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Smile When You Say That



Colgate-Palmolive is more than oral care.



By Tom Branna , Editorial Director



Published April 3, 2013
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Smile When You Say That

When a jingle contains classic couplets like “Colgate Fluoride MFP, helps prevent a cavity…” who can forget it? For millions—no billions—of people around the world, Colgate is synonymous with toothpaste. But the company means much more than a healthy smile. For more than 200 years, Colgate-Palmolive has been a leading player in the global household and personal products industry with brands such as Softsoap, Murphy’s and Irish Spring, in addition to is eponymous oral care and dish detergent brands.

The company got its start in 1806 when William Colgate founded a starch, soap and candle business in New York City. Nearly 60 years later, in 1864, B.J. Johnson opened a soap factory in Milwaukee, WI, and by 1898, the site was churning out a popular soap made entirely from palm and olive oils. The soap was such a hit that BJ Johnson Company changed its name to Palmolive Company. Meanwhile, in 1896, Colgate & Company sold the first toothpaste in a tbe, Colgate’s Ribbon Dental Cream. In 1926,Palmolive and Peet merged to become Palmolive-Peet Company and, just two years later, Colgate merged with Palmolive-Peet to become Colgate-Palmolive-Peet Company. In 1953, Peet was dropped from the company name.
 
A Colgate toothpaste commercial from 1966.


 
Colgate calls new Optic White a breakthrough in the whitening segment.
By the time Happi (then known as Detergent Age) debuted in 1964, Colgate-Palmolive had become a leader in emerging markets, had begun a 50 year record of increasing its dividend to shareholders and was well on its way to becoming the dominant player in oral care. Over the years, the company churned out several winning brands and added to sales via acquisition as well. For example, in 1966, Palmolive dishwashing liquid debuted and two years later, Colgate added sodium monofluorophosphate (MFP) to its toothpaste formula. Irish Spring was launched as *Irische Frühling in Germany in 1970, before making its debut in the US in 1972. Four years later, Colgate-Palmolive acquired Hill’s Pet Nutrition. In 1983, the Colgate Plus toothbrush was introduced and today, more than 1.6 billion Colgate toothbrushes are sold every year. In 1987, Colgate-Palmolive acquired Softsoap liquid soap and by 1989, annual company sales topped $5 billion.
 

The Marks Years

 
The company became a darling of Wall Street analysts under the leadership of Rueben Mark, the brash, Jersey City-born CEO who led the company from 1984 to 2007. One of the key attributes of the Mark era was a focus on profit. Back in 1984, Colgate’s gross profit margin was just 37.9%. By 1994, it reached 47.4% and reached a high of 59.1% in 2010. Last year, gross profit margin was 58.3%. During the 20-year period from 1992 to 2012, Colgate’s return to shareholders was 1018%, compared to 656% for its peer group and 385% for the S&P 500.
 
However, that in their quest for higher profits, company executives may have skimped on innovations in categories other than oral care. While their competitors were investing heavily in R&D, Colgate-Palmolive was content to market me-too household and personal care products in an already crowded market, according to some industry observers.
 

A Focus on Oral and Personal Care
 

That relentless drive to improve the bottom line was evident in 2005, when Colgate sold several under-performing laundry care brands, including Fab and Dynamo, to focus on higher margin oral, personal care and pet categories. The next year, Colgate made an even bigger bet, this one on natural products, when it acquired Tom’s of Maine, giving it a leadership position in the fast-growing natural personal care segment.
 
Since then, however, Colgate has missed the mark. Its charismatic CEO retired in 2007 and the company’s stock, like many other household and personal care companies stalled as investors socked their money away in safe havens like bonds and cash. Last year, the biggest news out of Colgate came in October, when the company announced it would cut more than 2,300 workers (6% of its workforce) by the end of 2016 in a bid to become more efficient.
 
Ian Cook
“We are well positioned for 2013 and beyond,” insisted CEO Ian Cook during a CAGNY analyst conference in February. “Based on the global balance that we have and the tight focus on the categories that we do business in, the effective strategic initiatives we’ve been deploying consistently for the past eight years, the capabilities that we’ve had for a long time and the new capabilities that we are building into the company and we have momentum in the marketplace.”
 
Today, Colgate operates in 223 countries and territories around the world, with emerging markets accounting for 52% of the company’s $17.1 billion in sales. Oral care represents 44% of sales, followed by personal care (22%), home care (21%) and pet nutrition (13%). Colgate’s share of the global toothpaste market has climbed from 31% in 1994 to 44.6% last year. Meanwhile, its closest competitors, Procter & Gamble and GlaxoSmithKline, saw their shares fall for the same period. Similarly, Colgate’s leading share of the global mouthwash category has risen from 25.7% in 2003 to 38.1% last year.
 
In other important categories, Colgate’s 2012 shares include:
Bar Soaps 20.6% (up 0.3% from 2011)
Liquid Hand Soap 21.0% (down 0.2%)
Body Wash 12.3% (up 0.6%)
Deodorants 10.2% (up 0.5%)
Household Cleaners 14.2% (down 0.2%)
Hand Dishwashing 34.9% (down 0.1%)
 
“With that balance of geography and focus on categories, we believe that we have delivered consistent financial results over an extended period of time,” explained Cook.
 
He pointed out that organic growth last year was driven by a healthy balance between volume and pricing—a balance that will continue in 2013. The company expects growth of 6-7% in 2013 even with the effect of crisis in Venezuela.
 
Still, Colgate is determined to reduce costs by cutting back on manufacturing facilities. Prior to 2004, it had 85 manufacturing facilities, today it has 54 and it hopes to reduce that number by 10% by 2016. For example, in oral care, Colgate is closing facilities in Germany, Switzerland and Poland, and consolidating production into a dedicated oral care plant in Swidnica, Poland. All factory closures will be completed by the end of 2015. At the same time, the company is optimizing its warehouse and distributor network.
 
As it closes some factories, Colgate is still building around the world. The company recently opened a business service center in Mumbai to go with one in Poland and another center is planned for the Americas.
 

Getting Growing

 
To maintain and accelerate growth, the company has instituted a four-point plan dubbed “Innovation for Growth.” Its key points are:
 
• Innovation driven by consumer understanding combined with competitive technologies;
• Innovation spans new products, new claims and new packaging;
• Healthy blend of external and internal technologies; and
• Focus on both short- and long-term innovation.
 
“We have enduring capabilities and we are building new capabilities in the company for the future,” he maintained. “We are strengthening our innovation pipeline around the world.”
 
This year, the emphasis remains on oral care, with the global rollout of Optic White, which promises to whiten teeth more than three shades with results starting in just one week. New Colgate SlimSoft toothbrush has 0.01mm slip tip bristles for deep, gentle cleaning. The Total Advanced Floss Tip promises “whole mouth clean plus floss tip bristles for 4x deeper reach.” For those who prefer electric teeth-cleaning variants, there’s new ProClinical electric toothbrush. New auxiliary oral care products include a relaunch of Plax mouthwash, which kills germs up to 99% and provides 12-hour protection without alcohol. Similarly new Colgate Plax Tea Fresh promises long-lasting fresh breath.
 
Throughout Europe, Colgate is introducing Colgate Total Pro-Interdental, a toothpaste that promises to continuously fight plaque even between teeth.
 
In China, the company is launching 360° Pro Gum Health, which promises relief from gum problems in three weeks. Another, “China only” launch is Colgate SlimSoft Charcoal toothbrush, which promises a deep, gentle clean with charcoal bristles.
 
With so many new products and such a dominant market share, it’s no wonder that Colgate is the most dentist-recommended brand of toothpaste (48% v. 15%) and mouthwash (32% v. 12%) in the world.
 
“In many ways our business is about doing the fundamentals well,” said Cook. “And we have renewed our focus on strengthening our already deep distribution in emerging markets.”
 

And Outside the Mouth…

 
New Protex for Men personal cleansers debut in Latin America.
Oral care new product launches aside, Colgate is introducing Protex for Men in Latin America, which promises 10 times more protection against odor-causing bacteria than ordinary bar soap.
 
Also new is Softsoap Antibacterial. In Europe, the company is relaunching Palmolive Body Wash with new packaging and new advertising. Elsewhere Lady Speed Stick Pro 5 in 1 in Mexico, Africa and Eurasia. In Europe, new Sanex Zero % Kids body wash is billed as a mild formula “with less chemical ingredients to keep your child’s skin healthy.”
 
To keep homes clean in Europe, the company is launching Ajax Pure Home with actives “rich in oxygen.” Also new are Ajax wipes with biodegradable fibers, which clean and eliminate 99.99% of bacteria.
 
“We believe (we have) a continuing rich flow of innovation,” Cook told the CAGNY audience. Cook expects new products to represent 7-8% of sales this year, which makes them an important part of the company’s plan to achieve 6% topline growth this year.
 
Ajax wipes are new in Europe.

Measuring Metrics
 

For the company that practically made SAP a household name in the household and personal products industry, the new buzzwords are analytics and pricing, according to Cook.
 
“We believe that with the data available in business today, this (analytics) will be an increasingly important area of competence. It allows us to execute better on the ground to build our brands,” said Cook. “It gives you the capability on the ground to make faster and smarter decisions and if we continue to build it to get it right it will become a competitive advantage.”
 
According to Cook, there are two types of analytics: fundamentals, which includes things such as market data, brand health, information and the tracking of new products; and the more advanced analytics, such as marketing mix modeling, price capabilities, shelf assortment and customer point of sale information. Colgate has already used analytics to revamp its oral care business in Brazil. For example, a two-month promotional cycle is 40% more effective than a three-month cycle in Brazil. Information like that has helped Colgate attain an oral care market share in excess of 70%.
 
As for pricing, Colgate is making it a more strategic endeavor by focusing on profitable growth while maintaining brand health. The company has many initiatives, such as training that is rolling out around the world and workshop capabilities that will be put in place in the second quarter. New tools will measure a host of data points such as finding the right combination between pricing and merchandising in key markets.
 
A Wall Street Favorite Again?


 
Cook may not have the charisma of Mark, but there are signs he’s winning over Wall Street. Later this month, on April 23, Colgate will split its shares 2-to-1. More importantly for investors, the company will raise its dividend nearly 10% to $0.68 a share.
 
The moves should provide even more of a lift to Colgate’s already high-flying stock, which reached a 52-week high of $116.79 last month. The per share price is up more than 20% during the past year, thanks to strong growth in nearly every category and every region. Share prices are up nearly 10% this year.
 
In 2012, corporate sales rose 2% to just under $17.1 billion. The only blights on 2012 performance, was in Europe (where sales remained flat) and Hill’s Pet Nutrition, which has been hammered by consumers’ preference for natural ingredients for their pooches. Sales of Hill’s fell 1% last year, but Cook insists the brand will grow again due to innovative new products—which has become a recurring theme for Colgate-Palmolive.
 
 


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