Henkel KGaA

1876–1910

Based in Germany, Henkel KGaA is one of the world's largest chemical companies. It has five main operating sectors: adhesives (22 percent of overall sales), where it holds the number one position in the world; cosmetics/toiletries (16 percent), where it is number three in Europe; detergents/household cleansers (23 percent), where it ranks second in Europe; industrial and institutional hygiene/surface technologies (16 percent), which includes a joint venture with Ecolab Inc. that is a European market leader in hygiene products, and which also is the world leader in products for the chemical surface treatment of metals; and chemical products (23 percent), a unit that is contained within an independent, but wholly owned, subsidiary called Cognis, which is the world leader in oleochemical products. In addition to its joint venture with Ecolab, Henkel also holds a 21.8 percent stake in that St. Paul, Minnesota-based supplier of cleaning, sanitizing, and maintenance products and services. Henkel owns a 24.7 percent interest in the Clorox Company, a maker of consumer products based in Oakland, California; and is involved in detergent joint ventures in the United States and Mexico with Scottsdale, Arizona-based Dial Corporation. With operations in more than 70 countries, Henkel derives more than 70 percent of its sales outside of Germany, making it one of the most internationally active German companies. Descendants of the founding Henkel family maintain an 80 percent stake in the company.

Late 19th-Century Roots

Henkel's roots go back to September 26, 1876, when Fritz Henkel founded Henkel & Cie, a three-man company based in Aachen, engaged in making a 'Universal Detergent.' Henkel was from the Hesse region and was then 28. Two years later, the company launched one of the first German consumer products to bear a brand name. This was Henkel's Bleaching Soda. The packet bore the company's early trademark, a benevolent-looking lion in front of a halo of sunbeams. The same year, 1878, saw the young firm's move to a new factory in Düsseldorf, where the company still has its headquarters. The actual site changed in 1899, when Henkel transferred production to a much larger plant at Düsseldorf-Holthausen. Convenient for transporting goods either by railway or on the Rhine, this was to be Henkel's permanent home. (Over the years, however, it would grow from 600,000 square feet to 16.2 million square feet.) In 1877 and 1879 Fritz Henkel bought out his two cofounders, and from then on control was kept firmly in the family.

From the start Henkel appreciated the power that the control of raw materials confers. Not only does such control insulate the manufacturer from the vagaries of third-party suppliers; it also puts control of ingredient quality into its hands. Sodium silicate, or water glass, was one of the main ingredients of Henkel's detergents; accordingly in 1884 Henkel acquired the Rheinische Wasserglasfabrik and started to make its own water glass. Already the importance of research and development was appreciated; the process for making water glass was improved upon to the point where, in 1898, Henkel was to patent its own process.

The drive to control as much of the production process as possible continued to be apparent. In 1908 and 1909 Henkel opened soap factories for detergent production and a fat-splitting plant for fatty acid production, which in turn went into the soap. In 1910 came a plant to process glycerol, a byproduct of the manufacture of fatty acids.

In 1893 Fritz Henkel had welcomed his elder son, 18-year-old Fritz Henkel, Jr., into the firm as an apprentice. In due course, Fritz was to play a key role in developing the company's innovative policy of marketing under brand names. Fritz Henkel Jr.'s brother, Hugo Henkel--a trained chemist--joined the family firm 12 years later. While contributing to the company's technological side in particular, he helped Henkel to diversify into the well-rounded chemical business we know today.

Persil, World War I, and Diversification

At the turn of the century, Henkel was already demonstrating a forward-looking concern for the welfare of its 80 employees: it provided free staff lunches from 1900. A few years later Henkel became involved in a building cooperative providing rental housing for workers' families and low-cost mortgages for executives. Recreational facilities such as gyms were supplied by the firm, as were the washrooms, which factory workers needed in order to comply with the company stipulation that they bathe at least once a week. Some early staff benefits may strike the modern reader as overly paternalistic: for example, female workers who announced their intention of getting married were offered a trousseau and a cookery and domestic-science course to be taken at the firm's expense.

The year 1907 was exceptionally important for product development. It marked the launch of Henkel's arguably most famous brand, the revolutionary detergent Persil. The name came from two of its most important ingredients, a perborate and a silicate. The product, Henkel's own invention, was almost simultaneously invented by two Stuttgart chemists. To be on the safe side, Henkel acquired the chemists' patent but never used it. Three years later, after further intensive research on Henkel's part, the product was registered as Persil. The product was a breakthrough in labor-saving since no rubbing or bleaching was required to clean clothes.

Since those early days, the brand name Persil has caused some confusion. In 1909, the English firm of Joseph Crosfield acquired the patent rights and trademarks of Persil for the United Kingdom and various British, Dutch, and Danish colonies. Crosfield was later absorbed by Lever Brothers, which in turn became part of Unilever. Today both Henkel and Unilever continue to market a product named Persil. In Western Europe, for example, Unilever owns the trademark Persil in Britain and France, while Henkel has Germany, Belgium, Luxembourg, the Netherlands, Italy, and Denmark.

Sales in China were about US$100 million in 1994.

1911–1951

In the early 1900s, Henkel's use of brand names was innovative. Its products were easy to spot by their packaging and were widely distributed. Henkel felt that there was more to be gained by informative advertising than from what would now be called hype. The objectives were to make the Henkel name synonymous with quality and reliability, and to keep reminding the public of Henkel's presence by having its goods and name on display everywhere. As early as 1911, motorized delivery vans bearing the Henkel livery were to be seen in Düsseldorf. There was a famous slogan, 'Persil bleibt Persil' ('Persil remains Persil'). By 1914, Henkel had 120 salesmen out in the field.

Henkel had been quick to set up marketing operations in Germany's neighbor countries. In 1913 Henkel opened a foreign subsidiary, the first of many, at Basel-Pratteln in Switzerland, a country whose appetite for Persil and bleaching soda had already proved particularly healthy. Four years later it was to acquire another subsidiary, this time German, when it bought Matthes & Weber of Duisburg.

Henkel played a patriotic part in World War I. Jobs of workers who went to the defense of their country were kept open for their return--though 71 never returned. A hospital was set up for the employees who were wounded. Henkel employees fighting in the German trenches continued to receive not only food parcels but also copies of the company newspaper, which had begun to be published in 1914.

Rationing of oils and fats made it necessary in 1916 to bring in a low-soap version of Persil. In general, the war had less effect on Henkel's business than did the Allied occupation of the Rhineland from 1919 onwards. Some of the effects of the occupation were positive. The danger that the Holthausen plant would be cut off from its customer base led to the construction of a new factory at Genthin in central Germany, which opened in 1921. The extra capacity would be valuable later on.

The war was followed in Germany by a period of hyperinflation. At its peak, in November 1923, a packet of Persil cost 1.25 billion marks. Once this situation was brought under control, Henkel's expansion continued apace, in line with a general Western European trend towards higher standards of living, and in particular of personal and domestic hygiene. In Germany, soap products were becoming affordable, and thanks in part to Henkel's advertisements, their virtues were well known. For most of its first half-century the company had focused on the manufacture of detergent and cleaning products. A period of vigorous diversification began in the 1920s under the guidance of Hugo Henkel, now supported not only by his sons but by a board of eight directors. This activity continued throughout the interwar period, but the stimulus to diversify again came from the occupation of the Rhineland. In 1923, fearing that the occupying forces would restrict the supply of the adhesives it needed for detergent packaging, Henkel started to manufacture its own glues. With characteristic opportunism, it was soon putting the glue department's products on the market.

Henkel's next move, in 1924, was to start marketing cleaning products aimed at institutional and industrial markets. In 1929 the P3 phosphate-based cleaning agents were added to Henkel's product lines for industrial machinery and food production. By buying Thompson-Werke in 1930 and Deutsche Hydrierwerke in 1932, it acquired an interest in the market for household care products, such as polishes and scouring powders, and increased its capacity to manufacture the fatty alcohols needed for its detergents.

Henkel's acquisition of Böhme-Fettchemie, Chemnitz, in 1935, followed the latter's launch of a new type of detergent named Fewa. This synthetic product, designed to wash delicate fabrics, was the first of its kind. The same year saw the foundation by Henkel of a German whaling association which sent a fleet to the Antarctic Ocean three times in the prewar years. The fleet's catches were of relevance to oleochemical production. By 1939 Henkel could boast of 15 European plants in addition to the main factory in Düsseldorf.

Henkel's expansion of its product range between the wars meant more research and development. A laboratory had existed since the early 1900s, but in 1920 a test department for new products was set up. At first the focus was inorganic chemistry, but later on other branches of chemistry were included. Further new laboratories were built and equipped during the 1930s, culminating in a major laboratory which opened on the Deutsche Hydrierwerke site at Rodleben, shortly before the outbreak of World War II, designed to support all of Henkel's products. Cash-starved Germany could ill afford to import natural fats and so one important object of research was the development of soapless washing powders. By 1936 Henkel was producing powders using fatty acids derived from coal. Meanwhile, improvements had been made in the manufacturing process: packaging of detergents became fully automatic in 1926. Always keen to take advantage of new technology in management as well as production, Henkel installed an automatic telephone exchange in 1928, and in 1935 became the first subscriber to the Düsseldorf teleprinter service.

Alongside its policy of expansion and diversification in the interwar period, Henkel maintained an imaginative approach to advertising. Skywriting planes emblazoned the name of Persil far above the heads of astonished German spectators, and in an interesting variation on the sandwich board, six men carried through the streets snow-white umbrellas bearing the name 'Persil.' Henkel continued to forge ahead in the field of staff management and welfare. First-aid facilities, the precursor of today's Henkel staff medical centers, had arrived in 1912. A pension plan began three years later. In 1925 a training structure for specialist staff was established, and two years later Henkel became the first member of the German chemical industry to appoint a safety engineer to reduce the risk of accidents.

Jost Henkel, son of Hugo Henkel, had joined the company in 1933, and it was under his leadership that Henkel weathered World War II. The war itself had relatively little impact on the Düsseldorf works, although 259 employees were lost in action, prison camps, and air raids. Henkel had to abandon Persil in favor of basic, state-approved products during wartime. Once again the aftermath of war was more serious. The occupying British forces removed the Henkel family from the head of the firm, and did not allow it to return until 1947. The Genthin plant was expropriated by the communists in 1946. In line with the German economy, which began to recover at that time, Henkel was able to get back on a level footing in time for its 75th anniversary in 1951.

1930–2000

Postwar Growth

After World War II, Henkel, under first Jost Henkel and then his brother Konrad Henkel, who took over in 1961, did not simply set about rebuilding what it had before, but entered one new market after another, diversifying its products through innovation and acquisition, and gaining representation in parts of the world not previously penetrated. In 1946, the Düsseldorf factory started to manufacture chemical products for use in the textile and leather industries, and the Poly hair-care brand was launched. The following year, personal hygiene and cosmetic products were added to the range. During this period, Henkel's production facilities for oil-related chemicals were brought together at the Düsseldorf-Holthausen plant, giving a greatly increased capacity for the manufacture of ingredients for soaps, detergents, cosmetics, and pharmaceutical products. In 1951 Pril dishwashing liquid was introduced. During the 1950s, the company set up manufacturing plants in Japan and Brazil, gaining its first footholds in the East Asian and South American marketplaces.

The first acquisition of a U.S. company, Standard Chemical Products, Inc., in 1960, heralded the two decades of Henkel's most dramatic expansion (Standard, a maker of chemicals for the textile industry, was renamed Henkel Corporation in 1971). To give a solid foundation to its growth program, the Henkel Group opened a state-of-the-art research center in 1962 at the main Düsseldorf plant. This laboratory complex had been in phased construction since 1959 and was not completed until 1967. Pritt, the solid glue in a cylindrical tube, was launched in 1969, contributing to Henkel's lead in the European adhesive market.

By the 1970s, there was mounting concern about the environmental impact of the chemical industry in general, and specifically about the use of phosphates in detergents. In 1974 Henkel patented a compound known as Sasil, which was to prove a good substitute for the offending phosphates. Now there could be a phosphate-free Persil; Henkel introduced Dixan, the first phosphate-free detergent, in 1982. The discovery of Sasil helped Henkel gain the leading position in the European detergent market. Henkel also began collecting license fees from other users of Sasil or related products.

A biological institute was added to Henkel's group of laboratories in 1974. The scientists and technologists who worked there concentrated on the protection of the consumer and the environment. Also in 1974, Henkel purchased a minority stake in the Clorox Company, a U.S.-based consumer products firm; Clorox in turn gained access to Henkel's research-and-development capabilities and acquired manufacturing and marketing rights to Henkel-developed products in the United States, Canada, and Puerto Rico. In 1975 Henkel KGaA was established as the holding company for the Henkel Group. Seven years later, the group's U.S. activities were concentrated within Henkel Corporation.

When the founder, Fritz Henkel, died in 1930, ownership of the company had been divided between the families of his three children. By 1985, control was held by 66 family members who in that year decided, together with president Helmut Sihler, that it was time to go public. Thus Henkel shares were issued at last to an eager market. At the same time steps were taken to guard against excessive outside interference; the issue was of nonvoting preferred shares, and all ordinary shares were to belong to the family at least until the year 2000.

Expansion continued apace through the 1980s, most notably with the acquisition of Union Générale de Savonnerie in France, and of Parker, maker of metal surface treatments; Oxy Process Chemicals; and Emery Group, a base-materials and chemicals company, in the United States. Emery, based in Cincinnati, was the leading maker of oleochemicals in the country. An important new production plant opened in Malaysia in 1984. Three years later, Henkel acquired a minority stake in Hartford, Connecticut-based Loctite Corporation, a leading adhesives and sealants firm. By the end of the 1980s, the expansion in the United States was particularly noteworthy, having led to a quadrupling of revenues over just the last few years of the decade.

Henkel succeeded in maintaining a sound balance sheet throughout all its acquisition activities. Although outsiders sometimes regarded the group as overdiversified, its management was satisfied with the mix. It had clear rules for acquisition: not to diversify through acquisition, to retain acquired companies' existing management, and to purchase companies that complied with their profit requirements. Unprofitable companies, or those that do not fit in, were rejected. Strategic relationships are formed, and minority shareholdings bought as the least risky and cheapest way of getting a foothold in a new market. The Wall Street Journal, on November 25, 1988, described Henkel's business approach as 'a blend of America's short-term emphasis on profit and West Germany's long-term emphasis on the future.' Certainly, Henkel's consistently healthy results gave credibility to its strategies.

In its research and development, Henkel continued to target environmental and consumer protection issues. DM 282 million was spent on this area in 1989 alone, while DM 30 million was earmarked for related capital expenditure. In addition to measures to develop safer and more environmentally sound products in all ranges, there were programs to minimize the pollution generated by the manufacturing plants. Henkel claimed that environmental damage caused by its parent plant had been reduced by between 50 and 75 percent between 1984 and 1990.

On the marketing and production front in the late 1980s, Henkel was preparing intensively for the planned single European market. It was designing its branding concepts with Europe in mind and was reviewing its distribution and production facilities. Management development programs too were being specifically targeted at international business. Language classes were offered to staff throughout the group.

1946–2000

1990s and Beyond

Konrad Henkel, the grandson of founder Fritz Henkel, continued as chairman of the supervisory board and shareholders' committee until the end of 1990, when Albrecht Woeste, great grandson of the founder, replaced him. Taking over as president and CEO in July 1992 was Dr. Hans-Dietrich Winkhaus. Woeste and Winkhaus were thereby in charge for most of the 1990s, a decade in which Henkel's revenues nearly doubled and its international presence deepened through a number of acquisitions and joint ventures. Henkel also improved its profitability in the 1990s through streamlining and restructuring efforts, including the divestiture of noncore units and workforce layoffs.

The decade began, however, with the company's return to Eastern Germany following the reunification of the country. In 1990 Henkel repurchased the laundry detergent plant in Genthin that had been expropriated in 1946. The following year Henkel and St. Paul, Minnesota-based cleaning and maintenance company Ecolab Inc. combined their European cleaning and sanitizing businesses into a new 50-50 joint venture, Henkel-Ecolab. Henkel also received a 19 percent stake in Ecolab, while the U.S. firm acquired Henkel's cleaning and sanitizing operations in Latin America and Asia. The joint venture experienced some initial difficulties as a result of a poor European economy, but in a few short years became the leader in Europe in institutional and hospitality cleaning, sanitizing, and maintenance. Henkel-Ecolab, which was based in Düsseldorf, operated throughout Europe, including Russia and other former republics of the Soviet Union.

In 1992 Henkel purchased the consumer goods division of Nobel Industries of Sweden, gaining its first foothold in Scandinavia. Asia became a main focus for the company in 1993 and 1994, with a particular emphasis on China, where Henkel had eight joint ventures in place by late 1994. Sales in China were about US$100 million in 1994. A key step came in 1995 when Henkel established a Beijing-based holding company for its growing operations there, Henkel (China) Investment Co Ltd., thereby enabling it to directly hire Chinese managers. Also in 1995 Henkel became a leading supplier of hair care products in Europe through the purchase of a 77 percent stake in Hamburg-based Hans Schwarzkopf GmbH from Hoechst AG. Two years later Henkel purchased the remaining shares in Schwarzkopf from the founding family.

The company bolstered its surface technologies operations through the 1996 acquisition of Novamax Technologies Inc., an Atlanta-based specialist in products and systems for the treatment of metal surfaces. In November 1996 Henkel began a hostile takeover bid for the 65 percent of Loctite it did not already own. When Henkel increased its bid to US$1.3 billion, Loctite agreed to be taken over, with the deal finalized in January 1997. This was the largest acquisition in company history. To help finance it, Henkel sold its 16 percent stake in Degussa, a German metals and chemical group, to German utility firm Veba for DM 1.3 billion. Meanwhile, in an alteration to the Henkel family's 1985 agreement, the company listed its common, voting shares on the stock exchange for the first time in 1996. Nevertheless, the founding family continued to own 80 percent of the common stock into the early 21st century.

Acquisitions were again at the forefront in 1998, with the two most significant being U.S. firms: Manco Inc., a US$111 million purchase, and DEP Corporation, for US$93 million. Manco, a private company based in Avon, Ohio, had sales of US$160 million and provided Henkel a much enhanced presence in the U.S. consumer adhesives market. With the purchase of DEP, a financially troubled firm based in Los Angeles with sales of US$117 million, Henkel entered the U.S. personal care market for the first time and furthered its goal of fully globalizing its cosmetics/toiletries sector. Among DEP's brands were DEP, L.A., Looks, Agree, Halsa, and Lilt in hair care; Theorie, Porcelana, Cuticura, and Le Systeme in skin care; and Lavoris and Topol in dental care.

In 1999 Henkel spun off its chemicals unit--including the oleochemicals, care chemicals, and organic specialties operations--into a standalone, but fully Henkel-owned entity called Cognis. The separation was intended to provide Cognis with additional flexibility in regard to forming joint ventures, entering into mergers, or raising funds through an IPO. Cognis also gained the freedom to sell its products to competitors of Henkel in such areas as detergents and adhesives. Henkel intended to indefinitely retain at least a majority stake in Cognis.

Henkel entered into another significant joint venture in 1999. Marking a further move by Henkel into the U.S. consumer market, the company and Dial Corporation formed a 50-50 venture to create new laundry detergent products under Dial's Purex brand. In early 2000 the two companies entered into a second detergent joint venture in Mexico, where they purchased an 80 percent stake in Fabrica de Jabon Mariano Salgado, S.A. de C.V., a leading maker of detergents and soaps in that country. Henkel's aggressive U.S. expansion helped make the company one of the most globally active German companies, with more than 70 percent of sales being generated outside the home market. This geographical balance, coupled with strong positions in both consumer and industrial sectors, provided Henkel with a portfolio that appeared capable of counteracting the typically cyclical nature of the chemical industry.