Colgate Palmolive Essay Example

soap in the world and led the firm to change its name to the Palmolive Company in 1916. The Peets, who sold laundry soap mainly in the Midwest and western states, merged their company (Peet Brothers) with Palmolive in 1926, forming Palmolive-Peet Company. Two years later that firm joined with Colgate & Company to form Colgate-Palmolive-Peet Company, with headquarters in Jersey City. Palmolive-Peet's management initially assumed control of the combined organization.

On October 25, 1929, management signed an agreement to merge the company with Kraft Phoenix Cheese Corporation (forerunner of Kraft Foods) and Hershey Chocolate Company. The three companies would continue to operate independently, but they would become subsidiaries of a holding company slated to be called International Quality Products Corporation. Just four days after the deal was signed, however, the stock market crashed, forcing the huge amalgamation to be scuttled. In the wake of the crash, the Colgate family regained control of Colgate-Palmolive-Peet and installed Bayard Colgate as president in 1933.

International Expansion Colgate & Company had been a pioneer in establishing international operations, creating a Canadian subsidiary in 1913 and one in France in 1920. In the early 1920s the firm expanded into Australia, the United Kingdom, Germany, and Mexico. Colgate or its successor firm next created subsidiaries in the Philippines, Brazil, Argentina, and South Africa in the late 1920s. In 1937 the company moved into India and by the end of the 1940s had operations in most of South America. By 1939 Colgate-Palmolive-Peet's sales hit $100 million.

In the 1940s and 1950s the company also built upon its strategy of growth by acquisition, buying up a number of smaller

consumer product companies. Organic growth remained on the agenda as well, and in 1947 the company introduced two of its best-known products, Fab detergent and Ajax cleanser. These acquisitions and new products, however, did little to close the gap between Colgate and its arch-rival, the Procter & Gamble Company, a firm that had been formed in the 1830s and had by now assumed a commanding lead over Colgate in selling detergent products in the United States. Meanwhile, the firm adopted its present name in 1953 and moved its offices for domestic and international operations to New York City in 1956.

In 1960 George H. Lesch was appointed Colgate's president in the hopes that his international experience would produce similar success in the domestic market. Under his leadership, the company embarked upon an extensive new product development program that created such brands as Cold Power laundry detergent, Palmolive dishwashing liquid, and Ultra Brite toothpaste. In an attempt to expand beyond these traditional, highly competitive businesses into new growth areas, Colgate also successfully introduced a new food wrap called Baggies in 1963. As a result of these product launches, the company's sales grew between 8 and 9 percent every year throughout the 1960s. Sales topped the $1 billion mark in 1967.

Lesch assumed the chairmanship of Colgate, and David Foster became president in 1970 and CEO in 1971. Foster was the son of the founder of Colgate-Palmolive's U.K. operations. He joined the company in 1946 as a management trainee and rose through the sales and marketing ranks both in the United States and overseas.

Turnaround under Reuben Mark, Mid- to Late 1980s In 1983

Crane relinquished the title of president to Reuben Mark, one of the company's three executive vice-presidents and a member of Crane's management advisory team. Mark also assumed the position of chief operating officer at that time; one year later he succeeded Crane as CEO. Mark built upon his predecessor's restructuring efforts in an attempt to increase profits and shareholder value. Between 1984 and 1986 several inefficient plants were closed, hundreds of employees laid off, and noncore businesses sold, including the remnants of the Riviana Foods acquisition, except for the Hill's Pet Products subsidiary.

In an attempt to refocus the company's marketing and profitability, Mark developed a set of corporate initiatives intended to address business areas ranging from production-cost reduction to new product development, with a heavy emphasis on motivating employees and involving them in company decision-making. In response to the implementation of these ideas, the company's U.S. toothpaste business enjoyed a boost with first-to-the-market introductions of a gel toothpaste and a pump-type dispenser bearing the Colgate brand name. Similar U.S. market share gains were earned by new and improved versions of its Palmolive and Dynamo detergents and Ajax cleaner. Palmolive automatic dishwashing liquid debuted in 1986.

With the company's turnaround firmly underway, business units managed by key executives were formed to develop plans for the company's major product categories. The purpose of each plan was to identify how products under development could be best introduced in domestic and international markets. Two years into this strategic reorganization, coinciding with Mark's appointment as chairman in 1986, Colgate confronted an embarrassing controversy.

Since the early 1920s Hawley & Hazel Chemical Company had marketed a product

called Darkie Black and White Toothpaste in the Far East. Colgate had acquired a 50 percent interest in this company in 1985. The following year, the Interfaith Center on Corporate Responsibility, a coalition of Protestant and Roman Catholic groups, demanded that Colgate change what it deemed to be the product's racially offensive name and packaging, which depicted a likeness of Al Jolson in blackface. The company acknowledged the criticism and agreed to make the necessary changes.

Colgate also continued to seek out growth areas in its personal care product and detergent businesses. In 1987 it acquired a line of liquid soap products (including the Softsoap brand) from Minnetonka Corporation, the first transaction the company had made in the personal care area in several years. Building upon its success in launching an automatic dishwashing detergent in liquid form ahead of its competitors, the company also beat Procter & Gamble to the market with a laundry detergent packaged in a throw-in pouch called Fab 1 Shot, although this product failed to sustain consumer interest or reach sales expectations over the long term.

Buoyed by product development breakthroughs and a renewed commitment to consumer products marketing, Colgate sold its Kendall subsidiary and related healthcare businesses in 1988 to Clayton & Dubilier. The sale enabled Colgate to retire some debt, sharpen its focus on its global consumer products businesses, and invest in new product categories. Moreover, Mark's global approach enabled the company to maintain its overall profitability despite not having a leadership position in the United States. Although Colgate lagged behind Procter & Gamble in the toothpaste category, for example, it held a commanding 40 percent share

of the toothpaste market worldwide.

Mark's strategy appeared to pay off handsomely. By the end of the third quarter of 1989 Colgate's international operations performed strongly while the profitability of its U.S. operations rose, due mostly to manufacturing-cost economies and greater control over promotional and sales expenses. Not yet ready to concede the U.S. market for personal care products to Procter & Gamble, though, Colgate acquired Vipont Pharmaceutical, a manufacturer of oral-hygiene products, toward the end of that year. Vipont's products, several of which Colgate had already been marketing overseas, enabled Colgate to strengthen the market position it had recently established with the introduction of a new tartar-control formula toothpaste.

Major Acquisitions in the 1990s Colgate continued to make significant acquisitions in the early and mid-1990s while it attempted to gear up its product development program, which had been unable to introduce more than a few new products each year. In 1991 Colgate acquired the Murphy-Phoenix Company (whose top brand was Murphy's Oil Soap) to bolster its household care segment. That same year, Mark initiated a restructuring aimed at improving the firm's profitability and gross margins, which lagged behind the industry leaders. A major part of the effort was the elimination or reconfiguration of 25 factories throughout the world and an 8 percent reduction in the workforce. Consequently, Colgate took a $243 million charge in September 1991, which reduced significantly the firm's net income for the full year.

Colgate's most dramatic acquisition to date came in 1992 with the $670 million purchase of the Mennen Company, which added to its personal care line the top U.S. deodorant brand, Mennen Speed Stick, and

the number two baby-care brand, Baby Magic. In addition, Colgate gained footholds in skin-care and hair products, and the Mennen brands gained the power of Colgate's worldwide distribution and marketing reach. This major acquisition was followed in 1993 by the purchase of S.C. Johnson & Son, Inc.'s liquid hand and body soap brands in Europe and the South Pacific, which enabled Colgate to become the worldwide leader in liquid soap.

Gross margins steadily improved in the early 1990s, reaching 48.4 percent by 1994 (up from 39.2 percent in 1984). This provided Colgate with additional funds for research and development and advertising. The North American sector also experienced gains in gross margins, which resulted in part from pricing increases on Colgate detergents. In turn, this cut into overall North American sales, which declined 8 percent from 1993 to 1994. Mark's strategy was to turn North American sales around through new product introductions such as a variant of Irish Spring soap and an extension of the Murphy's Oil Soap brand into a Murphy's Kitchen Care line of all- purpose cleaners. Under the leadership of Lois D. Juliber, who formerly headed up new product development, the North American sector was able to introduce several products within a short span for the first time.

A hidden jewel within the Colgate empire in the 1990s was its pet foods sector, Hill's Pet Nutrition. The worldwide leader in therapeutic and specialty wellness pet food, Hill's enjoyed a compound annual growth rate of 14.6 percent from 1989 to 1994. During this period the market for premium pet food increased dramatically in Europe and Japan, with Hill's snatching a substantial portion

of this growth. Overall, pet foods were one of Colgate's leading profit generators, boasting gross margins of 55 to 60 percent.

Early in 1995 Colgate made another major acquisition with the $1.04 billion purchase of Kolynos Oral Care from American Home Products, which gained it the Kolynos toothpaste brand, the top brand in Brazil and a leader in several other Latin American countries. This purchase pushed Colgate's share of the Latin American oral-care market from 54 percent to 79 percent.

In September 1995 Colgate announced another major restructuring of its operations to close or reconfigure 24 additional factories and cut 3,000 more employees (more than 8 percent of the workforce). Mark said the action was necessary to finance new growth initiatives; Colgate took a $369 million charge as a result. The 1995 figures were also affected by a deepening recession in Mexico, which had accounted for 11 percent of sales and 20 percent of profits in 1994.

Boosting Sales with the Introduction of Total Beginning in the late 1980s, Colgate had begun development of a toothpaste that contained a gingivitis-fighting antimicrobial agent, triclosan. Researchers found a way to use polymers to bind triclosan to teeth for up to 14 hours, allowing users to fight bleeding gums and bad breath continuously with only two brushings a day. The company began marketing the product overseas in 1992 under the name Total, eventually distributing it to 100 countries. The toothpaste was a major success, and enabled Colgate to increase its worldwide share of that market segment.

In the United States, however, introduction of Total was held up by the Food and Drug Administration (FDA),

which required extensive tests to prove the product's effectiveness before Colgate could make gingivitis-fighting claims on package labels. After some five years the agency granted final approval, and Total reached store shelves in December 1997. The company backed it with a $100 million marketing blitz, its largest product introduction to date.

The response was even stronger than anticipated, and cemented Colgate's place as leader of the U.S. toothpaste market, a position it had actually reached in the months prior to Total's introduction. This was the first time since 1962 that ACNielsen's rankings had shown Colgate on top. Following the successful launch, the company's profits and stock price climbed steadily. In December 1998 the FDA also approved a variant of Total, Total Fresh Stripe, which reached stores several months later. A year after Total's release it was the number one toothpaste brand in the United States. Competitors such as Procter & Gamble, which already marketed a triclosan- based toothpaste in Canada, were prevented from mounting a quick response by the lengthy FDA approval process. Powered by Total and the strong U.S. economy, Colgate continued to do well in 1999, with record earnings approaching the $1 billion mark.

New Challenges in the Early 2000s Under Mark's continued leadership, Colgate-Palmolive maintained its momentum into the early 2000s. By keeping a tight rein on costs, the company boosted its gross profit margin to 54.6 percent by 2002, when net income reached $1.29 billion on sales of $9.29 billion. On the new product front, the Colgate Actibrush battery-powered toothbrush was brought to market in 2000, soon followed by products in the burgeoning at-home tooth-whitening sector, such as Simply

White gel and Total Plus Whitening toothpaste. In pet food, the company in 2002 introduced Hill's Science Diet Nature's Best, a new line of premium dog and cat food made with natural ingredients.

Long unable to compete with Procter & Gamble in that firm's mainstay detergent lines, Colgate pulled back from that sector in certain markets. In 2001 it sold its detergent business in Mexico, headed by the Viva brand, to Henkel KGaA, and then two years later off-loaded its European detergent brands to Procter & Gamble. In 2004 Colgate sold its detergent business in Ecuador and Peru. In June of that year, the company completed its first major acquisition since the 1995 purchase of Kolynos. Colgate spent $866 million for GABA Holding AG, a privately held European oral care company based in Switzerland. GABA, operating in 15 countries, had annual sales of about $300 million. Its strength in the pharmacy channel complemented Colgate's leading presence in the European retail market. The addition of GABA boosted Colgate's share of the European toothpaste market to 33 percent.

Although revenues increased another 7 percent in 2004, topping the $10 billion mark for the first time, profits fell 7 percent, to $1.33 billion. Intense global competition—particularly from a resurgent Procter & Gamble—forced Colgate to allocate additional money for advertising, and the firm also had to contend with increased raw material and packaging costs and the growing power of discount retailers such as Wal-Mart Stores, Inc. who were forcing consumer product makers to hold the line on price increases.

To free up funds for marketing initiatives and new product development efforts, Colgate launched a sweeping restructuring

in December 2004, its first major overhaul since 1995. The latest reorganization, a four-year program, aimed to generate between $250 million and $300 million in after-tax cost savings by 2008 by closing 26 of the firm's 78 factories around the world and eliminating about 12 percent of the workforce, or more than 4,400 jobs. Cumulative after-tax restructuring charges of between $550 million and $650 million were anticipated. As part of the restructuring, further divestments of noncore lines were very possible.

As Colgate continued to deemphasize its detergent business, it seemed likely to seek buyers for its Fab and Ajax brands. Just as the restructuring began, however, Colgate faced the prospect of an even more formidable chief foe. Procter & Gamble reached an agreement to acquire The Gillette Company in January 2005 for $57 billion, which would add Gillette's Oral-B toothbrushes and toothpastes to P&G's Crest line. This deal was likely to compound the competitive pressures that Colgate-Palmolive faced, making the successful implementation of the restructuring that much more important.