A Bright Idea That Clorox Wishes It Never Had

It was always something of a corporate grudge match. Back in 1988, Clorox Co. decided to take on consumer-products colossus Procter & Gamble Co. in the detergent market. Clorox had once been part of P&G, before the Federal Trade Commission forced the company to divest its bleach business back in 1969. So, while Clorox has since evolved into a formidable household goods purveyor, going after P&G was "like wanting to beat out your brother," says one former Clorox executive.

Well, big brothers have been known to deliver a thrashing when provoked. And that's exactly what Clorox received from P&G and other consumer giants during its fling in detergents. Clorox invested upwards of $225 million over the past three years to develop and distribute its detergent products. But it couldn't come close to matching the marketing might of P&G and Unilever. Consider that Clorox spent $2 million last year on all its detergent advertising, compared with $62 million that P&G shelled out for its Tide brands alone. Few were surprised, then, when Clorox CEO Charles R. "Chick" Weaver finally hoisted the white flag in late May and announced a retreat from the business.

But having picked this fight, Clorox may not find it so easy to back out. Soon after it launched Clorox Detergent, the detergent-bleach combination it's now yanking, P&G unveiled its own combo, Tide With Bleach. While the product had been in the works for years, P&G picked up the pace to counter Clorox. By early 1989, P&G had Tide With Bleach in place nationwide, backed by a promotional and advertising blitz. Thanks to P&G's overwhelming marketing muscle, Tide With Bleach quickly captured 17% of the market, becoming the No. 2 brand behind regular Tide.

Problem is, that product didn't just trounce the Clorox detergent brand: It's also stealing sales from some of Clorox' core bleach offerings. And Clorox' surrender in the detergent market leaves the company without a big new growth vehicle. True, its lineup of household goods such as Soft Scrub, Liquid-Plumr, and Formula 409 are respectable market leaders (table). Even so, they're all niche players -- and in mature markets at that. Nor has the company received much of a boost from its 1990 acquisition of the Pine-Sol cleanser and Combat insecticide lines from American Cyanamid Co.

PLANTED IDEA. Clorox is far from washed up. Its balance sheet isn't tremendously leveraged. And President Robert A. Bolingbroke argues that his company's unit sales can grow by a respectable 7% annually with extended product lines and hot specialty products. The company doesn't need to burst into a vast new market in order to thrive. "I'd like to see us concentrate our efforts in niche markets," says Bolingbroke, a longtime Clorox marketing executive. "That's what we do best."

Still, the days of double-digit earnings growth Clorox enjoyed throughout the 1980s are gone. Thanks to an $80 million write-off, primarily to cover its detergent debacle, Clorox' earnings this fiscal year are expected to plunge to $54 million, from $154 million last year, on revenues of $1.64 billion. Worse, Clorox' adventure in detergent may have created a Frankenstein. "By opening up the whole bleach-detergent business, they raised some doubts in consumers' minds about whether they really need a separate bottle of bleach," says William Newbury, an analyst with College Retirement Equities Fund, an institutional shareholder. One immediate victim appears to be Clorox II, the company's fabric-safe, nonchlorine bleach. Clorox concedes that sales are 5% to 10% behind last year.

That smarts: Clorox II is a high-margin item that contributes an estimated 10% of the company's profits. To shore up the business, Clorox is preparing new TV ads, and it's offering retailers incentives to improve bleach displays. So far, demand for its flagship Clorox Bleach hasn't been hit by the combo brands. But that market has been flat and is under attack from generic products.

Nor are most of Clorox' stable of niche brands taking off. Sales of Formula 409, Liquid-Plumr, Tilex, and Soft Scrub are just chugging along with the 1% to 2% annual growth of the U. S. population. And one of the few bright spots, Clorox' Hidden Valley Ranch salad dressings line, faces increased competition. Hidden Valley had grown briskly in recent years: It grabbed the No. 2 spot in bottled salad dressings from Unilever's Wishbone brand, thanks partly to the addition of a line of low-fat, cholesterol-free dressings under the Take Heart name. But Kraft General Foods Inc., No. 1 with a 40% share, is taking no chances. Last year, Kraft introduced its own line of low-fat dressings -- now a $62 million-a-year business and roughly three times as large as Take Heart.

CROWDED FREEZER. In a daring move, Clorox may now be about to take the Hidden Valley Ranch name into the crowded frozen-entree business. The company is testing a line of microwavable dinners--chicken, beef, shrimp, and pasta--to which you add water and zap. The water is needed because the ingredients aren't precooked, and Clorox claims the meals taste better than other frozen entrees.

However, the $4.6 billion frozen dinner market has already been staked out by the likes of Kraft, Nestle, and Conagra. Clorox may be in for another drubbing. "It's a tough time for someone who's not a big player," says Stephen B. Hughes, executive vice-president of Conagra Inc., which markets the Healthy Choice line.

You've got to hand it to Weaver and company: These folks aren't afraid to take on the big cats. But they're also proving that grabbing a tiger by the tail is one thing, letting go quite another.

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