Melaleuca Inc. Business Information, Profile, and History

Company Perspectives:

Melaleuca, Inc.'s mission is enhancing the lives of those we touch by helping people reach their goals.

History of Melaleuca Inc.

Melaleuca, Inc. is perhaps best known for its role in the herbal renaissance of the late 20th century as a producer of personal care products that feature the melaleuca oil from an Australian plant purported to contain healing benefits. In fact, the company manufactures and sells over 100 nutritional, personal care, and home cleaning products. Since its products are sold by a self-employed sales force, the company provides an opportunity for a home-based business, one of the major trends in the Information Age. Outside of its base in the United States, Melaleuca makes its products available in three foreign markets: Canada, Taiwan, and Japan.

An Ancient Healing Plant

Long before Melaleuca, Inc. was founded, Australian Aborigines realized the healing properties of the Melaleuca alternifolia tree found in the land down under. Aborigines, especially the Bundjalung, used the plant to treat insect bits and heal wounds.

Captain James Cook, the first European to discover Australia, noticed that some Aborigines boiled the plant's leaves to make a tea, so he coined the commonly used term Tea Tree. In the early 1920s Dr. A.R. Penfold of the Sydney Technological Museum used laboratory tests to document for the first time that the Tea Tree oil was effective in treating burns, insect bites, fungal and bacterial infections, and other skin problems. Some used the plant for so many applications that they called it a 'first-aid kit in a bottle,' reflected in the fact that Australian soldiers in World War II carried Melaleuca oil in their first-aid kits.

However, few people outside Australia knew about this plant. Moreover, after World War II, the widespread use of antibiotics caused many to forget or ignore such natural remedies. Then in 1982 an American named Roger Ball first learned about the plant during a visit to Australia. He returned to his hometown of Idaho Falls, Idaho, where he told his brother Allen Ball about his discovery. Tests performed on the plant by the Ball's small lab, B & V Technology, indicated that it had antiseptic and other therapeutic traits without major side effects.

The First Melaleuca Company is Formed

Next, Roger and Allen Ball located an Australian ranch owner who claimed to control 80 percent of all the tea trees in the world. The Ball brothers invested in a 50 percent ownership of the ranch and soon started a firm called Oil of Melaleuca, Inc. based on multilevel marketing (MLM) of their unique products. According to Idaho state government records, Oil of Melaleuca, Inc. was incorporated under Idaho law in 1984.

The Ball brothers needed an experienced person to run the new business, especially since the firm's sales had grown to $90,000 a month within its first five months of operation. For that job, they tapped their friend Frank VanderSloot. A 1973 graduate from Brigham Young University with a B.S. degree in business management, VanderSloot at the time lived in Vancouver, Washington, where he served as a regional vice-president at Cox Communications. Skeptical at first, VanderSloot eventually decided to take the challenge; he moved to Idaho Falls, where the Ball brothers gave him control of the firm's management.

Within a few months VanderSloot realized that, despite its rapidly increasing sales, the company had major problems. Melaleuca's early distributors had been required to purchase and sell many expensive starter kits. This resulted in some angry distributors who had invested significant funds and then could not get unload the pricey starter kits. Moreover, this practice of 'front-loading' was illegal. In addition, some original Oil of Melaleuca products had caused some adverse side effects and had to be taken off the market. Another problem was that some Melaleuca literature had exaggerated the benefits of melaleuca oil, and company literature with claims not backed by Food and Drug Administration (FDA) studies had to be removed. Finally, management learned that the firm's Australian rancher had only about five percent of the world's tea trees, not the 80 percent he had claimed earlier.

Thus the Ball brothers and Frank VanderSloot shut down Oil of Melaleuca, Inc. after its initial profits turned into huge financial losses. However, not longer afterwards the three men decided to start a new firm with better planning and products. On August 19, 1985, according to Idaho state records, Melaleuca, Inc. was incorporated under Idaho law with Frank VanderSloot as president.

A New Melaleuca Inc. in 1985

VanderSloot set about making sure that the new firm resolved or avoided all together the problems that had plagued the earlier venture, Oil of Melaleuca. First, he implemented a program called Consumer Direct Marketing, in which customers ordered products described in catalogs via a toll-free number. Products were sent direct to the consumers' homes, while Melaleuca sales persons received a commission on all direct sales. Melaleuca distributors could also recruit other distributors and make a commission on sales of their recruits. In this way, Melaleuca was regarded as a multi-level marketing (MLM) company akin to Amway Corporation, though VanderSloot and management maintained that it employed a more sound and successful strategy than most MLMs.

In spite of several changes, VanderSloot admitted in an article in the March 24, 1996 Idaho Falls Post Register that 'People find it hard to separate us from the original organization.' In any case, the new firm continued to grow. Sales grew steadily, from $0.3 million in 1985 to $1.2 million in 1986, $2.6 million in 1987, $11.6 million in 1988, and $17 million in 1989.

The 1990s began on a positive note when Inc. magazine included Melaleuca on its list of the nation's 500 fastest growing private firms. Melaleuca would remain on that list for the next four years in a row. In 1991 the U.S. Chamber of Commerce honored Melaleuca with its Blue Chip Enterprise Award. In spite of a poor economy, Melaleuca's sales increased from $29 million in 1990 to $105 million in 1991. The firm in 1991 prospered from the efforts of over 100,000 independent sales persons and also the company's 900 plus workers at its Idaho Falls, Pocatello, and Rexburg plants. In 1993 the company opened its new manufacturing plant in Knoxville, Tennessee, to meet the growing need from consumers in the East. By 1997 the Knoxville plant would total 170,000 square feet.

Melaleuca's success during this time relied on the efforts of its many distributors, who began as Marketing Executives and could progress to higher levels as they recruited others and built a sales organization. Unlike some other direct marketing firms, Melaleuca published statistics on the annual income of its various distributor levels. At the entry level, Marketing Executives in 1996 averaged $93.17 in annual income, with a maximum of $1,228.48. Melaleuca's top sales persons, called Executive Directors, reportedly averaged $131,818.58 in annual income in 1996, with a maximum at that level of $862,871.13.

Melaleuca's most successful sales person at the time was Russell Paley of Teaneck, New Jersey. Paley began as a Melaleuca Marketing Executive in 1991, after a career with Nu Skin Enterprises, a large multilevel marketing firm in Provo, Utah. By 1996 Paley's sales organization for Melaleuca included about 6,500 persons, and it was reported in the March 24, 1996 Idaho Falls Post Register that his organization accounted for sales of $218,000 in the month of January 1996 alone.

According to papers filed with the Idaho state government, B & V Technology, Inc., then headed by Frank VanderSloot as president, Allen Ball as secretary, and Roger Wright and Harold Ball as directors, merged with Melaleuca, Inc. on December 30, 1993. The following year, Melaleuca became an international firm when it commenced sales in Canada through a separate firm called Melaleuca of Canada. Canadian product labels, catalogs, and sales materials were printed in both English and French. The following year the company expanded into Argentina, and later it moved into Taiwan and Japan.

Expanding Product Lines and Incentives in the 1990s

In the 1990s Melaleuca made alliances with other companies in order to provide new products and services to its customers. For example, in 1994 the company signed an agreement with MCI for long-distance and other communication services. By August 1999 hundreds of thousands of the company's Preferred Customers used MCI-provided MelaCom Long Distance that saved them up to 30 percent on long-distance telephone calls. Moreover, the Melaleuca Visa card, requiring no annual fee, allowed the firm's marketing executives to earn base points whenever customers in their groups used the credit cards. In addition, Melaleuca Executive Travel offered discounts on airline, hotel, and other travel expenses. President/CEO VanderSloot in the August 1999 Leadership in Action claimed that 'Melaleuca Executive Travel has grown to one of the largest travel agencies in the world.'

News of the so-called French Paradox helped lead to new Melaleuca products by the end of the decade. Specifically, the Paradox involved the fact that although the French consumed high rates of lard and butter and had higher blood pressures and cholesterol levels than Americans, they had only one-third the number of heart attacks. Research suggested that the red wine consumed by the French contained flavonoids, a natural substance that helped reduce blood clots and thus prevent heart attacks. So in 1995 Melaleuca teamed up with Dr. John Folts to develop a supplement based on flavonoids. Other firms began offering flavonoid supplements as well, but Melaleuca's research indicated flavonoids in those supplements were incompletely absorbed by the body. After two years, Melaleuca and Folts found a way to combine flavonoid extracts with enzymes as a means to increase the body's absorption of the flavonoids.

This breakthrough led to Melaleuca's 1997 introduction of ProVexCV, a trademarked flavonoid supplement available to the firm's sales force. Folts presented his bioflavonoid research

1982:Roger Ball learns about melaleuca oil during a visit to Australia.

1984:Oil of Melaleuca, Inc. is incorporated in Idaho and later fails.

1985:Melaleuca, Inc. is incorporated in Idaho and headed by Frank L. VanderSloot.

1989:Vitality Pak, a vitamin packet, is introduced.

1990:Company is included on the Inc. magazine list of the 500 fastest growing private companies.

1993:Company opens its manufacturing plant in Knoxville, Tennessee.

1993:Vitality for Life nutritional supplements are introduced.

1994:Company begins selling its products in Canada, its first international market.

1997:Dietary supplement Provex CV is introduced; sales begin in Taiwan.

1998:Operations begin in Japan.

at two meetings in 1997 and 1998, but Melaleuca President VanderSloot cautioned against much publicity until Folts had actually published his research results. Nonetheless, the company was quite excited about the future possibilities of its new patent-protected product, especially in light of the fact that heart disease was the nation's main cause of death.

At the firm's 1999 annual convention, Melaleuca announced another new partnership that promised a new line of products for consumers and new business opportunities for Melaleuca distributors. VanderSloot explained the partnership in the firm's August 1999 Leadership in Action: 'One of the highlights of this year was when Nicole Miller, one of the world's foremost fashion designers, decided to have Melaleuca market her prestigious line of skin care products for women. Nicole had many options. Her elite line of women's fashion clothing is carried in the most prestigious department and women's fashion stores. She could have chosen any or all of those stores to carry her products. But she did not. She chose Melaleuca! That says a lot for how the world is beginning to see us.'

The Nicole Miller Skin Care line included cleansing and makeup removal items, moisturizing lotions, eye gels, lipstick, and other cosmetics. Many Nicole Miller products featured vitamins and herbal ingredients, as did the Freshen Balancing Toner with extracts from horse chestnut, ginkgo biloba, cranberry, and grape seed. The alliance between Melaleuca and Nicole Miller was a significant move for both firms and also one more example of how more companies were turning to multilevel or direct marketing to increase their distribution opportunities.

Former Melaleuca employee Richard M. Barry published a favorable account on the history and development of Melaleuca in 1999 entitled Built on Solid Principles: The Melaleuca Story. Barry and his wife Tina had joined Melaleuca in 1991 and worked part-time as Melaleuca distributors before deciding to concentrate on an enterprise of their own, RM Barry Publications. Barry's account of Melaleuca cited numerous Melaleuca magazines and other company sources, though Melaleuca, Inc. did not authorize its writing or publication.

In addition to previously mentioned products, Melaleuca sold toothpaste, mouthwash, other dental care products, soaps, bath oils, and various deodorants , colognes, fragrances, shampoos, and other hair care and personal care items for men and women. Melaleuca oil was found in antifungal creme, acne medication, and an antibiotic ointment. The company also sold the trademarked CounterAct family of products such as Ibuprofen and various items for pain and cold relief. Its EcoSense line included MelaPower Laundry Detergent and other clothes cleaning products, plus other household cleaners. Its nutritional products line featured vitamin, mineral, and herbal supplements with names such as ProstAvan for prostate health, Luminex for emotional stability, EstrAval to provide relief for symptoms of menopause, and various energy bars and weight management products.

By late 1999 Melaleuca was prospering in the United States, Canada, Japan, and Taiwan, but it was in the process of closing its Argentina operations, while looking at various other international markets for future expansion. The company reported having only a one percent market share, so it had plenty of room to grow. As part of the herbal or natural products movement, which accounted for $12 billion in consumer spending in 1997, Melaleuca seemed well positioned for continued growth.

Principal Divisions: Melaleuca of Canada; Melaleuca of Taiwan; Melaleuca of Japan; B & V Technology.

Principal Competitors: Amway Corporation; Avon Products, Inc.; Mary Kay Corporation; Nu Skin Enterprises Inc.; The Sunrider Corporation.