L.A. Soap Co. About to Shut Down, Sell Land : 127-Year-Old Company a Washout in Recent Intense Competition
After decades of proudly touting itself as one of the city’s oldest companies, Los Angeles Soap Co.--whose White King label was a California household staple for more than a century--is quietly winding down its 127-year-old operation and preparing to slip out of business.
In a letter sent to shareholders earlier this month, Andrew K. Forthmann Sr., the company’s 77-year-old chairman and grandson of its founder, said efforts to rescue Los Angeles Soap’s money-losing operations had failed, and that executives were planning to sell its assets.
Separately, former employees confirmed that the company closed its bar soap manufacturing operations Dec. 4 and laid off all but about 20 employees. At its peak, the company employed 190 workers. Remaining employees at the company’s plant in downtown Los Angeles continue to make White King Water Softener, but are expected to be dismissed in early 1988, the sources said. Company officials decline to comment on their plans.
Los Angeles Soap is apparently the latest casualty of fierce competition within the billion-dollar household soap and detergent business. The fight, which has intensified over the past few years, has already claimed dozens of small regional soap makers and allowed the giant, national consumer products companies to solidify their dominance.
“There’s no doubt that the life span of the regional detergent makers is limited,” said James O. Hill, former manufacturing vice president of Los Angeles Soap. “A lot of small soap companies are in trouble,” added Michael Flynn, former operations manager of Pacific Soap Co. in San Diego, which shut down its manufacturing lines in mid-November.
But not all is gloom and doom at First and Alameda streets, Los Angeles Soap’s home since 1874.
The company’s operations cover eight contiguous acres that could either become part of the booming Little Tokyo redevelopment project or the equally thriving proliferation of government office buildings in Civic Center. Real estate brokers specializing in downtown property place the value of the parcel between $30 million and $35 million, and say buyers are already lining up for a shot at the deal.
The company’s letter to shareholders says no information will be released until “a firm real estate transaction has been arranged.” But insiders say the company, which carries the value of the property on its books at under $600,000, may be interested in forming a joint venture with a contractor to develop the land.
$2.6-Million Loss
Any deal would go a long way to helping the company forget its soap-making headaches.
Regional soap makers like to say there are three primary problems facing them: Procter & Gamble, maker of Tide; Colgate-Palmolive, maker of Fab, and Unilever, maker of Wisk and Surf. The combined market share of the top three, thanks to billion-dollar advertising budgets, exceeds 75%, according to industry executives.
For Los Angeles Soap, which lost $2.6 million on sales of $21 million in 1986, there were several more problems beyond the little insiders’ joke.
According to former executives, the company’s strategy to produce and market low-cost soaps and detergents under the White King and private label brands--a strategy that had produced modestly successful results over the decades--was severely undermined about two years ago when the major consumer products makers started discounting prices of their soaps and detergents.
The first move came from Unilever, which littered the landscape with cents-off coupons when it introduced its new Surf detergent. When that strategy proved successful, P & G and Colgate countered with their own coupons.
Although the moves were a boon to consumers, many of whom were able to double the value of the coupons at supermarkets, they eliminated virtually all the differences between the major national brands, such as Tide and Cheer, and such regional brands as White King. And, absent those differences, customers chose the familiar, highly advertised brands.
To make matters worse, Los Angeles Soap’s second major line of business, private-label soap making for supermarket and drug store chains, was decimated as well by the heavy discounting. Customers who once bought private-label brands at the grocery store were also lured by coupons to such brands as Tide and Cheer. Retailers responded by cutting back on their private-label operations. And Los Angeles Soap took a second hit.
At one time, the company made house-branded soap and detergent for 17 retail chains, including Albertsons, Lucky’s, Ralphs, Stater Brothers, Thrifty Drug and Vons.
“The private-label market evaporated because the price difference was no longer there,” one former executive said. “They couldn’t compete with the discounted name brands.”
Handwriting on Wall
The former executives say the company might have been able to ride out the storm if it had been led by more forward-looking managers. However, they say the Forthmann family, which controls 60% of the company’s stock, resisted repeated suggestions over the last two decades to modernize machinery or build a new plant.
“Andrew Forthmann Sr. is not a risk taker,” one source said. “Two or three years ago we could start seeing the handwriting on the wall. But he chose not to pursue activities that could have enhanced our position in the market.”
Others said Forthmann could not face moving the plant further from his Beverly Hills home and seemed to be tiring of the seemingly insurmountable problems facing regional soap makers.
According to former employees, the company began winding down operations last April when it closed its detergent-making tower and contracted with Huish Chemical Co. in Salt Lake City to make White King detergent products. At that time, about 40 to 45 employees were laid off. Over the next several months, all the company’s officers were asked to submit their resignations.
On Dec. 4, the company closed its bar-making soap operations and, according to sources, sold that operation’s equipment to Valley Products in Memphis, Tenn. Sources said Huish is expected to buy the company’s White King Detergent label. Neither Huish nor Valley Products could be reached for comment.
