From Coke to Clorox

New CEO Donald Knauss talks about the challenges of running a smaller consumer-products outfit. Scale isn't everything, he says

Donald R. Knauss didn't pick the easiest job in the consumer-products industry. On Aug. 31, Clorox (CLX) named the 55-year-old Coca-Cola (KO) executive as CEO and chairman of the maker of Glad trash bags, Kingsford charcoal, Scoop Away cat litter, and household cleaners. He replaces interim head Robert Matschullat, a Clorox director who stepped in after former head Jerry Johnston retired in May following a heart attack.

Knauss comes to Clorox after a 12-year career with Coke, where he rose to be president of the beverage company's North American division in 2004. Knauss faces the challenge of running a company much smaller than its rivals, such as Procter & Gamble (PG) and Unilever (UL). Clorox has struggled with weak sales and operating profits, and, like the rest of the industry, has been hit with rising commodity costs. In an interview with Business Week correspondent Robert Berner, Knauss discusses how he will lead Clorox.

Of the hurdles Clorox faces, what do you think is the company's greatest?

The biggest challenge right now, and it is facing a lot of consumer-product companies, is rising costs. If you look at commodity costs, from resin to energy to high-fructose corn syrup, they are going up significantly versus their average the last three to five years. That is certainly one of the significant challenges we all have.

What are the obstacles specific to Clorox?

The other challenge of course, which everyone from P&G to Unilever to Coke faces, is getting the top line growing at acceptable (profit) margins.

How do you plan to boost sales profitably at Clorox?

One of the things I have learned the last few years is the key to growth is innovation. It is a word that has become hackneyed over time—everyone throws that word around. But I think at Clorox there is a unique opportunity because you have a number of great brands that are No. 1 or No. 2 in the categories they compete in.

And when I have looked at the macro consumer trends—and one of the reasons I was intrigued by this job—I saw a pretty compelling proposition. The first trend is health and wellness. The second is the trend toward convenience. The third is the sustainability around the environment. The fourth, particularly for this country, is the changes in ethnicity, the Hispanic wave. My idea to drive growth is to really focus on those four macro trends and understand how to broaden the footprint of an already great stable of brands.

Could you give me an example?

There has been a lot of success recently with the Clorox bleach pens. That is really neat idea because it latches onto one of those trends: convenience. So I am going to be looking at the brands through the lens of those four consumer trends and really how we can broaden out the footprint.

Can you give me some more examples of Clorox products that dovetail with those trends?

Glad trash bags with ribbed sides, which are much more convenient because they don't split open. Let's talk about using bleach and byproducts of bleach that can disinfect bathroom and kitchen areas because people are really concerned about germs. So health and wellness have become such buzzwords. So I think those kinds of trends and lining up the products and brands against those trends is the approach I will take.

Is there a disadvantage in being a smaller consumer-products maker like Clorox vs. a P&G or Unilever many times your size?

Scale is a double-edged sword. On the one hand, you can drive to a lower cost position. But on the other, you can be pretty slow and cumbersome. I think a company like Clorox has really good scale in the categories it competes in. The advantage you have is you can be nimble and you can be fast and you can make things happen. There is one downside to being very big in this kind environment. Speed counts for a lot. You don't have time to waste anymore. Retailers won't put up with it.

What will you do differently with retailers?

One of the things I have learned is that consumer companies like Procter and Clorox, they have great marketing research. But most of it is attitudinally based. People tell you things when you ask them. When you do online surveys, focus groups, people are telling you things. Retailers can add to that by giving you transactional data which is actually what people spend their money on. So people may say one thing and may do another. Being able to marry that attitudinal data that companies like Clorox have with the transactional data retailers have and getting retailers involved in the innovation process early can make a huge difference. It made a huge difference at Coke in terms of what categories we get into, how we approach branding, how we approach line extensions.

Aren't retailers sharing these ideas with other consumer-product companies?

What I find is a lot of companies don't get that involved early in the process. Sure, they will go talk to (retailers). But are they really showing them innovations12 to 24 to 36 months out? It doesn't matter if they are a large national retailer or a small regional retailer, they tell me three things: They really want you to grow the category. Is your innovation and marketing growing the category? Second, are you bringing any excitement to my store? Are you helping me generate traffic? And third is eliminating waste out of the supply chain. Wal-Mart (WMT) has woken everyone up to the need to be more efficient through the supply chain.

Do you see getting out of any product categories at Clorox, say food like K.C. Masterpiece dressings?

I couldn't really comment on that question now without [first] getting into the strategy with the team.

What lessons will you apply from Coke to Clorox?

This is derived from being in a franchise system for a lot of our business at Coke, although we have finished-goods businesses like Minute Maid that are much more like Clorox in that we use the same brokers and distribution system. But certainly one thing I learned there is if you really want to get great execution in the marketplace you really have to understand how strategy cascades down through an organization to get that kind of focus. One person's strategy is another person's objective. As you go through different levels of the organization from corporate to the sales district out in the field, you have to make sure you clearly communicate very simply what you want each layer of the organization to do come Monday morning. I think at Coke we had a pretty good focus on that because we didn't control every side of the value chain.

Which market do you see Clorox' growth coming from, domestic or international?

From a share volume standpoint and dollar standpoint, you have to say there is a tremendous growth opportunity outside the United States because you only have 15% of Clorox' business outside the shores of the U.S.

What are your plans to grow overseas?

It is much more of a rifle-shot approach than a shotgun approach. We have to be diligent in focusing on markets where we really think we can drive a good cost position and be able to outdifferentiate people and not spread resources too thin. Many hearts have been broken on the shores of international by trying to go into too many markets simultaneously.

There has been some talk that Clorox could eventually be put up for sale. Do you see that possibility?

I think it gets back to shareholder value. I believe the stock is up about 40% over the last three years. As long as we are delivering top-line growth and bottom-line growth and keeping the stock fully valued I think shareholders will be pretty happy.

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