Tonka Corporation Business Information, Profile, and History

History of Tonka Corporation

Tonka Corporation has a long history as America's premier manufacturer of toy trucks. Since 1991 the company has operated as a division of Hasbro, Inc., the largest toy company in the United States. Though its famed trucks are still its best known product, Tonka also produces dolls and soft toys for girls, as well as various games, toy guns, balls, tools, and other assorted playthings.

Early History

Tonka Corporation began as a small metal manufacturing company located in an old school house in Mound, Minnesota. Its three founders, Lynn Baker, Avery Crouse, and Alvin Tesch, started the company in 1946. Mound Metalcraft, as the company was at first called, specialized in manufacturing tie racks and garden tools. But the company manufactured toy trucks as well, apparently as a sideline, and the three founders began exhibiting them at the New York Toy Fair as early as 1947. These Tonka brand trucks quickly became its preeminent product, and the company changed its name to Tonka Toys in 1955. The name Tonka came from Lake Minnetonka, which the first manufacturing facility overlooked. The company's Tonka Trucks were made of heavy, automobile-gauge steel and were extremely realistic and durable; they caught on quickly among postwar baby boom parents. Between 1955 and 1960 sales at Tonka tripled, and the company acquired a sterling reputation for its high quality product.

Tonka went public in 1961 and two years later began selling its toys in overseas markets. Its penetration into the American market was already stupendous. Tonka trucks were a high-end product, made of expensive and durable materials. The brand became a staple in U.S. households, the toy no boy should be without. And to encourage parents to buy more than one Tonka Truck, the company restyled its product line each year. The company introduced Mini-Tonka in 1963, a smaller and cheaper truck aimed at younger children. Then the company added a jumbo truck line, Mighty-Tonka, in 1965. By 1966 one marketing survey showed that 85 percent of households interviewed owned Tonka toys. Three years later that figure had jumped to more than 90 percent. And families were buying more Tonka trucks, too. In 1966 the surveyed families had on average 3.2 trucks per household, but the 1969 survey showed families owning on average 5.4 Tonka toys, with a significant portion of the population owning upward of nine Tonkas.

The market seemed to make itself, and the company made no effort to diversify into other products. Between 1965 and 1969 sales more than doubled, from around $22 million to more than $45 million, and profit levels were high. The company seemed to be shrewdly run. Tonka's original owners left the company in 1961, and the top management position was filled by a two-man team, Gordon Batdorf and Russell Wenkstern. Wenkstern was a former high school shop teacher and Batdorf had worked in Tonka production, so both men had a deep understanding of how the toys were made. Though new models were introduced every year, they followed basic shapes, which made retooling simple. The company also controlled its labor costs by hiring mostly area housewives, who were not unionized. Problems began for the company when it changed its management structure, to operate more like a big company.

Reorganization in the 1970s

In 1968 Tonka's management decided to concentrate on long-range planning and on breaking into foreign markets. Tonka hired two consulting firms, one from Milwaukee and one from Philadelphia, to help the company plan. As a result, the company reorganized into a more complex management structure, adding many layers to its hierarchy. Tonka built new corporate headquarters, putting distance between the manufacturing plant and the executives. Batdorf and Wenkstern, who had operated as a team, then split their responsibilities, with Batdorf becoming chief of operations and Wenkstern chief executive, solely in charge of corporate policy and plans. The results of these changes were felt quickly, as earnings dropped precipitately in 1969. With management delegating more and more responsibility, problems were not dealt with quickly. Delays in tool and die delivery led to stalled production, which had to be corrected with enormous amounts of overtime at the plant. Tonka's net earnings plunged 35 percent, and it was clear that the new structure was not working. Finally, Batdorf resigned, leaving Wenkstern in control. He moved quickly to eliminate unnecessary expenditures and to bring the management structure closer to its former pattern.

The next few years were still rocky, but by 1974 Tonka seemed to have corrected some of its problems and was working hard to gain some stability. The toy industry was notoriously cyclic, with most sales occurring in the few weeks before Christmas and certain toys swooping in and out of fashion. Tonka attempted to offset this by acquiring new product lines. In the early 1970s Tonka diversified into the hydraulic component industry, making parts for farm and construction machinery, mostly control valves, filters, motors, and pumps. The company also began making educational products under an agreement with the Smithsonian Institution and acquired Vogue Dolls in 1973. To expand its original toy truck line, Tonka added some cheaper plastic trucks, wheeled toys for infants, and some girls' toys, as well as hobby kits designed for older children. The company also acquired a maker of ceramic stains and glazes in 1973. The diversification seemed to help, and sales and earnings climbed.

The company still had difficulties, however. Its market share for toy trucks fell in the 1970s, as cheaper and flashier vehicles attracted more young consumers. And despite its acquisition of Vogue Dolls, Tonka had never managed to loft a staple line of girls' toys. In a frenzy to put out more toys, Tonka introduced 70 new products in 1978. But it was difficult to iron out the manufacturing bugs in so many new items, and production costs bogged the company down. The company ended up in the red. In 1979 Tonka got a new top management team, headed by 40-year-old Stephen Shank. Shank closed the old manufacturing plant in Mound, laying off about 500 workers. Tonka moved its production to Juarez, Mexico and El Paso, Texas and also farmed out 40 percent of its toy manufacturing to outside suppliers. Earnings rebounded after the management shakeup, but then fell drastically as problems with starting up the Mexican and Texan plants delayed production. Tonka ended up with steep losses for 1982 and 1983.

New Strategy in the 1980s

Desperate to find a solution to Tonka's dwindling market share, CEO Shank hired four executives away from the Mattel toy company in 1983. Then Tonka licensed a robot toy from Bandai, the largest Japanese toy maker. Bandai had attempted to sell the robot in the United States in 1980, but was unable to make its product appealing to U.S. children. The Mattel executives helped conceive a story line around the robots, which were marketed under the name GoBots. The GoBots' trick was that they were actually two toys in one. The robots, who came in good and evil teams, could disguise themselves as various vehicles such as airplanes and motorcycles. When the toy plane was unfolded, it revealed its robot avatar. All of the GoBots had names and personalities attached to them. Introduced with television advertising, the GoBots soon had their own television show and comic book series. Tonka also licensed a slew of tie-in products such as GoBot lunch boxes and watches. Introduced in January 1984, by the end of the year GoBots had sales of close to $100 million, and Tonka had its first profit in three years.

Despite its great success with GoBots, Tonka still was struggling to find a long-term strategy. Fad toys such as GoBots could bring in huge sales, but they had many costs, too, such as intensive advertising. And GoBots soon were imitated by Hasbro's Transformers, similar robots licensed from another Japanese toy maker, Takara. Competition between the two robot lines split the market, and Tonka had to be ready with the next big thing to keep up its sales momentum. Tonka introduced Pound Puppies in 1985, a soft dog toy that children "adopted" when they bought it. The adoption ploy was borrowed from Cabbage Patch dolls, which had been all the rage a few years earlier. Pound Puppies sold well, and Tonka's sales and earnings seemed in good shape, more than doubling between 1984 and 1987, to $293 million. Pound Puppies accounted for more than half of the company's profits in 1986. But by 1987 Pound Puppies had lost their hold on the market, and profits skidded, dropping almost 70 percent in the first half of the year.

So Tonka decided to bolster its stock of staple, tried-and-true toys by acquiring Kenner Parker Toys. Kenner was known for its Parker Brothers brand board games, including the perennial favorites Monopoly, Clue, and Risk. Other well-known Kenner products included Play Doh, Care Bears, Nerf balls, and the Ouija board. Kenner was involved in a hostile takeover from another company, and Tonka seized the chance to buy it. Tonka spent $622 million to get Kenner, borrowing almost the entire amount. With the 1987 acquisition, Tonka became the third largest toy maker in the United States. Kenner's brands were expected to offset the volatility of Tonka's hit toys and supplement its classic Tonka truck line. But the amount of debt Tonka took on was extremely heavy--86 percent of the company's total capital. So now Tonka was under even more pressure to boost sales.

Tonka lost money again in 1988, despite a huge rise in operating income. Nevertheless, the company seemed to have some good things ahead of it. Tonka management was able to revitalize some of Kenner's failing brands, and it gained marketing and distribution networks in Europe. Play Doh, a children's modeling clay first introduced in 1956, boosted its sales from $20 million annually in the 1980s to around $50 million after Tonka took over the brand. Tonka also revamped its classic toy truck line and applied more sophisticated market research to its products. By 1988 a third of Tonka's sales and profits came from overseas markets, and this figure seemed to be growing. With marketing pitches on television and on cereal boxes, Tonka also did brisk sales of a miniature electric car. So in spite of the precarious financial position imposed on it by its debt, Tonka seemed like it would manage to regain profitability in coming years.

End of Independence in the 1990s

The optimistic picture of Tonka in the late 1980s vanished in June 1990. At its annual meeting the toy company announced it had had two bad quarters in a row and predicted it would not finish the year in the black. Sales of its toys tied to the movie Ghostbusters had plummeted, and the craze for Teenage Mutant Ninja Turtles--one of the most successful toy introductions of all time--depressed Tonka's market. The company had lowered its debt burden from 86 percent of capital to around 70 percent, but this was still high, and Tonka began negotiating a waiver with its bank. Tonka ended the year with a loss of $10.3 million, and its financial condition deteriorated into the next year. Rumors of a takeover were published early in 1991, and the outlines of a deal with the nation's number one toy maker, Hasbro, began to appear soon thereafter. In April 1991 the deal with Hasbro was finalized, and Tonka was bought for just less than $490 million. The price was said to be somewhat high, yet it was nevertheless lower than what Tonka had paid for Kenner Parker four years earlier.

Tonka was folded into the Hasbro stable of companies, operating out of Hasbro's Pawtucket, Rhode Island headquarters. Kenner and Parker Brothers became divisions of their own and, apparently, flourished under new ownership. The Tonka brand did not seem to fare as well. In 1993 the Tonka brand's share of the toy truck market fell out of the number one position, overtaken by SLM International's Buddy L Truck. The Buddy L had battery-operated lights and sound effects and was priced similarly to Tonka's line. It took almost 30 percent of the market in 1993. Hasbro announced that it would update Tonka's packaging, and it introduced some new products, such as military vehicles that tied into Hasbro's famous GI Joe doll. By the end of the 1990s Hasbro was marketing a line of more than 30 Tonka trucks, vehicles, and playsets. Some were close to Tonka classics, such as the Mighty line and the durable Tonka dump truck. Others were closer to the battery-operated, full-featured vehicles that had robbed Tonka of market share earlier. These models included the XRC radio-controlled vehicle series and a line of so-called Super Sonic Power vehicles. Another extension of the Tonka brand in the 1990s was computer software featuring Tonka trucks. Kids using the software could simulate building and painting Tonka vehicles. This was apparently very successful. The Tonka interactive game, along with several others released by Hasbro, helped bring the company into fourth place in the expanding interactive game market. This kind of creative brand extension seemed destined to keep the Tonka name alive despite the vast changes in the toy market and toy industry that had occurred over Tonka's lifetime.