Pet Incorporated Business Information, Profile, and History

History of Pet Incorporated

Pet Incorporated, a specialty food producer with a number of familiar name-brands, operates 33 manufacturing plants internationally, two-thirds of them located in the United States. Pet produces and markets its products through two primary units, the Worldwide Mexican and International group and Pet USA, the latter of which comprises all frozen, refrigerated, and shelf-stable products with the exception of the company's Mexican food brands. A large percentage of its revenues comes from brands that hold the number-one or number-two market share in their categories.

Formerly the Pet Milk Company, Pet is the successor to the Helvetia Milk Condensing Company, organized in 1885 in Highland, Illinois, just across the river from St. Louis, Missouri. In November 1884, an article in the Highland Union announced that "a certain party in St. Louis intends to erect an establishment here for condensing milk." By February 1885, a committee of Highland citizens bought 150 shares of stock at $100 per share to fund the start-up of a condensing plant by a Swiss immigrant named John Meyenberg. By mid-June, the first unsweetened "Highland Evaporated Cream" was produced and, despite a steam-powered sterilizer explosion three weeks later that resulted in a month-long shutdown, the business continued. Two unrelated incidents by the end of 1885 gained recognition in the South for Helvetia's evaporated milk. The fledgling company donated 10 cases of its product to victims of a Galveston, Texas, fire, and an El Paso, Texas, grocer ordered 100 cases after successfully feeding the milk to his ill infant.

Troubles occurred the following year, however. In early 1886, after numerous cases of milk spoiled on grocers' shelves, the Helvetia shareholder committee recommended that the company halt operations before funds were depleted. Meyenberg, incensed with the committee's decision and criticisms of his method, left Highland and never returned. Following the brief stint of David Suppiger as president, Louis Latzer, a young farmer who had resigned from the board of directors within the first year of Helvetia's operations, agreed to head the company. Backed with a college degree and an education in chemistry, Latzer, aided by Dr. Werner Schmidt of Highland, spent years tracing the bacteria that had caused the earlier milk spoilage. Their efforts eventually succeeded and, in the process, Latzer had automated Helvetia's plants, introducing faster production as well as safer canning processes and lower consumer costs.

Notwithstanding the early setbacks, Helvetia won an award for excellence from the Mechanics Industrial Exposition in San Francisco in 1887, and blue ribbons from both the 1890 Paris Exposition and the 1893 Columbian Exposition in Chicago. The recognition gained from these awards was due to the marketing work of John Wildi, a founding director who promoted Helvetia's evaporated milk in several key markets: as a healthful baby food; as a recipe base; and as a milk-substitute for Southern areas with little refrigeration as well as for mining regions in the western United States.

Responding to the request of a New Orleans food broker for a "baby-sized" can to sell for a nickel, the company introduced "Our Pet Evaporated Cream," and registered the name as a trademark in 1895. Following a great marketing success at the 1904 World's Fair, Wildi went into the evaporated milk business himself, keeping nearly 33 percent of Helvetia stock. Upon his death in 1907, an agreement was reached that enabled Wildi's family attorney, William Nardin, to join Helvetia's board of directors.

During the Spanish-American and First World wars, the U.S. government ordered huge supplies of evaporated milk, spurring Helvetia to build a second plant in Greenville, Illinois. By 1918 the company had a total of ten production sites in the Midwest, Pennsylvania, and Colorado. As World War I ended, Helvetia closed plants due to oversupply, reluctantly pulling out of western markets. Latzer sold the excess milk to St. Louis businessmen, who turned to him in 1920 when a strike by the local milk producers association limited the brokers' supplies. The St. Louis strikers also convinced the Highland area farmers to strike, however, and Latzer was forced to close the plant.

By early 1921, Latzer's son John ran Helvetia from its reestablished headquarters in nearby St. Louis. In 1923, the company was renamed Pet Milk Company, after its best-selling evaporated milk brand. Within two years Pet Milk bought the Salt Lake City-based Sego Milk Products Company, giving Pet Milk more depth in milk supply, as well as a chance to reenter the western American market. In the late 1920s the company built new plants and made a number of acquisitions, including an ice cream plant in Greenville, Illinois, and a milk processing plant in Johnson City, Tennessee. In 1928 Pet Milk was first traded on the New York Stock Exchange, and the following year the Pet Dairy Products Company was established. By 1934 Pet Milk became the first company to add vitamin D to its dairy products via the process of irradiation.

Louis Latzer died in 1924 after 37 years with the company. John Latzer delegated sales and marketing to William Nardin, who in turn recruited his friend Erma Proetz for some modern advertising ideas. Proetz took over the Pet Milk account for Gardner Advertising, establishing Gardner test kitchens in the late 1920s as well as successful radio broadcasts that carried both the company and consumers through the tough days of the Great Depression and World War II. Proetz's shows eventually aired on nearly 200 American stations and led to other innovative Pet Milk promotions.

After World War II Pet Milk began a slight movement into other markets. The company became the first to offer nonfat dry milk, an advance over the powdered milk developed in the 1920s. Sales soared due to the postwar baby boom, making 1950 the all-time-high sales year for Pet Evaporated Milk. Soon thereafter, fresh milk became readily available, however, and sales began a steady decline.

When John Latzer died in 1952, after more than 30 years with Pet Milk, his brother Robert Latzer took over. While Robert continued in the Latzer tradition, emphasizing research and production, he knew the company needed to diversify. In 1955, as a result of the efforts of Louis Latzer's grandson Theodore Gamble, Pet Milk acquired its first nondairy operation: the Pet-Ritz Foods Company in Michigan. To initiate growth outside the United States, Pet Milk also established a Canadian subsidiary to produce and sell goods. The expansion plans were announced in 1959 by Gamble, elected president in February following Robert Latzer's move to chairman.

In preparation for a growth spurt, Gamble worked with the consultant Booz, Allen & Hamilton. Through restructuring, Pet Milk reduced committee numbers, initiated a profit-centered divisional structure, and recruited marketing professionals. The company also planned new product development to wean itself from the declining milk market (as late as 1960, 95 percent of Pet Milk sales were in dairy products). By the early 1960s, diversification had begun in earnest. Within two years Pet Milk bought a variety of food producers, including the C. H. Musselman Company, Laura Scudder's, Downyflake Foods, Stephen F. Whitman & Son, Inc., and R. E. Funsten Company, the largest U.S. pecan producer at the time. These acquisitions brought Pet Milk a total of approximately $90 million in sales. Through its Canadian subsidiary, Pet Milk also acquired Van Kirk Chocolate, Cherry Hill Cheese, and the Numilk Division of Dominion Dairies. In 1963 the company bought the Dutch-based C. V. Gebroeders Pel, a producer of jelly and other confections.

Gamble's plan was to move away from commodity products and toward specialty and snack foods, which were considered high-growth markets. In 1964 Pet Milk moved into the gourmet foods market, buying Reese Finer Foods, Inc., and D. E. Winebrenner Co., a fruit-juice maker. The following year, Pet Milk acquired George H. Dentler & Sons, a snack food company, and Stuckey's, Inc., the latter marking Pet Milk's first non-processing venture in the food industry. While Stuckey's pecan candy production fit with Pet Milk's earlier Funsten acquisition, Stuckey's also owned and operated 27 roadside stores.

Pet Milk created a new market with their 1962 introduction of Pet-Ritz frozen pie-crust shells. Another of Pet Milk's successful products at this time was Sego Liquid Diet Food, introduced in 1961. After competitors had opened up a market, Pet Milk brought in its own version, a thicker, high-protein drink available in a variety of flavors. By 1965 Sego brought in $22 million to the company's Milk Products Division sales. As Pet-Ritz frozen-pie products and Musselman applesauce met stiff competition, Pet Milk worked to carve its own position in the market by developing specialty items like quick-bake pies, no-bake pies, and chunky-spicy applesauce.

In 1966, in order to reflect its enlarged and diversified product line, Pet Milk changed its name to Pet Incorporated. Sales had increased 123 percent since Gamble had taken over, and he pushed for further growth, merging with the St. Louis-based Hussmann Refrigerator Company. Although Hussmann's market was fairly mature at that time, a fact Gamble was aware of, Pet bought a controlling interest in the Mexican-based American Refrigeration Products S.A, a company partially owned by Hussmann and which was expanding into Guatemala. Pet also acquired Atlanta-based Aunt Fanny's Bakery, and the following year bought Schrafft restaurants for $14 million. In 1968 the corporation made a key acquisition, purchasing the 50-year-old Texas-based Mountain Pass Canning Company, maker of the Old El Paso brand. Within two decades, Old El Paso products brought $170 million in sales to Pet.

Funding for these acquisitions came largely from a special credit Pet obtained through the sale of its portion of General Milk Co., a joint venture made with competitor Carnation Company in 1919. Pet gained $30.8 million on the sale, originally having paid $875,000. Also during this time, Pet arranged agreements in many foreign countries, including Spain, Sweden, Costa Rica, and Chile. Gamble had obviously increased volume at Pet through the early 1960s; his goal was to increase returns by the end of the decade on all the volume Pet had acquired. International expansion was clearly one way to do so.

As Pet eyed future expansion, problems arose. A teamster strike at the Hussmann refrigeration division came just as the corporation was moving from two old plants to a new $13 million site in St. Louis. In addition, a slowdown in housing and supermarket building put Hussmann in tough straits. Many new products launched earlier in the decade either failed entirely or were subject to competitors' new product introductions. For example, Carnation introduced a powdered instant diet food before Pet had its Sego version ready, thus chipping away at Pet's own strong contender.

A corporate sizing-up resulted in an overall downsizing. The president of the milk division resigned and was replaced by the successful head of frozen foods, John Bittner. Two milk plants were closed, and chairman Gamble cut corporate personnel by nearly 200. Quoted in the September 15, 1968, issue of Forbes, Gamble talked about further changes: "As important as eliminating jobs has been the realignment of responsibilities. We were going heavily in the direction of specialization. We've come back to more generalists in management." As a result, Gordon Ellis, formerly Pet's president and chief operating officer, resigned to become president of Fairmont Foods.

Upon Gamble's death in March 1969, Boyd F. Schenk became president and chief executive officer of Pet. Schenk, who first joined Pet Milk as a laboratory technician in 1947, had previously been named president of the fledgling frozen foods division in 1963, transforming it into one of Pet Milk's four largest divisions. By 1976, under Schenk's guidance, Pet enjoyed record earnings, clearing $23.7 million on record sales of $1.01 billion. The company devoted more money to advertising and promotions than ever before, budgeting over $30 million (the previous year's total) for fiscal year 1977. Products promoted included a range of nondairy-related foods: waffles, potato chips, canned shrimp, and Mexican foods. Pet also continued to introduce new products intended for niche markets, such as a natural, "old-fashioned" peanut butter, Old El Paso frozen Mexican pizzas, Pet-Ritz pizza crusts, Sego diet bars, and frozen donuts, a product attempted fifteen years earlier. While some in the food industry thought the public was no longer interested in convenience products, Schenk disagreed on the basis that the increasing number of two-income families created a continued demand for such products--provided the quality was high and the price was right.

In 1978, Chicago-based IC Industries Inc. (ICI)--a conglomerate that got its name from the Illinois Central Railroad--completed an unfriendly takeover bid for Pet. ICI had nearly tripled its revenue in the previous twelve years through a variety of takeovers intended to steer the company away from the railroad business. After two years of planning, secret purchases of Pet shares, and complex negotiations, ICI Chairman William B. Johnson summed up the experience in the Wall Street Journal (August 7, 1978): "It was expensive, it was extraordinarily hard work, it was terribly intense and it can't be the best introduction to a future relationship. I hope we never do another one." Although Schenk made no public comment, the U.S. Justice Department did. Antitrust chief John Shenefield stated to a Senate panel in late July that the department disapproved of the excessive conglomerate mergers achieved through hostile takeover bids.

Complicating the acquisition were ongoing talks Pet had conducted with the fast-food chain Hardee's, which it had agreed to buy for $95 million in March 1978. ICI had no interest in Hardee's, and by July Hardee's sued both ICI and Pet, claiming that Pet's proposed merger was a defensive move. Before completing its takeover, ICI agreed to pay Hardee's $1.5 million for its troubles. Upon its acquisition, Pet became the largest unit of its parent company, and Hussmann Refrigerator Co. was established as a separate subsidiary of ICI.

By mid-1980, Pet had pared down more than 30 divisions into four groups: Grocery; Specialty; Frozen & Bakery; and International. Pet bought McGrew Color Graphics in 1982, adding it to the St. Louis Lithographing subsidiary to form a specialty printing division. Ray Morris, president of Pet's grocery group during the ICI takeover, was promoted to president of Pet in 1984. While at first many saw the ICI merger as the end of Pet, Morris and others on the executive team eventually viewed the change as a chance to reassess Pet's strategy. The company divested itself of many businesses, totaling $750 million in volume, including the Musselman Company and some specialty retail liquor stores.

Pet once again launched acquisitions, maintaining its position as a premier food company. In 1982 Pet bought the William Underwood Company and its related products, including the B&M and Accent brands. A major advantage of the Underwood acquisition was the company's processing facilities in a number of foreign countries. By 1985 Pet sold its dairy division. In the June 15, 1987, issue of Forbes, Pet president Ray Morris admitted that evaporated milk was "a declining business, but you don't want to sell your heritage." The company's largest acquisition was that of Ogden Food Products, in November 1986, which brought the Progresso, Las Palmas, Hollywood, and Hain brands to the Pet lineup. The same year the company also acquired Canada's Primo Foods Limited, a marketer of over 800 Italian items, including pasta, tomato sauce, specialty meats, and bakery goods, most imported from Italy.

Pet continued offering line extensions on products already familiar with the public, giving the company a product introduction success rate of 50 percent, as compared to the industry average of 10 percent. New products sales were close to $125 million in 1987, up 25 percent from the previous year. Pet's Downyflake frozen waffles remained first in a $200-million, and growing, breakfast foods market. The company cornered the high-end of the market whenever possible, following the lead of Gamble twenty years earlier. Commodity-based items weren't as profitable as specialty foods, and Pet's quality image allowed the company to charge higher prices for specialty items.

In 1988 Pet established a hold in the market of refrigerated foods through its acquisition of Orval Kent Food Company, Inc., a producer of salads for foodservice and supermarket delicatessens. Orval Kent controlled nearly a third of the market and, through its own series of acquisitions, had superior distribution capabilities in the United States and in Mexico, the latter where it had one plant. The following year Pet acquired Pillsbury's Van de Kamp frozen seafood line and, through its Canadian subsidiary, added the specialty meat producer Coorsh and Bittner.

Morris looked to the end of the 1980s with an increase in international sales, which were 13 percent of total sales in 1988. Through Underwood, Pet established bases from which to launch American-made Pet products in other nations. The Old El Paso brand was sold in 32 countries and continued to grow, illustrating the room for international expansion. To concentrate on the food industry, parent ICI changed its name to Whitman Corporation and sold its railroad and defense operations.

The next few years proved a bumpy ride for Pet, however. Morris retired in 1989 as planned, and Robert Copper was chosen to be president and CEO. Copper then resigned his position 11 months later, an action agreed upon with Whitman president Miles Marsh. In another minor skirmish, Pet incurred some costly legal problems following the sale of its former dairy operations in 1985. Pet was caught up in a nationwide antitrust investigation of the bidding practices of the dairy industry relating to the sale of milk to governmental agencies, primarily school districts. As of January, 1993, Pet had paid fines and civil damages aggregating approximately $7.5 million to the federal government and various states for the pre-1985 period.

A major turnaround occurred in April 1991, when parent company Whitman spun off Pet. Under Whitman, Pet had purchased fourteen companies; sales shot from $882 million to $1.9 billion during the 12-year relationship. Miles Marsh was appointed chairman and chief executive of Pet. Pet's stock value increased as the corporation was once again viewed as an independent food company--not merely part of a conglomerate. William Korab, president of Pet's grocery group, was quoted in the March 16, 1992, issue of Forbes as saying: "It's our company. It's us. If something goes wrong, someone else didn't do it. We did it to ourselves." Oddly enough, as the Wall Street Journal reported, Korab himself was replaced by Robert Tuckis, in a "management shakeup intended to streamline the company." Such changes, continued the Journal, "which follow a disappointing quarter, give Miles Marsh, chairman and CEO, more direct oversight of the company." Other changes during 1992 included Pet's intention to sell Whitman's Chocolates, a 150-year-old business. Robert L. Tuckis, president of Pet's Grocery Group, died September 4, 1992, and the company shortly thereafter announced the appointment of Raymond N. Felitto to a newly created position as president of Pet USA. Pet approached the twenty-first century like many of its competitors, more focused on marketing and global growth.

Principal Subsidiaries: Old El Paso Foods Company; Progresso Foods Company; Hain Pure Food Company, Inc.; Ramirez & Feraud Chile Company, Inc.; William Underwood Company; Orval Kent Food Company, Inc.; Orval Kent de Linares S.A. de C.V.; St. Louis Lithographing Company; Primo Foods Ltd.; C. Shippam Ltd.; Peck's Australia Pty. Ltd.; Diablitos Venezolanos, C.A.; Helvetia Redevelopment Corporation; Aktiebolaget Estrella (49%).