Purina Mills, Inc.

1401 S. Hanley Road
St. Louis, Missouri 63144
U.S.A.
Telephone: (314) 768-4100
Fax: (314) 768-4636
Web site: http://www.purina-mills.com

Wholly Owned Subsidiary of Koch Industries, Inc.
Incorporated: 1894 as Robinson-Danforth Commission Company
Employees: 2,700
Sales: $998.7 million (1998)
NAIC: 311119 Other Animal Food Manufacturing; 444220 Feed Stores (Except Pet)

Purina Mills, Inc. is the largest manufacturer of animal feed products in the United States, producing more than five million tons of feed each year. Through its 50 feed mills, the company produces thousands of feed formulations specially designed for various types of animals, including beef and dairy cattle, goats, horses, sheep, pigs, poultry, pets, and lab and zoo animals. Purina also operates more than 35 retail outlets, which sell animal feed, lawn and garden supplies, hardware, and related items.

1890s–1910s: William Danforth and the Checkerboard Empire

Purina Mills’ forerunner, the Robinson-Danforth Commission Company, was formed in 1894 by George Robinson, Will Andrews, and William Danforth. The three founders were looking for a business that could thrive despite the depressed economy when, after some debate, they decided upon the manufacture of horse and mule feed. Their reasoning was that animals had to eat, come good times or bad. With $12,000 in borrowed capital, they started their new business in a storefront near the St. Louis riverfront. Their feed product—a combination of corn, oats, and molasses—was mixed by shovels and poured into 175-pound sacks, which were then sewn shut by hand.

Just two years after Robinson-Danforth Commission got underway, it suffered a major setback. In May 1896, a tornado destroyed the company’s milling facility. William Danforth saved the struggling business by borrowing $10,000 to build a new mill. Until that time, Danforth’s position in the business had been that of bookkeeper and salesperson. Upon building the new mill, however, he effectively became the company’s leader. Soon, he would carve a niche in history for himself and his company as one of the United States’ most colorful business successes.

Danforth was a man of strong personal convictions. Believing that the “ingredients” of life were body, mind, personality, and character, he strove to balance all four in his own life and to help his employees do the same. A zealot about healthy living, he boasted that he had never missed a day of work due to illness. It was, in part, Danforth’s interest in health that helped him succeed in diversifying from animal feed into consumer goods.

In 1898, while traveling in Kansas, Danforth met a miller who had developed a way to prevent rancidity in whole wheat. Packaging the miller’s wheat, Danforth named it “Purina Whole Wheat Cereal,” and began selling it to St. Louis grocers. The name Purina was derived from Robinson-Danforth’s company slogan: “Where purity is paramount.” To promote his new cereal, Danforth approached one of the most famous health spokespersons of the day, a Dr. Ralston. Ralston, whose precepts were followed by thousands, agreed to endorse the cereal only if it were named after him. Danforth quickly renamed the product “Ralston Wheat Cereal,” and the campaign began. By 1902, there was a whole line of Ralston cereals boasting various health benefits. The names Purina and Ralston had, by that time, become so well known that Danforth changed the company’s name to Ralston Purina Company.

Also in 1902, Danforth created a marketing gimmick that was to serve the company well for its many years of business. Looking for a way to set Purina products apart from competitors’ and make them easy to spot, Danforth remembered a family he had known from his childhood in Charleston, Missouri. The family, who visited Danforth’s father’s general store each Saturday, always wore clothing made from a red-and-white checkerboard-patterned cloth. Danforth decided to try using the distinctive checkerboard pattern on his product packaging. The ploy was highly successful—and the checkerboard eventually came to play a very important role in Purina’s corporate culture. Danforth took to wearing checkerboard ties, shirts, and coats. He established a “Checker Gallery,” containing pictures of his employees wearing checkered clothing, and designated an annual Checker Day. The company’s headquarters even became known as Checkerboard Square.

Another of Danforth’s marketing techniques emerged from his stint as YMCA secretary for the Third Army Division during World War I. While serving in France, the savvy Danforth noticed that solders’ rations were often called “chow.” He also noticed that soldiers responded positively to the term, seeming to warm more to the idea of “chow” than to “food.” When he returned from the war, Danforth substituted the word “chow” for “feed” on all of Purina’s animal products. He also created the company’s Chow Division, which was later to become subsidiary Purina Mills.

Soon after the war, Purina introduced another innovation to the animal feed business when it began compressing its feed products into small pellets. Soon, the entire U.S. feed industry followed suit, and began producing pellet-style feed products.

Second Generation of Danforth Leadership: 1920s–60s

In the early 1920s, Danforth’s son Donald joined Purina and began convincing his father that the company needed to build a research facility. Eventually, the elder Danforth conceded, and the company established a research center near Gray Summit, Missouri. Also in the 20s, Purina began making a commercial pet food, which was primarily used for hunting dogs and working farm dogs.

With the advent of the Depression in the early 1930s, Ralston Purina saw its sales drop from $60 million to $19 million in two years’ time. The company posted losses of $500,000 and $168,800 in 1931 and 1932, respectively. In 1932, William Danforth retired, turning the business over to Donald. The younger Danforth successfully navigated the company through the difficulties, adding six new mills to establish a decentralized production and distribution network.

Under Donald Danforth’s leadership, Ralston Purina also developed and began producing a new commercial pet food to be distributed through grocery outlets. The product, Purina Dog Chow, went into national distribution in 1957 and immediately proved a huge success. Dog Chow captured 14.8 percent of the dog food market by the end of 1957, and became the market leader in August 1958. Purina’s highly successful launch of its Dog Chow—and later of its Cat Chow—served to strengthen the company’s foothold in the grocery products industry.

Donald Danforth retired in 1963, after piloting Purina for slightly more than 30 years. He was replaced as chairman of the board and CEO by Raymond E. Rowland. Rowland had been with Purina since 1926, when he started his career there as a sales trainee. Rowland was nearing 60 when he became Purina’s leader, however, and as such, his tenure was comparatively short. He retired in December 1967, and was replaced by R. Hal Dean, a Purina veteran of almost 30 years.

New Direction for Ralston Purina, New Ownership for Purina Mills: 1970s–80s

Ralston Purina took a markedly different direction after Dean assumed control, with diversification being the predominant theme. Having already purchased the Van Camp seafood line while Rowland was still in charge, Purina in 1968 hastily began acquiring new businesses in what often seemed to be a random manner. Among the company’s acquisitions were a business that prepared and supplied food for a chain of fast-food restaurants; a ski resort; mushroom farms; a business that raised rats for laboratory experiments; and the St. Louis Blues National Hockey League franchise, along with its arena.

By 1981, when Dean retired, Ralston Purina was a hodgepodge of unrelated companies, with some doing well and some doing very poorly. It fell to Dean’s successor, William Stiritz, to clean up the company and tighten its focus. He did so by selling off several subsidiaries, including the restaurant operations company, the hockey franchise, and the Van Camp seafood line. With these subsidiaries out of the way, the company could better focus on what was to be its core business: consumer packaged goods.

Another branch of Ralston Purina that Stiritz decided to prune was Purina Mills—the animal feed business, which had been the basis of the company’s inception. In 1986, Purina Mills was sold to London-based conglomerate British Petroleum PLC for $545 million. The sale did not include the pet food lines, which were kept by Ralston Purina. Both Ralston and Purina Mills continued to use the checkerboard trademark in the United States, but Purina Mills was prohibited from using the Purina brand and trademark in foreign markets.

Purina Mills joined British Petroleum’s animal nutrition subsidiary, which was comprised of 120 companies operating in 30 nations. It immediately became the top moneymaker for BP Nutrition, generating about one-third of the subsidiary’s sales and approximately 45 percent of its profits. British Petroleum stepped up investment in Purina’s research, manufacturing, and quality, and began to export its feeds to Canada, Mexico, Asia, and the Caribbean under the trade name PMI Feeds.

Company Perspectives:

The corporate philosophy of Purina Mills is to continue our tradition of providing both the necessary nutritional products and the value-added services that producers, processors and retailers need to satisfy the demands of a growing end-consumer market. We remain committed to expanding our research and development to enable American agricultural entrepreneurs to capitalize on the opportunities ahead.

Changing Hands Again … and Again: 1990s

In 1992, British Petroleum began a period of restructuring, during which it decided to exit its nutrition business and refocus its energies on its core petroleum business. In March 1993, the company put its entire BP Nutrition subsidiary on the block, including Purina Mills. After exploring several options—including selling Purina to another feed company and spinning off the business in a public offering—BP agreed to sell the business to a group that included an outside investment firm, Purina managers, and an employee stock ownership plan. The $425 million buyout, led by The Sterling Group, a Houston-based private investment firm, was highly leveraged and left Purina with $358.5 million in debt. But when the deal was finalized in September 1993, Purina Mills was, for the first time in its history, a stand-alone company with no large parent corporation.

In the mid-1990s, Purina was faced with major changes in the feed industry. Both the feed and livestock industries were beginning to consolidate, with smaller operations being absorbed or driven out of business by larger, more powerful ones. Consolidation was especially noticeable in the pork industry, where the trend toward mammoth farming operations was steadily driving smaller farms out of business. More significant for Purina Mills, however, was the fact that many of the large pork producers had begun to build vertically integrated operations, through which they controlled every phase of the farm-to-market cycle—from feed production to processing—with minimal reliance on outside parties. These trends toward integration and consolidation had the potential to seriously damage Purina Mills’ business.

In response to the industry’s “bigger-is-better” movement, Purina pursued some consolidation of its own. In January 1995, the company acquired one of its rival feed producers, Golden Sun Feeds Inc., of Estherville, Iowa. Golden Sun, which had six mills, produced approximately 335,000 tons of feed annually. A few months later, Purina made another acquisition: the Test Diet business of U.S. Biochemical Inc. The newly acquired business produced animal feeds that were developed to the specifications of scientists, to be used in research. By integrating the Test Diet business with its existing Specialty Products business, Purina was able to position itself as a bigger player in the research and test diet segment of the feed industry.

In 1997, the company branched out in an entirely new direction, introducing its own chain of retail stores. The stores, called America’s Country Stores, offered “country lifestyle” merchandise, including lawn and garden products, animal feed, hardware, and, in some cases, housewares. The concept was designed to appeal to hobby farmers and “ruralpolitan” homeowners—individuals living in previously rural areas that had since become outer suburbs. The Country Stores were owned and operated by independent retailers, with Purina providing products, site selection, market research, and store design. By the end of 1998, the company had opened almost 20 of the stores in various locations through the West and Midwest, and in the Carolinas. It planned to open as many as 600 by the year 2000.

Another of Purina Mills’ 1997 initiatives was designed to prop up its sales of swine feed, which had declined dramatically. Deciding to become more directly involved in the pork industry and thereby establish a captive market, the company began contracting to buy baby pigs from breeders. It then resold the pigs to independent hog producers who, in turn, agreed to buy Purina feed.

The end of 1997 brought yet another change in ownership for Purina Mills. In December, the company agreed to be purchased by Koch Industries Inc. Koch, the United States’ second largest private company, was an energy and agricultural firm with some $30 billion in annual revenues. Koch believed that Purina would be a good fit for its farm-related businesses, which included cattle feedlots and an experimental drying technology that could convert food waste into an inexpensive feed ingredient. Koch finalized the Purina acquisition in March 1998, for a price of $660 million. Approximately $110 million of the purchase price was financed with equity, $200 million came from bank loans, and $350 million came from public bonds that refinanced the debt from the Sterling buyout.

Bankruptcy: 1999

Purina’s 1997 decision to enter the hog business was to prove disastrous in late 1998 and 1999. The hog market, which had been excellent in the mid-1990s, reversed dramatically a few years later when a surfeit of hogs tipped the supply-and-demand balance. Prices dropped to their lowest level in 26 years, and farmers lost money on every hog they sent to market.

Purina was hurt by the market reversal on several fronts. As hog farming ceased to be profitable, many farmers either quit or were forced out of the business. This led to a decrease in swine feed sales—which accounted for 20 percent of Purina’s total sales. Far more significant, however, was the loss Purina took on its own hog operation. Not only did the company lose money on the hogs it already owned, but it was under contract to buy 9.8 million more pigs over an eight-year period. It had contracts to sell only 3.4 million. The financial exposure on the contracts amounted to approximately $236 million.

Key Dates:

1894:

The Robinson-Danforth Commission Company is founded.

1902:

Company name is changed to Ralston Purina Company. Company adopts the red-and-white checkerboard logo.

1986:

Ralston Purina sells its Purina Mills subsidiary to British Petroleum.

1993:

British Petroleum sells Purina Mills to a management group led by the Sterling Group, of Houston, Texas.

1997:

Purina Mills rolls out America’s Country Store retail chain, begins buying and reselling hogs in an effort to bolster swine feed sales.

1998:

Koch Industries acquires Purina Mills.

1999:

Purina Mills files for Chapter 11 bankruptcy reorganization.

In September 1999, Purina was unable to make a $16 million interest payment on its public debt. Koch, which had not guaranteed the debt, failed to come to the rescue, and in October, Purina filed for Chapter 11 bankruptcy. In early November, the company announced that it had filed a preliminary draft of its plan for reorganization and anticipated emerging from bankruptcy in the early part of 2000. After reorganization, the company was again to be a stand-alone entity, independent of Koch.

Principal Subsidiaries

Carolina Agri-Products Inc.; Coastal Ag-Development Inc.; Cole Grain Co. Inc.; Dairy Management Services LLP; Golden Sun Feeds, Inc.; PM Holding Corp.; PM Nutrition Co. Inc.; PMI Agriculture L.L.C.; PMI Nutrition Inc.; Purina Nutrition International Inc.; Purina Livestock Management Services Inc.

Principal Competitors

Archer Daniels Midland Company; Ag Processing Inc.; Agway Inc.; Bartlett & Company; Cargill, Incorporated; Colgate-Palmolive Company; ConAgra, Inc.; ContiGroup Companies, Inc.; Hartz Group Inc.; The lams Company; Mars, Inc.

Further Reading

“A Checkered Past,” St. Louis Post-Dispatch, September 25, 1994.

Copple, Brandon, “Checkered Future,” Forbes, November 1, 1999.

Danforth, William, / Dare You!, St. Louis: American Youth Foundation, 1969.

Faust, Fred, “Purina Mills Its Own Boss Now,” St. Louis Post-Dispatch, September 28, 1993.

Holyoke, Larry, and Desloge, Rick, “Purina Mills Defaults,” St. Louis Business Journal, Week of November 1, 1999.

Nicklaus, David, “Debt, Low Hog Prices Pull Purina Down,” St. Louis Post-Dispatch, November 7, 1999.

——, “Feedmaker Purina Mills Files for Bankruptcy,” St. Louis Post-Dispatch, October 29, 1999.

Stroud, Jerri, “CEO, Workers Relieved by Purina Mills Buyout,” St. Louis Post-Dispatch, June 27, 1993.

——, “Purina Mills Goes on Sale Block,” St. Louis Post-Dispatch, March 5, 1993.

——, “Purina Says Buyout Is Strategic,” St. Louis Post-Dispatch, December 7, 1997.

—Shawna Brynildssen