The Hartz Mountain Corporation - Company Profile, Information, Business Description, History, Background Information on The Hartz Mountain Corporation

700 Frank E. Rodgers Boulevard South
Harrison, New Jersey 07029

History of The Hartz Mountain Corporation

The product of a German immigrant's struggle to survive in a new country, Hartz Mountain Corp. was started in 1926 as a dealer in canaries, then grew to dominate the American pet supply industry. By the 1990s, Hartz Mountain no longer sold canaries imported from the Hartz Mountain region in Germany, but sold nearly everything else a pet owner could desire. In their distinctive orange packaging, Hartz Mountain pet toys, accessories, shampoos, and foods graced the shelves of retail outlets throughout the United States and abroad, their presence a testament to the determination of the Hartzes to make their company an unrivaled giant in the pet supply industry.

Devastated by soaring inflation and mounting unemployment, Germany during the 1920s was a country in near economic ruin headed toward political disaster. For a vast majority of Germans, the future looked bleak: each year the economic depression worsened, leaving many of the country's citizens destitute and looking for relief from a faltering government. Some found an answer to their myriad problems in a virulent, yet magnetic political leader who promised to make Germany the greatest nation in the world, while others looked for answers elsewhere. One of those who chose to leave Germany and start life anew elsewhere was a textile manufacturer named Max Stern. In 1926, Stern left Germany and immigrated to the United States, ready to begin a career that would help create and define an American industry. Stern carried with him the products of his new trade: 2,100 canaries taken from the famous Hartz Mountain region in Germany.

Initially, Stern sold his canaries to small pet stores, but he soon expanded the scale of his business when he began selling first to mass retailers and later to supermarkets and department stores. Stern's decision to broaden product exposure through mass retailers was the first of several crucial steps that laid the foundation for the pet supply empire that would follow. This decision led the company to expand its distribution network to accommodate the delivery of a greater number of birds, and also prompted it to offer a diversified product line. The company's distribution network took time to develop, but Stern broadened his product line shortly after opening his business, when he began selling bird food in addition to Hartz Mountain canaries in 1930. By the beginning of America's own decade-long struggle with depressed economic conditions, Stern had established the three distinctive attributes that would predicate the growth of his company and lead to its dominance of the U.S. pet supply industry.

Despite the harsh economic conditions during the 1930s and his inability to speak English, Stern was able to secure several contracts with mass retailers and, along with his brother, who had remained in Germany to purchase the canaries that Stern would sell in the United States, enjoyed considerable success over the next several decades. By the end of the 1950s, Stern's modest venture had become a formidable force in the pet supply industry, thanks largely to the growth and sophistication of the company's distribution network and the diverse assortment of products that bore the Hartz Mountain name. The company by this point sold birds, bird food, and bird accessories, products that generated $18 million in sales by 1959, which Stern hoped to use to fund further product diversification. Following a family dispute in 1959, Stern bought out his brother's share in the company for $8 million.

Thereafter, Stern soon found a new partner: his son, Leonard N. Stern, who became involved in the family business during the late 1950s when his father, in an effort to encourage his children to enter the business, ceded partial interest in Hartz Mountain to his three children. As a youth, Leonard Stern had sold merchandise door-to-door, then, at age 17, had entered New York University's School of Commerce. Two-and-a-half years later he was graduated cum laude and subsequently earned his Masters of Business Administration degree at night while working days as a clerk.

At Hartz Mountain in the late 1950s, Leonard and his brother Stanley purchased two failing companies involved in the fish and fish supply business--Aquarium Supply Co. and Long Life Fish Food Products--and created a new company named Sternco Industries, which they then took public in 1962 after achieving nearly the same success in the fish and fish supply business as their father had in the bird and bird supply business. Shortly after taking Sternco Industries public, Stanley Stern left the company to pursue his interests in the real estate business. Leonard bought out Stanley's shares and then turned his attention to the growth of both Sternco Industries and Hartz Mountain.

Although he would not become president and chief executive officer of Hartz Mountain until 1971, Leonard Stern wielded considerable control within the company during the 1960s. As executive vice-president and chief operating officer, he spearheaded several of its most defining marketing moves. He broadened the company's product line substantially to include dog and cat accessories (dog toys, cat litter, shampoos), which enabled the company to tap into the burgeoning growth of supermarkets at the time, yet purposely stayed away from entering into the dog and cat food business to avoid competition from entrenched pet food producers. Hartz Mountain was going to establish market dominance, both father and son had decided, and the fragmented pet supply and accessory industry provided the perfect arena in which their well-organized and diversified company could compete.

By the mid-1970s, Max and Leonard Stern were well on their way toward fulfilling their goal. Hartz Mountain by this point controlled roughly one-third of the nearly $900 million pet supply business through the company's 1,200 products, which ranged from birds, fish, hamsters and gerbils to pet food, pet health care products, and accessories. The company that was now regarded as one of the few giants in the industry bore little resemblance to the fledgling enterprise launched by Max Stern in the mid-1920s, and could no longer sell the company's original product because the importation of canaries was made illegal in 1972. Nevertheless, by this time, canaries represented only five percent of Hartz Mountain's sales, and racks of Hartz Mountain merchandise displayed in their distinctive orange packaging occupied pet supply departments in retail outlets across the nation, in many cases being the only pet products stores stocked. The company's distribution system, by now the industry's prototype after 50 years of improvement and solidification, left competitors with little territory that was not firmly held by Hartz Mountain, leading the business press to hail the Stern organization as the General Motors of the pet supply industry. Other accolades followed, and soon industry pundits were claiming Max and Leonard Stern had done to the pet supply industry what Kodak's George Eastman had done to the photography industry and what Henry Ford had done to the automobile industry.

Leonard Stern, by this point in full control of Hartz Mountain, had demonstrated his business acumen in other arenas as well. In addition to masterminding Hartz Mountain's rousing growth--the company recorded $135 million in sales in 1972, then nearly doubled the total five years later despite a nationwide economic recession--Stern had purchased sizable acreage in Secaucus and Meadowlands, New Jersey, during the mid-1960s, which by the following decade had risen enormously in value. With his real estate holdings Stern formed a private company he named Hartz Mountain Industries, then shortly thereafter began reorganizing the Stern family empire into distinct pieces. In order to rase the $40 million needed for the Meadowlands project, Stern took Hartz Mountain Pet Foods public in 1972. The following year Stern merged Hartz Mountain Pet Foods into Sternco Industries, the fish and fish supply company he and his brother had formed years earlier, to create Hartz Mountain Corp. Hartz Mountain stood atop its field, enjoying more than a 75 percent market share in many of its market niches and holding a nearly unassailable lead over its competitors.

During this time, Hartz Mountain faced several challenges. First, in the early 1970s, a magazine article was published claiming that the chemical used in Hartz flea collars was potentially harmful; the flea collar was the company's biggest seller and contributed roughly $15 million in annual sales at the time. Then, more serious allegations were levelled at Hartz Mountain, its executive personnel, and Leonard Stern. Specifically, accusations arose concerning the company's alleged violation of antitrust laws by exerting undue pressure on distributors to deal in Hartz Mountain products exclusively. Several lawsuits were brought by competitors and distributors against Hartz Mountain during the 1970s, charging that the company's far-reaching and well-developed distribution techniques were overly aggressive, forced distributors to handle Hartz Mountain products exclusively, and involved taking the products of competitors off the shelves and replacing them with Hartz Mountain products. Ultimately, these matters were settled, and, admitting no wrongdoing, Hartz Mountain paid court settlements and a $20,000 fine to the Federal Trade Commission.

By the end of the 1970s, Stern decided to take the company private and use the funds for developing his real estate interests. When Stern bought back the publicly-held shares in Hartz Mountain, he merged Hartz Mountain Corp. into Hartz Mountain Industries, the real estate and real estate development arm of the Stern empire. Despite the legal turmoil surrounding the company at the time, Hartz Mountain had relinquished little of its dominance in the pet supply industry and continued to exert overwhelming control in many of its markets. The 75 percent market share Hartz Mountain's pet supply business reached during the 1970s continued to fuel the company's growth throughout the 1980s, as Stern turned his attention elsewhere in a bid to broaden the scope of his business interests.

In 1985, he purchased the Village Voice, a well-known Manhattan weekly newspaper, from publisher Robert Murdoch for $55 million, then two years later launched another Manhattan weekly newspaper he christened 7 Days. In the mid-1990s, the L.A. Weekly would also be added to Stern's publishing interests. In 1988, Stern formed the Harmon Publishing Company, a new division developed to oversee his real estate publications.

Also during this time, Stern formed Hartz Group Inc. to once again separate his real estate development and building operation business from his pet supply business. In the hierarchical reshuffling that followed, Hartz Group was made the parent company of Hartz Mountain Corp., and Harmon Publishing Company was organized as a division of Hartz Group. Structured as such, the conglomeration of Hartz-controlled businesses entered the 1990s cast in their separate roles.

In 1990, after failing to receive a suitable offer from bidders, Stern ceased publication of 7 Days, which had proven to be a $10 million loser despite earning positive reviews and being nominated for a coveted National Magazine Award. Four years later, Harmon Publishing Company, which had acquired 60 publishing companies in its six years of business (all involved in publishing real estate magazines), was sold to United Advertising Periodicals for $108 million. With these business interests trimmed from his formidable corporate organization, Stern plotted his course for the mid-1990s and beyond, buoyed by the consistently strong performance of his pet supply business. The company continued as a largely family-run enterprise, with Stern's son Edward serving as executive vice-president of the Hartz Groups' pet supply operations, and another son, Emmanuel, as executive vice-president of the real estate arm of Hartz's business.

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Further Reference

"American Home Products to Buy 2 Pet-Line Firms," Wall Street Journal, August 19, 1971, p. 13.Blustein, Paul, "Hartz Owner Made a Prime Target of a Big Grand Jury Investigation," Wall Street Journal, January 17, 1983, p. 25.------,"Will the Canaries Come Home to Roost?," Forbes, April 17, 1978, pp. 59-61.Blustein, Paul, and Richard Greene, "The Public Be Damned? In 1979?," Forbes, April 2, 1979, pp. 38-40."Cages to Collars--Hartz Mountain Finds Pet Supplies Growth Business," Barron's, February 9, 1976."The Canaries That Laid Golden Eggs ...," Forbes, February 15, 1974, pp. 34-38."Developer Stern to Launch Newspaper in Manhattan," Wall Street Journal, July 30, 1987, p. 26.Donaton, Scott, "'7 Days' Folds After Bidders Balk," Advertising Age, April 23, 1990, p. 16."Ex-Hartz Executive Convicted for Perjury Over Alleged Payoffs," Wall Street Journal, December 22, 1982, p. 7."Fido and His Friends," Barron's, March 22, 1965, p. 11.Hammer, Alexander R., "A Billion Dollar Business Is Unleashed in Pet Sales," New York Times, April 7, 1968, p. F35."Hartz Mountain Corp. Votes to Go Private Despite Objections by Minority of Holders," Wall Street Journal, February 14, 1979, p. 14."Hartz Mountain May Go Private Via Cash Merger," Wall Street Journal, November 2, 1978, p. 20."Leonard Norman Stern," Forbes, October 26, 1987, p. 137."Leonard Stern Is Sued by Former Hartz Partner," Wall Street Journal, November 12, 1993, p. A5.Mills, Joshua, "Harmon Publishing Sale to Link Ad Periodicals," New York Times, February 1, 1994, p. D7."One of the Family," Barron's, March 3, 1969, p. 11.Robichaux, Mark, "Hartz Brings Back Insect Spray Some Pet Owners Fear Is Fatal," Wall Street Journal, September 6, 1989, p. B6."Two Hartz Ex-Aides Sentenced on Charges from Antitrust Suit," Wall Street Journal, May 24, 1984, p. 24.

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