Incorporated: 1970 as George F. Valassis & Co.
NAIC: 323110 Commercial Lithographic Printing
Valassis Communications, Inc., created the industry of freestanding inserts, the four-color coupon booklets distributed in newspapers. The company's coupons are added mechanically to papers throughout the week, but are carried most prominently in Sunday newspapers, where as many as a dozen separate inserts are common. These appear in single or multiple folded sheets, printed in full color. Valassis was the leading company in this market for most of its history. In the 2000s, the company met a formidable competitor in News America Marketing, a subsidiary of media giant News Corporation. Valassis fell to the number-two slot in the market in the 2000s, and holds about 46 percent of the market share, with the News Corp. subsidiary taking the remaining 54 percent. Valassis coupons are distributed to more than 60 million American households in more than 550 different newspapers. About half of its income comes from this area. The company also produces specialized promotional materials and has stakes in firms that provide Web-based coupon distribution, data warehousing, and direct-mail advertising services. Valassis has a growing international presence, carrying out coupon and marketing services in Italy, Spain, Germany, and England, as well as across the United States, Canada, and Mexico.
The company had its origin in 1970, when George Valassis opened a small sales agency in his home in suburban Detroit. He handled contract printing for numerous products, including computerized form letters. After purchasing his own printing press in 1971, however, he found it difficult to keep the machine in operation due to a lack of business.
In 1972, Valassis decided to solicit coupon advertising from a variety of retail product companies. After locating merchandisers who wished to promote their products with cents-off coupons, he then printed the coupons and purchased distribution arrangements with local newspaper publishers that would insert the coupon sheets in their papers. The business proved to be highly successful, as product manufacturers discovered the advantages of cooperative coupon advertising. The inserts were effective at enticing consumers to try virtually any product and, unlike advertising, their influence on buying patterns was highly measurable.
The inserts developed by Valassis were freestanding sheets containing bold four-color promotions. Because each sheet could be divided into 8, 10, 16, and even 24 or more different coupons, each a small advertisement, Valassis could piggyback several different companies' promotions on the same printing. This created a need to assign coupon spots carefully, since competing colas or brands of raisin bran, for example, could not be satisfactorily run on the same page. Valassis's solution was to encourage large manufacturers to purchase several coupon spots at once. These companies would place coupons for several nonrelated products, from breakfast cereal to cleanser, thereby creating demand for additional sheets from competitors.
Valassis immediately won business from companies such as General Foods, Procter & Gamble, General Mills, Nabisco, and Kellogg, but, still unable to purchase newspaper distribution rights on an efficient scale, the company lost money for several years as it pioneered a path in the new industry. Undeterred, George Valassis purchased additional printing machinery and increased his sales and production staff to 46 employees. By 1974, circulation of his freestanding inserts had grown to 25 million households on sales of $5.7 million. Finally, in 1976, with virtually the same circulation, sales rose to $11.8 million, nearly double the 1974 figure. This confirmed for Valassis that manufacturers placed a high value on coupon advertising and encouraged him to continue efforts to expand the business.
Valassis began replacing his older equipment with newer, state-of-the-art machinery that featured added functionality. This included large, eight-page inserts and an oversized "super page." To house the operation, Valassis purchased a new production facility at Livonia, in west suburban Detroit. With sales growth at nearly 40 percent per year, Valassis marked sales of $23.5 million on a circulation of 27.8 million in 1978, and $33.7 million in sales on a circulation of 30 million a year later.
The company's employee roll grew to 193 people in 1979, and additions to staff included a young marketing manager from Procter & Gamble named Dave Brandon. Brandon, who played football at the University of Michigan, found employment at Procter & Gamble after graduation through a recommendation from coach Bo Schembechler. Brandon remained in touch with a former teammate, Larry Johnson, who joined Valassis after marrying George Valassis's daughter. Brandon brought to Valassis a powerful personal style. Although he began in the company performing some low-priority jobs, his potential was quickly appreciated. As he ascended to higher levels of management, he developed an open, folksy style within the company, giving personal attention to the human, as well as the business, aspects of Valassis. This atmosphere later won Valassis inclusion in a publication that identifies the best 100 companies for which to work. One component of that atmosphere is an across-the-board employee profit-sharing plan that can augment annual salaries by as much as 15 percent.
By 1982, circulation had grown to 38 million (50 percent more than in 1977) and sales had increased to more than $90 million, representing a fivefold increase over the period. This expansion led Valassis to build a second plant at Durham, North Carolina, in 1983, which would enable the company to more easily distribute its materials in southeastern markets. In 1985, a third plant was established in Wichita, Kansas.
With the expansion of printing capacity, Valassis's sales more than doubled in 1984, to $200 million. Now in a position to consolidate its market, Valassis bought out its largest competitor, Newspaper Co-op Couponing (NCC) in 1986. In an effort to streamline operations, Valassis dissolved NCC's freestanding insert operation and added two new printed promotional products to the operation. Nearing saturation of the freestanding insert business, in large part as a result of good expansion and a rise of upstart competitors, Valassis began run-of-press advertising, in which coupon space is reserved on pages of the newspaper itself. The primary market for run-of-press coupons was the typical weekly food section of daily newspapers, again featuring cents-off coupons for a variety of products.
A second extension was specialty printing, including production of brochures, catalogs, posters, and magazine inserts that concentrated on foodservice and fast-food promotions. More sophisticated specialty printing included scratch-and-sniff and lottery-style rub-off contests. Primary customers included Pizza Hut, Arby's, McDonald's, and LensCrafters.
Run-of-press and specialty printing were aggressively promoted as complements to the standard freestanding insert promotion. The success of the formula also propelled Valassis into a new function, that of promotional consultant. Now advertisers could retain Valassis much as they did ad agencies or public relations firms and receive advice on specific campaigns.
The consolidation of NCC also made Valassis an attractive takeover target. With an extremely strong record of sales growth and a favorable position in a market that included competition only from much smaller companies that lacked the finances of a larger operation, Valassis was discovered by Kerry Packer, chair of Consolidated Press Holdings, an Australian publishing conglomerate. The Australian publishing industry, dominated by a handful of media barons, had been exhausted of virtually all of its independents. With few investment opportunities in Australia, Packer and other barons such as Rupert Murdoch and Robert Holmes Court began shopping for deals in the American and British markets. The acquisition of Valassis in 1986 represented an unusual departure for Packer, who had confined his takeovers mostly to magazines and other periodicals. Rupert Murdoch's company, News Corporation, was evidently on the same track as Packer. Valassis's principal competitor in the freestanding insert market beginning in the early 1990s was News America, a subsidiary of News Corp.
After the takeover by Consolidated Press Holdings, George Valassis left the company for retirement. His company, however, benefited from numerous press arrangements made possible by its association with Packer. Sales increased by nearly $100 million by 1987, to $381 million. Packer placed David Brandon in charge of Valassis. The arrangement, in which Packer maintained a hands-off approach from 12,000 miles away, suited Brandon well. He maintained his folksy style, insisting on personally meeting each new hire. But with the added responsibility came larger compensation. When Brandon's million-dollar-plus salary became known, his relationship with employees suffered somewhat.
Brandon kept Valassis on track and ensured that all sales and growth targets were met. For the most part, this kept Packer content and in Australia, but by 1992, Packer decided the time was ripe to reap the benefit of his investment in Valassis. In March of that year, he engineered the sale of 51 percent of the company's shares to the public. More than 22 million shares were issued through the New York Stock Exchange, yielding Packer's Consolidated Press Holdings a profit of about $900 million. The company continued to trade publicly, but was dominated by Consolidated's 49 percent interest.
Meanwhile, Valassis's business continued to expand. Because more than three-quarters of American households used coupons, they were proven sales aids. In Brandon's words, Valassis's coupon business was analogous to printing money. "We bring it to your home and lay it on your doorstep and say 'use whatever you will.'" But manufacturers' customers are always retailers, rather than consumers. Retail grocery stores stock, on average, 18,000 items, all of which compete for shelf space. As the coupons drive up consumer demand for a product, retailers are "pushed" into distributing--and giving favorable shelf display--to that product.
In 1995 Valassis acquired McIntyre & Dodd, a Canadian company that produced freestanding inserts and sold mail-order gifts. It was subsequently renamed Valassis of Canada. Two years later, Valassis's new corporate headquarters in Livonia was completed. The building featured a gym, salon, cafeteria, and in-house physician, keeping intact the company's commitment to its employees' well-being. Also that year Kerry Packer sold his shares of the company, and Valassis's Mexican operations and a French joint venture were shuttered.
CEO David Brandon stepped down in 1998 to make way for Alan F. Schultz, who had been serving as executive vice-president and chief operating officer. Under his leadership, Valassis began to invest in a variety of new ventures. In 1999 the company purchased a majority stake in Independent Delivery Services, Inc., a provider of home-shopping software products for supermarkets. Valassis also bought 30 percent of Relationship Marketing Group, Inc., a company that utilized retailers' frequent shopper card data to send direct mail offers to consumers. Late in the year the company restructured its Canadian operations, eliminating mail-order subsidiary Carole Martin Gifts due to poor performance.
Valassis also entered the world of cyberspace in 1999. An investment in Merge LLC, subsequently renamed Save.com, gave the company a 52 percent stake in an online coupon distributor. In October, Net's Best LLC, an Internet marketing company, was acquired. This was followed in 2000 by the purchase of a minority stake in Coupons.com, which offered coupons online. Save.com also purchased MyCoupons.com and Direct Coupons.com, further expanding the company's presence on the Internet. CEO Schultz described Valassis's intentions as follows: "Valassis will be the leader in online promotions."
In August 2000 the company's Valassis Data Management subsidiary acquired 80 percent of PreVision Marketing for $30 million plus 145,000 shares of stock. PreVision was a Massachusetts-based customer relationship management firm. Prevision had revenues of about $14 million, and handled so-called relationship marketing for large retail clients such Toys R Us and The Gap, whereas Valassis worked only with grocery chains in this service area. Relationship marketing was defined as efforts to enhance customer loyalty, and included management strategies, information science such as database mining, and direct-mail marketing. It was a relatively new business area that had become hot in the high-tech run-up in the late 1990s.
As the long bull market of the 1990s drew to a close and high-flying technology stocks dropped precipitately, overall economic conditions in the United States became more difficult. The recession of the early 2000s was not expected to hurt Valassis, however, because typically coupons became more popular as consumers tightened their spending. The coupon market had risen by more than 10 percent in the recession of the early 1990s, for example. Yet the early 2000s did not see a comparable surge in coupon use, and Valassis did suffer somewhat. Whereas its revenue stood at more than $849 million in 2001, with net income of almost $118 million, for 2002 the company brought in only slightly more than a year earlier, $853 million, and net income shrank to slightly more than $95 million. Valassis posted a loss for the fourth quarter of fiscal 2002. Although its coupon business still seemed strong, Valassis's investments in web-based coupon companies and in relationship marketing had not done as well. Changes in accounting law also required Valassis to take some charges related to its recent acquisitions.
Valassis hoped to bolster its revenue with a new acquisition in 2003, an Illinois company called NCH Marketing Services, Inc. Valassis spent $60 million to buy NCH's expertise in managing promotion information and managing coupon marketing. NCH had large clients such as the department store chain Target Corp., the drugstore chain Walgreens, Kraft Foods, consumer products manufacturer Procter & Gamble, and the world's largest retailer, Wal-Mart Stores Inc. It worked for these companies to recover coupon money from manufacturers, and it also had data management capabilities. NCH provided a way for Valassis to expand internationally, as the newly acquired company already had substantial business in Europe.
Valassis expected to raise its sales because of the NCH acquisition, and it knew it needed to, as a formidable competitor was eating into its market share. The News Corp. subsidiary News America had appeared on the horizon around the time Packer bought Valassis. By the early 2000s, News America was about the same size as Valassis, and Valassis steadily lost customers to the Australian-owned company. The competition forced Valassis to lower prices, and its net income declined. A shareholder filed suit against Valassis in 2004, alleging that the company had not revealed that it was losing market share because of the competition with News America. In 2005, the Federal Trade Commission (FTC) began investigating Valassis on suspicion of price fixing relating to its competition with News America. The battle between the two companies led prices for freestanding inserts to fall by almost 20 percent over the first half of the 2000s. By the mid-2000s, News America had passed Valassis in market share, holding an estimated 54 percent of the market to Valassis's 46 percent--this in an industry that Valassis had invented and for years dominated as the sole big player.
Despite the troubling loss of ground to News America, Valassis still seemed to have its strengths. Its revenue surpassed $1 billion in 2004, with earnings of slightly more than $100 million. The company renewed its commitment to the city of Livonia, buying a $30 million building from Northwest Airlines in 2005 in order to consolidate its employees from three buildings to one. The company had close to 1,000 employees in its headquarters city, with another 3,000 at various plants and offices across the United States and abroad. The company's European marketing, which it had pushed with the purchase of NCH in 2003, seemed to be doing well, and the company planned to expand certain coupon and free sample business projects in Spain, Italy, France, and England over the next few years.
Principal Subsidiaries
Valassis Canada; Prevision Marketing LLC; Promotion Watch; Valassis Relationship Marketing Systems LLC; NCH Marketing Services, Inc.
Principal Competitors
News America Marketing; Vertis, Inc.; ADVO, Inc.
Further Reading
Adams, Cheryl, "King of Coupons," Printing Impressions, April 1, 2000, p. 26.
Flass, Rebecca, "Valassis Acquires Prevision, Expands Retail Niche," Adweek New England Edition, August 21, 2000, p. 5.
Gallagher, Kathleen, "Multiyear Contracts Provide Marketer with Growth Potential, Analyst Says," Milwaukee Journal-Sentinel, June 6, 1999, p. 3.
Gargaro, Paul, "After a Great Quarter, Valassis Wants Growth," Crain's Detroit Business, August 24, 1998, p. 3.
Hunter, George, "Valassis Ready to Roll: Pennies Add Up for Livonia Coupon Company," Detroit News, May 29, 1997, p. D1.
Keeton, Ann, "Valassis Sees $1 Billion Internet Opportunity," Dow Jones News Service, May 12, 1999.
Markiewicz, David A., "Clip Job," Detroit News, March 14, 1993.
Moses, Lucia, "Valassis' Bid for New Biz Worries Newspapers," Editor & Publisher, August 11, 2003, p. 4.
Neff, Jack, and Jennette Smith, "Valassis Not Counting on Boom in Coupons As Economy Slows," Crain's Detroit Business, November 12, 2001, p. 4.
Pachuta, Michael J., "Valassis Looks for New Ways to Stuff Bargains into Papers," Investor's Business Daily, May 27, 1997, p. B12.
Palm, Kristin, "Perks (and Pooches) Can Help Keep Your Employees in Place," Crain's Detroit Business, May 24, 1999, p. E-19.
"Quicken, Valassis to Bring 700 Workers to Livonia," Detroit Free Press, February 14, 2005.
Roush, Matt, "Don't Discount Valassis," Crain's Detroit Business, February 19, 1996, p. 2.
------, "Valassis Takes a Clipping: But Analysts Expect '97 to Be a Cut Above," Crain's Detroit Business, February 3, 1997, p. 2.
Smith, Jennette, "Relationship-Marketing Ventures Take Toll on Valassis Earnings," Crain's Detroit Business, March 3, 2003, p. 4.
------, "Valassis Buys N'West Center," Crain's Detroit Business, January 31, 2005, p. 3.
------, "Valassis' Price War with Rival Draws Attention from FTC," Crain's Detroit Business, November 15, 2004, p. 4.
Stoffer, Jason, "Valassis Communications, Inc.," Crain's Detroit Business, September 6, 1999, p. 18.
"Valassis Answers Probe," Detroit Free Press, March 16, 2005.
— John Simley
