Brand managers Marcilie Smith Boyle (HBS MBA Class of 1996) and Allison Warren were getting together for their weekly Kingsford Charcoal (“Kingsford”) debriefing meeting in February 2001 at Clorox’s corporate offices in Oakland, CA. As the job-sharing brand managers for the $350 million charcoal business, Smith Boyle and Warren had a lot to discuss during their Wednesday “overlap” day.
Both women were assigned to the brand in July 2000, just as it became apparent that the summer results were going to come in below forecast. Since the 1980s, Kingsford had continued to enjoy steady, moderate growth of 1-3 percent in revenues each year. During this time, the charcoal category as a whole had been growing as well. However the summer of 2000 represented the first softening in the overall charcoal category in several years, and Smith Boyle and Warren were tasked with determining the causes and coming up with recommendations.
As the team analyzed various trends relating to competition, pricing, advertising, promotion, and production, Smith Boyle and Warren were faced with a series of critical strategic decisions that would impact the future trajectory of the Kingsford brand. Kingsford had not raised prices in several years, nor had it advertised in any significant way since 1998—options that now required consideration.
With Kingsford’s long track record of being heavily driven by sales and merchandising activities, Smith Boyle and Warren wondered whether there was an opportunity to balance this effort and invest more in rekindling consumer interest in charcoal grilling(??????????????? ). They realized that this initiative could significantly impact the brand image and the advertising message. There were also some production issues looming(????? ) in the horizon—if Clorox did invest in building(???? ) the Kingsford business, would the existing capacity be adequate?
Smith Boyle and Warren were scheduled to meet with their marketing director, Derek Gordon, the following week and they were eager to get his feedback on their recommendations before Kingsford’s annual business review later in the month. GRILLING IN AMERICA People cook over an open flame the world around but Americans do it more often and better Grilling is the essential American culinary art, (??????? ) a glorious birthright(????????? ) celebrated everyday from coast to coast. It’s a passion, a party, a way to cook that won’t let you call it a chore(?? ).
It’s about playing with fire under an open sky, wielding a mean spatula (??????? ) in one hand, a cool drink in the other. Most of all it’s a surefire means (??????? ) to get yourself from here to a decent (????? ) meal having loads of fun. Make that a great meal…. —Excerpt from the front flap of Born to Grill:An American Celebration (1998) by Cheryl Alters Jamison and Bill Jamison By the late 1990s, three out of four U. S. households owned a barbecue grill which over 80 percent of grill ownership being among younger, larger, higher-income families. The total number of barbecue events In the United States had gone up from 1. billion in 1987 to 2. 7 billion in 1995 and over3 billion In 2000. Just over half of grill owners were heavy/medium users but they did the vast majority of the barbecuing (more than 85 percent of all occasions). Over 60 percent of barbecuers were men and the most popular occasions cited for grilling were: July 4, Labor Day, Memorial Day, (??????? ) and special occasions such as tailgating (????? ,?? “??????? ”). Common reasons for a barbecuing included great flavor, desire to be outdoors, hanging out with family and friends, change of pace, easy clean-up, and informality.
Although barbecuers had greatly expanded their cookout repertoire (all the things that a person is able to do) over time, the foods that typically topped the “cooked frequently” list had not changed much. The most popular foods for the grill included hamburgers, steak, hot dogs, chicken breasts, pork chops, ribs, and sausages. Roasted potatoes, steamed vegetables, and marinated vegetables (???? ) were the side dishes grilled most frequently. Charcoal and gas grilling were the two most commonly used grilling methods. Although charcoal grilling took longer to set up and cook, most die-hard rillers preferred charcoal grilling over gas grilling for its hands-on experience and the flavor imparted to the food (????????????? ). Gas grilling, on the other hand, was preferred by those that were looking for convenience, greater control over cooking temperature, short cooking times, and ease of dean-up. CLOROX COMPANY HISTORY The Clorox Company (“Clorox”) was founded in 1913 as The Electro-Alkaline Company. Its first product was industrial strength liquid bleach made from a combination of chlorine and sodium hydroxide. The bleach was originally made in Oakland, California, and sold in the Bay Area.
In 1922, the company changed its name to the Clorox Chemical Company, and soon expanded its distribution to the rest of the United States. By 1957, Clorox was the leading producer of bleach in the United States and it changed its name to The Clorox Company. Procter & Gamble(???? ) was attracted to Clorox’s category leadership and offered to buy the company in 1957. Although the sale was completed, the U. S. Federal Trade Commission challenged (????????????? ) the acquisition on the grounds that the combined company could create a monopoly in household liquid bleach. Alter ten years of litigation, the U. S.
Supreme Court forced P&G to divest (?? ) Clorox, and in 1969, Clorox became an autonomous company listed on the New York Stock Exchange. After obtaining its independence, Clorox pursued an aggressive growth strategy (????????? ) driven by acquisition and internal research and development. By 2000, the company had over 50 products that were marketed to consumers around the world. As of June 30, 2000, Clorox had annual sales of $4. 1 billion and net earnings of $394 million. For reporting purposes, the company split its results into three major categories: U. S. Household Products and Canada (40 percent of sales), U.
S. Specialty Products (45 percent of sates) and International (15 percent of sales). (See Exhibit 1 for Clorox company financials. ) In addition to Clorox Bleach, household products included Glad, water filters (Brita), and cleaning products such as Formula 409, Pine Sot, Soft Scrub, liquid Plumr, Tilex, and Ready Mop. Specialty products consisted of cat litter (Fresh Step, Scoop Away); auto care (Armor All, STP); charcoal and lighter fluid (Kingsford, MatchLight); and dressings and sauces (Hidden Valley, ICC Masterpiece). Nearly all of Clorox’s products were among the leaders in their respective categories.
Each product group was managed by a brand team that typically consisted of a brand manager and several associate brand managers. The brand organization was generally responsible for setting the business strategy understanding the consumer, developing advertising, creating short-term forecasts and helping with sales promotions. As a result, the brand team had to work closely with other functions, particularly sales, product supply and finance. Gordon explained, “One of the key functions of the brand team is to understand the consumer and apply that learning. ”
Clorox sold the majority of its products to grocery retailers and distributors, worldwide military installations, mass merchandisers, warehouse clubs and drug, discount, hardware, and variety stores. The company relied on its own sales force as well as a combination of brokers/distributors. Clorox also sold products to professional/institutional customers through a network of brokers and manufacturer reps. As of June 2000, Clorox had approximately 11,000 employees worldwide. KINGSFORD CHARCOAL Kingsford represented one of the largest product groups within Clorox’s portfolio.
In 2000, charcoal represented approximately 9 percent of Clorox’s revenues, and a substantially higher percentage of its net income. The business was started in the 1920s when Henry Ford developed a process for turning wood scraps (?? ) into charcoal briquettes (???? ) that burned longer and hotter than regular wood. E. G. Kingsford, a lumberman (???? ) and relative of Ford’s, helped build the first briquette plant and commercialized the business. The plant was later bought by an investment group and then purchased by Clorox in 1973. Product and Pricing
Kingsford Charcoal was manufactured from wood, minerals, limestone, starch, borax, sodium nitrate, and sawdust (?? ,?? ,??? ,?? ,?? ,??? ,??? ) in a two-part procedure. The process began with transforming waste wood (e. g. , scrap from furniture plants) into wood char (?? ) in a $15-$20 million retort (?? ) facility that heated wood in an oxygen-controlled atmosphere. The wood char was then combined with the other ingredients in a $20-$30 million facility that converted the materials into pillow shaped briquettes. As of June 2000, Kingsford had five plants in the U. S. each of which housed both parts of the operation. Some of the charcoal briquettes were packaged as-is in blue bags and sold as Kingsford Charcoal (“regular” or “blue bag”), while others were treated with Kingsford lighter fluid and sold as Kingsford Match light in red bags (“instant” or “red bad”). The bulk of the volume for both types was sold in three sizes: 10-pound, 20-pound and 48-pound bags) regular, and 8-pound, 15-pound, and 30-pound (two 1 5 pound bags) for instant. The largest size was typically available only in club stores such as Costco and Sam’s Club, while food stores (e. . , supermarkets), mass merchandisers (e. g. , Target, K-Mart), and drugstores (e. g. , Walgreens), and Wal-Mart carried a mix of the other size. In 2000, food stores accounted for 66 percent of total charcoal sales; mass merchandisers and Wal-Mart for just over 15 percent; drug stores for 2 percent; and club stores and other non-tracked channels accounted for the remaining 16 percent. Regular charcoal represented approximately 75 percent of total shipments, with the 20-pound size of sales comprising approximately 60 percent of sales. Pricing varied based on the product and the size.
In January2001, the average price to consumers for the regular 10-pound bag was $4. 25 and the regular 20-pound bag was $6. 78. The average consumer prices for the instant bags were $5. 20 for the 8-pound and $8. 07 for the 1 5-pound bag. In most channels, Kingsford competed with Royal Oak and private label brands. The private label brands typically sold at a 25-30 percent discount to Kingsford with Royal Oak being typically priced between the two. Virtually all of the private label products were manufactured and distributed by Royal Oak.
Key Success Drivers Kingsford’s business was seasonal, with nearly 60 percent of consumer purchases occurring between May 1 and September 1. (See Exhibit 2 on page 674 for 2000 sales by week. ) The Memorial Day and July 4th holiday weekends represented 35 percent of Kingsford’s annual sales, fueled in large part by store-based promotions organized by the Kingsford team. Smile Boyle explained, “Our sales team makes a big impact with retailers to ensure that there always are at least 7,500 pounds on the floor during the primary grilling months.
Summer holidays are particularly important and Kingsford often contributes trade money to help reduce prices for our products during those key weekends. ” The Clorox sales team had years of experience in working with key accounts and many of the senior sales executives at the company such as Grant LaMontagne, Vice- President of Sales, had sold charcoal earlier in their careers. LaMontagne believed that Clorox really understood the category. He explained: Our success in the charcoal category is “discipline”.
This has led to a constancy of marketing and sales actions over time, and a consistency in the message communicated within our own sales and marketing organization, to the channel, and to the end consumer. I have found that successful brands can get derailed over time when the firm begins to tinker with the brand. In their effort to grow the business, it is common for marketers to change the brand image as they go after new market segments. Over time, such actions create enormous confusion within the firm and in the marketplace.
The net result is that the various sales and marketing efforts begin to operate at odds with one another. When Warren took over the brand manager position in July 2000, she recalled hearing from the sales team at least five times in her first week: With Kingsford, the key is “display”—you need to pile it high and watch it fly- Display drives sales since over a third of charcoal purchases are impulse purchases. When the weather is good, shoppers bump into charcoal displays in the store and think, ‘Today would be a great day to barbeque? Our job is to make the charcoal visible and let the weather do the work.
In terms of product quality, Kingsford’s lab tests showed that its product was superior to Royal Oak and the private label brands. Consumer studies also showed that Kingsford was perceived as a better product with approximately 60 percent of surveyed consumers indicating that Kingsford “is a high quality brand,” relative to 13 percent for private label. KINGSFORD BUSINESS IN 1999—2000 When Smith Boyle and Warren started with the group, Gordon had warned the two brand managers that it would be difficult to achieve the forecasts created earlier in the year, as business was starting off at a slower pace.
Warren recalled: Derek said to me on my first day with the brand, Welcome to Kingsford. Based on how July 4th is shaping up, you are already in the hole and there is no additional money to spend. Kingsford didn’t do as well as we had hoped in fiscal 2000 [ending June 30], and we are concerned that fiscal 2001 doesn’t look much better. We’re hoping you and Marcille can figure out what to do. ‘ Smith Boyle added, “We felt the pressure right away. Kingsford is such an important part of Colorox’s overall performance that when Kingsford misses its number, there is a good chance that Clorox will miss. Smith Boyle and Warren started with an in-depth analysis as to why the category appeared softer than it had in previous years. The charcoal category had slowed from 4 percent growth from 1998 to 1999 to 2 percent growth from the first half of 1999 to the first half of 2000. The forecasted growth for the second half of 2000 looked even worse, and by the end of 2000 the entire category was down relative to 1999. The declines were most pronounced in the food channel, with a 5. 7 percent decline during the second half of 2000. (See Exhibit 3 for volume growth by channel. With the help of two associate brand managers, the team ran numbers on all of the different factors that could have led to a softening in the category. The analysis revealed some interesting trends. The team was surprised to find a narrowing of the price gap across the various charcoal brands as a result of a series of private label price increases that the channel had passed along to consumers. By the end of 2000, the prices of private label bags were nearly 10 percent higher than they were in 1999 across all channels, the biggest price jump in years. See Exhibit 4 on page 676 for pricing trends. ) Smith Boyle explained, In prior years, prices rarely moved more than 5 percent over the course of the year. We found that stores had recently increased the price of their private label brands. We also found that Royal Oak had increased prices during this period. Finally, although we had kept the Kingsford prices constant, several of our channel partners had chosen to increase Kingsford prices as well to consumers during this period.
The Kingsford team believed that gas grilling could have captured some of the consumers that had negatively reacted to the charcoal price increases. In 2000, gas grill shipments grew 8 percent relative to 1999 with 9. 3 million new gas grills being shipped, while charcoal grill shipments dropped 3 percent year over year with just under 6 million new charcoal grills shipped (see Exhibit 5 for grill shipments from 1996 to 2000). Overall, charcoal grill penetration had trended down since 1997, while gas grill penetration had trended up.
In 2000, approximately 54 percent of U. S. households owned a gas grill, relative to 49 percent that owned a charcoal grill, and approximately 20 percent of U. S. households owned both grill types (see Exhibit 6 for grill penetration trends). Smith Boyle and Warren also believed that Kingsford’s absence of media advertising further contributed to the category weakness. Neither Royal Oak nor the private label brands did any advertising, so when Kingsford did not advertise, there was no charcoal message on the air.
This was compounded by the fact that while Kingsford had reduced its media spending from over $6 million in 1998 to a little over $1 million in 2000, gas grilling had increased its media spending during the same time period from less than $4 million in 1998 to over $10 million in 2000. Warren explained, “The charcoal category was now paying the price for several years of reduced advertising. ” This trend was further exacerbated by a reduction in promotional activity across the category.
In past years, Royal Oak had contributed substantial funds towards merchandising opportunities at retailers such as temporary price reductions, features and displays. However, these efforts were pulled back during 2000. In addition, the Kingsford team speculated that retailers might have been inclined to do fewer major promotions for Royal Oak after the price increases. The private label brands had fewer feature and display promotions during 2000, but stores did continue with temporary price reductions (see Exhibit 7 for category merchandising in 2000).
Kingsford’s merchandising in 2000 was consistent with that in 1999. A final factor that contributed to category softening was traced to weather patterns in 2000. Precipitation and temperature comparisons with 1999 showed a slight increase in rainfall in October through December 2000, coupled with a major drop in temperatures. Average U. S. temperatures in November and December 2000 were nearly 10 degrees lower than temperatures during the same period in 1999. Fall and winter grilling were positively correlated with mild temperatures, so the cold weather reduced opportunities for grilling occasions.
Although the overall category sales volume dropped in 2000, Kingsford’s volume rose slightly and its market share had increased. For the first half of 2000, Kingsford had a 56. 1 percent market share, relative to 7. 7 percent for Royal Oak and 34. 9 percent for private label. For the second half of 2000, Kingsford rose to a 59. 5 percent market share while Royal Oak dropped to 6. 4 percent and private label shifted to 32. 7 percent (see Exhibit 8 for market share trends). According to Smith Boyle, “The price increases drove more consumers to Kingsford, so we benefited to a large degree.
But given our large market share, our success is tied in to the overall success of the category, so we couldn’t be complacent? ‘ In addition to the data on market trends, Smith-Boyle and Warren had access to a detailed internal segmentation study of over 300 heavy Kingsford users (that grilled at least 6 times a month) that uncovered three heavy charcoal user segments: Regular Exclusive users that grilled exclusively with regular charcoal; Instant Exclusive users that used only instant charcoal; Instant Acceptors that were comfortable and committed to both charcoal types.
The three segments accounted for roughly 30,10, and 60 percent of all heavy Kingsford users, and 28, 11, and 62 percent of the total volume consumed by these users respectively Exhibit 9 on page 680 summarizes the findings of the segmentation study 2001 BUSINESS DECISIONS With all the analysis and consumer segmentation information in hand, Smith Boyle and Warren started to think about an action plan to present at their business review meeting with senior Clorox executives. They knew profitability was critical, and they believed continued growth was important as well.
After a series of meetings with Gordon and others at the company, they focused on four areas: pricing, advertising, promotion, and production. Pricing The price increases by both private label and Royal Oak raised a number of key questions: Should Kingsford increase prices as well? if so, how big a price increase should they consider? Should they raise prices for both regular and instant and for all channels? If they did raise prices, would retailers pull back on the merchandising support (e. g. , features and special displays) they have been giving to Kingsford over the last several years?
Would a price increase drive consumers to purchase other brands? Or worse yet, to gas grills? In order to help answer these questions, the brand team did price elasticity studies for several different scenarios to estimate the volume and profitability impact from potential price increases. The scenarios included: (1) a moderate price increase (-4. 0 percent) only for dub stores, (2) a small (-2. 5 percent) blue bag price increase across all channels, (3) a moderate (-5. 0 percent) blue bag increase across all channels, and (4) increasing both blue bad and red bad by 5 percent across all channels.
For each scenario, the Kingsford team estimated the impact on volume, sales, and profit, while also accounting for potential withdrawal of merchandising support (see Exhibit 10 for information from the elasticity studies). Gordon believed that raising prices was a great way to increase short-term profits and would provide some money that could be reinvested in Kingsford and other businesses in Clorox’s specialty division. In addition, it ensured that Kingsford would stay within the targeted 25-30 percent price gap relative to private label. There were, however, some potential drawbacks.
Sales director Nick Vlahos believed that Kingsford had gained a great deal of goodwill with Clorox’s channel partners over the last year that could translate into increased opportunities for Clorox. He explained: We’ve been working with our retail partners over the last several years to increase promotion of Kingsford, particularly at the expense of Royal Oak. If we hold off on any price increases for another year, we might be able to convince more chains to focus distribution and merchandising support on Kingsford and private label. We’ve been advocating this ‘two-brand’ strategy for some time, and this could be our year to see it happen.
If we do raise prices, we may lose all the merchandising momentum we have gained. In fact, a price increase might cause us to lose some big accounts altogether, particularly because we don’t have a clear justification for the higher price point. Smith Boyle and Warren agreed with Viahos’s assessment, but Smith Boyle explained that: Taking price increases is particularly challenging for sales people: retailers inevitably resist, and we all knew that the sales team was being compensated based on volume. In reality, there is never a good time for a price increase; it’s a matter of finding the best of the bad times.
The retailers almost certainly wouldn’t be surprised with a price increase given what our competitors have done over the last year. As for the consumers that buy Kingsford, charcoal is considered a happy product—it’s associated with family and fun—so that sometimes gives us more leeway with pricing changes. Advertising Smith Boyle and Warren believed that anticipated volume losses from a potential price increase could be restored through increased advertising. Kingsford had gradually decreased its advertising since 1996, as more money was spent on sales promotions, “reduced revenue” spending, and dropping to profit.
As of February 2001, the forecasted advertising spending for Kingsford was under $1 million. (See Exhibit 11 for Kingsford marketing spending from FY 97 through forecasted FY 01. ) According to Warren, “The prevalent belief around the company was that Kingsford was a ‘sales-driven business’ and that advertising would be a waste of money. ” The brand team disagreed and looked for ways to build their case. They started by hiring a third Marketing Management Analytics (“MMA”), to analyze the effects of advertising on Kingsford sales in past years.
MMA’s analysis of 1998 spending indicated that TV advertising drove a 7 percent incremental volume increase in targeted markets in 1998, and the benefits accrued in 1999 as well with an estimated 3-4 percent volume increase from the residual impact of advertising. Based on the data provided by MMA’s marketing mix analysis, Smith Boyle and Warren believed that Kingsford should be spending at least $7 million on advertising during the peak grilling season of April-September. They knew it would be difficult to get those funds, but they believed that “base volume would continue to rode if Kingsford didn’t start advertising again. ” Gordon offered to help them apply for $5-7 million of mid-year funds from a corporate “kitty;” but he wanted the team to first think through their intended advertising message. In past years, the brand team had worked with agencies to develop separate messages for regular charcoal and instant. From 1991 through 1998, the message for regular was based around product quality relative to other charcoal: “lights twice as fast as other coals” and “Lights faster, burns longer. ” Nearly all of the MMA effectiveness studies were based on these advertising campaigns.
Match light advertising was based on a different message targeting higher end customers seeking convenience. In 1996-1998, Match Light advertising centered on a “Ready in 15 minutes” message and in 1999 the team had reverted to a 1991 spot need just one match. ” Smith Boyle and Warren wondered if they should go back to the 1998 advertising that had proven results, or if should they try a different message. In past years, Kingsford had viewed other charcoal brands as its biggest competition; it now appeared that gas grills might be the product to beat.
They debated if they should be advertising to grow the number of grilling occasions overall, to focus on growing the charcoal category or to focus on growing Kingsford’s share within the charcoal category They thought about incorporating data from a blind taste test performed with 796 men and women ages 18-54 in Sacramento, Dallas, Tampa, and Chicago in June 2000 that had asked consumers to compare chicken, steak, or hamburgers cooked over Kingsford Charcoal to those same foods cooked over gas.
Across all meat types, 2-to-1 participants preferred the taste of charcoal-grilled food to gas. Tasters commented that meat grilled over charcoal “has a real barbecue flavor,” “has a smoky flavor,” and “tastes like it was grilled over a real wood fire. ” The brand team wondered if there were specific advertising executions that could leverage this data in a meaningful way. Promotion As the brand team focused on pricing and advertising, the sales group took the lead on thinking through Kingsford’s promotional strategy.
Clorox worked to optimize four sales levers at each distribution outlet: Merchandising, Assortment, Pricing and (“MAPS”). Within merchandising, the Kingsford sales team worked with stores to feature the product in circulars that were mailed to local consumers and to get Kingsford displayed on prominent end of aisle displays (end-caps). Assortment reflected the different Kingsford stock keeping units (“SKUs”) that were carried by each store. Here, the team focused on making sure that the individual stores were stocking the appropriate mix of SKUs that maximized sales volume.
The Kingsford marketing team used scanner data to develop detailed quantitative models for each local market that the sales team used to educate the management of the individual stores on these issues. Pricing represented the various everyday prices of each SKU and the target numbers for temporary price reductions. The Kingsford sales team helped the channel partners plan the frequency and depth of price reductions since the volume spikes from price promotions were very significant. Shelving related to where Kingsford products were located, both in terms of aisles and exactly on which shelf each SKU was located.
It was important that Kingsford products were treated consistently across stores members of the sales team spent a great deal of time visiting store managers and working on the execution details. Kingsford also worked with customers to capitalize on big holidays with targeted Memorial Day, 4th of July and Labor Day promotions. According to LaMontagne: On a sunny July 4th weekend a Wal-Mart store could sell 5,000 pounds of charcoal in one thy. It is critical that each store keep enough product on the floor in a central location. This not only serves a reminder but generates the impulse to purchase.
Ideally we want each person who walks into a store to see pallets of Kingsford charcoal and we push to get our charcoal in two different locations. When the displays are combined with featured pricing and inclusion in store circulars, Kingsford does particularly well—which is good for us and good for the store overall. Our research has shown that consumers who buy Kingsford charcoal tend to spend 30 percent more during their store visit than consumers who do not buy charcoal. We do our best to show these data to stores so that they can see the benefits of promoting Kingsford.
The Kingsford team was also working on plans to extend the grilling season outside of the peak summer months by creating NASCAR promotions for March, April, September and October as well as by encouraging fall tailgating events. Dawn Willoughby, sales merchandising manager, explained, “We have put together a 12-month plan to increase charcoal consumption. The goal is to increase grilling occasions and we want stores to help reinforce this objective? ‘ The sales team pursued co-marketing opportunities with other brands such as Pepsi and Budweiser to help pay for increased promotions throughout the year.
As the sales team worked with stores on the various promotions, they also continued to push the stores to focus primary support on two brands—Kingsford and private label. LaMontagne explained: We see ourselves as custodians of the charcoal category. Our research shows that supporting too many brands of charcoal hurts the channels’ revenues and profits. For example, with too many SKUs to manage, the channel would routinely face stock-outs of the popular products that could lead to lost sales, or even worse, lost customers if the consumers switched stores altogether.
Armed with compelling evidence on lost revenues and margins, we are going to the channel with a message of ‘less is more? We are telling them that brands in the middle such as Royal Oak are driving consumers away from the premium brand that was sought out by brand-loyal consumers or away from the stores’ profitable private label brand. Product and Capacity The Kingsford team hoped to increase growth through a combination of advertising and promotion and therefore was working with the Clorox product supply group to ensure adequate supply.
Based on the numbers run by the product supply team, it looked as if the plants were currently running at approximately 80 percent of total capacity. As a result, there would only be supply issues if volume grew more than 5 percent for several years in a row. It was difficult and expensive to build additional capacity Bill Lynch, Vice-President of Product Supply explained: A new plant can cost $30-$50 million to build and it could take at least five years once Clorox started the permitting process. It could take two to three years just to acquire all of the necessary regulatory approvals.
If we want to expand one of our current plants, we still need to go through a two-year permitting process. In addition, some of our plants are not expandable—often for environmental reasons. If Kingsford did run out of capacity; there were not many alternative sources for charcoal production. The business could try approaching a competitor in the United States or looking at several offshore options. if those turned out to be prohibitively expensive, the Kingsford team ran the risk of running out of product towards the end of the summer season. 3 A shortfall in supply would mean that Kingsford would have to pacify its customers by moving pallets around the country to wherever demand was greatest, a very expensive proposition. CONCLUSION Smith Boyle and Warren were interested in getting Gordon’s perspective on how Kingsford’s growth objectives fit into the broader context of the overall company growth targets. Clorox’s stock price in December 2000 was at a three-year low when Clorox had warned Wall Street that its sales growth would not be as high as it had predicted earlier in the year.
On January 31 2001, Clorox had announced its second quarter earnings, which included a 6 percent decline in sales for the company. Clorox Chairman and CEO Craig Sullivan said, “While these results are in line with the estimates we announced on December 14, we are obviously disappointed with our performance this quarter. Over the past 45 days we have heightened our focus on those activities that are most critical to securing a solid foundation for future growth. We are taking action, first and foremost, to regain momentum on our core businesses in the United States.
Smith Boyle and Warren felt Clorox was relying on Kingsford to improve sales and profits, and they didn’t want to let the company down. They knew their recommendations about pricing, advertising, promotion, and capacity could make a big difference for both Kingsford and Clorox as a whole. Armed with all the research data, they were eager to develop a strategy for taking the Kingsford brand to a new level of growth and profitability. With this in mind, Smith Boyle and Warren walked out of the building on Wednesday evening, planning to talk more the following week. They waved goodbye with their usual parting message, “See you next Wednesday! ”