Date: April 13, 1994

Location: Newark

Title: Kelly and Dan Marx Carry Clinton Milk Into Its Third Generation

Author: Dan Goldblatt

Subject: The city”s only remaining dairy survives by offering the personal touch

Don”t look for grazing cattle. Forget about sloping green meadows and the smell of fresh-cut grass. The road to the Clinton Milk Co. passes through block after block of tire-strewn lots, where piles of ragged tires and other urban garbage sprout florets of broken glass. Occasional slashes of urban renewal break up the ruined cityscape before the ancient brick home of Newark”s only remaining milk processor appears. The 15th Avenue face is covered with graffiti.

Clinton Milk is a family-owned business located in Newark”s Central Ward. Most other businesses have long since fled the area, but Clinton president Kelly Marx says he finds it a great location, central to the territory over which he sells the company”s dairy products, juices and salads. Customers, primarily restaurants, hospitals, colleges and other institutions, stretch from Princeton to Mahwah and from Hackettstown to Fort Lee.

When Philip Marx, Kelly”s father, founded the firm in 1921, Newark was a very different city. Before the 1967 riots, “Springfield Avenue was a major shopping area,” says Marx, and employees used to hop a bus downtown to browse at stores during their lunch breaks. Just as the city has changed dramatically, so has New Jersey”s dairy business. One by one, the familiar names have dropped away, either going out of business or being absorbed by larger companies. Marx, 60, runs through the list of milk companies that used to have operations in Newark. Some well known names: Borden, Sealtest, Dairylea, Alderney.

Philip Marx, who was actively involved in the firm until his death 11 years ago, turned over the day-to-day management to son Kelly about 25 years ago. As is the case in many family businesses, Kelly had spent years working at the dairy on weekends and vacations prior to college and a mid-1950s stint in the Navy. Marx says there was never any question that he was going to join the family business, and he did so as soon as his Navy hitch ended. Kelly”s son, Dan, 30, the vice president, joined full-time eight years ago after finishing college. He too went the vacation and weekend route to become familiar with every facet of the operation.

Other family members have been involved with the dairy over the years, but not any longer: When Dan bought in last year, he took over his aunt”s 3% chunk as well as 10% of his father”s share. Dan”s sister, who lives out of state, has no interest in the dairy.

As in most other fields, consolidation is going on in the dairy business, but according to Alan Stoedter, chief of the bureau of enforcement at the New Jersey Division of Dairy Industry, family-owned firms still predominate in the state. He attributes this to their development over generations as small processing plants serving specific regions.

When companies started to merge and fold, the ones that survived became bigger. “The family-owned nature remained, but they are much bigger,” Stoedter says. Some closed their processing plants and became wholesalers, like New Brunswick”s Creamoland. Many others, such as Tuscan of Union and Flemington”s Johanna Farms, were scarfed up by big companies like Labatt”s of Canada.

But not Clinton Milk. In a very tough and competitive business, Clinton has managed to survive, stay independent and have sales of about $20 million a year, though Kelly admits the rate of growth “has flattened out the last couple of years.”

How has Clinton dairy kept going? “Because of our size and competition from larger dairies, we”re more service oriented,” says Dan Marx. As an example, he notes that when there is a mistake in delivery, rather than correct it in the next delivery, “We correct it in the next hour.” Kelly has been known to throw a case of milk in his Jaguar and drop it off personally. “Where else does the president make a delivery?” he asks.

Jeff Reiter, senior editor of the trade publication Dairy Foods, says in an era in which the big companies are getting bigger and putting money into plants and equipment that the small ones can”t afford, good service may be the only hope for small companies like Clinton. “That kind of responsiveness is important in this business, especially with restaurants,” says Reiter.

Marty Horn, manager of Pals Cabin restaurant in West Orange, agrees. He says he”s been buying from the Marxes for 25 years and offers a long list of reasons, all of which boil down to excellent personal service. He calls Clinton “one of the highest quality companies we deal with.”

Clinton has found a niche for itself by specializing in serving institutions. Some 85% of sales are to non-retail customers. Reiter considers this a strength, and points out that while dairy business profit margins are 5% or less, they are better in food service than in retail. Furthermore, he says, the competition is worse in retail, where bigger companies like Wallington”s Farmland, which Reiter estimates had sales of $125 million last year, are able to offer cents-off promotions and pay merchants so-called slotting fees to get new products placed on store shelves.

Another way Clinton Milk has kept up with the changing marketplace is to broaden its product line. In the last 40 years, per capita milk consumption in the U.S. has dropped by almost 25%, worrying the industry to the point where last year it embarked on a multimillion-dollar ad campaign to encourage Americans to drink more milk. Sales of whole milk have also been steadily dropping, and are down more than 50% since 1975. Since sales of reduced-fat milk have doubled during that time, Clinton now produces more of those products. In addition, the company has branched out into fruit juices, iced tea and salads. Sales of non-dairy products have doubled in the last 10 years. Says Reiter: “Juices and drinks are hot areas for dairies.” The move is easy because the dairy already has the equipment in place to produce the items, and the packaging is the same as for dairy products.

And, finally, there”s water. Kelly Marx shakes his head at the caprice of consumer tastes. “If you had told my father that I”d be selling water,” he says with wonder in his voice, “he”d never have believed it.” But, according to Marx, sales of Pennsylvania spring water are booming, especially on college campuses.

Kelly and Dan both say they plan to keep their business in the family, despite any difficulties they may encounter. Clinton Milk has already overcome one of family-owned business” biggest obstacles: it has survived beyond the founding generation. The Small Business Administration reports that only about 50% of firms manage that milestone, and of the ones that do, only one-third make it to the third generation.

According to Mary Suchcicki, Family Business Forum administrator at Fairleigh Dickinson University”s Rothman Institute in Madison, that terrible track record is due to poor management and lack of planning. A study by Massachusetts Mutual, the insurance company, showed a pervasive informal approach to planning activities among family firms. Kelly Marx admits that describes his style. “We don”t run a Harvard-style business,” he says. While his methods are “not quite seat-of-the-pants,” Kelly says there are no formal board meetings. He and Dan just have lunch together a few times a week when they can manage to be in the same place at the same time.

As far as the next succession goes, “It”s obvious Dan will be president; he”s earned it,” Kelly says. The succession plan is Kelly”s will, which awards his share of the company to Dan. Kelly says Dan enjoys the business and “works hard to make it a success,” which may be a key to keeping a company in the family.

Reiter of Dairy Foods says the unwritten law of family dairies is that the first generation founds the firm, the second one grows it and the third ruins it. He adds that a founder”s sons and daughters are “not necessarily motivated, not necessarily competent.”

While Clinton dairy has expanded its facilities several times over the last years, there is only so far the company can spread out in the middle of Newark. As he wanders through the cramped and noisy processing plant, Kelly stops to peer into a vat of chocolate drink and shows off a machine that can fill 30 containers with skim milk every minute. Kelly is confident that he and his son can hold off the super dairies, which can buy equipment that cranks out new products like ultra-pasteurized milk that can sit on a store shelf for weeks. Dan, who is getting married soon, wants to have kids, and he wants to keep the Clinton Milk Co. in the family. Says the younger Marx: “That”s the plan, anyway.” u

BOX:

Clinton Milk is just one of New Jersey”s many family-owned businesses. On May 26, BUSINESS will hold a seminar on the topic of running a family business. If you are interested in attending, please call Sally Van Gulik at 908/329-0003.