Clorox holds its own vs. much bigger competitors

February 23, 2005|By JAY HANCOCK

THE FOLKS at Clorox Co. have produced a small miracle of merchandising, and I'm not talking about the paradigm-shattering ToiletWand System. ("Better cleaning with every swipe!")

As a consumer products company with less than $5 billion in sales, Clorox has not only avoided being stomped by big competitors (Procter & Gamble, sales of $50 billion) and customers (Wal-Mart, sales of $250 billion), it has mopped up the competition - launching innovations, boosting sales and doubling its stock price in five years.

Whenever corporate mastodons go into heat, we in the financial media like to speculate on who else might arouse a merger partner's attentions. Clorox, a former division of Procter & Gamble that was forced out on its own by antitrust regulators in 1969, is seen as a perennial match.

But quiet down, matchmakers. Clorox, whose Aberdeen operation is one of its two biggest bleach plants, doesn't need to wed.

In the early 1980s The Economist suggested that the "mature and boring" bleach business would prompt Clorox to sell itself entirely to the German company Henkel, which had taken a big stake. A couple of years later, Business Week again identified Clorox as marriageable, but this time the rationale was the company's strength, its "solid position in bleach and its growth in other areas."

Clorox was tagged as takeover bait in 1987 because of a low price after the stock market crash; in 1995 because of a cash hoard; and in 2001 because of a slumping stock and a flubbed acquisition of the Glad bags brand.

Now it is time to play the Clorox-hookup record again. (Barry White?) Procter & Gamble's pending buyout of Gillette, the thinking goes, might force companies such as Clorox, Colgate-Palmolive (toothpaste, etc.) or SC Johnson (Pledge, Glade) into their own combinations to keep up. It seems to make sense. To be happy lately in the HAPPI business - household and personal products industry - it helps to have heft.

As vendors, bigger companies often can get better prices from Wal-Mart and other chains; as administrators, they can move more volume with fewer managers; and as customers they can strike sharper deals on supplies. This last factor has become more important as commodity prices rise.

And the combined Procter & Gamble and Gillette will indeed be big: $60 billion in sales.

But under chief Jerry Johnston, Clorox has succeeded as a medium-sized player by making up in focus and brand development what it lacks in bulk. The Oakland, Calif., company has sunk more than $200 million into research and development the past three years.

Successful rollouts include Clorox ToiletWand, with a detachable, throwaway pad, Glad ForceFlex bags, which allegedly accept pizza boxes and other angular refuse without breaking, and Glad Press 'n Seal, which is supposed to stick better than regular plastic wrap.

And the sodium hypochlorite solution known as Clorox bleach, made and bottled in Aberdeen by 160 Clorox employees and warehoused and shipped northeast by many others working for Michel Distribution Services, keeps on selling.

Wal-Mart is famous for driving down vendors' prices, in part by competing against them with private-label products. "Great Value" bleach is the Clorox rival. But after stalling, Clorox continues to boost shipments to Wal-Mart. The chain accounted for 28 percent of Clorox's revenue in the most recent quarter, up from 26 percent a year previously.

Products don't get much more low-tech or competitively vulnerable, but Clorox still has 67 percent of the liquid bleach market in stores that it tracks, a spokesman says. Liquid bleach is still Clorox's biggest product, accounting for more than $400 million in revenue.

And the stuff still makes gobs of money, helping the company generate $189 million in cash from operations in its most recent quarter, grow sales by 9 percent, increase its profit margin and buy out German partner Henkel last year.

Somewhere in marketing someone is doing something right. Certainly Clorox might merge with someone smaller, but don't expect it to seek a big partner unless it stumbles badly.

Clorox spokesman Dan Staublin declined to chat about takeover rumors except to say none of the company's products competes with Gillette and only a 10th competes with Procter & Gamble.

"Certainly from time to time we hear speculation on these topics," he said. "But we just don't comment on that."

Saving many a wasted word.

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