Kelly-Moore Paint Company, Inc.

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Kelly-Moore Paint Company, Inc.

987 Commercial Street
San Carlos, California 94070
U.S.A.
Telephone: (650) 592-8337
Fax: (650) 508-8563
Web site: http://www.kellymoore.com

Private Company
Incorporated: 1946
Employees: 2,300
Sales: $350 million (2002 est.)
NAIC: 325510 Paint and Coating Manufacturing

Kelly-Moore Paint Company, Inc. is an employee-owned regional paint manufacturer and retailer, with its headquarters located in San Carlos, California. The company concentrates its efforts on western and southwestern states, operating more than 160 stores in 11 states and Guam. Four manufacturing facilities, capable of producing 20 million gallons of more than 100 types of paints and finishes each year, are strategically located in Seattle, Washington; Hurst, Texas; Tempe, Arizona; and San Carlos, California. As has been the case for more than 50 years, Kelly-Moore mostly caters to professional contractors and the do-it-yourself market, building a reputation for selling high-quality products while providing strong service. Retail sales account for less than 15 percent of the company’s business.

Founding Kelly-Moore in 1946

The driving force behind Kelly-Moore was the company’s cofounder, William E. Moore, who was born in the small town of Hartford, Arkansas, the son of a barber. Ambitious from an early age, according to a video tribute produced by his alma mater, Georgia Tech, he started shining shoes at nine in order to fund his college education. More important, he learned how to play tennis on a makeshift court in front of his home. When he began his studies at Georgia Tech in 1934 he was accomplished enough at the game to win a scholarship as a walk-on. Nevertheless, he needed living expenses and to support himself through his college years he held eight odd jobs simultaneously, yet still maintained high grades and achieved an impressive athletic record. In the process Moore became something of a local legend. When he graduated in 1938 with a dual degree in Industrial Management and Chemical Engineering, America was still very much in the grips of the Great Depression and Moore was happy to find any job, accepting a position as a salesman for National Theatre Supply at a salary of $110 per month, a considerable falloff considering he had been able to cobble together $150 per month from his part-time college jobs. Moore soon found work at Glidden Paint as a salesman and lab technician. Starting with a $160 per month draw, Moore set a goal of earning $1,000 per month and launched a systematic approach to achieving that amount. After analyzing sales information he was able to determine that just 20 percent of his customers accounted for 80 percent of his sales. Rather than continue to spend the same amount of time on all of his customers, he decided to return his smaller accounts to the company in order to focus his efforts on the top 20 percent. As a result, he reached his target goal of $1,000 per month within the first year, and ultimately he became Glidden’s top West Coast producer.

Moore’s business career was interrupted by a stint in the Navy during World War II when he served on a destroyer in the Pacific, but his time at Glidden convinced him that his future lay in the paint business and he devoted much of his spare time in the service studying two books on paint making. Like many in his generation, the war had a profound effect on Moore. Having lost several years of his life to the service, he felt that he had fallen behind schedule in his life, a condition that served to fuel his already ambitious nature. In 1946, at the age of 29, in the same year that he married, Moore decided to strike out on his own in the paint business. He studied the southern California market and concluded that the ideal location for his enterprise was the city of San Carlos, located some 30 minutes north of San Jose, in the heart of what would one day become the Silicon Valley. At the time, it was home to a large number of orchards, some of which were being converted to tract-home communities. Seed money to establish a single store and manufacturing facility came from the funds he had saved during his stint at Glidden, which during the war he had then wisely invested in Tulsa, Oklahoma, real estate. All Moore needed now was someone experienced in mixing paint. He found the ideal partner in the form of William H. Kelly, a retired superintendent at Glidden who was tired of having free time and was now very much interested in starting a little factory. The plan was to mix paint in the mornings and Moore would make deliveries in the afternoons, with the hope that the start-up business would show a $500 profit each month. What Moore and Kelly failed to anticipate was the pent-up demand for housing caused by the privations of war that resulted in a dramatic building boom. In the first six months of existence, Kelly-Moore, instead of a $3,000 profit, made $30,000.

Kelly-Moore’s success was more than a simple matter of fortuitous timing. Moore’s decisions and innovations were of far greater importance to the future growth of the business. From the start, he decided to focus on the tract-home paint contractors, a market segment that was being overlooked by the national brands who were eagerly pursuing consumer sales. To win over contractors, Kelly-Moore developed the kind of high-quality paint required by them, one that could do the job with a single coat. The store also maintained the kind of high inventory levels that contractors required and could rely on. As the business grew the company opened stores larger than the norm in the industry, in effect serving as a warehouse for paint contractors, who mostly worked out of their homes and were unable to store large quantities of paint. In addition, Kelly-Moore was in the vanguard of making credit a function of sales, treating its customers like partners. Kelly-Moore further separated itself from the competition by offering innovative customer service. It opened early in the day and served free coffee, a small matter but one that meant a great deal to paint contractors who regularly put in long, tiring days of work. Kelly-Moore was also the first to own a fleet of its own trucks to provide delivery. In the end, Kelly-Moore’s success was built on the character of Moore, whose dedication to honest business dealings and commitment to producing a high-quality product supported by superior customer service resulted in repeat business.

Buying Out Kelly in 1952

Moore bought out Kelly in 1952 but he continued to carry his partner’s name as the business grew beyond northern California. There was no doubt, however, that the success of Kelly-Moore was very much dependent on the integrity, skills, and hands-on leadership of Bill Moore. He was deeply involved in every area of the business, instrumental in developing manufacturing techniques as well as designing the company-owned stores. Of key importance was his smart choice of real estate, establishing stores at locations with reasonable rental rates, which helped to produce high margins for the business. Able to operate larger stores and thereby act as a warehouse for customers, Kelly-Moore had the ability to better plan its inventories, which also resulted in strong net margins. While industry giants Glidden and Sherwin-Williams netted profits in the range of 2.5 percent, Kelly-Moore by the mid-1980s generated a net profit of more than 10 percent of sales. It was also at Moore’s insistence that the company never succumbed to the temptation of saving money by cutting back on the quality of its paint, relying on high-quality raw materials such as titanium in the formulation of all of its paints. Moreover, Kelly-Moore instituted tough quality control measures. In addition to the efforts of the production department, the sales department maintained its own quality control testing.

Over the years Kelly-Moore picked up some consumer sales, due to a large extent to contractors leaving behind touch-up cans, which served both as a product sample and a professional endorsement for Kelly-Moore. By 1974 consumer sales accounted for about one-quarter of total revenues. That amount would grow over the next decade to 37 percent, the result of a changing marketplace. An increasing number of homeowners were opting to do their own painting. Despite the rise of the do-it-yourself customer and an ever-changing housing market, Kelly-Moore was able to maintain a decade of growth averaging 13 percent each year. By the time Bill Moore began the process of retiring and turning over day-to-day responsibilities to a new chief executive in 1984, Kelly-Moore generated sales of 136 million and a profit of more than $11 million, with more than 80 stores located in California, Arizona, Colorado, Texas, Oklahoma, and the Pacific Northwest.

After building a successful business, Moore, approaching 70 years old, set about the task of making sure the company was in a position to carry on without him. (During the 1980s he also became involved in highly successful ventures in the diverse fields of life insurance in California and ranching in Montana, applying the same business principles he had used in the success of Kelly-Moore.) A 33-year-old daughter was in charge of advertising, but to find his replacement at the top of the organization, Moore recruited outside the company, finally hiring Joseph P. Cristiano, who was actually dispatched by his employer in an effort to acquire Kelly-Moore. Instead, Moore sold Cristiano on coming to work for him. For the first six months Cristiano was on the road with sales representatives learning firsthand how Kelly-Moore operated. In January 1985 Moore officially turned over the reins to Cristiano, although he continued to serve as the company’s chairman of the board and retained about 97 percent of the stock.

Company Perspectives:

Our Mission: To be a service-oriented paint company that provides a broad selection of high quality paint and paint related products at fair prices to Painting Contractors, Commercial and Maintenance Accounts and Do-lt-Yourself Consumers through strategically located neighborhood paint stores.

Cristiano adhered to the formula established by Moore and the company continued its steady growth over the next ten years. Although Kelly-Moore primarily relied on internal growth, it used external means as well. In 1994 it acquired Seattle-based Preservative Paint Co., which now became a wholly owned subsidiary, adding two stores in Alaska and 15 in Washington, as well as a pump and compressor center. A year later Kelly-Moore bought K-M Universal, gaining a factory in Tempe, Arizona, as well as additional stores in Arizona and California. Kelly-Moore added to this new subsidiary in 1996 when it folded in another purchase, the Guam-based paint division of Island Equipment Co. Also during this period, Kelly-Moore experienced some internal growth by becoming involved in the recycling of paint. The effort started out on a small scale, essentially a pet program that allowed paint contractors to return unused paint at no cost, a useful service because professionals were not permitted to use free public collection facilities. The company stockpiled a large amount of recycled paint and began to actively seek a market for it. In the summer of 1994 Kelly-Moore was able to land a contract for 50,000 gallons of recycled latex paint with the federal General Services Administration. The contract called for a product that contained at least a 50 percent post-consumer recycled content, which was packaged under the company’s “e coat” brand name, to be used by military installations, U.S. forestry facilities, and other federal outlets. As a result, the “e coat” line became listed in the GSA catalog, which gave the company a leg up on future contracts for recycled paint. In addition, the company moved aggressively to sell its recycled paint product at the state and local levels, to schools and other facilities.

As Kelly-Moore reached its 50th year in business in 1996, it was generating some $240 million in annual sales, boasting 140 stores located in Guam and ten states: Alaska, Arizona, Arkansas, California, Colorado, Nevada, Oklahoma, Oregon, Texas, and Washington. The company employed more than 2,300 people. Its continued success remained based on a longtime formula of producing quality paints and offering superior service to the contract painter. Moreover, the company was able to adjust to changing circumstances in the marketplace. The state of California instituted tough volatile organic compounds (VOC) standards, forcing Kelly-Moore and other paint companies doing business in the state to reformulate their products. Kelly-Moore’s efforts in new product development was now devoted to waterbourne products, as opposed to oil-based paints, with the challenge of maintaining the high quality of its architectural coatings and high gloss exteriors.

Establishing ESOP in 1998

Aside from keeping pace with regulatory changes, Kelly-Moore took other measures to remain competitive. In 1998 Moore and his wife established a combined retirement and employee stock ownership program (ESOP), which allowed qualifying employees to gain an ownership stake in the business. The plan was instrumental in helping the company retain personnel and instill an even greater degree of loyalty. To improve its position in the marketplace, in 1999 Kelly-Moore formed a marketing alliance with Pennsylvania-based M.A. Bruder & Sons, a company of similar size and philosophy that operated primarily in the eastern states. Because their territories did not overlap, the two companies were able to serve national accounts, with M.A. Bruder responsible for East Coast projects and Kelly-Moore for West Coast projects. As a result of the venture, the companies were joint-listed in the American Institute of Ameritect’s MasterSpec Finishes directory, used by some 5,500 architectural and construction firms and that included only a handful of other paint companies. The marketing alliance grew in 2000 with the addition of Diamond Vogel Paints, based in Orange City, Iowa. The resulting venture was named Paint America, a key component in the regional partners’ efforts to resist industry consolidation and maintain independence while still being able to serve national chain retail and property management customers. West Coast paint company Dunn-Edwards soon joined Paint America as well. To a small degree Kelly-Moore took part in the consolidation of the paint industry in 2000 when it acquired Ponderosa Paint Manufacturing Inc., adding 15 stores in Oregon, Utah, and Idaho.

After almost 20 years at the helm, Cristiano stepped down as president and CEO of Kelly-Moore. Although his retirement was not official until January 2003, in November 2002 he was replaced by Herb R. Giffins, an executive with 24 years of experience in the paint industry. After starting out at Sherwin-Williams he joined Kelly-Moore in 1985, serving as general merchandise manager. He then became vice-president of store operations two years later and played a key role in the growth and development of company stores. Giffins was named president of Kelly-Moore’s southwest division in 1996. He was taking charge of a company ranked No. 32 in Coatings Work’s Top Companies Report, with estimated annual sales of $350 million, one that had made the successful transition from its founder to a second generation of management. Although still a small player compared with industry giants, Kelly-Moore remained a very successful business, well entrenched in its niche in the market and positioned to thrive for the foreseeable future.