Chemical giant Univar tweaks formula
The company grew from a regional industrial-supply broker to North America's largest chemical distributor. When conglomerates were cool, Univar got involved in everything from brewer's yeast to insurance; as the urge to merge abated, it sold or divested most of those businesses.
It expanded to Western Europe and eventually sold itself to a Dutch firm, only to be spun off a few years later.
Independent once more and on track to do $5 billion in sales this year, Univar is tweaking its business yet again in response to the latest forces sweeping through American industry: outsourcing, offshoring, just-in-time manufacturing.
Univar, says Chief Executive Gary Pruitt, must work more closely with both chemical suppliers and industrial customers and be seen as a service provider — advising bakers on just the right artificial sweetener, training exterminators on proper use of the latest roach killer — rather than as merely a cheap source for bulk caustic soda.
"If people think of our business as just loading drums on trucks and shipping them someplace, they're missing the value proposition of our business," Pruitt said. "Twenty years ago, the product was the value proposition, more so than the service. Now, it's the reverse."
For a company of its size and history, Univar is surprisingly low-profile even in its hometown. Its 2003 sales of $4.7 billion would make it the ninth-largest, U.S.-traded Washington company, between Amazon.com and Starbucks.
On the rare occasions Univar makes the news, it tends to be for things like chemical mishaps (in August, a tank rupture at its Twinsburg, Ohio, facility spilled more than 4,000 gallons of hydrochloric acid) or a long, bitter strike by drivers in Providence, R.I.
Its lack of visibility may be due in part to Univar's unglamorous business and generic-sounding name. Longtime Seattle residents may remember the company as Van Waters & Rogers; "Univar" was adopted in 1974.
A bigger reason is its part-American, part-Dutch heritage. Though two-thirds of Univar's revenue comes from North America, and the company is run from its 22nd-floor offices in the City Center Bellevue building, its shares trade only on the Euronext Amsterdam exchange and its official headquarters are in Rotterdam.
Invisible on Wall Street
That quasi-foreign status means Univar isn't eligible for the Fortune 500 (where it would rank 368th), and is not followed by any U.S. brokerages.
The Dutch listing is a legacy of the six years Univar spent as a subsidiary of Royal Pakhoed (later Royal Vopak). Pakhoed, a Rotterdam-based transport and storage company rooted in the oil industry, bought a minority stake in Univar in 1986, acquired the rest a decade later for $303 million and merged its European chemical-distribution operations into the American company.
The idea was that, since the chemical-distribution and oil-terminal businesses both worked with big petrochemical manufacturers, they would complement each other. But that turned out not to be the case, especially after Pakhoed merged with another big Dutch oil-shipping and storage company to form Vopak.
Merger problems
"They serviced many of the same companies — the Dows, the Exxons — but one was on the procurement side and the other was in the sales and marketing side," said Pruitt, who took over as Vopak's chief executive in 2002. "This did not provide a beneficial fit for the two halves of Vopak ... but in many cases created dissynergies or even conflict."
Pruitt decided to split Vopak and left that July to run the new Univar, bulked up by several acquisitions while part of Vopak. Univar now operates in 14 West European countries and is the No. 2 chemical distributor there.
Nonetheless, said Ralf Jacobs, an analyst with Rabo Securities in Amsterdam, "it is more a U.S. company than a European company. The fact they have a listing in Amsterdam is purely history-based."
Univar might pursue a U.S. listing if it thought the stock would get a better valuation, Pruitt said.
Right now there are higher priorities. Many of Univar's core industrial customers — textile makers and furniture manufacturers, particularly — have shifted production to Asia. While Univar is studying the Asian market, it's not ready to jump in just yet.
The main obstacle, said chief administrative officer John Sammons, is that labor costs in China and other Asian countries are so low, there's little opportunity for — or interest in — the cost savings a third-party distributor like Univar can offer.
"Here, it'd be prohibitively expensive to deliver one 55-gallon drum [at a time] to a customer on a continuing basis," Sammons said. "Over there, they think nothing of it."
Instead, Pruitt is steering Univar toward industries he thinks are less likely to shift operations overseas — food processing, personal-care products, energy and pharmaceuticals — and toward lower-volume, higher-margin specialty chemicals.
With much of the manufacturing work in those industries outsourced, Univar has to rethink its traditional relationships with suppliers and customers.
For instance, instead of buying chemicals in bulk — and having to store and manage them — a small skin-cream maker might want "just-in-time" manufacturing: delivery every other day of a custom mix of 12 ingredients. A chemical company with a new powdering agent may want to market it to just the right niche of customers.
Such services are more time- and labor-intensive, but they're also more profitable.
"Univar has stated they want to focus more on specialty chemicals and introduce more value-added services," analyst Jacobs said. "They're trying to step up the knowledge base of their employees in North America."
One element in that effort is ChemPoint, a Website launched in 2000 aimed specifically at small and midsized users of specialty chemicals. ChemPoint's sales doubled last year, Univar said without disclosing specifics, and the unit posted its first yearly profit.
The chemical-distribution business remains heavily fragmented, Jacobs said. Much of Univar's stiffest competition comes not from other big players (such as Ashland Distribution and Brenntag) but from small, well-established regional firms.
But with suppliers and manufacturers both striving relentlessly for efficiency and productivity, Pruitt said, large companies like Univar increasingly will have the upper hand.
"There was a time when [chemical]producers wanted to have a large number of distributors — a divide-and-conquer strategy," he said. "But, I think, today they realize there's a significant cost involved in managing all those relationships, and they might be better off with fewer distributors. We see the same trend with our customers."
Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com
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