Vermont Pure Holdings, Ltd.
Vermont Pure Holdings, Ltd.
Sales: $67.17 million (2001)
Stock Exchanges: American
Ticker Symbol: VPS
NAIC: 422490 Other Grocery and Related Product Wholesalers; 339999 All Other Miscellaneous Manufacturing; 551112 Offices of Other Holding Companies
Vermont Pure Holdings, Ltd. (VPH) is the largest independent bottled water company in the United States, marketing its bottled water under the brands Vermont Pure Natural Spring Water, Hidden Spring, and Crystal Rock. VPH sells its branded and private label water to retail outlets but derives the majority of its sales from distributing water and coffee to home and office customers. The company’s products are sold in northeastern, mid-Atlantic, and midwestern states. VHP ranks as the eighth-largest bottled water company in the United States and as the fourth-largest in the home and office sector. The company owns two springs, located in Randolph and Tinmouth, Vermont, that serve as its primary sources of water.
After incorporating as a Delaware corporation in 1990, VPH acquired a bottled water company named Vermont’s Hidden Spring, Inc. The purchase was completed in July 1991, giving VPH control over one spring on 1.7 acres of land, a 10,000-square-foot office facility and bottling plant, and the rights to a brand marketed as Vermont’s Hidden Spring. The acquisition positioned the company as a competitor in the non-sparkling bottled water market, a sector responsible for more than 90 percent of all bottled water sales and, as it would happen, the source of 99 percent of the industry’s growth during the 1990s. Vermont’s Hidden Spring was not the brand that marked the company’s entry into the bottled water market, however. Immediately after the acquisition of the Randolph, Vermont-based company, VPH developed a new brand marketed under the label Vermont Pure Natural Spring Water.
Positioned as a premium brand for the general consumer market, Vermont Pure was distributed to supermarkets, convenience stores, and a variety of retail outlets, as well as to home and office markets. From the start, VPH distributed Vermont Pure to locations in the New England, New York, New Jersey, and mid-Atlantic regions.
For a company that celebrated its tenth anniversary as a nearly $70-million-in-sales concern, growth was slow to come for VPH, its annual sales volume failing to reach $10 million in sales by its fifth anniversary. The energetic growth of the company during the latter half of the 1990s was largely attributable to a strategy adopted by VPH’s leadership during the mid-1990s, not long after Timothy Fallon assumed control over operations. A vice-president for the New York subsidiary of the Pepsi Cola Bottling Company throughout much of the 1980s, Fallon held a similar post at Canada Dry USA between 1989 and 1991, before being named the senior vice-president of sales and marketing for Cadbury Beverages, Inc., the owner of Canada Dry USA. Fallon joined VPH after his two-year stint at Cadbury Beverages, becoming president and chief executive officer of the bottled water company in November 1994.
Acquisition Campaign Begins in 1996
The strategy developed by Fallon and his management team drew its impetus from a desire for independence. Large companies controlled the distribution of VPH’s bottled water, putting the small company at the mercy of others, a dependence Fallon sought to reduce. The solution was to emphasize the company’s involvement in servicing home and office customers, a strategy put to action in 1996, one year after Fallon re-introduced the Vermont’s Hidden Spring brand. The home and office market offered other advantages as well, including higher gross margins than the traditional retail market, roughly 70 percent higher. The home and office market was also less vulnerable to seasonal influences. At the time, Fallon began re-orienting VPH’s business focus. Previously, the company had derived 90 percent of its sales from retail business, a percentage that would drop markedly as Fallon embarked on an acquisition campaign and shaped VPH into a different type of company.
Fallon pursued his objective primarily by acquiring distribution businesses involved in serving the home and office markets, a strategy that also broadened VPH’s geographic base. The acquisition spree began May 1996, when Vermont Pure Springs, Inc., a wholly owned subsidiary of VPH, acquired certain assets belonging to Happy Ice Corp., a Buffalo, New York-based company serving 18 counties in Buffalo, Syracuse, and Rochester. The assets acquired by VPH were part of Happy Ice Corp.’s spring water division and included property used to bottle, sell, and distribute spring water in three and five gallon bottles, as well as the rental of water coolers and coffee dispensers and coffee supplies for home and office customers. Through Vermont Pure Springs, VPH paid approximately $1.6 million for the Happy Ice assets.
Less than a year later, in March 1997, the company struck again, acquiring home and office assets belonging to Greatwater Refreshment Services, Inc., which bolstered VPH’s presence in upstate New York. In July 1997, Fallon purchased A.M. Fridays, Inc., a home and office distributor of bottled water, coffee, and vending services, with warehouse and distribution facilities located in Manchester, New Hampshire, and Shelton, Connecticut. The following month, VPH acquired a bottled water and coffee distributor named Excelsior Springs Water Company. Based in Saratoga, New York, Excelsior Springs drew the bulk of its business from home and commercial accounts in Albany, New York, but also conducted business in parts of southern Vermont and western Massachusetts. Before the end of the year, Fallon completed one more acquisition, purchasing the worldwide trademark and distribution rights for AKVA Icelandic bottled spring water.
By the end of 1997, the effect of the ongoing acquisition campaign was evident in the company’s financial growth. From $8.5 million in 1995, annual sales more than doubled in 1997, swelling to $17.6 million. Equally important to Fallon, considerable gains were being made in the growth of the company’s home and office distribution business. Fallon showed no signs of slackening his pace in 1998, resuming his acquisitive ways in January with the purchase of certain assets of Vermont Coffee Time, Inc., a $1.5 million-in-sales company based in Williston, Vermont. Vermont Coffee distributed Green Mountain Coffee and spring water to homes and offices in Vermont, New Hampshire, and upstate New York. In May 1998, the company acquired the home and office delivery assets of Perrier Group of America. VPH’s acquisition was limited to Perrier Group’s business in Albany, New York, where the company’s 4,000 customers accounted for roughly $2 million of business in 1997. Before the end of the year, Fallon acquired four additional home and office businesses. Combined, the four small firms generated $500,000 in annual revenue.
By the end of 1998, VPH was generating nearly $30 million in sales, its financial growth fueled by Fallon’s acquisition campaign and by the growth of the bottled water industry. In looking at studies prepared by the Beverage Marketing Corporation, Fallon, who was named chairman in 1998, found further incentive to pursue expansion. The industry was recording sustained, robust growth, underpinned by growing public suspicion about municipal water supplies and the possible presence of bacterial contamination, lead, and carcinogenic chemicals caused by over-chlorin-ation. An increasingly health-conscious public turned to the bottled water industry as an alternative, causing total bottled water consumption to more than quadruple between 1980 and 1998. On an individual basis, annual consumption increased from 2.8 gallons in 1980 to 13.9 gallons in 1998, by which time the industry was generating $4.3 billion in sales.
The historical growth of the industry and the equally promising growth projections for bottled water consumption encouraged Fallon to press ahead with expansion. The company’s acquisition campaign began in 1999 with the purchase of Adirondack Coffee Services, Inc., a $1.5-million-in-sales company with home and office accounts in Albany, New York, and Rutland, Vermont. An additional $800,000 in annual revenue was realized before the end of the year with the acquisition of eight small companies that served home and office customers. The company’s next move would represent the defining moment in its history of growth. During VPH’s tenth anniversary year, the company proposed a merger with Crystal Rock Water Co., a business combination that would nearly double the size of VHP and make it the eighth-largest bottled water company in the nation.
Vermont Pure Holdings, Ltd. believes that consumers perceive bottled water as a healthy and refreshing beverage alternative to beer, liquor, wine, soft drinks, coffee, and tea. The Company anticipates that sales of bottled water will continue to grow as consumers focus on health and fitness, alcohol moderation, and the avoidance of both caffeine and sodium. Bottled water has become a mainstream beverage as the centerpiece of consumers’healthy living lifestyles. In addition, the Company believes that the development and continued growth of the bottled water industry since the early 1980s reflects growing public awareness of the potential contamination and unreliability of municipal water supplies.
1998 Merger with Crystal Rock
When the merger was announced, Crystal Rock was stew-arded by the third generation of a family named Baker. The company was founded in 1914 by Henry Baker, Sr., who used a horse-drawn wagon to deliver water in half-gallon bottles to customers in Stamford, Connecticut. Baker drew the majority of his business from neighborhoods occupied by European immigrants, creating a lasting enterprise that would employ his family for the rest of the century. Baker’s son, Henry Baker, Jr., joined the company in 1947 and became its president in 1965. Under his leadership, growth was pursued aggressively. A bottling plant was built in Stamford to aid in Baker’s expansion in the office coffee and refreshment services market. During the mid-1970s, Baker was joined by his two sons, Peter and Jack. Company headquarters were moved to Watertown, Connecticut, in 1988, when a new office building and a 72,000-square-foot bottling facility were constructed. Peter and Jack Baker were named co-presidents in 1993.
The effect of the October 2000 merger was profound, giving VPH ownership of the largest provider of office refreshment services in Connecticut. The union of the oldest bottled water company in Connecticut and Vermont’s fast-rising, relatively young, home and office refreshment services provider created the country’s fourth-largest company in the home and office market, with projected combined revenues of more than $60 million. After the merger, VHP drew 75 percent of its sales from home and office business, up considerably from the 10 percent derived from such business before Fallon initiated his acquisition campaign in 1996. Fallon was enthused, remarking in the December 2000 issue of The Vermont Business Magazine,“The combined strengths of Vermont Pure and Crystal Rock position us to take advantage of the anticipated continued boom in the bottled water industry. In the next decade,”he continued,“we expect U.S. bottled water consumption to go the way of Europe, where sales of bottled water lead all beverage categories.”
The Baker family received the equivalent of $64.2 million to join VPH’s fold. Both Henry, Jr. and Peter Baker continued their tenure in the bottled water industry. Henry Baker was named chairman emeritus of VHP, while Peter Baker was named president of the company, heading its home and office division. Fallon retained his titles as chief executive officer and chairman, posts from which he would continue to orchestrate VPH’s acquisition campaign, with the Bakers at his side.
After achieving considerable strides in the development of VPH’s home and office business, Fallon turned his attention to bolstering the company’s retail business. In March 2001, he signed an agreement with Hannaford Bros. Co. to supply the supermarket chain with private label bottled water. Based in Scarborough, Maine, Hannaford Bros, operated 108 stores in Maine, New Hampshire, Vermont, Massachusetts, and New York. The day after the agreement with Hannaford Bros, was signed, Fallon signed another supply agreement, inking a deal with the retail division of Ahold USA, the operator of five retail companies in the eastern part of United States. According to the terms of the multi-year agreement, VHP agreed to supply bottled spring water to supermarkets operating under the banners Tops Markets, Stop & Shop, and Giant Food Stores, Inc. In September 2001, the company’s retail business received an additional boost with another signed agreement, one that would significantly increase the geographic scope of VPH. The company entered into a distribution agreement with The Royal Crown Bottling Company of Chicago that ensured the distribution Vermont Pure bottled water to retail outlets in Chicago, Richmond and Norfolk, Virginia, and Columbus, Georgia.
After strengthening the company’s position in the retail sector, Fallon returned to expanding VPH’s home and office business. In October 2001, VHP acquired Norwalk, Connecticut-based Iceberg Springs Water Company. Iceberg, with $3 million in annual sales, served roughly 4,500 home and office customers in Connecticut and New York. On the heels of this acquisition, the company announced its financial results for 2001, the first full year reflecting the impact of the Crystal Rock merger. The results were record totals, including $67 million posted in sales and a 57 percent increase in net income to $1.1 million. With these figures providing encouragement to keep expanding, Fallon pressed ahead, hoping bottled water sales would“go the way of Europe.”
Vermont Pure Springs, Inc.; Crystal Rock Water Co.
Nestlé S.A.; Suntory Limited; The Perrier Group of America, Inc.
- Vermont Pure Holdings is incorporated.
- Vermont’s Hidden Spring is acquired.
- The company begins increasing its assets in the home and office sector.
- A merger with Crystal Rock is completed.
- Sales reach a record high of $67 million.
Hedbor, Eloise Roberts,“Familiar Names Come from the Upper Valley,”The Vermont Business Magazine, December 2000, p. 68.
“Pure Agreement,”Beverage World, October 15, 1998, p. 32.
“Vermont Pure Holdings Acquires Iceberg Springs,”The Vermont Business Magazine, November 2001, p. 65.
“Vermont Pure Holdings,”Private Label Buyer, June 2002, p. 10.
“Vermont Pure May Get Siphoned Off,”Business Week, November 12, 2001, p. 163.
—Jeffrey L. Covell