Chemcentral Corporation
Address:
P.O. Box 730
Bedford Park, Illinois 60499
U.S.A.
Telephone: (708) 594-7000
Fax: (708) 594-6328
Statistics:
Private Company
Incorporated: 1926 as the William J. Hough Co.
Employees: 800
Sales: $620 million
SICs: 5169 Chemicals and Allied Products, Not Elsewhere Classified
Company History:
Chemcentral Corporation, one of North America's "big three" chemical distribution companies, retains a broad clientele through a network of local and regional sales offices. Unlike market leader Van Waters & Rogers (VW&R) of Univar, which trades broad commodities of organics and inorganics, and second place Ashland Chemical, which also manufactures chemicals and focuses on hydrocarbons, Chemcentral focuses solely on distribution, offering a wide variety of chemical commodities and specialties. In the early 1990s, Chemcentral followed a relatively conservative strategy, avoiding major risks and relying on traditional localized sales to increase the volume but not the scope of its operations. This followed a formative period of bolder acquisitions; the combined result is an organization with a solid position across the United States and a healthy, albeit small, presence in Canada. Furthermore, with 18 branches across Mexico, Chemcentral ranks as one of the larger chemical distributors in that market.
William J. Hough and Halbert G. Sampson founded the forerunner of Chemcentral, the William J. Hough Co., in Chicago in June 1926 after the closing of the Chicago branch of Columbia Naval Stores, a naval store supplier. Hough had been a manager at Columbia for ten years, and Sampson had worked as a bookkeeper at the branch since 1919. While Columbia had focused solely on the business of naval stores, Hough and Sampson had become interested in supplying other commodity lines as well and had started a partnership of their own while continuing on in their capacity as Columbia employees. The vice-president of Columbia, C. W. Dill, gave the two employees his approval on their side venture, and the friendly arrangement continued through the mid-1920s when the Columbia branch closed in order to free up capital for its parent company. Eager to take advantage of the opportunity, Hough and Sampson pooled their resources and borrowed $80,000, acquiring the assets of Columbia's Chicago branch. They then liquidated their partnership and incorporated the William J. Hough Co.
The Hough Company first assumed the business of Columbia in Chicago. The company was successful and eagerly awaited an opportunity to expand. Three years later, in 1929, such an opportunity arose. The Thoerner Manufacturing Company of St. Louis was in a line of business similar to that of Hough, when Columbia's C. W. Dill and several of the Hough stockholders bought it and incorporated as the Dill-Hough Company. Dill's son, Orville Dill, was transferred from sales in the Chicago office to manage the new St. Lewis concern. Hough would continue its policy of acquisition and expansion throughout the following two decades.
Companies in Detroit, Toledo, Cleveland, and Milwaukee followed shortly after the St. Louis expansion. In a mutually beneficial arrangement Hough and Sampson teamed up with Spencer Thomas, the president of Western Rosin Company in Detroit, to form the Paint Thinner Co. of Detroit. Through the new company Hough would be able to break into the distribution market in Detroit, while Thomas was offered the chance to expand his chemical storage and filling service to include distribution as well.
During this time the Great Depression was driving many small distributorships into fast bankruptcy. In 1931, a turpentine, linseed oil, and naphtha distributorship in Grand Rapids, Michigan, was put up for sale. Hough and Western Rosin recognized this opportunity to broaden the scope of their collaborations, and, acting swiftly, they bought the Grand Rapids operation, renaming it the Western Oil & Turpentine Co.
Also among the faltering companies was The American Mineral Spirits Company, which had sold its chemicals through separate small distributors in Detroit, Milwaukee, and Cleveland. These small distributors, however, had each amassed great debts and were eventually acquired by American Mineral. When American Mineral needed capital, it invited Hough to buy an interest in each of the distributors. Although Hough's existing Detroit distribution company, Paint Thinner, had been competing with American Mineral's Detroit distributor, Hough now would own large shares in both. Also during this time, however, Western Rosin experienced severe financial losses, and in 1935 all of these Detroit companies were consolidated as the Western Rosin & Turpentine Corporation in 1935, owned largely by the Hough Company.
Some four years after the Detroit consolidation, the Hough Company again set its sights on growth, this time in Cincinnati, Indianapolis, Buffalo, and Houston. Joining with American Mineral once again, the two companies formed the Amsco Products Company of Cincinnati in 1939. Also that year, Hough started a branch of the Chicago office in Fort Wayne, Indiana. The expansions into Indianapolis, Buffalo, and Houston were delayed until after World War II. Then in 1946, Hough and American Mineral cooperated once again and opened companies in these three cities: the Buffalo Solvents & Chemicals Co., the Hoosier Solvents & Chemicals Co., and the Texas Solvents & Chemicals Company.
By 1946, the Hough group of companies numbered ten distinct entities, including Hough and American Mineral themselves. The product lines of all the companies were similar, including naphtha, turpentine, rosin, linseed oil, alcohol, and antifreeze. Buyers included paint manufacturers, users of paint, paint stores, "automotive jobbers," and gasoline stations. And suppliers included Columbia Naval Stores and to a lesser extent Hercules, which provided turpentine, gum rosin, rosin size, and rosin oil; American Mineral and several other companies supplied petroleum solvents, Publicker Industries provided denatured alcohol, and Exxon (then Stanco of the Standard Oil Co. of New Jersey) provided "new era" products such as Toluene, Xylene, and other hydrocarbon solvents.
However, operations of the smaller companies in the group remained decentralized and inconsistent. Border skirmishes resulting from overlapping territories flared often between members. Company-wide agreements with suppliers were impossible to reach because of individual manager preferences, and personnel transfers were difficult across companies. Furthermore, as R. T. Hough wrote in Your Company ... CHEMCENTRAL, "attainment of a financial capitalization balanced in proportion to each company's requirement was needlessly hard to achieve."
The solution was the implementation of a centralized management for policies and objectives of the entire group combined with decentralized branch management for all buyers except those preferring national accounts. The reorganization was formalized on June 1, 1948, when the Central Solvents & Chemicals Company replaced the William J. Hough Company and acquired all outstanding shares of Hough and the other nine in exchange for shares of its own stock. All member companies changed their names to include the phrase Solvents & Chemicals Company, prefixed by their regional location, and a central staff and a system of regional managers, supervising three or four branches each, evolved over the next decade at Central Solvents. American Mineral retained its name and character as primarily a supplier, not a distributor, and after some years became disassociated from Central Solvents & Chemicals, abstaining from nominating its two members to the board. (Several years later, American Mineral was bought by Unocal and became Unocal's Chemical Division.)
In the mid-1950s, expansion resumed. More Midwest offices arrived first with extensions into Canada, followed by the Southwest and Mexico, the Southeast, the Middle Atlantic States, and New England. Market share in California and the Pacific Northwest accrued more recently and by the early 1990s was contributing significantly to the company's overall profile. The company growth over these succeeding decades was driven by an expanding market. In both 1974 and 1976, for example, the overall chemical distributing market achieved record sales.
By 1980, the size of the organization once again demanded greater centralization and overall coordination. As a result, all companies of Central Solvents dropped their prefixes and assumed the across-the-board name of Chemcentral Corporation. Smaller distributors who added "Solvents & Chemicals" to their own names were now clearly differentiated from those companies in the national Central Solvents organization. In addition, suppliers and buyers appreciated the mitigation of identity confusion that the prefixes and imitators had created.
After a period of continued growth, the 1980s brought about a substantially different business environment. Calls for greater environmental regulations had been increasing through the 1970s, and by 1980, Chemcentral felt the implications. That year, the Environmental Protection Agency (EPA) sued three chemical companies for alleged toxic waste leaks; Chemcentral-Detroit was one of these three. The EPA asserted that a variety of toxic chemicals, primarily organic solvents, had leaked and spilled at the company's Romulus, Michigan, facility during a transfer from tank trucks to underground storage tanks. Alleging that the chemicals ended up in a stream that feeds a tributary of the Detroit River, the EPA asked the court to bar Chemcentral from allowing further leaks and to require that it clean up its existing contaminations. By the early 1990s, general industrial pollution and improperly treated human waste had rendered the Detroit River one of the most polluted in the nation, so as a company that had sought to dispose of its chemical waste in a proper fashion, Chemcentral was incensed by the allegations, finding them misguided. The company expressed its opinion of the situation in its 1993 in-house company history, calling for "a system that rewards success instead of threatening it with regulation and litigation." Nevertheless, the company complied with tighter regulations and more stringent operating practices.
While the mid- to late-1980s witnessed overcrowded markets and slower growth, prompting the sale of Chemcentral's Canadian operations in 1983 to a Toronto distributor, the company still looked ahead to taking conservative risks for substantive growth. In Canada, for instance, Chemcentral looked forward to further business opportunities depending on the passage of the North American Free Trade Agreement (NAFTA). In 1992, in anticipation of a growing market, Chemcentral commenced the installment of an entirely new computer system. And after a relatively poor 1991 sales growth, Chemcentral experienced a resurgence in early 1992 in Detroit and the Midwest, as well as in the Southeast and the Northeast.
Chemcentral finished the completion of a $1-million branch expansion in Minneapolis in 1991 and planned additional expansions in 1992 in Tulsa and Philadelphia. The company also planned to broaden its product line, although only where it perceived an already-existing demand, refusing the risk of adding a product for which it must create demand. The organization focused in 1992 on products for five key chemical markets, including coatings, adhesives, printing and graphics, rubber and plastics compounding, and consumer specialties, with additional attention to the markets for oil-field chemicals, urethanes, and electronics. The organization then encompassed 51 territories comprised of 32 branch operations complete with offices and warehouses as well as 19 "resident sales territories," consisting of one sales representative serving customers and developing the market, and relying on third-party warehouses and nearby Chemcentral terminals for storage and delivery. In 1992, Chemcentral established new resident sales territories in Mobile, Alabama, and Greenville/Spartanburg, South Carolina. In May 1993 Chemcentral reported sales in 1992 of $620 million, representing 9 percent growth over 1991 levels. While Chemcentral then shied away from major acquisitions and ventures into wholly new markets overseas, still the company planned to build on its local roots across the North American market; with that more reliable strategy, Chemcentral anticipated significant growth in the years to come.
Further Reading:
Hough, R. T., Your Company ... CHEMCENTRAL, Bedford Park, Illinois: Chemcentral Corp., 1993.
Morris, Gregory, "Chemcentral's Local Focus Adds Up to National Breadth," Chemical Week, October 14, 1992, p. 59.
----, "North American Operations Weather the Storm," Chemical Week, August 5, 1992, p. 28-29.
"Toxic Waste Leaks Alleged in U.S. Suits Against 3 Firms," Wall Street Journal, October 8, 1980, p. 21.
Source: International Directory of Company Histories, Vol. 8. St. James Press, 1994.
