Duracell International Inc.

FOUNDED: 1935

Contact Information:

HEADQUARTERS: Berkshire Corporate Pk.
Bethel, CT 06801
PHONE: (203)796-4000
FAX: (203)796-4187
URL: http://www.duracellusa.com

OVERVIEW

Duracell is the leader in the battery market, continuing to dominate its chief competitor, Eveready—the maker of Energizer batteries. The company, famous for its "Copper Top" products with their distinctive gold-and-black coloring, manufactures batteries for ordinary consumer use, as well as ones made especially for cameras, hearing aids, and other items. In 1997 Duracell had sales of $2.5 billion worldwide, and its stocks performed well. The company was purchased by Gillette in early 1997 for $7.0 billion. This move was seen by many analysts as an "ideal marriage" that would boost the performance of both companies. With approximately 70 percent of Gillette's sales coming from overseas, compared to about 50 percent for Duracell, the merger was expected to make Duracell even more of a presence in world markets.

COMPANY FINANCES

From 1992 to 1997 Duracell recorded an annual average growth rate in profits of 12.2 percent, rising from $296 million in 1992 to $526 million in 1997. Revenues performed almost as well, rising at an average annual rate of 9.3 percent over the same period, from __BODY__.6 billion in 1992 to $2.5 billion in 1997. Total sales for parent company Gillette amounted to $10.1 billion in 1997. The Duracell acquisition played a major role in boosting Gillette's quarterly dividends which, as of June 1998, stood at 12.75 cents per common share, representing a 19-percent increase from the previous rate of 10.75 cents and establishing a new annual rate of 51 cents per share, compared with the former rate of 43 cents.

ANALYSTS' OPINIONS

When Gillette announced its plans to acquire Duracell, Wall Street reacted positively. According to Business Week, the effect of the announcement was an increase in the value of both companies' stock. Even before the buyout, Fortune had judged Duracell (along with Gillette) a company with outstanding growth prospects in the global market. Following the merger, sales and profits for both companies jumped. Though some analysts felt that Gillette stocks were overpriced, others were betting that Gillette would continue to perform above expectations now that Duracell was in the fold. Goldman Sachs Inc., for example, added Gillette to its recommended list, while PNC Institutional Investments Inc. raised its rating from "market perform" to "outperform."

HISTORY

In 1935 Philip Rogers Mallory established P.R. Mallory & Co., which produced a number of items for industry, including batteries. One of his leading technicians was Samuel Ruben. The two are generally credited as the minds behind Duracell as a business, and a product. The company entered the consumer products market in 1947 with the production of a hearing-aid battery. The trademark name Duracell did not appear until 1964. In 1971 the company became the first to sell alkaline cell batteries to consumers, beginning with a 9-volt model. (An alkaline battery has less tendency to corrode than an ordinary zinc battery, giving it a longer life.)

In 1978 P.R. Mallory became Duracell Inc., and was purchased by Dart Industries. Two years later, food marketing giant Kraft merged with Dart. When the two split in 1986, Kraft took Duracell with it. The changes in Duracell's ownership, however, were not over. In 1988 Kohlberg Kravis Roberts (KKR), famous for their leveraged buyouts, or LBOs, purchased the corporation. Duracell was clearly on the rise: the __BODY__.9 billion paid by KKR (one of the biggest LBOs in Wall Street history) was more than nine times what Dart had paid for it only a decade earlier.

In 1991 KKR took the company public. With new products introduced, as well as a strong marketing campaign, Duracell's fortunes grew—from __BODY__.25 billion in sales in 1989 to $2.08 billion in 1995. In the latter year, KKR sold a large portion of its shares, reducing its ownership to one-third. Then, on September 12, 1996, the Gillette Company announced plans to purchase Duracell for $7.00 billion, a transaction completed in early 1997.

The merger proved a boon to both companies, with the combination of the two marketing and distribution organizations helping boost sales of both batteries and razor blades. "You frequently see the Sensor Excel (razor) right next to the Duracell batteries at the checkout counter," said analyst Tony Vento, in a Business Wire article. "The merchandising possibilities are tremendous."

STRATEGY

As a maker of consumer products, Duracell has naturally pursued a strategy of widespread exposure to the public through advertising, particularly on television. In 1974 it became the first consumer battery advertised on television. In the mid-1990s Duracell launched a clever marketing campaign, with television commercials featuring the Copper Top family. They resembled the typical family of a television sitcom, except that they all happened to be battery-powered, which resulted in some predictably funny situations. The company sent out buses resembling enormous batteries in the summer of 1996, to promote its then-newly introduced PowerCheck line.

Equally unsurprising, given its product and its consumer-driven market, is Duracell's emphasis on product innovation. Such innovation is itself almost another form of marketing. It involves a strategy of "creating" a need in the consumer, then filling it. Hence the introduction of what parent company Gillette calls "consumer-perceptible advantages" such as freshness dating, or the visible gauge on the PowerCheck batteries. Duracell pioneered the development of environmentally friendly alkaline batteries in 1992. In 1996, the company announced plans to extend its research into new alkaline technologies that could revolutionize the battery by extending its capabilities.

INFLUENCES

In the late 1990s, the two leading influences on Duracell were its famous rivalry with Eveready, makers of Energizer, and its purchase by Gillette. As successful as Duracell's marketing campaign with the Copper Top family was, the Copper Tops were hardly a match for the sometimes bitingly satirical Energizer Bunny ads. Still, Dura-cell remained ahead in this competition, with a 42-percent market share of the worldwide battery market and 45 percent of the U.S. market, as opposed to 24 percent for Energizer and Eveready combined. According to Financial World, Duracell was worth more as a brand than its competitor, due to its lowered costs, themselves a product of its overseas strategy. If anything, Duracell's competition with Energizer has helped to keep the company's leadership on its toes, always forging ahead into new markets.

Duracell's public relationship with Gillette began in September 1996, when the latter announced plans to purchase the battery maker. Although Gillette refers to the buyout as a "merger," it is clear which company has the upper hand. Both entities were pursuing an aggressive overseas growth strategy even before the sale of Dura-cell. These common goals played a part in Gillette's decision to purchase the smaller company. As USA Today pointed out, Gillette offered Duracell an opportunity to widen the scope of its overseas marketing, and Duracell, in turn, gave Gillette a broadened product line.

CURRENT TRENDS

A leading trend with Duracell as an independent company, and one which continued following its purchase by Gillette, was overseas expansion. In its 1996 annual report, Gillette marked this as an outstanding trend at Duracell, citing its establishment of operations in Brazil, China, and eastern Europe. The establishment of facilities in China and India, and acquisitions of battery makers in South Africa and South Korea, were moves considered particularly promising. China and India, which together contain half the world's population, consume some 5 billion household batteries—one-quarter of the global total—per year.

Another trend that will continue to have a significant impact on the Duracell product line is the proliferation of new electronic items that require more and different types of batteries. Among appliances that have already led to growth for Duracell are digital pagers, an increasingly popular item in the 1990s, as well as cellular phones and portable CD players.

PRODUCTS

Duracell makes alkaline batteries in several major sizes, including AAA, AA, C, and D. AA is the largest and most popular category. In 1996 the company introduced Duracell PowerCheck AA Batteries, which include a heat-sensitive strip that shows how much energy is remaining in the battery. In its 1996 annual report, Gillette announced plans to introduce similar AAA, C, and D batteries in 1997. According to Forbes, the company planned to introduce a standard portable computer battery into a market swelled with some 200 different varieties. The response from computer manufacturers, however, was not strong. In 1998 the company introduced DURACELL Ultra, the first alkaline battery specifically designed for "high-drain" devices.

Besides alkaline batteries, the company produces photo batteries, alkaline lantern batteries, watch batteries, special application batteries, hearing aid batteries, and Mallory super heavy duty plus batteries.

CORPORATE CITIZENSHIP

In 1982 Duracell USA initiated the Duracell/NSTA Scholarship Competition, a nationwide program to promote science education in American schools. It was administered under the auspices of the National Science Teachers Association (NSTA). The company has also made enormous efforts to reduce the harmful impact of its products on the environment and to promote recycling. Steady improvements to the service life of DURACELL AE alkaline batteries have helped reduce the production of solid waste due to consumers throwing away batteries less often. The company has also promoted the use of longer-lasting zinc air batteries for hearing instruments and discontinued the sale of mercury cells in the United States.

From 1993 to 1997, Duracell's manufacturing facilities around the world reduced their generation of hazardous waste by more than 59 percent, and increased the amount of materials recycled by approximately 45 percent. The company also uses recycled material in its packaging, and is leading an international battery industry effort to develop an environmentally beneficial and economically feasible recycling process for its other batteries.

GLOBAL PRESENCE

In the five years between 1992 and 1997, Duracell spread to almost 20 countries, including some of the largest markets in the world: India, China, and Russia. Two of its most notable purchases were the South African facilities of its competitor, Eveready, and the South Korean Sun-power Company, which gave Duracell a 45-percent share in that country's battery market.

Prior to its purchase by Gillette, Duracell conducted 80 percent of its business in North America and Europe. Then, with the wide geographic spread of Gillette, makers of various manual and electric shaving instruments as well as the Oral-B toothbrush, Duracell had an opportunity to experience rapid global expansion. This was particularly true in Third World markets, where the company expected to "upgrade" consumers from lower-value zinc carbon batteries to the Duracell alkaline brand. As expected, Duracell performed exceptionally well in international markets following its acquisition by Gillette.

Duracell's regional brand names include: Superpila, Italy; Daimon, Germany; and Sunpower, South Korea. The Hellesens and Tudor lines are both sold in Scandinavia. Duracell opened factories in China in 1994, and in India in 1995. The company has subsidiaries in Canada, Denmark, Italy, France, and Belgium. It also has operations in Poland, Russia, Morocco, Turkey, and South Africa.

EMPLOYMENT

Duracell has pension and savings plans for its employees. When the company was bought out by Gillette, employees experienced a windfall from their stock options. Additionally, Gillette invests approximately $125 million annually in worldwide employee training and development programs.

SOURCES OF INFORMATION

Bibliography

Capell, Kerry. "At Duracell, An Early Christmas." Business Week, 30 September 1996.

"Duracell." Hoover's Online, May 1998. Available at http://www.hoovers.com

"Duracell Corporate Information," May 1998. Available at http://www.duracell.com/news/.

"Duracell Energizes Gillette." Financial Post, 18 September 1996.

"Duracell Merger Pays Off for Gillette." Financial Post, 3 February 1997.

Gillette Company 1996 Annual Report. Boston, MA: Gillette Company, 1997.

Gillette Company 1997 Annual Report. Boston, MA: Gillette Company, 1998.

"Gillette-Duracell Union Seen As Ideal Marriage." Financial Post, 16 September 1996.

Lamonica, Paul. "Battling Batteries: Why Duracell and Eveready Are Neck and Neck in Market Share, But Not In Brand Value." Financial World, 30 January 1996.

Maremont, Mark. "How Gillette Wowed Wall Street." Business Week, 30 September 1996.

Oliver, Suzanne. "Batteries Not Included." Forbes, 11 March 1996.

For an annual report:

on the Internet at: http://www.gillette.com/financials/gar.pdf

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Duracell's primary SICs are:

3691 Storage Batteries

3692 Primary Batteries—Dry and Wet

5063 Electrical Apparatus & Equipment