Colgate Simply White Marketing Support Will Be “Modest” In 2004

Colgate-Palmolive plans to scale back U.S. marketing expenditures on its Simply White tooth whitener after sales fell short of 2003 projections, CEO Reuben Mark said during a year-end financial presentation Feb. 3.

Current-year budget plans call for "modest support" for Simply White, and "I think that we will probably resist the temptation to increase spending radically even if it does better," he added. The lower spending levels will allow the product to contribute positively to earnings before interest and taxes in 2004, Mark predicted.

The company is adjusting its "loss of focus" related to Simply White by emphasizing core businesses, Exec VP Ian Cook stated.

The shift responds to a 24% decline in fourth quarter operating profits in North America that reflect "high advertising and promotional costs together with lower-than-planned volume for Simply White," according to the company.

Simply White "was very warmly received by the consumer and the trade, and there were expectations and forecasts of category growth rates...that in fact were too aggressive compared with how we've seen the market evolve," Cook explained.

Colgate is now calling Simply White whitening gel a "modest" business. The brand represents 1% to 2% of the firm's total sales in the U.S., and is expected to generate $80 mil. to $90 mil. in worldwide sales in 2004, according to Mark.

Colgate unveiled Simply White in 2002 with first-year sales expectations of $50 mil. and later predicted the brand would generate sales of $100 mil. in the U.S. in 2003 with the introduction of Simply White Night (¹ (Also see "Colgate 7.5% Q2 North American Sales Gain Fueled By New Products" - Pink Sheet, 28 Jul, 2003.), p. 12).

Simply White suffered a nearly $15 mil. loss after taxes in 2003, Mark said. The company spent heavily against the brand to compete with aggressive marketing by Procter & Gamble for its Crest Whitestrips , Whitening Expressions and Night Effects .

The level of competition between the two marketers reached such a pitch that Colgate took P&G to court over advertising for Crest Whitestrips and Night Effects that the firm maintains unfairly disparaged Simply White (² (Also see "Colgate Lawsuit Takes Aim At P&G Crest Tooth Whitening Ads" - Pink Sheet, 1 Dec, 2003.), p. 11).

During its year-end presentation on Jan. 28, P&G claimed it controls a 70% market share of the whitening category and noted "competition is easing."

Colgate recently expanded the Simply White franchise with a toothpaste, which is expected to contribute an additional two to four percentage points to the firm's 34.2% value share of the toothpaste market, Colgate said, citing AC Nielsen data. The toothpaste currently holds a 3% market share in the U.S., the firm added.

The company has accelerated new product plans for 2004. Mark estimated that 16 new products have been introduced to the trade for the first quarter in the U.S., including Colgate Total 2-in-1 toothpaste.

Colgate also announced the firm is preparing for the retirement of Mark, who has been at the helm for 20 years. Mark plans to step down as CEO within the next two to four years, the exec said during the call.

One of three existing Colgate executives, who have been in a "job rotational mode" for the last several years preparing for his departure, will likely succeed him, the company said.

During the fourth quarter, Colgate's North American division sales fell 7.5% to $573.8 mil. as a result of a comparison with a strong year-ago period, which included the sell-in of Simply White.

Operating profit was down 23.6% to $113.7 mil., reflecting a comparison with record operating profit in the year-ago period and heavy spending combined with lower than expected volume on Simply White, Colgate said. For the year, North American sales were flat at $2.4 bil., while operating profit fell 5.4% to $547.4 mil.

Colgate's consolidated sales grew 6.3% in the quarter to $2.6 bil., benefiting from unit volume growth and foreign currency exchange. Net income was $372.1 mil., up 9.2% in the quarter.

For the year, net sales declined 6.5% to $9.9 bil., while net income grew 10.3% to $1.42 bil.