The ink was barely dry. In February Colgate-Palmolive Co. of New York agreed to buy Mennen Co. and its successful deodorant line. The acquisition fit neatly into the company’s plan to expand into new segments. But no sooner had it plunked down $670 million to get into the game, archrival Procter & Gamble shook things up by putting Secret and Sure on everyday-low pricing (EDLP). Years ago such a move would have sparked head-to-head combat between the two titans of packaged goods. But Colgate hardly blinked.
When asked about this seeming indifference, chairman Reuben Mark defers to the official company line: “The overall Colgate policy on [EDLP] is to maintain flexibility, and the Mennen part of the business is being treated the same way.”
Make no mistake. The rivalry between Colgate and Procter, the stuff of marketing lore, is not dead. But the competition has shifted, as the two companies pursue divergent paths to growth. Procter is on an acquisition binge that is taking it right to the top of brand new businesses. Colgate, meanwhile, is building on its strengths, hunting for brands that will open up new segments in its existing categories. By the start of the new century, the old enemies will have vastly different portfolios. And while they will overlap in some areas, they have already staked out different goals.
“We only want to compete in those areas where we can be a major worldwide power,” says Mark. “We do not want to spend our resources, both financial and human, in many major products categories. Our strategy is to go where our strengths are.”
In 1984 Mark laid out an seven-year plan around that strategy. He pledged to improve profitability by 1991 by focusing on five categories: toothpaste, soap, detergent, household cleaners and pet food. During those years the company shed unrelated units such as Kendall Healthcare, a medical-supply manufacturer. And it began acquiring brands and businesses in its core categories, including Softsoap liquid soap, Murphy’s Oil Soap and Vinpont Pharmaceutical, an oral hygiene company.
As his first program drew to a close, Mark worked up a new five-year growth plan based on new products, geographic expansion and strategic acquisitions. By the start of 1992, his plan was already well underway. Last year Colgate introduced 275 new products worldwide?, formed a joint venture to sell toothpaste in China and made six more acquisitions. They ranged from bodycare manufacturers in Australia and Turkey to household-cleaning brands in the U.S. and Brazil.
Procter has spent recent years cornering the market in personal care. It has bought companies outright, such as Richardson-Vicks and Noxell, and cherry-picked product lines from G.D. Searle, Norwich-Eaton Pharmaceuticals and Revlon. Its brand roster includes some of consumer goods’ top names. Clearasil, Noxzema, Vidal Sassoon, Cover Girl and Oil of Olay. Procter is also pushing into healthcare, forging joint ventures with pharmaceutical companies to market drugs for eventual over-the-counter use.
Colgate has chosen to milk its personal care and household brands for all they’re worth by extending them into new markets around the world. The company has long built brands in developing nations by emphasizing personal hygiene. It will even go so far as to teach children how to brush their teeth in order to maintain its worldwide dominance.
“The name of the game is to identify categories you can be strong in and blast production into as many markets as you can to become the leader,” says analyst Gabe Lowy of Gruntal & Co. in New York.
“Rivalry isn’t the appropriate word anymore,” says Lowy. “It’s competition, intense competition. The stakes are so high now, that the primary motivation behind new product development is not what the other guy is doing. There are a lot more competitors to keep your eyes on these days.”
Stretching strategic brands around the world has worked in Colgate’s favor. The company’s global market share for toothpaste is 43%, up 29% from a decade ago. Last year alone, body-care sales rose 6% to $1.1 billion and household-surface sales grew 9%. While other packaged-goods giants, including Procter & Gamble are looking to enter new overseas markets, Colgate is well entrenched there.
The company has far less of a hold, however, on the U.S. market. Last year about 36% of its total sales come from the U.S. and Canada, the same as it was in 1990. Says one Colgate insider, “We’re interested in achieving critical mass in each of our categories. But we know going in that we’re going to be the No. 2 or 3 player.”
Mark refutes the notion that Colgate is willing to play second fiddle in any market. He points to the company’s increased research and advertising budgets as proof of its aggressiveness. Colgate spent $114 million on research and development last year, up from $98 million in 1990. It spent $248 million on worldwide advertising, up from $400 million. The company has promised to support both its new product introductions and its acquired brands, such as Palmolive Sensitive Skin and Mennen.
There is one area Colgate in which will never give up the fight – toothpaste. While far-and-away the leader worldwide, the company only has a 28% share of the $1.05-billion U.S. market. P&G’s Crest has 34%. Both here and abroad, Colgate has been looking to niche segments in oral care to boost profit margins.
In December the company introduced a baking-soda toothpaste under the Colgate name. The profit margins on baking soda lines are about 40% higher than on regular toothpaste. This year Colgate is expected to roll out a new toothbrush called Precision and replace all its pumps with Colgate Stand Up, its answer to P&G’s Neat Squeeze. The product, a flexible tube that regains its original shape after being squeezed, has been in test in Denver.
While Colgate still has weaknesses in the U.S., it has bolstered its position with its recent acquisitions. The 1987 purchase of Softsoap from Minnetonka Corp. has opened up a brand new segment in soaps. Softsoap leads the $300 million liquid soap market with a 27% share. Dial Corp. and P&G’s ivory Liquid are the No. 2 and No. 3 players, with 24% and 20% respectively. In 1989 Softsoap became the first to launch an anti-bacterial liquid soap.
Colgate has since extended the brand into facial care. As one insider notes, the company is willing to take more risks with acquired subsidiaries like Softsoap.
“Colgate has left it alone in a positive way,” the executive says. “They operate in an entrepreneurial sense and are able to test more options. When you’re a company this size, it’s much harder to do the testing and get the products out.”
With Murphy’s Oil Soap, acquired last year from the Murphy-Phoenix Corp., Colgate bought a brand with loyal consumer following, but with limited distribution. It has taken it national, and is exploring bringing it overseas.
As it has with previous acquisitions, Colgate is expected to allow Mennen a fair amount of autonomy in the U.S. But it has big plans for the brand overseas. Mennen has broad recognition in Latin America, and Colgate is expected to push it there with new products and line extensions. The company has a global plan for expanding the line. Before making an acquisition, executives at the appropriate Colgate division must offer projections of how they will build a new brand. They are then paid on the performance of that brand.
While the Mennen line has great potential in many foreign markets, it faces stiff competition in the U.S. from Procter & Gamble’s Secret and Sure – the top two brands in the U.S. In April and May, after Colgate bought the company and stepped up its ad spending, Mennen’s share rose from 16% to 20%. But many observers doubt it can maintain that growth.
“It’s easy to spend lots of money and increase market share,” says consultant Sara Loar of Kline & Co. in Fairfield, N.J. “It’s another thing to sustain it. I’m sure P&G is not going to take this sitting down. It’s going to be a fight for customer brand loyalty.”
Next month Procter will extend everday-low-pricing (EDLP) to its two market-leading deodorants. But while Colgate followed P&G’s pricing change in detergents, it is taking a wait-and-see attitude with Mennen.
“Of course if there’s a risk and we have a loss in volume, we will follow,” says a company insider. “Colgate has every intention of increasing share here or we wouldn’t have spent that kind of money.”