G&K Services, Inc.

views updated

G&K Services, Inc.

5995 Opus Parkway
Suite 500
Minnetonka, Minnesota 55343
U.S.A.
(612) 912-5500
Fax: (612) 912-5739

Public Company
Incorporated: 1902 as Gross Brothers; 1934 as Gross-
Kronicks
Employees: 4,200
Sales: $262.5 million (1995)
Stock Exchanges: NASDAQ
SICs: 7218 Industrial Launderers

G&K Services, Inc. is the fourth largest, and the fastest growing, supplier of rental uniforms in the United States and Canada, with more than 30 processing plants and 51 sales and service centers operating in 28 states, as well as in Quebec and Ontario. Since the acquisition of BCP Corporation of North Carolina in 1994, G&K has also entered uniform manufacturing and direct sales and expects to make up to 50 percent of the uniforms it rents and sells. In addition to uniforms, which produce about 60 percent of company revenues, G&K rents and sells floor mats, industrial mops, towels and other linens, and soaps, cleaners, and air fresheners. In all, the company processes more than 600,000 uniforms per day. The company also operates a fleet of 800 service and delivery vehicles. G&K’s $262 million in 1995 sales formed about 6 percent of the estimated $3.5 billion North American uniform leasing industry. Chief competitors include industry leader Aramark Corp., Cintas Corp., Unifirst Corp., and Unitog Co. G&K is headed by chairman and CEO Richard M. Fink.

Early History

G&K started out as a family-owned business in the Minneapolis-St. Paul area when brothers Alexander and Morris Gross purchased a small dry cleaning and dyeing company. Renamed Gross Brothers Laundry, that business expanded to include family laundry services, becoming the largest laundry business in the Twin Cities area by the 1930s.

I. D. Fink joined Gross Brothers in 1927, as the company prepared to expand its range of services. In 1934, the purchase of a small Minneapolis-area company, Northwest Linen Co., led Gross Brothers into linen supply and textile rentals. The following year, Gross Brothers bought another local company, Kronicks Laundry, changing its name to Gross-Kronicks, which soon became known as G&K. In that year Fink along with other second-generation members of the Gross family took over operations of the company, with Fink being named president in 1939.

G&K continued to lead the local dry cleaning and laundry industry, while increasing its textile rental operations. In 1956, the company added uniform rentals. Over the next decade, leasing, especially uniform rentals, would provide the company with its greatest growth potential. For the time being, however, revenues from rentals grew only slowly. By the end of the 1960s, the G&K chain had grown to 45 retail laundry and dry cleaning stores, with annual revenues of $12 million.

The next generation was preparing to take over leadership of the company. Richard M. Fink joined G&K in 1964 and was named vice-president in 1968. The following year, as president, Richard Fink led the company into its initial public offering, changing the company’s name formally to G&K Services, Inc. By then rentals, which reached $6 million in revenues, were outpacing the company’s laundry operations. At the same time, the introduction of new, wash-and-wear fabrics in the clothing industry was softening the dry cleaning business, with retail revenues falling by as much as 10 percent per year. Meanwhile, the rise of the service industry, which incorporated uniforms as a means to enhance corporate identities, promised to become the fastest growing segment of G&K’s operations. In the early 1970s, the company sold its laundry and dry cleaning operations, then the largest part of its business, to concentrate exclusively on leasing, emphasizing uniform rentals.

Becoming an Industry Leader

G&K’s rental operations still were limited, for the most part, to five Twin Cities locations. But in the 1970s the company moved aggressively to expand into neighboring states. Much of this expansion was fueled by a series of acquisitions, primarily of small companies, beginning with the 1971 purchases of Central Uniform Rental Co. and Southern Uniform Rental Co., both in Colorado. The following year, G&K added Service, Inc. of Utah and in 1974 acquired Illinois companies Ajax Industrial Cleaners, Inc. and Ace Launderers & Cleaners.

By 1976, G&K’s revenues had risen to $16.5 million, earning the company nearly $850,000. In that year, G&K continued its acquisitions and expanded its range of leasing services with cash purchases of Peoria Apron & Towel Supply, Inc. in Illinois and Maloney’s Dust Control Services, Inc. in Green Bay, Wisconsin. By the end of the decade, the company had added Service Industrial Rental Supply, for $1.7 million in 1978, and expanded into the South with the acquisition of Fort Worth, Texas-based Johnson Linen-Texas Garment Co. When I. D. Fink retired as chairman in 1977, the company’s operations had expanded from a single metropolitan area into seven states.

The company slowed the pace of its acquisitions somewhat over the next decade as it dedicated itself to expanding its customer base in the fast-growing, but highly fragmented, uniform leasing industry. In the first half of the 1980s, the company acquired Willis Uniform & Linen Service and Chin Industries. The latter purchase brought G&K into Louisiana and Alabama. By 1984, revenues rose to $56 million, providing net income of more than $2 million. Yet, internal expansion was already providing the bulk of the company’s growth.

Sales topped $100 million by 1989, and G&K’s markets had grown to include California, and the burgeoning semiconductor cleanroom segment there, with the $3.2 million purchase of Certified Garments in 1986. Sales would continue to climb over the next decade, with a compounded annual growth rate of more than 15 percent, making G&K the industry’s fastest growing company. By 1990, with a net income of more than $10 million on revenues of nearly $119 million, G&K was preparing its first international expansion.

Trouble and Triumph in the 1990s

At the start of the 1990s, G&K was operating in 23 states, including 20 processing plants and 28 sales and service centers. In 1990, G&K moved across the border into Canada, making its largest acquisition to date, the $77 million purchase of one of that country’s largest uniform-leasing companies, Work Wear Corp. of Canada, Ltd. Work Wear, with 25 percent of the Ontario market and operations in Quebec as well, added a 50 percent boost to G&K’s revenues (about $62 million in U.S. dollars) while raising the company’s debt more than $90 million.

Trouble loomed, however, with the threat of an international recession, which, coupled with the economic crises brought on by the Persian Gulf War, proved to be Canada’s worst since the Depression. Whereas the uniform rental business had been seen as largely immune to cyclical changes in the economy, G&K’s Canadian operations were faced with increasing numbers of company failures and layoffs, driving down customer orders. G&K’s U.S. operations remained steady, aided by the growing boom in service sector jobs in the 1990s. But despite revenue increases to $176 million in 1991 and to $194 million in 1992, the losses in Canada and investment in two new U.S. processing plants dragged profits down, to $7.7 million in 1991 and $8.5 million in 1992.

By 1993, however, profits were again on the rise, with the Canadian operations returning to profitability and boosting net profits to $11 million on $208 million in revenues. The company’s 44 sales and service centers and 29 processing plants served more than 85,000 customers. Retention rates among G&K’s customers, which included about half of the country’s largest industrial corporations, typically ranged at 93 percent, with most customer losses stemming from companies going out of business or dropping uniforms to save money. By then, G&K’s customer base spanned a broad range of industries, including food service companies, schools, office buildings, auto dealerships and auto repair and service centers, as well as transportation and distribution companies. An increasingly important source of new and existing customers were the pharmaceutical and semiconductor industries, with their need for special sanitary fabrics and cleaning techniques. G&K responded to this need by building a state-of-the-art processing plant in San Jose, California, the heart of the U.S. semiconductor industry.

Although major accounts were typically handled by the company’s large sales force, delivery personnel, acting as local sales personnel, were also an important source of new orders. Drivers of G&K’s fleet, who not only received pay based on performance, but also commissions for completing new sales, accounted for some 40 percent of the company’s new accounts. G&K’s share of the highly fragmented uniform rental market, with around 1,200 companies clothing about eight million uniformed personnel in the mid-1990s, was around seven percent, suggesting ample room for future growth.

Company Perspectives

We will be the premier provider of work clothing and related services in North America by putting people first; providing competitively-superior value to our customers, and continuously improving the performance of our business, resulting in long-term customer relationships, significant competitive advantages, fulfilling careers, and the achievement of our financial goals.

Beginning in 1993, G&K moved to expand its share of the total uniform industry by offering direct sales to corporations making outright purchases of uniforms, which represented the largest segment of the uniform industry, with some 100 million uniformed personnel. The following year, G&K purchased BCP Corporation of North Carolina and that company’s three uniform manufacturing plants in Mississippi and the Dominican Republic, for $7.5 million. Company expectations were to produce as much as half of its rental and direct sale uniforms by the end of 1995, increasing the company’s margins while driving down costs. As G&K turned toward the next century, with 1995 revenues of $262 million and sales expected to top $300 million in 1996, the company planned to expand its operations into every market in the United States, while maintaining its leadership in Canada. The continued growth of G&K’s core customer base, especially the service and distribution industries, which accounted for some 70 percent of the gross domestic product of the United States, appeared likely to drive this company’s continued growth.

Principal Subsidiaries

G&K Services Co.; Northwest Linen Co.; Gross Industrial Towel & Garment Service, Inc.; G&K Services of Canada, Inc.; 912489 Ontario Limited (Canada); La Corporation Work Wear du Quebec (Canada).