Scotsman Industries, Inc.
Scotsman Industries, Inc.
Sales: $356.4 million (1996)
Stock Exchanges: New York
SICs: 3585 Refrigeration & Heating Equipment; 3556 Food Products Machinery; 3632 Household Refrigerators & House & Farm Freezers; 6719 Holding Company
Scotsman Industries, Inc. is the world’s largest manufacturer of commercial ice machines. With subsidiaries in the U.S., Germany, Italy, and the U.K., alliances with companies in the U.S., U.K., and China and with sales in over 100 countries, Scotsman truly is an international corporation. Among the other types of products Scotsman manufactures are food preparation and storage equipment, beverage dispensing equipment, refrigerated display cases, and insulated panels and doors. With its continuing quest to acquire new companies that build on its existing product line, Scotsman is sure to grow and expand through the end of the 1990s and beyond.
Scotsman traces its origins back to 1921, when the Queen Stove Works was founded in Albert Lea, Minnesota. This company originally produced camp stoves, later adding oil space heaters, kitchen stoves, and other products. In 1950 Queen purchased the American Gas Machine company, a manufacturer of lanterns, ice chests, heaters, and one model of commercial ice machine. Queen used the name “Scotsman” to market its commercial ice machines from this point forward. After being acquired by King-Seeley Corporation in 1957, which then merged with the American Thermos Products Company in 1960, Queen shifted its focus entirely to the manufacture of ice machines, then still a fairly new business.
In 1967 King-Seeley Thermos acquired Frimont S.p.A., a large Italian maker of commercial ice machines, and began to use the Scotsman name for the products produced by them as well. This immediately made Scotsman the largest-selling ice machine brand in the world, as Frimont products were sold in Europe, the Middle East, and the Far East. In 1968 Household Finance Corporation (later known as Household International) absorbed King-Seeley Thermos. Household created the Household Manufacturing subsidiary to house this new acquisition, in 1969 adding to it Halsey Taylor, makers of drinking fountains and water coolers.
Household Manufacturing added another Italian ice machine maker in 1985, Castel MAC, S.p.A. Castel, which also made commercial freezers, blast freezers, bakery dough retarders, and water coolers, had its own distribution network in Europe, Africa, the Middle East, and the Far East. Another acquisition came the following year, when Household purchased Glenco-Star, a maker of commercial refrigerators, freezers, and restaurant food preparation tables. Booth, Inc., a Dallas-based maker of fountain drink dispensing machines with its own subsidiary Call-Star, makers of ice cooled equipment, was added in 1987.
Scotsman Industries Created in 1989
In 1989, Household International divested itself of Household Manufacturing, which spun off three units as public companies, including its Refrigeration Products Group, headquartered in Vernon Hills, Illinois. Renamed Scotsman Industries, Inc., shares began trading on the New York Stock Exchange in April 1989. Though the first year as a new, public company saw Scotsman’s stock value drop by about 40 percent, with flat annual sales, the company rapidly recovered its footing under CEO Richard Osborne through restructuring, consolidating manufacturing plants, improving cost-effectiveness, and sharpening its marketing focus.
The next several years saw further streamlining of operations, as Halsey Taylor and Glenco-Star were sold off. The former’s line of drinking fountains and water coolers were not consistent with the main thrust of Scotsman’s business, food preparation equipment, while it was felt by the company that the latter did not offer enough potential for growth. In 1992 subsidiary Booth Inc. brought Crystal Tips into the corporate family. Iowa-based Crystal Tips was also a manufacturer of commercial ice machines, which further increased Scotsman’s share of this market. Following the purchase both Booth’s and Crystal Tips’s operations were merged in Booth’s Dallas location for greater efficiency.
Other acquisitions ensued, including Simag, an Italian ice machine maker purchased by Frimont in 1993; Delfield Company and Whitlenge Drink Equipment Ltd., acquired by Scotsman in 1994; Hartek Beverage Handling GmbH, added in 1995; and Kysor Industrial Corp., which was purchased in 1997. Each of these companies brought something useful to Scotsman’s overall profile. Simag further consolidated Scotsman’s position of strength in the growing ice maker market in Europe. Delfield, based in Mount Pleasant, Michigan, was the largest maker of custom food preparation workstations in the world and also produced commercial refrigerators. Whitlenge was a United Kingdom-based maker of soft drink and beer dispensing equipment, with a strong presence in the U.K. and Europe, selling its products in over 30 countries. Hartek, based in Germany, was also a leading maker of soft drink dispensing equipment, in addition to producing beer coolers, with its line of products sold throughout Europe. The purchase of Hartek made Scotsman the second largest beverage dispenser manufacturer in Europe, and the third largest in the world. By 1995, half of Scotsman’s revenues came from the companies it had purchased since going public.
Scotsman’s purchase of Cadillac, Michigan-based Kysor in 1997 brought additional food preparation-related products into the fold. Kysor manufactured refrigerated display cases, commercial refrigeration systems, and insulated panels and doors at 14 locations in the U.S., Great Britain, and South Korea. It was the second largest maker of walk-in refrigerators and refrigerated display cases in the United States. Kysor’s strong sales to supermarkets such as Winn-Dixie and Food Lion, as well as the superstores of Wal-Mart, helped Scotsman increase its presence in this area of the marketplace. Scotsman would also be able to market Kysor’s products to the restaurant chains and institutional food service clients it had established ties to. The purchase of Kysor for approximately $300 million in cash and assumed debt would increase Scotsman’s annual revenues by close to 70 percent (Kysor’s Transportation Group was sold to a third party by Scotsman immediately after the acquisition).
The 1990s: Joint Ventures
Scotsman also entered into joint ventures with three companies. The first of these came in 1992, when an alliance was formed with Howe Corporation of Chicago to exclusively market Howe’s Rapid Freeze line of industrial ice flakers worldwide. In 1995, Scotsman and Shenyang Xinle Precision Machinery Company agreed to a joint venture to produce ice machines in Shenyang, China. These were to be initially sold in China, but could later be produced for other markets as well. The formation of SAW Technologies Limited was announced in August 1996. This was a partnership with Aztec Developments Limited of the U.K., a maker of sophisticated beverage dispensing valves. These were to be incorporated into new lines of products from the three beverage dispenser manufacturing companies Scotsman owned. This was projected to give Scotsman a further edge in its important beverage dispensing business, which in 1996 accounted for almost 20 percent of the corporation’s annual sales.
Scotsman’s worldwide presence has been one of the company’s strongest suits. Foreign sales accounted for over a third of the company’s 1996 revenues, and were one of its fastest-growing sources of income. One reason for this trend could be seen by looking at the relative prevalence of ice machines in restaurants. According to William Blair & Co. analyst Chris Serra, by the mid-1990s about 90 percent of restaurants in the U.S. were estimated to have ice making machines, while only about 50 percent to 60 percent of those in Europe had them. Markets in less-developed countries had an even greater potential for expansion. Scotsman’s position at or near the top in most of its product categories in Europe, and worldwide, positioned it strongly for continued growth.
Responding to New Challenges in the Early 1990s
Scotsman has also aggressively responded to changing demands of customers and government regulators to keep its products up to date. When the U.S. government decided to ban refrigerants that use chlorofluorocarbons (CFCs) after January 1,1996, due to concerns that they contributed to the destruction of the Earth’s ozone layer, the company decided to have a CFC-free ice machine model ready by the spring of 1993, in order to have a fully-tested product line in place by the deadline. With the design process beginning in early 1991, this required reducing the company’s normal timeline for bringing a product to market from about 32 months to 18 months, including the development of a CFC-free refrigerant, which did not yet exist. At the same time, Scotsman had learned from recent customer surveys that its quality was not considered to be especially high, and it was determined to improve its ratings with the new products.
It is our mission to achieve total customer satisfaction and be recognized as the best at what we do; increase shareholder value by maximizing cashflow and achieving superior financial results; increase our international presence and global market share; and provide employees with work that challenges, rewards and affords opportunity for personal growth.
The company decided to design these new ice machines using a team approach, incorporating its parts suppliers directly into the design process. This way, before prototypes would be made, dialogue between suppliers could help eliminate problems before they occurred. For example, the refrigerant supplier tried several different formulas before settling on one that most closely matched the older CFC-containing coolant. The compressor maker then tested it to see how it would work in its machines. It was found that the new refrigerant interacted chemically with the mineral-based lubricant used in regular compressors. Ultimately, a usable synthetic lubricant was found, though this cost many times what the mineral type did, thus raising the cost of the end product. The company in turn adjusted the projected price of the machines, giving customers advance notice of what to expect. After several such problems were worked out, Scotsman met its deadline and was the first manufacturer to bring out a CFC-free ice machine. Reliability over Scotsman’s previous models was doubled as well. For future product design challenges, the company projected reducing the time to market still further, using online communications systems to save even more time.
The Late 1990s: A Complementary Mix of Products
By 1997, Scotsman’s product mix included ice machines, food preparation and storage equipment, beverage dispensing equipment, refrigerated food display cases, and insulated panels and doors. The types of ice machines made around the world under the Scotsman name included several different varieties. Cuber or nugget machines were used in hotels to supply ice to guests, or in fast food outlets, cafeterias, institutional settings, etc. to provide ice for beverages. In the late 1990s Scotsman added the CM3 line of cubers to provide greater ice making capacity than previous models at roughly the same price, with reduced energy use and 40 percent fewer moving parts. Other Scotsman ice machines included flakers to make ice for food storage and display, and a line of consumer ice makers intended primarily for the luxury home market.
Food preparation and storage equipment, manufactured mainly by Scotsman subsidiary and U.S. market leader, The Delfield Company, included custom food preparation tables and serving line equipment, as well as mobile serving carts, self-contained kiosks, reach-in refrigerators and other products. Del-field had established strong relationships with a number of clients, including the Boston Market chain of restaurants. When Boston Market needed new serving line equipment, Delfield was able to develop prototypes in under six weeks, ultimately being named sole supplier of such equipment to the chain. Scotsman subsidiary Castel MAC in Italy also produced blast freezers, dough retarders, and other refrigeration and storage equipment for the bakery industry, giving Scotsman additional sources of components for the creation of custom food preparation workstations.
Beverage dispensing equipment was manufactured in the U.S. and Europe by Scotsman subsidiaries Booth, Whitlenge, and Hartek. Combined, these gave the company the position of third largest manufacturer and distributor of such products in the world. Types of products in this category included pre-mix and post-mix soft drink dispensing machines, combined drink dispenser/ice machines for self-service and fast food restaurant use, or bartender style dispensers with a single hose and control buttons for different beverages. The joint Scotsman/Aztec Developments venture, SAW Technologies, was created to manufacture and market the Aztec valve, a sophisticated type of electronically controlled beverage dispensing valve. It was capable of differentiating between different types of soft drink syrups, monitoring and regulating the mix of syrup and carbonated water, and handling beverages with other characteristics such as fruit juices, which may contain pulp that is problematic to the older types of mechanical valve systems.
The refrigerated display cases and insulated panels and doors manufactured by Kysor constituted the last major category of products made by Scotsman. Display cases included self-service models for use in stores selling refrigerated or frozen food products and refrigerated deli cases. Insulated panels and doors were used in walk-in cold storage rooms and larger refrigerated enclosures and warehouses. Kysor also manufactured mechanical refrigeration systems. As with other Scotsman product lines, the expansion of its major U.S. customers into foreign markets was expected to give Kysor continued growth in this area.
In 1997 Scotsman Industries, taken as a whole, was a thriving, well-integrated family of companies that was directed toward a common goal, that of being, in CEO and Chairman Richard Osborne’s words, “Recognized as a premier supplier of equipment to any location where food and beverages are sold.” It has continued to meet that goal by acquiring successful companies from around the world that produce complementary products.
Booth, Inc.; Castel MAC, S.p.A. (Italy); The Delfield Company; Frimont, S.p.A. (Italy); Hartek Beverage Handling GmbH (Germany); Kysor Industrial Corp.; SAW Technologies Limited (U.K.; 50%); Scotsman Ice Systems; Whitlenge Drink Equipment Limited (U.K.); DFC Holding Corporation; Hartek Awagen Vertriebsges m.b.H. (Austria); Scotsman Drink Equipment, Limited (U.K.); Whitlenge Acquisition Limited (U.K.); Whitlenge Drink Equipment N.V. (Belgium).
Breskin, Ira, “Scotsman Grows by Acquiring Worldwide Food-Service Lines,” Investor’s Business Daily, April 3, 1997, p. B15.
Carbone, James, “How Scotsman Used Alliances to Solve a Design Problem,” Purchasing, February 16, 1995, pp. 36-40.
“The History of Scotsman Industries, Inc.,” Vernon Hills, Illinois: Scotsman Industries, Inc., 1996.
Lambert, Ron, “Icemaker Mfrs. Do Their Part; Techs Are Urged to Conserve Ice Machines’ Refrigerant,” Air Conditioning, Heating &Refrigeration News, June 3, 1991, p. 15.
“New Stock Listings,” The Wall Street Journal, April 10, 1989.
“Scotsman Indus Backs 3Q Net View of 54c a Diluted Share,” Dow Jones News Service, October 22, 1996.
“Scotsman Indus-Kysor-2: Merger to Be Completed in March,” Dow Jones News Service, March 10, 1997.
“Scotsman Restructures, Reclaims Market Stake in Wake of Spin-off,” HFD-The Weekly Home Furnishings Newspaper, May 21, 1990, p. 130.
“Scotsman to Acquire Kysor for $300m in Cash, Assumed Debt,”Nation’s Restaurant News, February 17, 1997, p. 56.
White, James A., “Heard on the Street: Investing in Spinoffs Grows Treacherous; Popularity of Issues Puts End to Bargains,” The Wall Street Journal, June 1, 1990, p. C1.