National Distillers and Chemical Corporation
National Distillers and Chemical Corporation
Incorporated: April 18, 1924 as National Distillers
Sales: $1.730 billion
Market value: $1.992 billion
Stock Index: New York
National Distillers’s product line includes Gilbey’s gin, polyethylene, titanium, and blankets. Although National Distillers operates as unlikely a mixture of businesses as found in the United States, the company is quite successful. At present, the company’s energy products make up a large portion of its total sales.
National Distillers began operating in 1887 as the Distillers and Cattle Feeders Trust, popularly known as the Whiskey Trust. The link between cattle feed and whiskey came from the fact that the sour-mash grain residue left over from distillation was fed to cows. At first, the trust consisted of 65 southern and midwestern distilleries which were supposed to abide by production quotas and price guidelines. The trust agreement was legally unenforceable, however, and recalcitrant members (and competitors) were controlled by intimidation.
Due to its habit of purchasing independent distillers only to close them, National Distillers and Cattle Feeders was exposed to anti-trust suits. After 1895 the Trust was broken into autonomous units, but it remerged once again in 1899. After the turn of the century, however, independent distillers were able to successfully compete with the Whiskey Trust, now officially known as Distiller’s Securities.
Until Prohibition most of the alcohol consumed within the United States was in the form of whiskey, so the market was very large. Almost all the whiskey sold was blended with neutral spirits, which are even less expensive to make than whiskey, but the trust left the profitable business of blending, bottling, and distribution to other companies. Consequently National Distillers’s profits began to decline. Dividends, which were reported at five dollars in 1902, were negligible in 1913.
World War I temporarily revived Distiller’s Securities when the company turned to the manufacture of industrial alcohol. However, prohibition, originally a temporary measure designed to conserve grain and glass, proved politically popular. As a result, prohibition was made law in 1919. Soon afterwards, Distiller’s Securities changed its name to the U.S. Food Products Company and began dealing in yeast, vinegar and cereal products. In 1921 the market for these products was overcrowded, and the company was put into receivership. The banks that provided the financial resources for U.S. Food Products called in the engineering firm of Sanderson & Porter to decide whether the company should be recapitalized or dismantled. The firm voted to continue operation of the company and installed junior partner Seton Porter as president.
Porter changed the name of U.S. Food Products to National Distillers and directed it toward making medicinal alcohol, yeast and maraschino cherries. National was close to bankruptcy again when it had the good fortune to be sued for 20 counts of patent infringement by Fleischmann, the yeast maker. Porter convinced Fleischmann that the lawsuit would generate unfavorable publicity for Fleischmann, and charmed the Fleischmann representative so much that the company not only suspended the lawsuit, but also offered to buy the yeast business for $250,000. After the representative’s generous offer, Porter reported that he felt “like hugging him.” Nevertheless, Porter refused the offer, even after it was raised to $1.5 million. When, after a few more months of watching National exploit Fleischmann’s patents, Fleischmann’s offer rose to $4 million, Porter finally acquiesed. The money from the sale of the yeast subsidiaries was used to reduce National Distillers’ debt and to buy 9 million gallons of pre-prohibition whiskey.
Porter sensed that the repeal of prohibition was coming soon. In order to prepare his company for the repeal, and return to its original business, Porter first secured the help of Redmond & Company, a New York stockbroker. Having examined Porter’s books and having assured itself of Porter’s sound business practices, Redmond & Company began to promote National Distillers’ shares. With the money raised by the sale of this stock share, Porter began to amass almost half of all the pre-prohibition whiskey in the country. Porter knew there would be a three to four year period of time between the time the whiskey could legally be distilled and the time it would be ready for sale.
Prohibition ended in December of 1933 and National reported $15 million worth of sales in that month alone. Not only had National acquired a large market share of the available whiskey, but it also owned 200 brand names and three of the seven legal distilleries in the country. Moreover, as the nation’s largest owner of aged whiskey, National was confronted with an important choice. It could either blend its aged whiskey with younger whiskey and sell it inexpensively, or it could cultivate a reputation for quality by selling its aged whiskey straight. Porter chose the latter course, and created a market for the company in the “bonded” whiskey market that it still occupies to this day.
After the repeal of prohibition four major distillers emerged, two of them Canadian. By 1937 National Distillers had the smallest gross sales of the four, but the largest profits—seven million dollars. National used its profits to purchase other quality distillers such as W. & A. Gilbey, Limited, a gin maker, and John de Kuyper and Son, Inc., a maker of liqueurs.
Company sales and profits continued to climb during World War II, despite what appeared to be adverse circumstances. Some of the company’s facilities were needed for the production of industrial alcohol for the war effort, a less lucrative product than liquor. Furthermore, rations on necessary materials reduced the production of most of National Distillers’ brands. The nationwide shortage of liquor, however, only served to drive prices up, consequently profits continued to grow. These favorable market conditions lasted until 1949.
In 1949 Seton Porter selected James Bierwirth, then president of New York Trust, to succeed him as president. Bierwirth, a teetotaler, at first declined Porter’s offer, but later accepted when Porter agreed that the company could diversify into chemicals. The justification for National Distillers’ move into the chemical market came from the nature of the liquor industry itself.
The liquor industry never has been what could be called a growth industry. The size of the market is a product both of demographics and major social trends. Liquor manufacturers are reluctant to try and expand their market by encouraging non-drinkers to drink and drinkers to consume more. Thus, a larger market share can only be achieved at the expense of other distillers. This is not easy given the brand loyalty and regional variations that exist. Not only is it hard to expand the market share, but price-wars and cost-cutting are also ineffective. Furthermore, actual cost of the liquid contents of a bottle represents only a tenth of what one pays for it, so less expensive grain is not the answer.
Given the unusual conditions that exist in this industry, it is understandable that National Distillers would want to use its steady income from liquor to finance growth in a less stable field with higher rewards. The chemical industry was the perfect choice. Du Pont had designed an $11 million metallic sodium plant whose sodium it needed, but fear of an anti-trust suit caused it to delay construction. As a result, Du Pont sold the plans and the necessary patents to National Distillers for a mere $500,000, and signed a contract to buy one-third of the plant’s production. To finance the plant Bierwirth sold certain assets like the White Rock Corporation and Swiss Colony Wines.
The metallic sodium plant was soon bringing in $8.5 million in sales, and had the highest profit margin of any division within the company. In 1952 National Distillers merged with U.S. Industrial Chemicals, a manufacturer of industrial alcohol, insecticides, anti-freeze and resins. Soon afterwards, the U.S. Industrial Chemicals division of National Distillers formed a joint venture with Panhandle Eastern Pipe Company in Tuscola, Illinois. This venture was soon expanded beyond industrial alcohol and ethyl chloride to include ammonia and polyethylene products.
The diversification of National Distillers into chemicals was well-timed due to the fact that the company’s liquor sales were depressed. The decline in sales was due in large part to consumer preference for blended whiskey over National Distillers’ 100 proof bourbon.
During the 1960’s the company’s diversification strategy yielded mixed, and often surprising, results. Polyethylene, for instance, did not sell well on the market and its failure came as a surprise because National Distillers was one of the first companies to manufacture this particular kind of plastic. In addition, management at the company thought its plan to manufacture fertilizer from hydrogen, a byproduct of its ethyl production, would garner large sales. Unfortunately, several oil companies had the same idea and the market for ammonia fertilizer was soon overcrowded.
During the 1960’s there were also some pleasant surprises for National Distillers. One of these was Bridgeport Brass, purchased in 1961 to help increase titanium sales. Although titanium sales never did increase during this time the brass works, once separated from an unprofitable aluminum division, did quite well. In 1968 brass accounted for a third of the company’s earnings. Another profitable acquisition was Beacon Manufacturing, the world’s largest producer for non-woven blankets. This company was purchased as an outlet for polypropylene fibers to be produced by a joint venture with Phillips Petroleum. The polypropylene venture was not approved by the Justice Department, but Beacon did very well for a number of years.
Despite the success of its U.S. Industrial Chemicals division and its acquisitions in other fields, 60% of the company’s earnings still came from liquor during the 1960’s. By 1967 bourbon was popular once again and this helped to increase liquor sales. National Distillers added to its product line of wines and spirits by purchasing Alberta Distillers, Holland House, a producer of cocktail mixes, and Almaden Vineyards. When wine sales dramatically increased during the 1970’s the Almaden purchase paid off handsomely.
One major change in the mid-1970’s was that the diversification into chemicals, once a drain on bourbon profits, began to show signs of recovery. Profits of $44 million in the first half of 1974 were almost twice as high as profits for both halves of 1973 combined. The strong showing by the chemical division came just in time however, because bourbon sales were decreasing. Fortunately, the company had already acquired Gilbey’s, a gin producer, to capitalize on the trend towards less strongly flavored spirits.
During this time, rising oil prices convinced the management at National Distillers to slowly move away from chemicals derived from petroleum feedstocks. As a result, the company became increasingly interested in alcohols and chemicals made from renewable resources. One important purchase by the company at this time was that of Emery, a manufacturer of fat and tallow-based specialty chemicals. National Distillers also perfected a new process of making ethanol from grain that reduced the cost of ethanol by almost a third. Despite its interest in chemicals made from renewable resources, polyethylenes and acetates (made from petroleum) remained an important part of the company’s total sales figure.
Perhaps the most notable suprise of the 1970’s was the performance of National Distillers’ titanium subsidiary. Purchased in 1955, the company went for years without making a satisfactory profit. However, President Bier-wirth, and later President Drummond Bell, continued to believe in the titanium project. They were rewarded when titanium profits increased from $6 million in 1977 to $30 million in 1980 as the government required more of the metal for its military jets.
National Distillers celebrated its titanium success with Almaden wine, which was making a profit of $20 million on sales of $144 million. An insurance company agency purchased by National Distillers in 1979, the Indiana Group, was another cause for celebration.
During the 1980’s the company was fortunate it had previously invested in oleochemicals because petrochemicals were affected by low demand and low prices. 1982, a recession year, was particularly bad in the petrochemical market, sales dropped from $506 million to $456 million. Sales rebounded strongly in 1984 and rose to $775 million, but decreased again in 1985. Sales for oleochemicals, on the other hand, increased steadily from $250 million in 1981 to $307 million in 1985.
Energy related products have become increasingly important to National Distillers. Revenues from this division increased from $71 million to $571 million in 1985. This increase was largely due to the acquisition of Surburban Propane and Pargas, both propane distributors. While energy sales increased, profits from the Indiana Group decreased as the company endured major underwriting losses. It was subsequently sold. Holland House, the manufacturer of cocktail mixes, was also sold because the distribution of its products through grocery stores made it incompatible with the parent company’s distribution of wines and spirits through liquor stores.
In the early and mid-1980’s, the entire liquor industry was adversely affected, in part because of public concern with drunk driving and alcohol abuse. Like most other distillers, National Distillers experienced a decline in profits from wines and spirits. Under these difficult market conditions National Distillers introduced Peachtree Schnapps, which soon became one of the most successful new entrants in industry history. Peachtree Schnapps helped to increase profits in the liquor division from $648 million to $680 million during 1985, a year when the industry as a whole watched profits drop.
Standard & Poor’s expects liquor consumption to decline by 1%-2% a year until 1990. Whiskey consumption is expected to decline at a slightly faster rate. This is not good news for the company, but since 80% of its profits are unrelated management is not worried. Sales of plastic are expected to increase, and this will be helped by a low dollar. At the same time, propane sales should remain consistently high.
Actagen, Inc; Almaden Vineyards, Inc.; Caves Lanrent Perrier, Inc.; Cooling-Grumme-Mumford Co., Inc.; DR Insurance Co.; John de Kuyper & Son, Inc. (N.Y.); Emery Chemicals; Emery Export, Inc.; NDCC Export Corp.; National Distillers Products Co.; National Helium Corp.; National Hydrocarbons, Inc.; National Petro Chemicals Corp.; Pargas Inc.; RMI Co.; Suburban Propane Gas Corp.; Buzzini Drilling Co., Inc.; Plateau, Inc.; SPG Energy Exploration Corp.; Vangas, Inc.; Syngas Co. (Tex.); U.S. Industrial Chemicals Co. The company also lists subsidiaries in Brazil, Canada, and Mexico.