Rags to riches: Lipton

Thomas J. Lipton Company is the largest manufacturer of tea in the world. Lipton controlled about 50 percent of the U.S. brewed-tea market going into the mid-1990s and also held strong positions in markets for instant, fountain, and bottled tea products. Lipton, through various subsidiaries, is also involved in other food industries. It became the top North American manufacturer of ice cream novelty foods in the late 1980s, for example, and was the top seller of instant soup. Lipton was striving to become number one in all tea industry categories in the mid-1990s.

Thomas J. Lipton Company bears the name of its founder, an immigrant of Irish descent that sailed to the United States in 1865. Lipton's story is an intriguing rags-to-riches tale. The 15-year-old Lipton, who had fled his economically deprived homeland, arrived in New York with $8 in his pocket and not a friend on the continent. Had he arrived at almost any other time he might have found work in New York. However, the Civil War was just ending, war factories were closing down, and veterans were returning home to take any jobs that were available. Lipton walked the streets of New York for several days before he finally got an offer from an agent to go to work in the tobacco fields of war-ravaged Virginia.

For the next three or four years Lipton traveled up and down the eastern seaboard and the Mississippi River chasing any job that became available. Among other engagements, he worked in the South Carolina rice fields, as a carman outside New Orleans, as a plantation bookkeeper, and even as a firefighter in Charleston, South Carolina. Lipton returned to New York periodically to look for work, but inevitably was forced back to the depressed South, where labor was scarce. A vagabond with few friends, Lipton spent several difficult years trying to find steady, lucrative employment. His face was slashed by a crazed, knife-wielding Spaniard in the Carolinas, and once he stowed away on a coastal steamer when he did not have the fare to pay for the trip. Perhaps the greatest respite from his travails was when the proprietor of a plantation for which he worked took him into his home to be cared for by his wife. The employer only took him in, however, because an ugly hatchet accident severely damaged Lipton's foot.

Lipton finally did land a job in New York&mdash a department store clerk. He worked there for a year before returning to Scotland to go to work in his fathers Glasgow shop. He quickly became frustrated with his father's business practices, which he considered archaic compared to what he had witnessed in New York. So, in 1871, at the age of 21, Lipton invested his small savings in his own store. A few years later he opened a second shop. For the next several years Lipton worked tirelessly to build his business into a small empire. Lipton's mix of salesmanship, financial discipline, and determination helped him to accomplish more than many people thought was possible for a young man from such a common background. Within ten years Lipton was operating a chain of 20 profitable grocery stores.

Lipton's stores became well known in the area as much for their service and selection as for Lipton's promotionals. Indeed, Lipton continually employed a battery of marketing gimmicks that generated a loyal customer base for his stores. In 1881, in an effort that examples his flair for showmanship, Lipton imported, displayed, and sold the largest cheese that had ever been made. The "Jumbo" cheese consumed the milk of eight hundred cows and the labor of two hundred dairymaids. It was wheeled from the dock and down streets lined with cheering spectators. Right before Christmas, Lipton hit upon the idea of inserting gold coins into the cheese. When the cheese was cut up on Christmas Eve a police squad had to be called to control the crowd. Within two hours every ounce of the mammoth cheese had been sold. Giant cheeses subsequently became a fixture at Lipton's stores during the Christmas season.

In the 1880s Lipton's spiraling food business grew to more than 200 stores and Lipton became a multimillionaire. The adventurous Lipton became less involved in day-to-day management and instead began traveling abroad searching for new items to stock in his stores, and to quell his desire for travel. Tea became hugely popular in England during the 1880s, largely the result of an influx of inexpensive tea from India. Demand had grown to 40 million pounds by the late 1870s before doubling by the mid-1880s. Tea brokers in London had been pressing Lipton to stock their chests of tea in his food stores, but Lipton had resisted. When he finally decided to start selling tea, Lipton wanted to travel abroad and find his own tea supply, rather than relying on middlemen. He went to India in 1890 to peruse the tea plantations, initiating an important new chapter in his life.

Tea was selling for 50 cents per pound in 1890, which Lipton believed was too high a price for the working-class family. He believed that he could grow and sell tea himself for about 30 cents and still make a hefty profit simply by cutting out the middleman. By doing so, he would open the tea market up to a much broader spectrum of the population. Lipton also devised a clever marketing scheme to sell the tea. At the time, tea was sold out of large chests and weighed out for the customers. Buyers often had no way of knowing if the tea was fresh, or if the seller was giving them the proper amount. Lipton decided to sell tea in packets by the pound, half pound, and quarter pound. Besides being fresher, the tea would be easier to handle and more marketable in colorful, neat packaging. He even created an advertising slogan before he actually got into the tea business: "Direct from the tea gardens to the teapot."

The Lipton name would eventually become nearly synonymous with tea in the Western world. Interestingly, Lipton was a 40-year-old, self-made millionaire before he ever sold an ounce of the stuff. He initially got into the tea business as a sideline to his food retailing business, which by the early 1890s incorporated more than 300 stores. He quickly realized, though, that he had vastly underestimated the demand for his low-cost, packaged teas. Lipton seized the opportunity that lay before him. Instead of simply enjoying big demand for his tea, moreover, he aggressively marketed "Lipton's Tea" back in England with street parades, posters, Indian's marching through the streets, and signs perched on trains and buses. Sales mushroomed. Lipton's Glasgow warehouses were overrun, so he quickly moved his headquarters to London. Cash poured in so fast that Lipton lost track of how much money he had. Within a few short years the Lipton name had been transformed from a well-known store chain to a household icon.

By the late 1890s India was shipping a huge 120 million tons of tea annually. As demand boomed, Lipton's tea operations rocketed and quickly dwarfed the sales and profits gleaned from the Lipton grocery stores. Lipton was operating five tea plantations by the mid-1890s, but demand was simply too great, forcing him to open other plantations. By the early 1900s Lipton's tea empire had become vast, with stockyards not only in Europe but also in North America. In the United States, in fact, Lipton had returned victorious. He owned valuable properties in New York, as well as in other parts of the country, and even became an acclaimed public figure--He eventually returned to live in the United States for several years during the late 1910s. Meanwhile, back in England, Lipton became associated with several members of the Royal family, was knighted, and established himself as an international figure.

Lipton went public with its first stock offering in 1897. People clamored to buy into the now-public company. Lipton posted a profit of about £176,000 that year. As his business empire continued to grow, Lipton became active in other interests, particularly yachting. In fact, Lipton became as well known as a yachting enthusiast in many areas of the world as he was a businessman. He raced for the America's Cup and sailed in races throughout the world, all the while keeping an eye on his flourishing tea interests. Despite setbacks at the beginning and during World War I, Lipton survived and even prospered during the early 1920s. Unfortunately, Lipton's luck began to turn in the mid-1920s. The directors of his company forced him out of control when he was 76 years old, assigning him the figurehead title of "Life President and Chairman."

Lipton was obviously dissatisfied with the arrangement. He eventually agreed to remove himself from the company for a fee of $4 million--He reportedly signed the abdication papers in the stateroom of his beloved Shamrock yacht. Most of his remaining years were devoted to his second love: sailing. Lipton was remembered as a ruthless, savvy, disciplined businessman and showman. He had almost no tolerance for imperfection and could be harsh. However, he also had a huge soft spot in his heart for the weak and disadvantaged, as evidenced by numerous charitable acts and gifts throughout his career. The demise of his tea empire was credited to Lipton's lack of perspective later in life. Lipton had become out of sync with the modern business world and had made several uncharacteristically poor judgments. He had also become paranoid, installing microphones in the furniture at his home to eavesdrop on guests and business associates, for example.

During the late 1920s and early 1930s, Lipton's new management team scrambled to reorganize the bloated tea and food company. Although the organization remained sound at its core, it needed to eliminate unnecessary operations and consolidate offices and divisions into a more cohesive whole. By 1930, earlier than most investors had expected, the company had returned to profitability and was even paying dividends on its shares. Lipton continued to post gains throughout much of the 1930s and 1940s, despite turbulence caused by economic problems and World War II. During those decades Lipton retained its status as a dominant supplier of bagged tea to the United States, northern Europe, and other parts of the world. Rampant growth in tea consumption, though, had long since stalled, and Lipton was forced to do battle in an increasingly competitive industry.

Following World War II, Lipton's tea operations became more focused on the U.S. market. Indeed, despite the proliferation of coffee, tea sales to the United States outstripped shipments to England as the U.S. population and economy soared during the post-war boom. Lipton changed ownership during the mid-1900s, and the company's headquarters were eventually moved to the United States. When growth in tea markets began to slow, Lipton branched out into a number of new food and beverage products. Importantly, the development of instant tea opened an entirely new market for Lipton. Similarly, Lipton developed a highly successful line of dried instant soups--Cup O' Soup--which came in packets and could simply be added to hot water. Lipton also introduced a line of gourmet teas and foods dubbed the Sir Thomas Lipton Collection.

Lipton's enterprising adaptation to shifting tea and beverage markets during the mid-1900s allowed it to post solid, steady gains. Indeed, between the early 1950s and the early 1980s Lipton enjoyed an unblemished record of revenue and profit growth--Much of that time was spent as a subsidiary of the multi-billion-dollar Anglo-Dutch Unilever NV. By the early 1980s, though, competition in Lipton's traditional markets was under attack from other established food and beverage companies. To keep pace with intensifying competition, Lipton stepped up efforts to diversify by adding a wide array of juices, tea drinks, sweeteners, salad dressings--Lipton owned the venerable Wish-Bone salad dressing brand name, for example--and other goods. Meanwhile, Lipton continued to dominate the tea industry. As the only major producer of both bagged and instant teas, Lipton controlled about 50 percent of the North American tea market.

Lipton went into the mid-1980s with roughly $1 billion in annual sales, about half of which were attributable to tea and soup sales. Throughout the decade the company continued to experiment with new food and beverage products and to cement its dominance of the tea and instant soup segment. To that end, Lipton posted healthy gains in the fast-growing instant tea industry by conducting a multimillion-dollar marketing blitz. Going into 1987 Lipton was serving 13 percent of the entire North American soup market, including both wet and dry soup products. Also in the late 1980s, Lipton became the largest manufacturer of frozen novelty products in the United States when it purchased the Popsicle and Disney brand frozen treat lines. In the early 1990s, moreover, Lipton bought out Klondike ice cream. That purchase helped push Lipton's overall revenue base to a whopping $1.4 billion in 1991.

During the early 1990s and going into the mid-1990s, Lipton was benefiting not only from its increasingly diversified food and beverage lines, but also from renewed growth in the tea industry. Driving growth in Lipton's core product line was demand for ready-to-drink fountain, canned, and bottled teas, and for gourmet bagged teas. Lipton introduced new products for both growing segments during the early 1990s and proclaimed its intent to command the surging ready-to-drink tea industry. To that end, Lipton teamed up with Pepsi to offer seven bottled teas, three canned teas, and four fountain tea drinks. Lipton entered 1995 as the U.S. leader in novelty ice cream and instant soup industries and as a top seller of salad dressings, snacks, seasonings, gelatin products, and various side dishes. As it had since near the turn of the century, Lipton also dominated the global tea industry.

Source:fundinguniverse.com