The Gillette Company was founded in 1901 in a small office in Boston. Since its departure, Gillette has positioned itself as one of the most recognizable brands not only through their safety razor blades, but also through corporate diversification. This included the acquisition of a number of major companies, most recently Duracell. Prior to this acquisition, the Duracell Corporation had been the leading producer of alkaline batteries in the United States and maintained consistent growth in revenues from 1991-1996. Since their purchase of Duracell, their stock price has fallen 45% to a low of $34. The issue for Gillette is to determine if they can promote the profitable growth of their acquisition.
The main criteria that will be used to evaluate the key issues Duracell is currently facing, is weather Gillette's acquisition does in fact create a good synergy between the two companies (Gillette & Duracell). A synergy can be defined as the working of two things together, to produce an effect that's greater than their individual parts. Therefore, one must evaluate whether the acquisition was actually in the company's best interest. This is tied into the second decision criteria, growth. Gillette needs to ensure that the growth of their company, as well as their new acquisition, Duracell's growth remains profitable. Prior to the acquisition of Duracell, Gillette had been experiencing a consistent growth of 17% per year for the previous six years and was the industry leader in the personal shaver industry.
The external environment in which Duracell is operating holds many interesting characteristics, which we can use and analyze in order to see how Duracell compares to the competition. Porters 5 forces of competition illustrate a very useful outline for us to analyze the current competition in the battery industry. Duracell holds a competitive advantage with resources available to manufacture their own products and ability to sell such products to other discount store brands. Customers who buy batteries in today’s market are most likely to make purchases on impulse. 75% of alkaline battery sales are made on impulse and there is an extreme importance on in store displays in areas where customers can satisfy these impulses. Customers are also becoming increasingly price sensitive and depending less on the brand name and the features new batteries may obtain. Fortunately for the battery industry there is little to no substitutions available. A main source of competition and frustration for Duracell is the recent increase of new entrants into the market. Established electronic manufacturers like Sony, Kodak and Panasonic are starting to introduce batteries of their own in order to complement the products they already produce. With consumers becoming increasingly price sensitive a new niche has opened up in the market. This niche is becoming saturated with discount store brand batteries, which have been gaining market share steadily in recent years. These new discount brands aren’t to be taken lightly because as of 2000, 52.5% of all alkaline battery sales were in discount retailing stores. With a number of new entrants into the market rivalry has become even fiercer. Duracell has two main competitors in the industry: Energizer and Rayovac. As of 2000 Duracell had the majority of the market share with 43.38%, Energizer 29.83% and Rayovac 12.45% with a number of store brands holding the remaining 14.24%. Duracell and Energizer are constantly at each other’s throats with frequent technological upgrades in order to one up the other. Rayovac is relatively new in the industry and has gained a substantial amount of the market share. Rayovac however doesn't participate in the technological war, instead they offer a battery that is comparable to Duracell and Energizer products but offered at a price of 15% less. Rayovac has quickly become a...