Carlson Companies, Inc. comprises a rapidly growing Minneapolis-based worldwide corporation that encompasses three operating groups: Carlson Travel Group, concerned with worldwide travel management; Carlson Hospitality Worldwide, dealing in hotels and resorts (including Radisson, Regent, and Country Inns brands), restaurants (T.G.I. Friday's and Country Kitchen), and cruise ships (Radisson Seven Seas Cruises); and Carlson Marketing Group, the leading sales marketing agency in the United States. Carlson Travel Group includes the jointly owned (with Paris-based Wagonlit Travel, owned by Accor Group) Carlson Wagonlit Travel, the second-largest travel management network in the world, after American Express. These three groups operate in conjunction with one another to form one of the world's largest and most profitable private companies, which is poised to become a market leader in the travel, hospitality, and marketing services industry.
Founded on Trading Stamps
The story of Carlson Companies begins with founder, chairman, chief executive officer, and sole owner, Curtis L. Carlson. Carlson was born in Minneapolis, Minnesota, in 1914, the son of a Swedish immigrant and a first-generation American. Early on he showed entrepreneurial talent when he farmed out paper routes to his younger brothers, realizing a small profit on their labor. Upon graduation from the University of Minnesota, Carlson went to work for Procter & Gamble Company selling soap, but, after a year, he decided to go into business for himself.
With $55 of borrowed capital, the 23-year-old Carlson registered the Gold Bond Stamp Company with the Clerk of District Court in Minneapolis on June 8, 1938, in the midst of the Great Depression. Carlson had noticed that the Leader, a downtown Minneapolis department store, gave away coupons to its customers with each purchase that could be saved up and redeemed for cash or prizes. The point of the coupons was to encourage customer loyalty and spur sales. Carlson reasoned that what worked well for department stores would also work well for grocery stores. He was familiar with both forms of retailing from his work at Procter & Gamble and from his childhood, when his father had worked in the food business.
Carlson set up a mail drop, rented desk space in a downtown Minneapolis building, and paid a secretary in a nearby office $5 a month to answer the phone. Hanging onto his regular job for four additional months, he spent his evenings and weekends selling reluctant small grocers on his new trading stamp idea. Five months after he quit his steady job, Carlson made his first sale, in March 1939, to a small grocer in south Minneapolis. The store owner purchased $14.50 worth of Gold Bond stamps to dispense, which customers would then present to Carlson for redemption. Carlson guaranteed that his client would have the exclusive right within a 25-block area to give out Gold Bond trading stamps. To call attention to the sales incentive, Carlson plastered the store with posters and banners and distributed balloons and refreshments. The idea was a success and, by the end of the year, Carlson had added 39 more grocery stores to his list of clients.
With this progress, Carlson moved his growing firm to an office in south Minneapolis--in between a Chinese restaurant and a pinball machine repair shop--and took on an additional employee to handle the administrative side of things while he sold the Gold Bond program to grocers. In addition, he roped his wife into the business, dressing her up in a golden majorette's costume with a feathered hat and positioning her at a card table inside stores during their gala inaugurations of the Gold Bond program. Mrs. Carlson's job was to explain to homemakers how to save the stamps and redeem them for cash.
In 1940, strapped for cash, Carlson sold six $100 shares in his enterprise to friends but planned to buy them back when he became more solvent, since he was intent on retaining control of the company himself. By 1941, his client list had grown to include 200 merchants in the Minnesota area. With the entry of the United States into World War II at the end of that year, however, the fortunes of the Gold Bond Stamp Company went into a dive: wartime shortages eliminated the need for merchants to provide incentives to their customers. When ration books replaced trading stamp books in shoppers' hands, Carlson's company lost two-thirds of its business within three months. Carlson reduced the company to a skeleton operation when his two employees entered the military, and he began moonlighting as a manager in his father-in-law's children's clothing store in downtown Minneapolis to make ends meet for the duration of the war.
Rapid Expansion Followed World War II
In 1944, when Carlson was called up to join the war effort, he sold a half interest in the company to Truman Johnson, who had also been employed by Procter & Gamble, and left the business in his hands. At the war's end, the small firm was in dire need of rejuvenation. In 1946 Carlson vowed to expand the company into seven states within the next five years. Toward this end, he hired salesmen to work new territories, including next-door Wisconsin, and, farther afield, Texas, Indiana, and Oregon. In addition, the trading stamp concept was extended to outlets other than grocery stores. Accordingly, the Gold Bond stamp program was sold to gas stations, dry cleaners, and movie theaters. In a more imaginative vein, feed and grain millers, a turkey hatchery, and even undertakers signed on, as the men from Gold Bond urged merchants to invest two percent of their gross receipts in the incentive program, promising a 20 percent rise in sales.
By the early 1950s, Gold Bond stamps were offered in 11 Midwestern states. In 1953 Carlson scored a major coup, leaving behind forever the days of individual sales to "mom and pop"-type stores, when the largest grocery chain in the nation, Super Valu Stores, Inc., based in Minneapolis, began offering Gold Bond trading stamps. In a switch to accommodate the wishes of the chain store, the stamps were now redeemed for prizes, rather than cash, a much more complicated undertaking. Gold Bond was forced to open warehouses, maintain inventory, set up redemption centers, and hire people to staff them, a process by no means free of errors. Since Carlson had purchased stock in Super Valu when it implemented his program, he reaped a reward from the soaring value of the grocery store's stock, as well as from his own business, which notched $2.4 million in sales that year.
Through the connection with Super Valu, Gold Bond stamps gained a higher national public profile. When Kroger Company, a competing Midwest grocery store chain, approached the company about implementing a stamp program, Carlson inaugurated a second trading stamp, called Top Value Stamp Co., to avoid competition with the Super Valu line. Doubling the size of his company's workforce, Carlson expanded the Top Value line to grocery chains in other areas of the country, including the Northeast, Oklahoma, and Nebraska.
In 1957 Kroger, the company's original Top Value client, bought the Top Value portion of Carlson's business for $1 million. With this money, Carlson was able to buy out his more cautious partner, Truman Johnson, who had held a half-interest in Gold Bond since the war years. Carlson regained full control of the company in 1958.
Rapid expansion of the company continued throughout the late 1950s. Safeway Stores Incorporated, another large chain of grocery stores in the West and Southwest, was added to the fold, and the company also entered the international arena, inaugurating trading stamp operations in Canada, the Caribbean, Japan, and other countries. By the 1960s, the trading stamp business had become ubiquitous, and Gold Bond was one of the largest companies in the field. All but one of the top 20 American grocery store chains offered the trading stamps, and half of all gas stations provided them as well.
Began to Diversify in the 1960s
Nevertheless, the tide of consumer sentiment had begun to turn against the trading stamp industry. Trading stamps were blamed for inflated prices in stores: shoppers began to demand lower prices, not vouchers towards free prizes. Gold Bond lost Safeway's business, and it became clear that Gold Bond would have to diversify to other fields if it hoped to maintain its steady growth.
Carlson began diversification by purchasing real estate, buying large parcels of land in Minnetonka, a western suburb of Minneapolis, for future development. In addition, he purchased the Radisson Hotel, a high-profile property in downtown Minneapolis, in 1962, marking his company's entry into the hospitality industry. Both the hotel and the real estate transactions were intended to act as tax shelters for Gold Bond's earnings, enabling the company to retain as much of its profits as possible, so that it could use them to fuel further growth.
This growth took the company in a number of different directions. Throughout the 1960s, as the popularity of the trading stamp business continued to decline, Carlson's diversification and acquisition strategy took on more importance. As sole owner of Gold Bond, Carlson was able to manage his assets with virtually no outside surveillance or interference. Willing to take risks and amass debt, he sought to acquire businesses that were already in solid financial shape but had the potential to benefit from his company's proven sales savvy. The key elements of Carlson's philosophy of acquisition, then, were the capacity for growth and the possibility of replication. By 1973, the name of the Gold Bond Stamp Company had been changed to Carlson Companies, Inc., to better reflect the firm's expansion into new markets and businesses.
Companies purchased by Carlson included the Ardan Catalogue showrooms, a business related to the premium showrooms earlier opened by Gold Bond, and a number of properties that tied into the hotel business in some way, such as a wholesale food distributor called the May Company and the creation of a chain of restaurants and pubs known as the Haberdashery. In addition, the company had extended its Radisson Hotel franchise, opening additional facilities, first in Minnesota, and then in other areas of the United States.
Farther afield, Carlson invested in a $7 million hardboard plant in northwestern Wisconsin. Failed projects included a chain of grocery stores called Piggly Wiggly, an investment in Caribbean shrimp boats, and a money-losing meatpacking plant. All were eventually shed by the growing company.
Although the Carlson Companies underwent a slight recession in 1975, one acquisition made during that year proved to be a consistent money-earner. T.G.I. Friday's (from the expression "Thank God It's Friday")--a chain of 11 restaurant-bars based in Dallas and featuring eclectic decor and an airy, multiple-floor arrangement--grew to encompass 73 branches within eight years. T.G.I. Friday's was soon joined by another restaurant chain, Country Kitchen International, which catered to the family market, with down-home decor and low-priced meals.
In 1978 Carlson began the acquisition of WaSko Gold Products, a New York City-based jewelry manufacturer, for about $18.2 million. This company fit in well with Carlson's Ardan company, which specialized in jewelry sales. By this time, Carlson had added several other retail businesses, including Naum Brothers, a catalog showroom based in Rochester, New York; the Indian Wells Oil Company, E. Weisman, dealing in tobacco and candy sales; Jason Empire, Inc., an importer of binoculars and telescopes; and the Premium Corporation, which provided sales incentive programs similar to those offered by the Gold Bond Stamp business.
After gaining experience in the hotel industry through the ownership of the Radisson Hotel chain, Carlson Companies ventured into the travel agency business in 1979. The addition of the well-known Ask Mr. Foster Agency (later known as Carlson Travel Network and still later as Carlson Leisure Group), founded in 1888 in St. Augustine, Florida, opened the door to the travel services industry, which Carlson would eventually grow to dominate.
In 1980 Carlson Companies announced plans for the real estate development west of Minneapolis that its founder had acquired in the late 1950s and 1960s as a tax shelter. The company proposed a 307-acre development, to be anchored by a new corporate headquarters building. The project would include businesses, restaurants, and a hotel, and was slated to cost $300 million and be called Carlson Center. Carlson Companies continued to manage its acquisitions, purchasing shares in a company called Modern Merchandising and selling off its groceries wholesaler, May Company, to another food company. The following year, Carlson added another company to its collection of marketing concerns, purchasing the E. F. MacDonald Company, a sales incentive and motivation business in Dayton, Ohio, and merging the company with its other holdings in this area.
By 1982 Carlson's holdings had grown to encompass 75 different companies with combined sales of $2.1 billion. Despite its move into a much broader arena of business, the conglomerate had managed to maintain a 33 percent compounded annual rate of growth for the 44th consecutive year. One of its holdings, Curtis Homes, offered a new approach to success in the housing construction market. Curtis Homes provided the basic outer shell of a house with the wiring and roof, leaving all inside finishing--floors, paneling, and so forth&mdashø the buyer of the house. The end result was a low-priced home for the buyer and big business for the company. As a result, Curtis Homes was able to turn a profit even when housing sales overall were in a slump. Carlson later sold this operation to a competitor in this field in order to concentrate on businesses with which he was more familiar.
Along with the acquisition of new companies, Carlson grew by fostering development within the properties it already owned. In the restaurant business, that meant a proliferation of outlets within each franchise. The Country Kitchen restaurant chain, for instance, included 285 restaurants by the early 1980s, most of which were in small towns across North America. T.G.I. Friday's, with the highest sales per unit ($3.45 million average per store) of any American restaurant chain (and a favorite of founder Curt Carlson), opened 17 new locations in one year alone. By 1992 Friday's had over 200 restaurants throughout the world, many of which were franchised. The Radisson Hotel chain had increased to two dozen sites, including one near the pyramids in Egypt. Radisson Hotels International, as it became known (it was later called Radisson Hotels Worldwide), together with other Carlson Hospitality hotels, inns, and resorts, by the mid-1990s numbered over 345 properties throughout the world.
Despite this progress, Carlson found its empire suffering from a recession in the early 1980s. In June 1983, Business Week reported several problems for Carlson. Although Country Kitchens had opened a large number of restaurants, the chain was plagued by poor management and bad relations with its franchise owners; it failed to meet a four-year sales goal by a large margin, fulfilling just over one-quarter of its targeted growth. Ardan, the catalogue showroom, suffered from overexpansion, and its sales had not improved in several years. Radisson, the flagship hotel chain, seemed stalled in the doldrums of a highly competitive industry, apparently blocked from major advances. Business incentive programs and travel agency operations, too, had suffered in the recession.
Carlson Companies owed its historically steady and successful expansion over the course of decades to the tight control of its autocratic founder and sole owner, Curt Carlson. As Carlson neared the age of 80, however, it became clear that he would have to transfer some of his power to a capable successor. On January 1, 1983, Carlson appointed his son-in-law, Edwin C. (Skip) Gage III, to be executive vice-president. Gage had previously been the president of the Carlson Marketing Group, which ran the company's businesses associated with incentives and promotions; he had been groomed for many years to follow carefully in Carlson's footsteps. Gage told Business Week that he planned to "concentrate on doing very well the things we already do."
Began to Focus on Hospitality, Travel, and Marketing in the Mid-1980s
In the mid-1980s, Carlson Companies began to evolve from a conglomerate with somewhat disparate holdings to a more tightly organized company, focused on the hospitality, travel, and marketing businesses and the strengthening of the synergistic ties between the three groups. In addition, the company began to shift its emphasis from owning hotels and travel agencies to franchising them. This enabled Carlson to expand rapidly without large outlays of capital in a time when cash was scarce. It also enabled the company to realize millions in fees and royalties from its franchisees.
In 1986 Carlson moved to cash in on its relationship with nearly 500 different travel agencies and raise the number of bookings for its 22 hotels. Also in that year, the company announced the formation of a new chain of hotels, called Country Inns by Carlson, to serve a more middle-class segment of the market than the full-service, upscale Radisson line. Country Inns by Carlson were decorated with homey touches, including fireplaces in the lobbies and down-filled quilts on the beds.
By the following year, under the leadership of Juergen Bartels, a German-born former president of the Ramada Inn chain, Carlson's hotel holdings ranked near the top 10 in the nation in number of rooms. Through the careful selection of franchise holders and thorough staff training, the company sought to upgrade its properties and began to tailor its operations to fit the needs of the growing population of women business travelers. Building on these moves, Carlson set a new goal of becoming the preeminent travel company in the world. Towards this end, the company announced in the following year that it would nearly triple the number of hotels it owned, from 200 to 550, within the next few years.
In 1988 Carlson Companies underwent a corporate reorganization that resulted in the formation of Carlson Holdings, Inc., a parent company governance for all the properties of the Carlson family. This company consists of three divisions: one to manage the family's investments, one to handle commercial real estate scattered throughout North America, and the third made up of Carlson Companies. The Companies moved into a new corporate headquarters in 1989, two gleaming towers of glass on the Carlson land west of Minneapolis in the suburb of Minnetonka. Shortly thereafter, as if to symbolize that a new era had begun with the company's move into new quarters, Curt Carlson staged a ceremony in the rotunda of the new building, turning over the reins of the company to his son-in-law Skip Gage, who took over as chief executive officer. Although a thousand employees turned out to applaud their new leader, his tenure was brief.
Under Gage's command, the company announced more ambitious plans for expansion and proceeded to extend its international holdings, purchasing A. T. Mays, a British travel agency, and changing the name of Ask Mr. Foster to Carlson Travel Network to reflect a more global outlook. Amid talk of operations in eight new countries and a goal of 3,000 worldwide travel agencies, economic reality began to intrude. In late 1990, the Carlson Travel Network was forced to put some home office employees on a shortened work week to avoid layoffs, as its business was damaged by tension over the impending Persian Gulf War, which battered the travel industry.
In 1991 the recession continued, and profits for Carlson Companies dipped. Despite the fact that he had undergone quadruple bypass heart surgery early in the year, Curt Carlson dismissed Gage, still new in his job, in November 1991 and reassumed control of the company. At the same time, Carlson promoted his eldest daughter Marilyn to vice-chairman, apparently grooming her to follow him (Gage was married to Carlson's younger daughter Barbara). Despite the decline in profits, Carlson returned to oversee a company with a small debt load, growing in its targeted industries at a furious rate. By 1992 Carlson was adding a travel agency a day to the more than 2,000 it already owned, and a new hotel every 10 days. It planned to double the number of T.G.I. Friday's restaurants it ran to 400 within four years. The company had operations in 38 countries, and it took to the high seas as well in May 1992, when it inaugurated service on a futuristic-looking cruise ship, the Radisson Diamond, through its newly formed Radisson Seven Seas Cruises luxury cruise line.
Hospitality and Travel Groups Expanded in the Mid-1990s
By the mid-1990s, Carlson Marketing Group was struggling. At that time, the group specialized in direct marketing; performance improvement programs such as incentive programs that reward top salespeople; loyalty marketing such as frequent-flyer programs; and event and sports management. But this successor to the original trading stamp business generated only five percent of the revenue for Carlson Companies. The travel business generated 65 percent, while the hospitality operations contributed 30 percent. Forbes reported in October 1993 that the success of the travel and hospitality groups was at least partly attributable to Curtis Carlson allowing the heads of these groups considerable autonomy.
As head of the newly renamed Carlson Hospitality Worldwide, Bartels continued to achieve impressive, profitable growth with his consistent reliance on franchising; this trend continued under John A. Norlander, a 21-year veteran of Radisson and Carlson who took over for the departing Bartels in 1995. Friday's Hospitality Worldwide Inc., for example, had grown to more than 460 restaurants in 350 cities and 40 countries by mid-1997 and included not only the T.G.I. Friday's chain but also such spinoffs as Friday's Front Row Sports Grill and Friday's American Bar and such new concepts as Italianni's. By January 1998, Radisson Seven Seas Cruises boasted of six luxury liners with a total capacity of 1,202 berths, making it the fourth-largest luxury cruise line in the world. In late 1996, Carlson formed a partnership with Four Seasons Hotels Inc. to expand the Four Seasons' Regent luxury-hotel chain. Regent had nine hotels located primarily in Asian cities; through the partnership, Carlson would concentrate on building new Regent hotels in North America and Europe.
Carlson Travel Group, meanwhile, was headed by longtime Carlson executive Travis Tanner. The 1990s were difficult ones for travel agencies and mergers became commonplace as competition heated up. Tanner engineered a merger for Carlson as well, with Carlson Travel Network linking with Paris-based Wagonlit Travel to form Carlson Wagonlit Travel (CWT) in 1994. CWT was 50--50 owned by Carlson Companies and Accor Group, a France-based company with additional interests in hotels and car rental. CWT immediately became the second-largest travel agency in the world, trailing only American Express, with more than 4,000 offices in more than 141 countries and annual sales in excess of $9.5 billion. After essentially operating as one agency for a couple of years, Carlson Travel and Wagonlit were formerly merged in early 1997, with headquarters in Miami, Tanner acting as chairman, and Herve Gourio, who had headed Wagonlit, as cochairman. Carlson Companies, meanwhile, created Carlson Leisure Group (CLG) to act as the U.S. licensee of the Carlson Wagonlit Travel brand name for leisure travel, as well as to oversee non-Carlson Wagonlit travel operations--for example the 1997-launched Carlson Vacations, a leisure travel agency based in Russia. Also in 1997, CLG acquired Travel Agents International, a prominent U.S. leisure travel agency which made CLG the largest franchise travel agency company in North America, with more than 1,300 locations. And in mid-1997 CLG expanded in the United Kingdom with the purchase of Inspirations PLC and its 97-unit, Glasgow, Scotland-headquartered A.T. Mays travel agency, the fourth-largest such agency in the United Kingdom.
As the 21st century approached, Carlson Companies boasted an impressive and growing array of travel and hospitality operations, but the succession issue hung over the company like a dark cloud. Although it appeared Marilyn Carlson was slated to succeed the company founder, whether she would survive her father's rigorous scrutiny remained to be seen. Interestingly, Marilyn Carlson and Barbara Gage would each inherit half of the company in the event of their father's death, which could perhaps bring Skip Gage back into the leadership picture. And, oddly enough, in 1997 Curtis Carlson himself appeared to be thinking as much of the company's past as of its future, as he personally launched a new Carlson Companies group called Gold Points Group, which was touted as the Gold Bond trading stamp program for the electronic age, and which could perhaps be said to bring the company full circle.
Principal Operating Units: Carlson Hospitality Worldwide; Carlson Leisure Group; Carlson Marketing Group; Carlson Wagonlit Travel; Gold Points Group.