Alberto-Culver Company

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Alberto-Culver Company

2525 Armitage Avenue
Melrose Park, Illinois 60160
U.S.A.
(708) 450-3000
Fax: (708) 450-3354

Public Company Incorporated: 1955
Employees: 7,300
Sales: $1.09 billion
Stock Exchanges: New York
SICs: 2844 Toilet Preparations; 2099 Food Preparations Nec; 7319 Advertising Nec

Perhaps best known for its Alberto VO5 product line, Alberto-Culver Company also markets a range of toiletry, grocery, and household brands. Alberto-Culver has done well as a small, family-run company in an industry of giants primarily through introducing new products and aggressively advertising them.

Alberto-Culver Company dates back to the 1950s. Under the harsh, hair-frying lights of Hollywood motion picture studios, word was spreading about a product named after the chemist who invented it: Alberto VO5 Conditioning Hairdressing. With a unique water-free, five-oil formula, VO5 had been developed at the request of studios and had proven successful at rescuing hair from dryness and damage. In 1955 Leonard H. Lavin borrowed $400,000 and bought the small beauty supply firm that manufactured VO5. This regional Los Angeles-based company also made more than 100 other products, but Alberto VO5 made up 85 percent of its sales. After buying the firm, Lavin dropped its other products, relocated to Chicago, and concentrated on VO5. He was just 36 years old at the time and his wife, Bernice, joined the company as secretary-treasurer. The Alberto-Culver Company had five employees on the production line and two employees in sales for its first year of operation.

The first television commercial for VO5 ran in Pennsylvania in 1955. It marked the company’s first year of operation and the start of a company mainstay—aggressive marketing. In three years, sales were more than $5 million. By 1958 Alberto VO5 Conditioning Hairdressing had raced to the top of its category, outselling many sizable competitors. In 1956 and 1959 some other products were added to the line, and TRESemme—a regional line of hair colors—was purchased. TRESemme has since grown to include a best-selling professional mousse. Then in 1961 and 1962, Alberto VO5 Hair Spray and Alberto VO5 Shampoo were introduced and, along with Alberto VO5 Conditioning Hairdressing, became the financial cornerstones of the company.

The 1960s were a time of explosive growth. The company went public in 1961, trading stock over the counter. A new plant and corporate offices were built in Melrose Park, Illinois, in 1960, and a plant opened in Canada in 1961. That same year, an international division was formed to sell products in Mexico, England, Australia, Guatemala, and elsewhere. Company sales surged to $25 million in 1961, then boomed to $61 million in 1962. By 1963 Alberto-Culver was ranked second among advertisers of hair care products. The results were evident: in 1964 sales were still climbing, exceeding more than $100 million. Company stock was listed on the New York Stock Exchange in 1965.

Other products were introduced in the mid-1960s. Consort Hair Spray was the first product of its kind made specifically for men. New Dawn Hair Color was the first shampoo-in permanent hair color on the retail market. The first feminine deodorant spray, FDS, was introduced in 1966 and has been a leader in that product category ever since—despite a dip in sales following the hexachlorophene scare of the early 1970s. Kleen Guard Furniture Polish went on sale in 1966, and new manufacturing operations were initiated in Mexico and Puerto Rico. By 1967 Alberto-Culver Company had more than 2,000 employees and sold products in more than 65 countries.

Alberto-Culver acquired several companies toward the end of the 1960s. The first was SugarTwin, a low-calorie sugar substituted sold regionally as part of Alberto-Culver’s Food Service Division. The company slashed SugarTwin’s calories in half and released it into national distribution, along with Brown SugarTwin, the first low-calorie granulated brown sugar replacement. These items are credited with much of the growth of the food sector of Alberto-Culver. With the federal ban on cyclamates and the conversion to a saccharin formula, SugarTwin’s double-digit growth slowed, but it remained a profitable brand for the company.

In 1969 Alberto-Culver acquired Milani Foods and Sally Beauty Company, Inc. Milani represented a range of food products sold to restaurants, hospitals, and other institutions. Milani came to be operated out of Alberto-Culver’s Food Service Division and marketed about 400 items, including food bases, beverages, soups, and dressings. Sally Beauty Company was not unlike Alberto VO5: a concept with a lot of promise. At the time Alberto-Culver purchased it, Sally Beauty consisted of one store and nine independent franchises that sold professional products for hair stylists and barbers. The franchises were closed, and Alberto-Culver developed a new merchandising strategy. This eventually bloomed into more than 1,000 company-owned and -operated outlets. Located largely in shopping centers, with some 40 outlets in the United Kingdom, Sally Beauty Supply stores offer thousands of salon products and appliances to professionals as well as retail customers.

Alberto-Culver had another significant first in 1972: it won the fight for 30-second commercials. By buying standard 60-second slots, then dividing them to run two separate commercials for different products, the company caused an uproar. Networks balked and ad agencies scoffed, but before long, the 30-second commercial was an industry standard.

Alberto-Culver’s hair care line seemed to reach its peak in the early 1970s. Sales were down in 1974, although company products were being sold in more than 100 countries, and a new food plant had been built in Melrose Park. Earnings were hard-hit at this time by OPEC (Organization of Petroleum Exporting Countries) price increases that impacted petroleum-based raw material costs. After a decade of dizzying growth, the slump was alarming. As a result, money was redirected into new products.

Meanwhile, Alberto-Culver Company had developed an ethnic hair care line, TCB. It was launched in 1975 with eight products and grew to include 36 products considered leaders in domestic retail and professional markets as well as selling solidly abroad. The first 60-second hot oil deep conditioner, Alberto VO5 Hot Oil Treatment, was introduced in 1976 and became the country’s number one selling brand. Static Guard, the first anti-static spray, was presented that same year and became a best-seller. Then in 1977, Alberto VO5 Hair Spray became the first nationally advertised premium brand to introduce an aerosol free of chlorofluorocarbons, chemicals which deplete the earth’s ozone layer. According to Lavin, the company preferred to develop original products rather than copy products already on the market, a strategy that would require heavy investment to promote over competitors. Alberto-Culver has thus earned a reputation for innovation and for spending generously to promote the products it develops.

Another aspect of Alberto-Culver’s comeback effort was the 1977 acquisition of the John A. Frye Shoe Company. Then a maker of western leather boots, Frye grew to include hand-sewn men’s shoes and belts as well as products for women and children. In the 1980s Frye boots were nearly staple items, and by 1981 Frye accounted for 19 percent of Alberto-Culver’s revenues. Following its established recipe for success, the company took Frye’s regional name recognition and aggressively advertised and distributed its products. In 1980 Phillippe of California was acquired, along with its line of handbags. Phillippe underwent the same transformation as Frye, including the addition of a line of small leather accessories; within a year Phillippe was contributing 5 percent of the company’s total sales. However, Frye and Phillippe of California were both sold by 1986 after accumulating $16 million in losses over three years. Alberto-Culver has since stayed away from fashion and concentrated on its core toiletries business.

A high degree of brand loyalty continued to make the Alberto VO5 and hair-care products line a stable one. In 1982 it represented about a third of total Alberto-Culver sales. Research and marketing efforts were paying off in the company’s other divisions. In 1983 Mrs. Dash—the first herb and spice alternative to salt—was introduced and went on to dominate sales in its category. This set the tone for a series of new “healthy” products in the Household/Grocery Products Division, including the first all-natural butter-flavor powder, Molly McButter, released in 1987, and Papa Dash, a light salt, very low-sodium blend introduced in 1991.

Also performing well in the mid-1980s was Sally Beauty Company, which boasted 145 outlets by 1983, making it the nation’s largest wholesaler of barber and beauty supplies. That same year, Alberto-Culver acquired Indola Cosmetics B.V., a prominent Dutch firm well known throughout Europe for products used by professional hairdressers. At first financially unsuccessful, Indola was extensively revamped, and its line was expanded to include all aspects of salon service, such as perms, hair colors, and specialty products. In 1990 it began to perform better and was making a fresh entrance into markets in Spain, Australia, and the Far East.

Alberto-Culver’s sales improved in 1984, when they topped $400 million. Compared to such hair-industry giants as Procter & Gamble and Bristol-Myers, Alberto-Culver was tiny, but tough. Unable to compete with the industry Goliaths in the areas of promotion, advertising, sales force, and recoverable losses, Alberto-Culver has had to rely on sharp-wittedness and timing. In addition to its many firsts in products, the company distinguished itself as an innovator in advertising. After championing the 30-second commercial, Alberto-Culver again entered the ring to fight for the 15-second commercial. This battle actually led to a threatened class action antitrust suit against the larger station group owners in broadcasting who refused to carry the split 30-second commercials. The suit was dropped when the restrictions against the ads were dropped. This was a significant win for companies of Alberto-Culver’s size, which are pinched by the high advertising costs that larger firms can more easily afford.

While still largely a family-owned company in 1986—the Lavin family controlling about 45 percent of the stock—Alberto-Culver went public, offering a new class of common stock with reduced voting rights. Lavin had his eye on several possible acquisitions. When sales topped $500 million in 1987, Alberto-Culver joined ranks with the Fortune 500. It was a leap of 37 percent in net income and a sign the company was on the right track. Sally Beauty was thriving at this time, with 470 stores and successful overseas sales, making it the largest international beauty supply company in the world.

Extending its tradition for niche-building, Alberto-Culver introduced its Bold Hold Styling Line in 1988. Targeted at teens, the products include Scrunch Spritz, Frizz Taming Mousse, and Mega Gel, all helping to achieve the latest in hair-styling trends. Meanwhile, the company’s overseas sales and profits were reaching record levels. That same year, company founder Leonard Lavin relinquished the title of president and chief operating officer to his son-in-law Howard Bernick, then the company’s chief financial officer; Lavin remained chairman and chief executive officer. Bernick joined Alberto-Culver in 1977. His wife, Carol Bernick, is Lavin’s daughter and head of the company’s New Products Division.

In 1990 the strongest growth area for Alberto-Culver continued to be international sales and the Sally stores, which grew to nearly 900 outlets that year. The company enjoyed a very solid market in Canada and England. As the domestic economy forced retailers to cut back on inventory levels, the marketplace at home was more competitive than ever. Because of the expense of opening new stores, Alberto-Culver slowed the Sally store openings in 1990. In 1989 175 stores that had been owned and operated as Safeway Stores were purchased and converted. In 1990 the company said it would be opening only about 75 stores.

The Papa Dash Lite Salt introduced in 1991 was the first to meet the government’s low-sodium guidelines. Containing no potassium chloride, Papa Dash uses an agglomeration technology to bond real salt molecules onto the surface of tiny carbohydrate particles, thus providing the taste of salt without the excess sodium.

Alberto-Culver was ranked 396th in the Fortune 500 that year in 1991. Also that year, the company agreed to drop the “ozone friendly” label from its aerosol hair products, which, while containing no ozone-depleting chlorofluorocarbons, do feature other propellants such as propane and isobutane, which are harmful to the atmosphere. Without admitting wrongdoing or inaccuracy, the company paid $50,000 in costs as part of a settlement with ten state attorneys general. Alberto-Culver purchased Cederroth International AB, a producer of health and hygiene goods, in 1991.

When sales rose again in 1992, and profits improved considerably in the toiletries and household/grocery divisions, Alberto-Culver Company attributed its decision to plump up advertising spending that year to a desire to overcome the weak market. Alberto-Culver crossed the billion dollar mark in sales that year and proved that its premise of strong support for strong products is the key to long-term growth.