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1. The Company

Scotts

A Corporate Profile

By Corporate Watch UK
Completed September 2003

1. The company

  1. Industry Areas
  2. Market share/importance
  3. History
  4. Strategy
  5. Products/Projects

a) Industry areas

Manufacture, marketing and sale of lawn care and garden products; provision of garden maintenance services.

b) Market share/importance

The Scotts Company is the world's leading supplier and marketer of consumer products for do-it-yourself lawn and garden care. It also supplies a range of products for professional horticulture. Scotts owns the leading brands in every major category in virtually all of the countries where it has a significant presence.[1]

Scotts enjoys a de facto monopoly on lawn care and garden products in the US. In the year ending September 2002, the company enjoyed a market share of 52%, controlling 62% of the consumer market for lawn fertilisers, 59% of the market for growing media/plant food, 43% of the market for grass seed and 41% of the market for controls (i.e. herbicides and pesticides). In addition, Scotts LawnService has now become the 2nd largest competitor in the American lawn service industry.[2]

In 2002 the company's market share, for lawn care and garden products, in Europe was approximately 25 percent. The company also has a presence in Australia, the Far East, Latin America and South America.[3]

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c) History[4]

O.M. Scott & Sons – the early years The Scotts Company was founded in 1868 by the Civil War veteran Orlando McLean Scott, who moved to Marysville, Ohio in 1866. Scott worked at a seed elevator for several years before purchasing his own business, a hardware shop, in 1870.

Scott's white hot hatred of weeds led him to start a seed-processing sideline, sorting weed seeds from crop seeds for local farmers and selling on his 99.71% weed-free farm seed at a premium. In 1870 Scott added grass seed to his range of products, however this segment didn't become an important part of the business until the early 20th century.
Scott's sons Dwight and Hubert joined the company in the first decade of the 20th century and Dwight has been credited with launching O.M. Scott & Sons mail-order grass seed business in 1906. The mail-order business spread the company's business reputation throughout the region to Pennsylvania, Virginia, Kentucky and West Virginia. In 1916, the company made its first commercial sale to Brentwood golf course in Long Island, New York. By 1921, O.M. Scott & Sons was responsible for seeding one fifth of America's golf courses.

In 1928 the company launched Turf Builder, the first fertiliser formulated specifically for grass. 1928 also saw the company launch its own promotional magazine 'Lawn Care'.
The post-war gardening boom The development of major suburban areas in the US really gained momentum in the 1950s, creating larger garden areas for domestic properties, on a wide scale. Lush, green lawns became a hallmark of suburbia and the company saw its Lawn Care magazine become the most widely read turf bulletin in print” with millions of subscribers by the post-World War II era. Sales of chemical fertilisers, herbicides and pesticides also rocketed during this period. O.M. Scotts & Sons invested heavily in research at this time, placing a particular emphasis on weed killers.

In 1945 the company launched 4-XD broadleaf herbicide, followed by Scutl, Clout and Halts for crabgrass in the 1950s. In 1956 O.M Scott & Sons used new chemical products and processes to create a new 'improved' Turf Builder formulation. The company also developed the first lawn spreader, the first patented Kentucky Bluegrass, and various other innovations for home and commercial lawns.
A change of ownership Following the war O.M. Scott & Sons ownership structure evolved from full family control to a closely held company. Then, in 1971 the company was snapped up by the global engineering and manufacturing giant ITT. O.M. Scott & Sons remained within the conglomerate until 1986, when the company's then president and CEO, Tadd C Seitz led many of the company's senior executives in a highly leveraged buyout of the company. In order to buy the company, Scotts' managers borrowed $190 million (about 90%) of the $211 million price tag from the investment banking firm of Clayton Dubilier Inc. O.M. Scott & Sons became the primary subsidiary of CDS Holding Corp., a private company 61% owned by Clayton Dublier. Many of Scotts' senior executives took out second mortgages and personal loans in order to buy into the deal.

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Scotts saw a marked jump in profits under Seitz's leadership, who was able to quadruple the company's sales during his tenure. Seitz sought expansion through a combination of strategic acquisitions and new product introductions. Burgeoning environmentalism in the 1990s spurred the company's interest in the development of new organic fertilizers such as Iron Bull (iron-enriched steer manure). In 1990, the company formed a partnership to research and develop supposedly environmentally friendly biological pesticides using insect viruses, bacteria, protozoa and plant extracts.

By Autumn 1988, the company had reduced its debt to $125 million, when a restructuring allowed the $111 million acquisition of Hyponex Corp. In 1992, Scotts decided to go public as The Scotts Company, selling 12.5 million shares at $19 each in order to cut its debts to $32 million. The company's sales increased dramatically in the years following its stock flotation, from $413.6 million in 1992 to over $750 million in 1996. Some of this growth came from acquisitions such as Republic Tool and Manufacturing in 1992, and Grace-Sierra Horticultural Products Co. In 1993.

The Miracle-Gro Merger Scotts' most important acquisition came in 1995, when it bought Stern's Miracle-Gro Products though an exchange of $195 million worth of equity. Stern's Miracle-Gro was founded in 1951 by Horace Hagedorn, an advertising executive, and his partner Otto Stern. Despite the company's name it was Hagedorn and his family who eventually controlled the business. By 1995, Miracle-Gro had become America's leading brand name in gardening, with the company supplying a range of fertilisers and tools designed to make the application of fertiliser easier.

Though Miracle-Gro had less than half the sales of Scotts, the Hagedorn family emerged from the 1995 transaction as Scotts' leading shareholders, holding over one-third of the stock. The family's influence became increasingly evident in the months and years to come. In early 1996, barely 11 months after he had taken office and following a rather disastrous marketing strategy that lost the company $2.5 million in revenues, Scotts' CEO Theodore Host was ousted by Horace Hagedorn and the Scotts' board of directors. Host was replaced by Charles M. Berger, a former Miracle-Gro director, who was also simultaneously made president and chairman of the board of Scotts.
Other former Miracle-Gro Directors that crept into the upper management of Scotts that year included Jim Rogula who became leader of the Consumer Lawns segment and former Miracle-Gro president John Kenlon, who took charge of the Consumer Gardens Group. Perhaps most significantly, Horace Hagedorn's son, James, was also promoted to the head of all US business.
Given that it was co-founded by an advertising executive, Miracle-Gro had a long established strategy of creating a high demand for its products through extensive advertising. This enabled the company to command a high profit margin from retailers. Scotts' new CEO Berger sought to adopt the same strategy for Scotts to create what Horace Hagedorn called “the Proctor and Gamble of lawn and garden.”[5]

The late 1990s – Scotts embraces biotechnology, pesticides and Europe In 1997 Scotts further expanded its empire by purchasing the remaining interest in the UK company Miracle Garden Care Ltd, which had been one-third owned by Miracle-Gro when Scotts bought the company in 1995. 1997 also saw Scotts purchase UK-based Levingtons, thereby obtaining the rights to peat extraction at a number of sites in the UK. Scotts also acquired a majority interest in US-based Emerald Green Lawn Services, providing the company with a base for establishing the new Scotts Lawn Service in 1998.

In 1998 Scotts continued its aggressive expansion by purchasing Rhône-Poulenc Jardin, continental Europe's largest consumer and garden products company. This opened up the markets of most of continental Europe to the company. Scotts also acquired the Shamrock brand of UK and Irish peat products from Bord na Mona, Ireland. This gave the company “preferential access to Bord na Mona's extensive peat reserves and an option to supply the shamrock brand in the leading continental European markets”.[6]

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1998 also saw Scotts branch out into GM technology, through the acquisition of 80% of Sanford Scientific Inc, “allowing researchers to create desirable varieties of plants with value-added traits far beyond the capabilities of conventional plant breeding techniques”.[7] Scotts also entered into a collaboration with the Monsanto company to “bring the benefits of biotechnology to the multi-billion dollar turfgrass and ornamental plants business.[8] Under the agreement, Scotts and Monsanto agreed to share technologies, including Monsanto's extensive genetic library of plant traits and Scotts' proprietary gene gun technology to produce 'improved' transgenic turfgrass and ornamental plants. Other acquisitions in 1998 included the US company EarthGro Inc. and the continental lawn and garden products company ASEF.

Scotts relationship with Monsanto became even cosier in 1999, when Scotts completed agreements with the company for exclusive US, Canada, UK, France, Germany and Austria agency and marketing rights to its consumer Roundup herbicide products. Scotts also purchased the remainder of Monsanto's lawn and garden business, which included the pesticide brand Ortho.
2000 and beyond To pay homage to its guru (who retired from the company in 1997), in 2000 Scotts renamed its North American headquarters the Horace Hagedorn building. In the new millennium the Hagedorn family have continued to increase their firm grip over the company with Horace's son James being appointed CEO of the company in 2001 and chairman of the board in 2003.[9]
The turn of the century also saw the company continue its expansion into Europe through the acquisition of Substral, the leading consumer fertiliser brand in many European countries, including Germany, Austria, Belgium, France and Scandinavia. In 2000 Scotts also divested its North American Professional Turf business to The Andersons, Inc. and Nu-Gro Corporation, in order to focus its resources on more profitable markets.[10]

In 2002, the company increased its investment in GM technology, by signing a research and commercialisation agreement with New Zealand's Crop & Food Research that could lay the groundwork for the production of flowering ornamental plants 'enhanced' by biotechnology. The company announced that the research will initially focus on 'improved' geraniums, although these are unlikely to be available commercially for several years.[11]

In 2003 Scotts branched out into the $1 billion pottery sector, through the acquisition of a Florida-based pottery distributor. The company intends to launch two lines of Miracle-Gro branded pottery in 2004.[12]

d) Strategy

Scotts relies heavily on advertising to create demand for its products. According to the company's annual report, Scotts' brands are supported by an annual investment of approximately $100 million in advertising. In the US nearly 4 out of 5 advertising messages in the lawn and garden industry come from Scotts. For 2003, Scotts plans to increase its media spending by another 20%.[13]

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e) Products/Projects[14]

The company's operations are divided into four business segments: North American Consumer, Scotts LawnService, International Consumer and Global Professional.

  • North American Consumer
    Specialises in lawn fertilisers and lawn control products; grass seed spreaders; garden and indoor plant feeds; plant care products and potting soils; barks, mulches and other growing media products and pesticide products. Products are marketed to mass merchandisers, home improvement centres, large hardware chains, nurseries and garden centres.

  • Scotts LawnService
    This US-based sector provides lawn, tree and shrub fertilisation; disease and insect control; and other related services such as core aeration - primarily to residential customers through company -owned branches and franchises.

  • Global Professional
    Provides a full range of horticultural products including fertilisers, plant protection products, grass seed, spreaders, customer application services and growing media. Products are sold to lawn and landscape service companies; commercial nurseries and greenhouses and speciality crop growers. The company's branded plants business and biotechnology operations are part of this sector.

  • International Consumer
    Provides similar products to those in the North American Consumer segment to countries other than the US and Canada.
    Brands In the US, the company's brands include Miracle-Gro, Scotts, Ortho, Roundup (through a marketing agreement with Monsanto – see alliances), Turf Builder, Osmocote, Hyponex.
    In Europe, Scotts' brands include Celaflor, Nexa-Lotte, Weedol, Pathclear, Evergreen, Levington, Miracle-Gro, KB, Fertiligene, Shamrock, Round-up and Substral. A list of Scott's UK products can be found at: www.gima.org.uk/103.HTM.
    In Australia and New Zealand, Scotts' brands include Osmocote, Agroblen, Peters, and Osmoform fertilisers; Banrot, Procide and Rout plant protection chemicals; Hydraflo wetting agent and Sierrablen Flora landscape fertiliser.[15]
    In recent years Scotts has been aggressively expanding its LawnService business and has began to explore the possibility of expanding its brands into other segments such as potted plants, pottery, watering equipment and garden tools.[16]

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    References
    [1]Scotts (2003) Corporate profile, www.smgnyse.com/ireye/ir_site.zhtml?ticker=SMG&script=2100, viewed 10/7/03.
    [2]Ibid; Scotts (2002) 2002 Summary Annual Report, available at: www.smgnyse.com/ireye/ir_site.zhtml?ticker=SMG&script=700, viewed 10/7/03.
    [3]Scotts (2002) 2002 Financial statements and other information, available from
    [4]Main sources: Scotts (2002) History, http://2001.scotts.com/companyinformation/History.cfm , viewed 10/7/03; Pederson, J.P. (1998) The Scotts Company, International Directory of Company Histories, 22:474-476. [5]Scotts (2002) Company History, available from peg.gordon@scottsco.com
    [6]Ibid.
    [7]Ibid.
    [8]Ibid.
    [9]MSN (2003) The Scotts Company: Key Developments, http://news.moneycentral.msn.com/ticker/sigdev.asp?Symbol=SMG, viewed 11/7/03.
    [10]Seedquest (2000) The Scotts Company to sell professional turf business, retain value-added seed and horticulture businesses , 7/2/00, Seedquest news, www.seedquest.com/News/releases/usa/TheScotts/n2470.htm , viewed 10/7/03.
    [11]Seedquest (2002) NZ-US partnership researches novel flowers, Seedquest news, www.seedquest.com/News/releases/2002/march/4317.htm , viewed 10/7/03.
    [12]MSN (2003) The Scotts Company Introduces Miracle-Gro Branded Pottery; Announces Acquisition, 28/5/03, The Scotts Company: Key Developments, http://news.moneycentral.msn.com/ticker/sigdev.asp?Symbol=SMG, viewed 11/7/03.
    [13]Scotts (2002) 2002 Summary Annual Report, available at: www.smgnyse.com/ireye/ir_site.zhtml?ticker=SMG&script=700 , viewed 10/7/03.
    [14]Mostly taken from Scotts (2002) 2002 Financial statements and other information, available from .
    [15]NGIQ Members – S, www.ngiq.asn.au/s.htm , viewed 17/7/03.
    [16]Scotts (2002) 2002 Summary Annual Report, available at: www.smgnyse.com/ireye/ir_site.zhtml?ticker=SMG&script=700 , viewed 10/7/03.
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