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Read and analyze the Spectrum Brands case. Recommend how the company should be
structured in terms of reporting, responsibilities, and the size of the sales force. Also,
should it be structured similarly to its competition or does its operation require a different
approach? Use the Completed Staff Work document as a guide to completing this
assignment. Your paper should be a minimum of three (3) complete pages
It was November 2005, and Bob Falconi, vice-president of sales and marketing for the
Canadian division of Spectrum Brands Inc., was sitting in his new Brantford, Ontario office,
pondering his next steps regarding his sales force. During the course of the last year, the
company had gone through a number of changes at the global level. Spectrum Brands
(Spectrum), a global consumer products company formerly known as Rayovac
Corporation, had made a number of acquisitions to diversify and expand its product and
brand portfolio. With these changes, Spectrum had become a leading supplier of
consumer batteries, lawn
and garden care products, specialty pet supplies, and shaving and grooming products.
Falconi, charged with the task of creating a national sales force from the teams of the newly
merged companies, sat in his office trying to make sense of the new business. He knew
that creating an effective sales team — one which would capitalize on the synergies across
the various businesses — would be very difficult, since these companies each operated
differently with regards to the role of their sales forces, customers targeted and products
sold. Knowing the importance of the sales function to each of these companies, Falconi
wanted to ensure, despite the differences amongst the diverse groups, that he still
maintained a team that would effectively and efficiently continue to increase the sales of
each business unit.
The task ahead of him was big, but Falconi knew that a plan needed to be implemented
immediately to avoid disrupting the growth momentum of the company’s individual brands,
to maintain customer relationships, and to preclude competition from taking advantage of
any perceived disruptions during this time of change.
THE CONTEXT
The consumer brands industry had become highly competitive on a global basis.
Numerous acquisitions and mergers had taken place over the past decade, resulting in a
select group of large companies with extensive brand portfolios. These companies had
developed numerous product lines that allowed them to compete in a variety of markets
and product categories, and also strengthened their relationships with retailers.
With the growth of large retail chains across North America through retail consolidation, the
balance of power had shifted away from manufacturers. Small players could no longer
compete effectively, as strong relationships with retailers had become essential in order to
compete for limited and valuable shelf space within stores. Manufacturers built alliances
with other consumer brand companies in order to gain strength and power in the retail
market. As a result, companies such as Procter & Gamble (P&G), Unilever, S.C.
Johnson, and others with large portfolios of popular consumer brands, dominated the
shelves in traditional retail channels including Grocery (e.g. Loblaw, Dominion), Drug
stores (e.g. Shoppers Drug Mart, Katz Group), Hardware retailers (e.g. Home Hardware),
Home and Garden retailers (e.g. RONA, The Home Depot) and Mass Merchandisers (e.g.
Wal-Mart). Internet and direct-to-consumer sales had not proven to be valuable alternate
channels for these companies, as retailers would retaliate by de-listing products of those
manufacturers who tried to go in this direction.
Companies competing against the brands under the umbrellas of these large companies
continued to struggle for position and, ultimately, for market share, mainly because of the
established relationships that these large firms had with the retailers. The trend was
towards companies such as Spectrum Brands who had a presence in batteries, shaving
and grooming products, lawn and garden products, and specialty pet supplies.
CONSUMER BRANDS MARKETS
Battery Market
North American consumers of household batteries (AAA, AA, C, D and 9-volt standard
batteries) sought convenience and quality when purchasing batteries and tended to
gravitate towards the brand names they knew and trusted. Duracell and Energizer
continued to dominate the market due to their brand recognition, their relationships with
distributors and retailers, and their established presence in the large one-time-use
alkaline battery category. These two firms were leaders in this market for decades because
of their ability to adapt to consumer needs and to merge with other consumer goods
companies to create brand portfolios, thus gaining valuable negotiating power with
retailers. For example, the Duracell battery brand was owned by the largest and most
recognized consumer products company in the world — Procter &Gamble (P&G)— while
the Energizer battery brand was owned by Energizer Holdings Inc., which also owned the
Shick Razors brand. Each company held a 40 per cent market share within the battery
industry.
Household batteries were sold through wholesalers, distributors, professionals and OEMs,
but the large majority were sold through traditional retail channels. Of these retailers, mass
merchandisers, home and garden centers and niche electronic stores accounted for more
than 60 per cent of sales.
As of 2005, the alkaline battery was the predominant type of household battery in North
America, and was offered by all major competitors in all sizes. The growth within this
segment had become relatively flat, at only one to two per cent annually, yet, due to its size,
it was expected to dominate the market for the next Page 3 9B06A035 five to 10 years. In
2005, the overall battery market in Canada was estimated to be $300 million, with the
alkaline category representing 70 per cent, the rechargeable category making up 10 per
cent, and other battery chemistries, including zinc, representing 20 per cent.
The market for household batteries was highly seasonal. The large majority of sales
occurred during the months leading up to and following Christmas sales of electronics and
other battery-operated devices. Close to 70 per cent of battery sales occurred during this
period.
Shaving and Grooming Products Market
The shaving and grooming products industry was dominated by a select group of
companies selling electric shavers and accessories, electric grooming products and hair
care appliances. Electric shavers included both rotary and foil designs for men and women,
and accessories included replacement parts, pre-shave products and cleaning agents for
shavers. Electric grooming products included beard/moustache trimmers, nose and ear
trimmers, haircut kits and related accessories. Hair care appliances included hair dryers,
setters, curling irons, crimpers, straighteners and hot air brushes.
The shaving and grooming products market was growing at a rate of three to four per cent
annually, and this trend was likely to continue. The market for electronic shaving and
grooming products was highly seasonal with peaks during the months leading up to and
following the Christmas holiday season and around Father’s Day and Mother’s Day
weekends. The majority of these products were purchased as gifts, and thus the sales
cycle followed these gift-giving seasons.
The primary competitors in the shaving market included: Norelco, Braun and Remington.
Norelco was a division of Koninklijke Philips Electronics (Philips), which was one of the
world’s biggest electronics companies and the largest one in Europe. Braun was a member
of the Gillette family of products which was now part of P&G, while Remington was part of
Spectrum. Norelco only sold rotary shavers, Braun only offered foil shavers, while
Remington was the only company competing in both segments. Quality, price and brand
awareness were the main factors influencing sales in this segment.
The major competitors in the hair care market were Remington, Norelco, Conair
Corporation and Helen of Troy Limited. Each company offered a complete line of hair care
products and accessories and competed on quality and price within this category.
Competitors within both of these segments sold their products largely through traditional
retail channels with a heavy emphasis on mass merchandisers and specialty retailers such
as salons and hair and body care shops. Like all consumer product companies, those firms
able to maintain or increase the amount of retail shelf space allocated to their respective
products could gain share of mind and, potentially, a share of the market.
Lawn and Garden Market
The lawn and garden market was a US$4 billion industry in North America, with an
additional US$1 billion in sales of household insect control products. Companies
manufactured and marketed fertilizers, herbicides, outdoor insect control products,
rodenticides, plant foods, potting soil, grass seeds and other growing media. The lawn and
garden industry had been driven largely by affluent baby boomers who enjoyed gardening
and also by increasing home ownership levels. Growth in this market had been
between four and five per cent annually and was expected to continue at this pace. In
North America, more than 80 per cent of households were participating in at least one lawn
and garden activity in 2004.
The main competitors within the lawn and garden segment included: United Industries
(United)/Nu-Gro, Scotts Miracle-Gro Company (Scotts) and Central Garden & Pet
Company (CGPC). Scotts marketed products under the Scotts and Miracle-Gro brand
names. They led this market with a 30 per cent market share. CGPC sat behind United with
a 17 per cent market share. They sold garden products under the
Amdro, Image and Pennington Seed brand names.
Growth in the insect control market had been generated by population growth in the
insect-prone Sunbelt region and the heightened awareness of insect-borne diseases such
as West Nile virus. Growth in this market had been slightly higher than historical levels
since 2002 with a seven to eight per cent annual growth rate.
In the insect control market, the major competitors included United, Scotts and S.C.
Johnson & Son, Inc. Scotts, once again the market leader, sold products under the Ortho
and Roundup brand names, while S.C. Johnson marketed their insecticide and repellent
products under the Raid and OFF! brands.
Competitors within both of these markets sold mainly through mass merchandisers, home
centers, independent nurseries and hardware stores. Home centers and mass
merchandisers typically carried one or two premium brands and one value brand on their
shelves. Obtaining and maintaining share of shelf within these retailers was critical as 50 to
60 per cent of sales passed through these two channels.
The lawn and garden market was also highly seasonal. Products were shipped to
distributors and retailers beginning as early as March in preparation for the spring season.
Demand for products typically peaked during the first six months of the calendar year. This
seasonality created a major risk within this industry, as there was a heavy dependence on
weather to drive sales. A poor season greatly hindered the bottom line.
Specialty Pet Supply Market
The specialty pet supply industry had historically been one of the fastest growing
consumer product categories with annual growth between six and eight per cent. This
category consisted of aquatic equipment (i.e. aquariums, filters, pumps), aquatic
consumables (i.e. fish food, water treatments, conditioners) and specialty pet products for
dogs, cats, birds and other small domestic animals. In North America, this was an US$8
billion market in 2004, and was expected to grow to over US$11 billion by 2007.
Much of this growth could be attributed to the increasing levels of pet ownership. On
average, households with children under the age of 18, and adults over 55 (who were
typically “empty nesters”), tended to keep pets as companions and had more disposable
income and leisure time to spend with them. In North America, both of these categories
have expanded rapidly with the aging of the baby boomer population. As of 2004, 62 per
cent of households in the United States owned a pet, and 46 per cent owned two or more
pets. In addition to these trends, the growing movement towards pet humanization — the
tendency of pet owners to treat pets like cherished members of the family — had also
factored greatly into this market expansion.
The specialty pet supply industry was highly fragmented. There were over 500
manufacturers in North America, consisting of both small companies with limited product
lines and larger firms. No company held a market share of greater than 10 per cent. The
largest competitors included: CGPC, United Pet Group/Tetra and the Hartz Mountain
Corporation. CGPC led the market with a nine per cent market share.
Products within this segment were sold through specialty pet stores, independent pet
retailers, mass merchants, grocery stores and through various professional outlets. Mass
merchandisers, supermarkets and discounters increasingly supplied pet products, but they
focused mainly on a limited selection of items such as pet food. The majority of sales were
made through pet supply stores, of which there were over 15,000 in the United States and
more than 5,000 in Canada. There were only two national retailers in this industry:
PetsMart and PetCo. PetsMart accounted for 10 per cent of North American pet product
net sales in fiscal 2004. PetCo reflected similar statistics, but no other retailer accounted
for more than eight per cent of industry retail sales.
Sales in this segment remained fairly stable throughout the year since pets needed to be
maintained continuously.
COMPETITIVE CONTEXT
In all of these industries, some competitors had gained significant market share and had
explicitly committed significant resources to protecting share and/or stealing share from
others. In some product lines, competitors had lower production costs and higher profit
margins, enabling them to compete more aggressively through advertising and by offering
retail discounts and other promotional incentives to retailers, distributors and wholesalers.
This aggressive strategy obviously provided additional strength in attracting retailers and
consumers. The ability to retain or increase the amount of retail shelf space allocated to
their respective products provided competitive advantages in each of these market spaces.
SPECTRUM BRANDS, INC.
Spectrum brands products were available through the world’s top 25 retailers, in over one
million stores throughout North America, Europe, Asia Pacific, the Middle East, Africa,
Latin America and Brazil. Overall, the company was generating US$2.8 billion in
annualized revenues from its brand portfolio (see Exhibits 1 and 2 for Spectrum
pre-merger and consolidated financial information).
Similar to its competitors, Rayovac had acquired other consumer brand companies to
enhance its ability to gain retail presence. Beginning in 2003, Rayovac acquired
Remington Products Inc., a company specializing in consumer shaving and grooming
products. In February 2005, Spectrum Brands was created when the Rayovac Corporation
acquired United Industries Corporation (a leading U.S. manufacturer of consumer lawn
and garden care, and insect control products), Nu-Gro Corporation (the Canadian
subsidiary of United, specializing in lawn and garden care products) and Tetra Holdings Inc.
(a leading supplier of fish and aquatics supplies). Continued growth and strategic
acquisitions allowed the company to leverage global distribution channels, purchasing
power and operational processes. These mergers provided the company with an extended
brand portfolio. This allowed all of the brands to access a number of new retailers where
they had not previously been able to gain shelf space. In turn, this increased the ability for
each brand to compete within its given markets. Spectrum became the global leader in
aquatic supplies; the number two player in the lawn and garden industry, the household
insect control market, and Page 6 9B06A035 the shaving and grooming supplies industry;
and the third largest global company in the battery industry (see Exhibit 3 for a list of brand
names under the Spectrum label).
Rayovac
Rayovac was the third largest global consumer battery manufacturer in the world — third
largest in North America and second largest in Europe. The company sold batteries and
flashlights for various household and industrial uses and was the largest worldwide seller
of hearing aid batteries. Their battery product line included one-time-use alkaline and
Nickel Metal Hydride (NiMH) rechargeable batteries available in all
standard sizes (AAA, AA, C, D, 9-Volt) to compete in the highly saturated but lucrative
household market. Globally, Rayovac held a 14 per cent market share, with a 20 per cent
share of the Canadian market. The division generated US$1.5 billion in annual global
revenues in 2004.
The company began operations in 1906, but did not introduce the Rayovac name until the
1930s. Their initial focus was on manufacturing specialty batteries for use in such devices
as their patented vacuum tube hearing aids. The company expanded and grew through
their continued development of state-of-the-art flashlights and non-traditional batteries,
including their successful hearing aid battery line. They eventually entered the competitive
household battery market through key acquisitions and by capitalizing on existing
distributor and retailer relationships. This was long after the market leaders, Duracell and
Energizer, had become well-established within this market. Rayovac made great strides
over its last few years in an attempt to gain ground. Acquisitions had been made to gain
access to international markets including Europe (Varta Battery Corporation acquired in
2002), China (Ningbo Baowang acquired in 2004) and Brazil (Microlite acquired in 2004).
The leaders in this industry had leading brands and thus greater control over distribution
channels, retailers and prices. Rayovac had only been able to secure shelf space in a
small number of retailers, including Wal-Mart (making up 40 per cent of sales), Canadian
Tire (15 per cent of sales), Home Hardware (10 per cent of sales), and other chains and
smaller niche retailers such as Toys R’ Us, Radio Shack and others (35 per cent of sales).
Remington Products Company
Remington was a leading designer and distributor of consumer shaving and personal care
products in North America and the United Kingdom. They marketed a broad line of electric
shaving and grooming products for both men and women, as well as hair care products
and other personal care items.
Beginning operations in 1936 as a division of Remington Rand, Remington captured a
strong position as a global player in the market by developing new innovative shaving
products. Before being bought by Rayovac Corporation in 2003, the Remington Electric
Shaver Division had been involved in various mergers: merging with the Sperry
Corporation in 1955; being bought by entrepreneur Victor Kiam in 1979; and then acquiring
Clairol Inc.’s worldwide personal care appliance business in 1993. Through all of these
moves, Remington was able to command a 30 per cent market share in North America and
a 21 per cent share in the United Kingdom, with the number one position in men’s foil
shavers, women’s foil shavers, and men’s grooming products, and the number two position
in men’s rotary shavers globally. Remington had become an established name in the
industry, achieving global revenues of US$350 million in 2003.
Remington, like Rayovac, sold its products largely through traditional retail channels. The
breakdown of retailers was similar to that of Rayovac, with the niche retailers being salons
and specialty hair and body care shops.
United Industries Corporation
United Industries Corporation was a leading manufacturer and marketer of professional
and consumer lawn and garden care and insect control products. It produced a wide
variety of products, including brand name items and private label products for individual
retail chains. United also produced and distributed controlled release nitrogen and other
fertilizer technologies to the consumer, professional and golf industries worldwide under
various brand names.
United competed in the United States under the United name. In Canada, the company
operated under the Nu-Gro Corporation (Nu-Gro) name. United, which began operations in
the early 1950s, acquired Nu-Gro in April 2004 to serve as the Canadian arm of the
company. Nu-Gro was established in 1988 as an exclusively Canadian lawn and garden
company. Both were leaders within their marketplaces, maintaining a number of top-selling
brands including Vigoro, Shultz and CIL.
Within the lawn and garden industry in North America, United/Nu-Gro was the number two
company, holding a 23 per cent market share. The company targeted consumers who
wanted products comparable to and at lower prices than premium-priced brands, and thus
positioned their brands as the value alternatives. In 2004, United/Nu-Gro together
generated sales of US$550 million in this market.
In the household insect control industry, United/Nu-Gro generated US$150 million in sales
in 2004. With their insect control brands, it was again the number two company, with 24 per
cent market share in North America.
The consumer division for both of these categories sold its products through various retail
outlets, including home and garden centers, large home supply retailers, and general mass
merchandisers. The sales breakdown was as follows: Canadian Tire (13 per cent), Home
Depot (nine per cent), Rona (seven per cent), Lowe’s (six per cent), Home Hardware (five
per cent), Wal-Mart (three per cent), independent garden retailers (five per cent), other
small retailers and garden stores (12 per cent) and their professional division made up 40
per cent.
The United/Nu-Gro professional division served two major markets: Professional Turf Care
Products for golf courses and lawn care companies, and Professional Pest Control
Products and Animal Health Products for pest control operators and farms (making up 25
and 15 per cent respectively of the company’s overall sales). This division had its own
dedicated sales force and marketing team to manage the diverse needs of the professional
customers.
United was also a leading supplier of quality products to the pet supply industry in the
United States, under the United Pet Group (UPG) name. UPG operated in the fragmented
U.S. pet supply market, manufacturing and marketing premium-branded pet supplies for
dogs, cats, fish, birds and other small animals. Products included: aquarium kits,
stand-alone tanks, filters and related items, and other aquarium supplies and accessories,
as well as pet treats and supplies. This division was number two in North America, with an
eight per cent market share and annual revenues in 2004 totaling US$250 million (figure
includes Tetra sales). This division sold its products through large mass merchandisers,
while also targeting the larger pet supply chains of PetsMart and PetCo, and the
considerable number of independent pet supplies stores.
Tetra Holdings
Tetra Holdings was a global supplier of fish and aquatic supplies, operating in over 90
countries worldwide and holding leading market positions in Germany, Japan, the United
States and the United Kingdom. They manufactured, distributed and marketed a
comprehensive premier line of foods, equipment and care products for fish and reptiles,
along with accessories for home aquariums and ponds.