Chattem Selsun Blue Purchase Provides Entry Into Five New Foreign Markets
This article was originally published in The Tan Sheet
Executive Summary
Line extensions and a major marketing push are among the growth tactics Chattem expects to pursue when it brings Selsun Blue into its consumer health portfolio. Chattem has agreed to purchase the anti-dandruff line from Abbott Labs subsidiary Ross Products
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Line extensions and a major marketing push are among the growth tactics Chattem expects to pursue when it brings Selsun Blue into its consumer health portfolio. Chattem has agreed to purchase the anti-dandruff line from Abbott Labs subsidiary Ross Products. Future ads for Selsun Blue may attempt to both bolster the brand's prominence within certain demographics and improve its standing with a broad audience. Selsun Blue has a solid following among ethnic groups - African Americans in particular - and new ads likely will cater to such strengths, Chattem said. However, the Chattanooga, Tenn.-based firm also sees potential in attracting new users from the general population. Brand advertising typically has targeted men. Although Chattem does not intend to abandon this heritage, it also may test spots that are geared more toward women. The firm has no plans to alter the recognizable blue bottle, which it refers to as "iconic." In line with campaigns for existing brands such as Gold Bond medicated powder and Dexatrim appetite suppressants, future Selsun Blue efforts likely will focus on TV and print ads, Chattem said Ross spent $8.7 mil. on TV advertising for Selsun Blue in 2001, according to measured media spending tracked by CMR (New York). Last year, Chattem dedicated 39.3% (or roughly $77.9 mil.) of its net sales to advertising/ promotion, the firm's recent 1 10-K filing notes. Under the definitive agreement with Ross, Chattem will buy the Selsun Blue line for $75 mil. plus roughly $2 mil. in inventories. The firm will finance the purchase with $35 mil. in cash and a credit facility from Banc of America. The deal is expected to close by the end of May. The anti-dandruff brand generated worldwide sales of $41 mil. last year, Chattem reported. In U.S. food, drug and mass outlets (excluding Wal-Mart), combined sales of the original shampoo and 2-in-1 formula totaled $20.5 mil. for the 52 weeks ended Jan. 27, according to Information Resources, Inc. Abbott will continue to manufacture the product for up to two years, after which "certain production" will shift to Chattem's Chattanooga facilities. A similar arrangement will be executed for overseas production. Abbott's sales force will continue to distribute the product in select foreign markets until Chattem gains a foothold in the regions. Chattem expects to take over the international sales and marketing effort in most markets in three to six months, the firm said. Chattem's approach to adding niche OTC products traditionally has included brands with "unrealized potential that have been under-marketed by larger firms or have achieved limited success by entrepreneurs," the firm notes in its 10-K. Although the company does not consider Selsun Blue's potential to be "unrealized," Chattem sees room for growth both domestically and abroad. In addition, the purchase could open up several new foreign markets for the company. Selsun Blue is sold in 50 foreign countries, including five, such as Hong Kong, where Chattem does not have a presence. Chattem highlighted its commitment to building its global business during a recent analyst call (2 (Also see "Chattem Eyes International Growth, Doubling Of Net Sales" - Pink Sheet, 4 Feb, 2002.), p. 10). The firm then created an international VP position for newly hired Luke Lenahan, who has extensive experience in Japan and Hong Kong (3 (Also see "Chattem International VP Lenahan Brings Asia Marketing Experience" - Pink Sheet, 11 Feb, 2002.), p. 13). CEO Zan Guerry has set a five-year revenue target of $400 mil.-$500 mil., with foreign sales accounting for 20%-30%. Chattem's international business currently accounts for 8% of overall sales. Selsun Blue shampoos and conditioners are sold in both OTC and Rx strengths. A 1% selenium sulfide concentration is available in the U.S. without a prescription, and a 2.5% version is sold by prescription. Chattem's other hair care businesses currently include Sun In lightener and Ultraswim chlorine-removing shampoo. Commenting on its decision to sell the brand, Ross said Selsun Blue "no longer fits with the strategic imperatives" of the Abbott division. The Similac and Ensure marketer did not say whether other non-nutritional items, such as Clear Eyes drops, Tronolane suppositories and Murine ear and eye care products, also fall outside the division's priorities. |