According a recent news report, CVS Caremark Corp. (CVS) said that it will stop selling Energizer Holdings Inc. (ENR) alkaline batteries at its stores from 2010. The report also said that CVS will sell Procter & Gamble’s (PG) Duracell alkaline batteries instead. However, the company will continue sell Energizer’s lithium batteries in all of its stores until the end of this year.
The consumer products industry is highly competitive with Procter & Gamble as a formidable competitor in the battery (Duracell), blade (Gillette) and feminine products categories. Energizer batteries lag behind Duracell batteries in market share in the U.S. — 41.6%, followed by Energizer’s 27.8%. This is according to Information Resources Inc., a Chicago-based market research firm.
Energizer’s competitors have significantly larger financial resources. We expect mass retailers to pressure prices, both through negotiations and shift to larger pack sizes, which carry lower margins.
Therefore, Energizer Holdings must constantly develop, introduce and promote new products. As a result, advertising and marketing expenditures have almost doubled in 2008, which may pressure margins.
While advertising and promotion expenses declined in 2009, the company expects to increase investment in advertising and promotion in fiscal 2010. Advertising & Promotions as a percent of sales are expected to be around 12.0% in 2010, an increase from 2008 levels.
Higher raw material and packing costs are also squeezing margins. Gross margin as a percent of sales was 46.5% in 2009, a decrease from 47.0% in 2008 and 47.7% in 2007. Rising raw material prices, reduced consumer spending and the economic downturn negatively affected sales due to lower battery demand in 2009.
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Read the full analyst report on “ENR”
Read the full analyst report on “PG”
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