Schieffelin & Somerset Co. History

Company Perspectives:

We are a passionate high performance team that thrives on challenges, drives innovation, develops the potential of our employees and maximizes the value of our brands. We respect and value every employee, encourage diversity, understand our consumers and partner with our owners and customers. We are committed to an environment that supports our core values and celebrates success. Our journey for excellence is ongoing as we become the benchmark by which all organizations are measured.

Key Dates:

1794:

The predecessor to Schieffelin & Co. is established as a drug distributor.

1920:

Prohibition begins, taking Schieffelin into the medicinal alcohol business.

1962:

Schieffelin closes its Pharmaceutical division.

1963:

Canada Dry Corporation forms Somerset Distillers.

1980:

Moët-Hennessy acquires Schieffelin.

1986:

Guinness acquires Somerset.

1987:

Moët-Hennessy and Guinness create Schieffelin & Somerset as a joint venture.

1997:

Guinness merges with Grand Metropolitan PLC, creating Diageo PLC.

Company History:

Operating out of New York City, Schieffelin & Somerset Co. (S&S) is a major American importer of premium wines and spirits, maintaining regional centers in California, Florida, Georgia, Illinois, Massachusetts, New Jersey, and Texas. The S&S portfolio includes such prestigious brands as Hennessy, Dom Perignon, Moët & Chandon, Chandon Estates, Tanqueray, Johnnie Walker, Grand Marnier, J&B, Pinch, Buchanan's, The Classic Malts, Rufino, and Casa Lapostolle. The company is co-owned by Diageo PLC and Moët Hennessy Louis Vuitton (LVMH). S&S is one of the United States' five oldest continuously operating companies.

Tracing Company Roots Back to Colonial America

Although the Somerset portion of S&S is only 40 years old, the Schieffelin side dates back to the foundation of the United States to a man named Jacob Schieffelin, who if given the choice would not have had the republic come into existence at all. Schieffelin was born in 1857, the son of a German immigrant who settled in Philadelphia in 1745. During the Revolutionary War he remained loyal to the Crown of England and served in the loyalist army. Captured in 1779 he was imprisoned in Virginia before escaping to New York--which was held by the British--and then following the English army to Canada. In Montreal he became a merchant and importer, and after the war he returned to the States, settling in New York, where in 1894 he bought out the business of a brother-in-law, Effingham Lawrence, who had been a New York drug merchant since 1781. Schieffelin then took into partnership another brother-in-law, John B. Lawrence, and established Lawrence & Schieffelin, the distant ancestor to today's Schieffelin & Somerset. The pharmaceutical business that Schieffelin entered was in its infancy. At the time, pharmacists had no standing, and most physicians mixed their own medicines and even rolled their own pills. Lawrence & Schieffelin served as a wholesaler to druggist's shops, which did little more than supply raw materials to physicians, and also sold items such as varnish, paint ingredients, and glass. The first college of pharmacy was founded in 1821 in Philadelphia, and it was not until this period that the line between retail and wholesale druggists became blurred, as prescriptions began to be filled by trained pharmacists.

Located on Pearl Street in lower Manhattan, Lawrence & Schieffelin not only bought, sold, and imported drugs and medicines, it also traded fancy goods, perfumes, and other merchandise. Schieffelin dominated the company and was instrumental in the firm becoming involved in lucrative, yet risky, shipping ventures. His first such investment in 1795 netted a princely sum of $25,000. A few years later, as Napoleon entered the world stage and France and England were trying to deny the other's trade with the United States, the shipping business became highly dangerous. Some of Schieffelin's ships were captured, prompting Lawrence in 1799 to strike out on his own, leaving the firm to change its name to Lawrence Schieffelin. In 1805, it would become Jacob Schieffelin & Son when Henry Hamilton Schieffelin was taken into partnership. (The younger Schieffelin was a graduate of Columbia College in 1801 and then studied law with a prominent New York attorney. By all accounts he was something of a renaissance man, versed in most of the arts and sciences, regarded as a "living encyclopedia.") Again, Schieffelin did not limit his activities to drugs and medicines. Old newspaper advertisements indicate that the firm dealt in "Muscovado sugars," "coffee in hogsheads," cotton from Guadaloupe, "double refined saltpeter," brimstone, and even gunpowder. The elder Schieffelin remained the head of the business through the War of 1812. Despite the loss of two ships, one seized by the French in Amsterdam and another by the English in the West Indies, the firm was able to carry on. In 1814 Schieffelin retired (he died in 1835) and son Henry took over the business, which for the next 35 years would be called H.H. Schieffelin & Co.

The first task that Henry Hamilton Schieffelin faced in assuming leadership of the family business was to overcome the effects of a long war, which had a devastating impact on the economy of the young nation. As business conditions improved so did the firm's fortunes. The company moved from Pearl Street to larger accommodations on Maiden Lane. The panic of 1837 did little to hinder growth. In fact, in 1841 the firm moved to an even more spacious property located on John Street. In 1848 the company grew via acquisition, purchasing the stock and adding the business of Hoadley, Phelps & Co. A year later Henry Hamilton Schieffelin retired, leaving four sons--Samuel Bradhurst, Sidney Augustus, James Lawrence, and Bradhurt Schieffelin--to take control of the firm, which was now called Schieffelin Brothers & Co.

Of the four, Samuel was the dominant partner and chiefly responsible for the firm's growth during the next phase of its history. In 1854 a six-story building was constructed to house the business, an expansion that also allowed the opening of a department devoted to druggists' sundries and shop wares such as mortars, percolators, and pill machines--a major area of growth for the company for the next several decades. As had been the case from the start, however, Schieffelin was nimble enough to take advantage of opportunities that arose outside of pharmaceuticals. With the discovery of petroleum in Pennsylvania, the firm established an office in Titusville, Pennsylvania, and became the first company to ship petroleum into New York City for sale. The ability to adapt to conditions was of vital importance during the Civil War, 1861-65, when the conflict suddenly severed Schieffelin's ties to major customers in the South, many of whom had outstanding accounts that would never be paid. Nevertheless, the company was able to find new sources of income that more than made up for lost business.

Following the war, the four Schieffelin brothers retired from active participation in the company, which in 1865 was once again renamed, becoming W.H. Schieffelin & Co. Lead partner was William H. Schieffelin, son of Samuel B. Schieffelin. Other partners, nonfamily members, included William A. Gellatly, Joseph H. Westerfield, and William N. Clark. The company grew through acquisition in 1875 by purchasing A.B. Sands & Co. In 1882, Schieffelin spurred organic growth by establishing one of the finest laboratories of its kind in the United States. By the end of the 1800s, the company had sales offices located in Chicago and San Francisco, and served Europe through its operations in London, England. It also forged an important alliance with The Farbenfabriken (the Bayer Company), acting as the German drugmaker's representative in the United States.

Prohibition Leading to Shift Away from Pharmaceuticals

Schieffelin entered the 20th century as a leading pharmaceutical wholesaler. In 1906 it became the first company in the United States to file proofs of purity to federal regulators, receiving Guaranty Number One. But soon, because of Prohibition, Schieffelin's business would switch from pharmaceuticals to alcohol, albeit at first it was alcohol intended for medicinal purposes. The drive for a legal ban on alcohol grew out of the religious revivals that swept the United States in the 1820s and 1830s. Although local temperance laws were enacted, it was not until the 1900s that the drive for national prohibition gained momentum, leading to the 1917 ratification of a constitutional amendment to outlaw spirits, and the passage in 1919 of the National Prohibition Act, better known as the Volstead Act, to provide enforcement. In truth, the enforcement effort was dependent on local views regarding prohibition, so that in many areas authorities turned a blind eye to the sale and consumption of spirits. The new laws did succeed, however, in making spirits more difficult to acquire, leading to bootleggers and rum runners, who either manufactured their own beverages, sometimes in a bathtub according to popular accounts, or by smuggling through the United States' porous borders. Another way to procure spirits was the result of a loophole in the law that allowed alcohol to be purchased for medicinal purposes. As was to be expected, the number of prescriptions written for medicinal alcohol soared. Two of the most prescribed "curatives" were Hennessy Cognac and Moët & Chandon Champagne, both of which Schieffelin & Co., as the business was now called, imported. It was in this way that the 125-year-old drug wholesaler developed a thriving new wine and spirit business.

Bringing Schieffelin and Somerset Together in 1987 Joint Venture

The Volstead Act was repealed in 1933, ending Prohibition, but Schieffelin continued to deal in alcoholic beverages. The business grew so profitable that in 1962 the company elected to close its Pharmaceutical division in favor of becoming a pure-play wine and spirit distributor. Over the next 25 years the beer, wine, and liquor industry went through a period of intense consolidation, with storied brands changing hands and being combined together. In 1971 Moët & Chandon merged with Jas. Hennessy & Co, forming Moët-Hennessy. Then, in 1980, Moët-Hennessy acquired Schieffelin. Seven years later, in 1987, Moët-Hennessy reached an agreement to merge Schieffelin with Somerset Importers Ltd., owned by Guinness Plc, in a joint venture that brought together more than 20 premium wine and spirit brands.

Guinness had roots even deeper than those of Schieffelin, dating back to 1749 when Arthur Guinness opened a Dublin brewery. Somerset was established in 1963 as Somerset Distillers Ltd., the result of Canada Dry Corporation consolidating its Wine & Spirits Division. In 1984 Distillers Company Ltd., the world's leading Scotch whisky company, acquired Somerset, and two years later Guinness acquired Distillers. This transaction, however, led to a major scandal, the largest in the financial history of the United Kingdom. It involved acts taken by Guinness to illegally inflate the price of its stock to fend off a competing offer from Argyll Group, including the charge that Guinness bought its own stock during the offering period and indemnified other companies against loss if they purchased stock on behalf of Guinness. In the end, the chief executive of Guinness, Ernest Saunders, went to jail, and he was replaced in March 1987 by Anthony Tennant. He brought sweeping changes to Guinness, selling off peripheral assets and reorganizing the company's core businesses. One of these moves was to transfer its distribution assets, in the form of Schieffelin, to a partnership with Moët-Hennessy's Somerset.

Many of the brands that became part of the S&S portfolio also boasted a rich heritage. Dom Perignon was named for a 17th-century, blind, French monk, who developed an exceptional sense of taste and smell, which was instrumental in his rise as a wine expert. J&B Scotch Whiskies dated back to the firm of Johnson and Justerini, established to sell Scotch whiskey in 1769. In 1830 it became Justerini & Brooks after Alfred Brooks bought the business. Oban, one of the six whiskies that comprise Classic Malts of Scotland, dated back to 1794. Johnnie Walker was established in Kilmarnock, Scotland, in 1817. Tanqueray got its start in 1825 when Charles Tanqueray created his recipe for gin. In 1898 Tanqueray merged with Alexander Gordon & Co., which dated back to 1759 when Alexander Gordon launched a London gin business. Grand Marnier cognac dated back to France, 1827. The Ruffino winery was established in Italy in 1877. James Buchanan founded Buchanan's line of whiskies in 1884; and Pinch was established by John Aloysius Haig, who first offered his Pinch Blended Scotch Whisky in 1888.

S&S added Dewar's, Pinch, and The Classic Malts in 1992. In 1994 it became the exclusive agent for Grand Marnier. Dewar's was divested in 1997, and in that same year Buchanan's and J&B was added to the S&S portfolio. As they were introduced, newer products, such as Grand Marnier's Casa Lapostolle, were marketed as well. S&S endured some difficult times during the early years of the joint venture, due in large part to a drop in liquor sales throughout the 1980s. But in the 1990s, the company enjoyed notable successes, which included making Johnnie Walker Black Label the top-selling Super Premium Scotch whiskey in the United States, and establishing Moët & Chandon Nectar Imperial as the third best-selling champagne.

S&S managed to prosper despite changes to its corporate parents. Shortly after S&S was founded in 1987, Moët-Hennessy merged with Louis Vuitton to create LVMH, which soon became controlled by well-known French entrepreneur Bernard Arnault. He then proceeded to transform LVNH into an empire of luxury brands that became a dominant force in the fashion industry. But when Guinness decided to merge with Grand Metropolitan PLC in 1997, resulting in the creation of Diageo PLC, according to Business Week, "LVMH execs were not pleased. LVMH actively tried to block the deal, claiming it would negatively affect its joint venture with Guinness. Meanwhile, despite the bitter arguments between its parents across the Atlantic, the American joint venture was doing just fine, thank you. 'It is a good example of a joint venture network that has had the ability to ride out tension and conflict between parent companies,' says Kenneth Mildwaters, the former general counsel of Guinness' parent, Diageo PLC. Mildwaters says the reason the venture succeeded is that senior management stayed loyal to the joint venture, not to either Guinness or LVMH."

There was some concern in the summer of 2002 that Diageo, in the words of the Financial Times, "might break up Schieffelin & Somerset--possibly seeking to buy LVMH's Hennessy cognac in the process--rather than deepen the joint venture." Instead, Diageo decided to combine "the distribution of its brands, which includes Smirnoff vodka, with more upmarket drinks such as Dom Perignon champagne and Hennessy cognac, following an agreement with LVMH of France." In addition, Diageo announced that "it had teamed up with Schieffelin & Somerset to appoint one joint distributor in each of several key states." For the time being, at least, the corporate parents of S&S appeared to be committed to maintaining the joint venture.

Principal Competitors: Brown-Forman Corporation; Allied Domecq PLC; Remy Amerique, Inc.

Further Reading:

• Faith, Nicholas, "The Importance of Succeeding Ernest," Business, February 1988, p. 64.
• Jones, Adam, "Diageo in Move to Reorganize US Distribution," Financial Times, July 30, 2002, p. 19.
• One Hundred Years of Business Life, 1794-1894, New York: W.H. Schieffelin & Co., 1894.
• Over 200 Years of Growth, New York: Schieffelin & Somerset Co., 2002.

Source: International Directory of Company Histories, Vol.61. St. James Press, 2004.

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