Central Garden & Pet Company History

Company Perspectives:

Central Garden & Pet Company is a leading innovator, marketer, and producer of quality branded products for use in the consumer and professional pet and garden supplies markets. Through a portfolio of more than a dozen leading brands and a dedicated sales and logistics network, Central's goal is to be a high performing growth company that innovates, markets, and produces quality branded products that are number one or number two in their markets. The company also provides unparalleled customer service to a select group of retailers and strategic partners through its network of logistics centers and an extensive selling organization. The company's key business strategies are to grow its existing brands, develop and launch new innovative products, position the company to support future growth, and pursue strategic acquisitions.

Key Dates:

1955:

Company is incorporated in California as Central Garden Supply, a small regional distributor of lawn and garden supplies.

1980:

William E. Brown purchases the company and becomes its chairman and CEO.

1990:

The company becomes a national lawn and garden supplier with acquisition of Weyerhaeuser Garden Supply Co.

1992:

Central Garden & Pet Company is incorporated; Central Garden Supply is merged into the new entity.

1993:

Central Garden & Pet goes public.

1995:

The company becomes the exclusive distributor for Ortho, Round-Up, and Green Sweep products.

1997:

The company purchases Four Paws Products, a flea and tick protection business.

1998:

Pennington Seed, Inc. is purchased.

2000:

Company announces it will shift focus from distribution to proprietary brand manufacturing and marketing.

Company History:

From its position as the largest distributor of lawn and garden and pet supplies in the United States in the late 1990s, Central Garden & Pet Company quickly transformed itself into a leading marketer and manufacturer of branded pet and lawn and garden products by the early 2000s. By fiscal 2002, approximately 75 percent of company revenues were generated from the sale of its own branded products--products acquired through a series of acquisitions starting in 1997. Pet brands include Kaytee pet bird, wild bird, and small animal food; aquariums and terrariums under the All-Glass Aquarium, Oceanic Systems, and Island Aquarium names; Wellmark flea, tick, mosquito, and other insect control products; Nylabone dog chews; TFH pet books; and Four Paws shampoos, toys, grooming supplies, cages, leashes, and other accessories. On the lawn and garden side, Central Garden & Pet's brands include Pennington grass seed, wild bird seed, and fertilizers; Lilly Miller insect-control products; indoor and outdoor pottery products under the Norcal Pottery name; Matthews Four Seasons brand wooden planters, arbors, and trellises; and AMDRO and Grant's ant-control products. The company's products are primarily sold through high-volume retailers such as Wal-Mart Stores, Inc.; PETsMART, Inc.; and the Home Depot, Inc. Wal-Mart accounted for one-fifth of Central Garden & Pet's sales in fiscal 2002; included in this total were the sales of Wal-Mart private-label-brand grass seed, which is manufactured by Central Garden. The company operates 12 manufacturing facilities for pet products and 14 for lawn and garden products.

Beginnings

The firm that evolved into Central Garden & Pet was incorporated in California in 1955 as Central Garden Supply, a small distributor of lawn and garden supplies. Regional in scope, the company recorded measured growth for more than three decades. It was not until the late 1980s that Central Garden Supply began its meteoric rise. The charge was led by William E. Brown, who had purchased the company in 1980 and became its chairman and CEO. Brown's background was as a mergers-and-acquisitions attorney.

During the late 1980s, distributors in the lawn and garden industry were entering a consolidation phase. As aggressive distributors swallowed up competing firms to increase their stature, a form of corporate Darwinism decided survival: it was either jump on the acquisition bandwagon or be acquired by a competitor. As this industry trend became pervasive, Central Garden Supply sat poised as a $25-million-in-sales company, which was not nearly large enough to effectively compete once consolidation had progressed to the point where companies of its size would be dwarfed by industry giants. Accordingly, Central Garden Supply began acquiring competitors to ensure its long-term survival.

Given its financial limitations, Central Garden Supply could not become too ambitious in its acquisition campaign. The company concentrated on purchasing small, "mom-and-pop" distributors and gradually added retail customers to its fold. This incremental strategy worked well, as the company inherited the strong client relationships developed by its local and regional acquisitions. At the beginning of the 1990s, however, the company made one enormous acquisition that proved instrumental in its transformation.

Acquisition of Weyerhaeuser Garden Supply in 1990

In the late 1980s, one of the nation's largest companies was implementing a corporate strategy that would provide Central Garden Supply with the opportunity to realize phenomenal growth in one bold move. Late in the decade, forest-products behemoth Weyerhaeuser Company was reeling from the weight and sprawl of its multifarious operations. Diversification into a host of businesses had carried the corporation into insurance, home building, mortgage banking, and as far afield as disposable diaper production, creating an incongruous whole capable of generating more than $10 billion in annual revenue but hindered by depressingly low profits. New management put into place in 1988 was determined to arrest the downward slide of profits and decided to divest all businesses that did not fit with the corporation's core forest products business. One subsidiary after another was put on the auction block as the 1980s concluded, including Weyerhaeuser's lawn and garden supplies business, Weyerhaeuser Garden Supply Co.

Central Garden Supply acquired Weyerhaeuser Garden Supply in June 1990, paying $32 million for the distributor. "It's definitely a case of the shark swallowing the whale," a Central Garden Supply executive noted in reference to the deal that, overnight, made the company a major, national player. By the end of 1991, the first full year that Central Garden Supply and Weyerhaeuser Garden Supply operated as one entity, sales reached $280 million, with the former Weyerhaeuser operations accounting for $190 million, or nearly 70 percent, of the total. Bolstered by the network of clients inherited through the deal, Central Garden Supply entered the early 1990s with 25 distribution centers that enabled it to serve retail clients in 37 states. The firm had also gained management expertise from former Weyerhaeuser employees who stayed on after the takeover, including Glenn W. Novotny, who had been president of Weyerhaeuser Garden Supply and who was named president and COO of Central Garden Supply.

In the wake of the acquisition, Central Garden Supply derived roughly half its revenue volume from ten customers, the high-volume retailers that included mass merchants, warehouse clubs, regional and national chains of drug and grocery stores, and large nurseries. These customers relied on Central Garden Supply as the source for selected merchandise because of the efficiency of dealing with one supplier rather than numerous manufacturers. For their part, manufacturers turned to Central Garden Supply for distribution help because many, either purposely or because of financial constraints, eschewed the heavy costs associated with operating their own direct-sales distribution operations. Central Garden Supply helped retailers organize and schedule inventories, provided quick, reliable delivery of a broad assortment of merchandise unavailable from one manufacturer, and made the process of obtaining merchandise more cost-effective.

Acquisition-Led Expansion: Early to Mid-1990s

Poised as one of the nation's largest distributors in an industry whose annual volume exceeded $20 billion, Central Garden Supply sought to make itself the distributor of choice for all manufacturers and high-volume retailers of lawn and garden supplies. To accomplish this goal, the company focused on further expansion through acquisition.

Intent not only on expanding its lawn and garden distributing network, Central Garden Supply also was looking to diversify its business and thereby reduce its dependence on the seasonal lawn and garden business. In 1991, the company acquired a pet supplies distributor, and pet supplies soon became Central Garden Supply's fastest-growing business segment. With this promising venture beginning to develop, Central Garden Supply next moved to consolidate its acquisitions and pay off mounting debt by selling shares in the company through a public offering. The investing public considered Central Garden Supply an attractive opportunity, wooed by its position as the principal distributor to major retail chains Kmart, Costco, Home Base, and Payless Cashways. The company by this point also ranked as a major supplier to Wal-Mart, Home Depot, and Price Club and figured to strengthen and increase its portfolio of clientele given the expansion-oriented mind-set of its management.

In anticipation of the initial public offering (IPO), a new entity called Central Garden & Pet Company was incorporated in Delaware in June 1992, and Central Garden Supply was merged into the new firm, which thereby became the successor to the original. The IPO was soon to follow, but on July 14 a fire damaged the company's Baton Rouge, Louisiana, warehouse, and management soon thereafter decided to postpone the offering so they could provide full information about the damage to potential investors. The delay lasted a year, and on July 15, 1993 the firm raised roughly $22 million from the sale of 2.2 million common shares at $10 per share.

Prior to and following the offering, the company continued its acquisitive activities, building its distributor network thread by thread. Between January 1993 and January 1994, Central Garden & Pet acquired six small garden and pet distributors, purchases that added $70 million to the company's sales volume. By the end of 1993, sales had swelled to $330 million, and the company showed no signs of slowing its growth. With more than 18,000 gardening, pet, and pool supplies in its 30 distribution warehouses, the company's influence in manufacturing and retailing sectors was increasing with each acquisition. Sales rose to $421 million in 1994 and to $437 million in 1995. By the time 1995's financial totals were tallied, Central Garden & Pet held sway in the lawn and garden supplies industry, ranking as the largest distributor in the country. In terms of the pet supplies industry, Central Garden & Pet was rapidly gaining ground on its competition. The company figured as the dominant distributor on the West Coast and its national presence was building steadily. Acquisitions--12 had been completed during the previous three years--had catapulted the company to the top. Industry consolidation, which had been invigorated by the concurrent consolidation of sales in the retail sector, had forced distributors to consolidate their operations. In this endeavor, Central Garden & Pet came out as the winner, drawing praise from industry observers and gaining significant business from large national retailers. "Central Garden," one analyst remarked, "has been able to lead the pet supply and lawn and garden product industry consolidation and has emerged as the preeminent distributor." Although much had been achieved, with annual sales increasing more than 15-fold in a seven-year span, the company exited the mid-1990s prepared to increase its stature further.

One important development that greatly increased Central Garden & Pet's revenue-generating capabilities was an agreement signed with The Solaris Group in 1995. Solaris manufactured lawn and garden products sold under the Ortho, Round-Up, and Green Sweep brand names, which historically had been major contributors to Central Garden & Pet's sales volume. Before 1995, Central Garden & Pet had served as a non-exclusive distributor for Solaris, but during the mid-1990s Solaris increasingly pursued direct sales to retailers and, consequently, took substantial business away from Central Garden & Pet. The agreement signed in 1995 named Central Garden & Pet as the exclusive distributor for Solaris. The benefits of the agreement were substantial in both the long and the short term, adding nearly $100 million to Central Garden & Pet's sales volume in 1996.

Acquisition continued to be the prevailing theme describing Central Garden & Pet's development in 1996. Two pet supply distributors, Kenlin Pet Supply, Inc. and Longhorn Pet Supply, were purchased in 1996, extending the company's national distributorship coverage. Kenlin was the much larger purchase, costing Central Garden & Pet $33 million in cash. Following these two acquisitions, Central Garden & Pet ranked as the leading distributor of pet supplies in the country, having parlayed its dominant position in the West to secure many of the nation's markets. By the end of the company's 1996 fiscal year, sales rose to $619.6 million, which represented more than a 40 percent increase over the previous year's total. The increase recorded in 1997 was nearly as large, as the acquisitions completed after 1995 began to display their full impact on the company's financial stature.

Acquiring Branded Product Manufacturers in the Late 1990s

In 1997, several key acquisitions promised to boost sales for the remainder of the decade. In January 1997, Central Garden & Pet acquired Four Paws Products, Ltd., Inc., a manufacturer of branded pet supply products, for $45 million in cash and $10 million in stock. One of the nation's largest manufacturers of dog, cat, reptile, and small animal products, Four Paws sold its products under the Magic Coat and Four Paws brand names and distributed them throughout the United States, Canada, Europe, and Asia. On the heels of this deal, Central Garden & Pet acquired the pet supply business of Country Pet Supply, a distributor of pet supply and pet food products in the southeastern United States. Next, Central acquired a one-third equity interest in Commerce LLC, the leading distributor of lawn and garden products on the East Coast. Then, in May 1997, Central Garden & Pet strengthened its lawn and garden holdings, acquiring southern California-based Ezell Nursery Supply, Inc., a distributor of lawn and garden, barbecue, and patio products. That same month, the company spent $31 million for Sandoz Agro, Inc., further strengthening its pet-supply business. The addition of Sandoz Agro added $43 million in sales, gave Central Garden & Pet ownership of products marketed to pet and veterinary industries, and secured production rights to Methoprene, an insect growth regulator that served as the active ingredient in flea and pest control sprays, shampoos, collars, powders, foggers, and aerosols. The bustling activity in 1997 lifted Central Garden & Pet's total sales by more than 35 percent. Ten years after recording $25 million in sales, Central Garden & Pet comprised operations that generated $841 million in sales.

From late 1997 through early 1999, Central Garden & Pet completed four key acquisitions, which as a group substantially increased the firm's portfolio of branded products that it owned outright (rather than simply distributed). In December 1997, the company acquired both Kaytee Products Incorporated and TFH Publications, Inc. Chilton, Wisconsin-based Kaytee, purchased for about $50 million, was a leading national manufacturer of bird and small animal food; it had $103 million in sales in 1996. TFH, based in Neptune City, New Jersey, was acquired for about $84 million. It was the manufacturer of premium Nylabone dog chews and ranked as the largest publisher of pet books in the United States. Revenues for TFH in 1996 amounted to $32 million. In March 1998, Central Garden & Pet bolstered its lawn and garden side through its largest purchase yet, a deal for Pennington Seed, Inc. that cost $83 million in cash and $68 million in stock. The acquired company, based in Madison, Georgia, produced grass seed and wild bird seed under the Pennington and other brands. Finally, in January 1999 Central Garden & Pet purchased Norcal Pottery Products, Inc. for $16 million in cash and stock. Norcal was a leading designer, importer, and distributor of indoor and outdoor pottery products, including terra cotta, stoneware, ceramics, and porcelain pots and statuary. As a result of these acquisitions, revenues from the sale of branded products increased almost 60 percent during fiscal 1999, reaching $381 million. This represented fully one-quarter of overall sales, which amounted to $1.54 billion that year.

From Distribution to Proprietary Brands in the 2000s

The importance of Central Garden & Pet's expansion into manufacturing soon became readily apparent. In January 1999, Monsanto Company sold Solaris to the Scotts Company, Central Garden & Pet having made its own failed bid to acquire Solaris. At the end of September 1999, Central Garden & Pet's exclusive distribution agreement with Solaris came to an end, and Scotts began using a new distribution system involving a variety of distributors, with Central being the largest one. During fiscal 1999, the Solaris products generated 27 percent of Central Garden & Pet's revenues, amounting to about $416 million, but under the new distribution system this total tumbled to $176 million the following year.

As it was absorbing this major blow to its distribution operations, Central Garden & Pet made the decision in March 2000 to spin off this facet of its business. In July, however, Scotts announced that it would terminate its relationship with Central in September 2000. This led not only to suits and countersuits between Central and both Scotts and Pharmacia Corporation (the former Monsanto) but also to a reevaluation of the proposed spinoff. Central Garden & Pet aborted its plans to spin off the distribution business, which was now in an even weaker position, and in December 2000 announced that it would reorganize the company into two operating units, one focused on lawn and garden products and the other on pet supplies. Each unit would be involved in both the manufacture of proprietary brands and distribution, but the former would be increasingly emphasized. Toward that end, the firm also said that it would close 13 of its 19 garden distribution centers. Charges of $27.2 million, associated with the end of the relationship with Scotts, led to a net loss for fiscal 1999 of $11.8 million; revenues for the year fell by nearly $200 million. Compounding Central's travails in 2000 was an August fire that destroyed the firm's lawn and garden products distribution center in Phoenix, Arizona. In the meantime, Central Garden & Pet completed two more significant acquisitions in 2000. In March, two consumer product lines were acquired from American Cyanamid for $28 million: AMDRO fire ant bait and IMAGE herbicide. In September 2000, Central spent $10 million for Franklin, Wisconsin-based All-Glass Aquarium Co., Inc., which had annual sales of about $57 million. Gained thereby were the All-Glass and Oceanic Systems lines of aquariums, which built upon Central's existing Island Aquarium business.

By fiscal 2002, branded product sales comprised 75 percent of Central Garden & Pet's $1.08 billion in sales. As the company continued its transition from distributor to manufacturer and marketer, and also worked to return to profitability, acquisitions were put on hold. A special accounting charge of $146.7 million notwithstanding, the firm did in fact make a profit in 2002, reporting net income of $28.5 million. Central was also busy building its existing brands and introduced a number of successful new products. By June 2003, when Novotny was named president and CEO, with Brown remaining chairman, Central Garden & Pet seemed well-positioned to return to its foundational strategy of growth through acquisition, although with different prey in its sights.

Principal Subsidiaries: All-Glass Aquarium Co., Inc.; Four Paws Products, Ltd.; Kaytee Products Incorporated; Norcal Pottery Products, Inc.; Pennington Seed, Inc. of Delaware; TFH Publications, Inc.; Wellmark International.

Principal Competitors: The Scotts Company; The Hartz Mountain Corporation; United Industries Corporation; Loveland Pet Products, Inc.

Further Reading:

• Adamy, Janet, "Central Garden & Pet Ends Distribution Agreement," Conta Costa Times, July 21, 2000.
• Carlsen, Clifford, "Garden Firm in the East Bay Is Raising Cash," San Francisco Business Times, June 12, 1992, pp. 3+.
• ------, "Garden Products Firm to Harvest $30M in Offering," San Francisco Business Times, November 3, 1995, p. 3.
• ------, "Central Garden Snips a Wilting Offshoot," San Francisco Business Times, June 16, 2000, p. 3.
• "Central Garden & Pet," Fortune, February 7, 1994, p. 137.
• "Central Garden, Kenlin Hit Acquisition Trail," Pet Product News, March 1997, p. 4.
• Chadwell, John, "Central Garden Makes Move on Industry," Pet Product News, February 1994, p. 9.
• Dustman, Karen Dale, "Survival of the Fittest?," Pet Product News, January 1997, p. 1.
• Goll, David, "Troubles Plague Central Garden & Pet," East Bay Business Times, August 14, 2000.
• Guth, Lesley, "Central Garden & Pet Co. Opens Wallet, Starts Buying," Contra Costa Times, January 23, 1997.
• Guynn, Jessica, "Central Garden & Pet Reorganizes Garden, Pet Business," Contra Costa Times, December 20, 2000.
• Hunt-Stewart, Linnea, "Central Flea & Tick," Pet Product News, January 1997, p. 1.
• Romell, Rick, "California Distributor Buys Chilton, Wis., Birdseed Business," Milwaukee Journal Sentinel, December 9, 1997.
• Rovito, Rich, "All-Glass Aquarium Sold to Central Garden & Pet," Business Journal-Milwaukee, October 6, 2000, p. 10.
• Strasburg, Jenny, "If Only You Had Invested in Pets, Gardens," San Francisco Chronicle, May 5, 2003, p. E6.
• Sweet, Jack, "Central Garden & Pet Acquires Sandoz Flea Business," Pet Product News, December 1996, p. 27.

Source: International Directory of Company Histories, Vol. 58. St. James Press, 2004.