Ecolab, Inc.

370 Wabasha Street
Ecolab Centre
Saint Paul, Minnesota 55102
U.S.A.
(612) 293-2233

Public Company
Incorporated: February 18, 1924
Employees: 6,800
Sales: $845 million
Market value: $813 million
Stock Index: New York

For the first 60 years of its existence Ecolab was managed by members of the Osborn family. Merrit J. Osborn, founder of the originally named Economics Laboratory, abandoned his occupation as a Michigan salesman and organized a specialty chemical manufacturer in 1924. The company’s first product was a rug cleaner for hotels. While the Osborns no longer hold management positions at Ecolab, many of the company’s products remain directed toward institutional markets.

In the 1950’s the company’s product line grew to include consumer detergents and institutional cleaning specialties for restaurants, food processors and dairies. This area of business came to represent the cornerstone of the company’s success; between the years 1970 and 1980 the chemical specialties business quadrupled, generating $640 million by the end of the ten-year period. Yet early in its history the company actively pursued customers outside of the consumer and institutional markets.

By purchasing the Magnus company in the early 1950’s, Economics Laboratory gained access to the industrial specialty market. Magnus’ primary business, the selling of cleaning and specialty formulas to numerous industries, including pulp and paper, metalworking, transportation, and petrochemical processing, contributed to $12.1 million in sales during 1973.

The company grew large enough by 1957 to become a public corporation. Earnings per share rose higher than an average 15% annually for the next 20 years. The mid-1960’s marked a high point in the company’s history as earnings grew 16% every year. This was only exceeded by a three year performance between 1974 and 1977 where profits eventually reached a 19% growth rate. By 1973 Economics Laboratory was divided into five divisions. The institutional division manufactured dishwasher products and sanitation formulas. In the consumer division, home dishwasher detergent as well as coffee filters, floor cleaners, and laundry aids were produced. The Klenzade division provided specialty detergents to the food processing industry. Overseas sales were controlled by the International division. This division was started by future chairman and chief executive officer Fred T. Lanners who, it is said, paid his first employees out of his own expense account. And finally, as mentioned earlier, the Magnus division produced items for the industrial market.

Of all the company’s individual products, detergents for household dishwashers became its most important in sales. Second only to Proctor & Gamble’s automatic dishwasher detergent in domestic sales, Economics Laboratory’s detergents were pre-eminent in overseas markets. In the early 1970’s, despite the fine company performance, Economics Laboratory attempted to expand its business by offering several new service and equipment packages. One such package offered on-premise laundry services for hospitals and hotels. This business was strengthened by the purchase of three subsidiaries all engaged in the laundry industry. Another package offered sanitation and cleaning service to the food industry. The company’s dishwashing operation service, for example, addressed every aspect of the procedure from selecting the detergent to training the employees.

This trend toward offering services to supplement specialty chemical products represented Economics Laboratory’s new market strategy. According to Fred Lanners, Jr., Economics Laboratory’s president, service activity was indispensible to building markets and the single most important asset to offer customers. Prospective company employees were hired according to whether they had the ability to give an impression of total commitment to the needs of clients. Aside from laundry and sanitation, future plans included offering a comprehensive cleaning service to food establishments and a chemical surveillance service to food maufacturers and handlers. The ideas for the structure and implementation of these service packages emerged from Economics Laboratory’s research and development department. The increasing importance of this department resulted in hiring a staff of 200 by 1973.

In 1978 the company underwent a number of changes. Unlike in previous years, the profit margin only increased 10%. Sales of dishwashing detergent had slowed down and the expansion of international operations resulted in a temporary adverse effect on profits. Both causes for the reduced profit gains appeared easily correctable and no major reorganization was in order. Yet the disappointing figures happened to occur at the same time new executives filled positions in Economics Laboratory’s management.

E.B. Osborn, son of the founder Merrit J. Osborn, ended his long tenure as chief executive officer so that Fred Lanners, the first non-family member to achieve such high executive status, could assume the new title. Lanners began at Economics Laboratory in the research and development department, becoming first the chief scientist and then the assistant to the research and development director. At the time of the management shift E.B. Osborn’s experience at the company covered a timespan of 50 years. The third generation descendant, S. Bartlett Osborn, stepped up to the positions of executive vice president and chief operating officer.

By 1979 business had resumed at an accelerated pace. Sales reached a 16% increase and earnings per share rose 16.6% over the previous year. International sales now increased at a faster pace than domestic sales. Profits, however, did not substantially increase; the unimpressive 6.6% was traceable to the effects of a large hiring campaign. The 130 new employees in marketing represented the largest sales personnel increase ever in the course of one year.

The hiring of new staff marked only one tactic in management’s strategy for growth. In addition to a larger sales force and continued expansion into foreign markets, Economics Laboratory announced plans to use some of its supply of cash to acquire Apollo Technologies for $71.2 million. This manufacturer of chemicals and pollution-control equipment was purchased to improve the company’s industrial market share. As the company’s traditional lines of business in consumer and institutional products neared the limits of market penetration, Economics Laboratory looked for ways to supplement the operations of the Magnus division. Company management hoped that the acquisition of Apollo could offer that supplement.

At first the subsidiary served this function well and both companies found the relationship mutually beneficial. Apollo gained the financial backing necessary to enter new markets, particularly overseas, and Economics Laboratory broadened its business in the industrial sector. The Apollo subsidiary now held the responsibility for selling all Economics Laboratory’s industrial chemical specialties. In addition to marketing coal additives, catalysts, and dustcontrol products to the electrical utility and mining industries, Apollo’s sales staff was given the added task of selling lubricants, pulp-processing compounds, and temperature reducers to the metal processing and paper industries.

The major advantage Apollo’s business activities held for its parent company was the ability to raise the industrial service operations to the same level of success as the Economics Laboratory’s institutional services. Prior to the acquisition, Economics Laboratory’s industrial business suffered from an inability to offer comprehensive services to its customers. With the purchase, Economics Laboratory acquired not only a company, but also technical service engineers to supervise product implementation.

In 1981 Philip T. Perkins assumed the title of president and chief operating officer. The new top executive joined Economics Laboratory in 1968 as vice president of the company’s consumer division. As a graduate of Michigan State University, Lanners used his self-created bachelor’s degree in food distribution to assume a number of positions in consumer operations both at Economics Laboratory and other companies. His experience in Economics Laboratory’s consumer division attracted the attention of his colleagues; after three years of employment he was chosen as the company’s most valuable employee. Prior to becoming president and chief executive officer Perkins held the position of executive vicepresident and chief operating officer of the international division.

Announcing his executive affinity with President Reagan, Perkins placed a bowl of jelly beans, the president’s favorite candy, on his desk. As a new top executive, Perkins was considered particularly useful in overseeing the international operations. Before assuming his new title he had developed a plan to consolidate the program into a highly efficient network. His plan is credited with helping to maintain the division’s impressive growth rate. Aside from continuing to expand international operations, Perkins planned to increase research and development by spending 25%.

The last remaining promotion entitled to Perkins was the advancement to chairman and chief executive officer. Although it was generally assumed that Perkins was being prepared for this final promotion, tradition at the company protected the incumbency of its older chairmen. For this reason, no one expected the 62 year old Fred Lanner, current chairman and chief executive officer, to be relinquishing his duties in the near future.

Perkins’ promotion, however, never materialized. In a surprise move Economics Laboratory recruited and hired its new top executive from outside the ranks of its employees. This abrupt shift in 1982 is said to have been managements’ response to a sharp decline in sales of pollution-control chemicals. In attempting to remedy the situation, operating units were restructured and a new leader was sought with a strong background in chemistry and experience in the industrial sector. The recruitment process singled out Richard C. Ashley, former president of Allied Chemical and a group vice-president of the parent company, as Economics Laboratory’s new leader. Ashley’s degree in chemistry and his successful experience in the chemical field fulfilled the company’s qualifications.

Ashley’s talents were expected to be particularly useful in addressing the ailing Apollo subsidiary. Sales, dropping precipitously to $5 million, had been adversely affected by the depressed industrial sector and by revisions in the Clean Air Act. The move to realign operating units represented the first in a series of steps devised to increase Apollo’s business.

Yet before industry analysts could evaluate how successful Ashley’s program would be, the new leader was killed in a fatal car accident soon after his promotion. Once again Economics Laboratory recruited outside the company for a new chairman and chief executive officer. Early in 1983 Pierson M. “Sandy” Grieve, a 55-year-old executive from the consumer goods company Questor, filled the vacated position. Grieve’s experience in acquisitions and corporate planning, as well as his aggressive and articulate style, were his most valuable assets.

Just a week after assuming his new title, Grieve displayed his talent for decisive strategic planning; the Apollo subsidiary was to be shut down. The closing of the operation caused a $43 million write-off but eliminated the possibility of continuing adverse effects on profits. Grieve’s next strategic move involved reorganizing the Magnus division, issuing ultimatums on sales performance for certain foreign markets not up to standards, and hiring 100 new salesmen to market expanded product lines. Although sales had reached $670 million, ranking the company fourth among six of the top manufacturers of domestic cleaning products, debts over the past years had accumulated and the institutional market, representing Economics Laboratory’s largest customer base, had shrunk.

Grieve’s decision to close Apollo was just one major company decision of the many required early in his tenure. Only months later, a significant attempt by an industry competitor to replace the nation’s top dishwashing detergents caused Economics Laboratory’s product to slip from second to third place. Lever Brothers, a large consumer product company, released its Sunlight brand detergent and captured a sizeable portion of the market. To prevent any further erosion of the company’s market share Grieve issued a plan to develop new products internally. Moreover, for the first time in ten years, he increased allocations for product promotion by adding $5 million to the soap products’ advertising budget.

A final cause for concern emerged with the aggressive maneuvers of the Molsen Company, a Canadian brewing concern. In an attempt to capture a share of Economics Laboratory’s U.S. institutional and industrial markets, Molsen purchased the Diversey Corporation, a specialty chemical company. Diversey successfully increased Molsen’s presence in the U.S. and in five years the company tripled its sales.

Despite these concerns, Grieve’s strategy to regain certain markets appeared effective. By 1986 $55 million in assets had been sold, including the pulp and paper division, the domestic portion of Magnus, the coffee filter business, and several plants. Other consolidation measures involved the laying off of employees and the implementation of new packaging processes. Long-term debt was reduced by an equivalent of $10 million and the company once again controlled a comfortable amount of cash. The acquisition of Lystads, an exterminating service, and ICE, a pest control operation, indicates Economics Laboratory’s attempt to broaden its customer base in its institutional division. Similarly, with the purchase of Foussard Associates, a laundry product and service operation, the company sought to augment growth in its institutional division. And finally, the release of several new detergent products and the opening of a unit in South Korea indicates that the revitalization of Ecolab (the company’s newly adopted name) is almost complete.

Principal Subsidiaries

Detergent Service, Inc.; E.L. Manufacturing Corp.; E.L. Caribbean, Inc.; ELSO, Inc.; Economics Laboratory International Ltd.; Raburn Europe S.a.r.l. (France); E.L. Southeast Asia Ltd.; Economics Laboratory Finance N.V. (Curacao); Environmental Systems Management AG (Switzerland); Lystrads Inc. (U.S.A.). Ecolab’s Soilax subsidiaries are also in the following countries: Denmark, Finland, France, Germany, Ireland, Italy, Jamaica, Lebanon, Mexico, The Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland and the United Kingdom.