming one of only 23 American companies to do this.