by Greg Thain
After a short partnership with a Francis Smith, terminated in 1812, by 1817 he was advertising that William Colgate and Company . . . Have for Sale on Best Terms a Constant Supply of Soap, Mould and Dipt Candles of the First Quality . . .N.B. The Highest Price Given for Tallow. Business was obviously good: three years later, he opened a second factory in Jersey City to manufacture starch. And he was an early convert to branding, focusing his efforts on his Windsor soap and Pearl Starch. But in truth there was little to distinguish his products from others or to convince the largely self-sufficient American housewife that his soap and starch were any better than she made for herself. In 1857, he died and the business passed to his son. That was the turning point.
Samuel Colgate realised that one the housewife couldn’t make herself was a fragrant, perfumed soap and so, by 1866, the company was out of the generic starch business and into perfumed soaps. But Samuel Colgate also saw that the personal soap business was as much about feeling clean and fresh as just getting clean, an insight embodied in Colgate’s launch of America’s first milled, perfumed soap in 1872, Cashmere Bouquet. A year later the much-neglected arts of oral hygiene had the same treatment when Colgate launching a tooth-paste sold in jars.
But Samuel did not have these markets to himself. The soap and candle business was an easy one to get into - the products could be made on a kitchen counter – and America’s rapidly growing towns and cities provided eager markets of housewives without the fields full of pigs to provide the soap and candle raw materials. Hundreds of similar businesses had sprung up, including two the Colgate Empire would eventually devour: Peet Brothers of Kansas City – best-seller Crystal White soap - and the B.J. Johnson Soap Company of Milwaukee who made soap, candles and, somewhat incongruously, cheese.
How Did They Evolve?
At the turn of the 20th century there were hundreds of American soap and toiletry businesses. So how did Colgate and Palmolive emerge (along with Procter & Gamble and Lever Bros) as one of the three soap giants? For two main reasons: firstly by leading not following and secondly by branding; the 2 brands that did it were Colgate toothpaste and Palmolive soap.
Colgate toothpaste’s first real breakthrough came in 1890 when the company introduced the collapsible tube, further refined in 1908 with the addition of the ribbon opening to create a tube that would still be familiar in the 1960s. Branded as Colgate Ribbon Dental Cream for Cleaning and Preserving the Teeth and Refreshing the Mouth, Colgate had basically laid out its battleground for the next 100 years. By 1911, Colgate had distributed two million tubes of toothpaste and toothbrushes to schools and sent in hygienists to demonstrate brushing technique. Simply getting more people to brush their teeth has remained a key strategy to this day, although nowadays there is a little more differentiation, with a company price list the size of a small phone book size, 160 different soaps, 625 varieties of perfume and 2,000 other assorted lines. Nonetheless, toothpaste was and remains Colgate’s key differentiator.
Meanwhile, over at the B J Johnson Soap Company, Caleb Johnson was having his own brilliant idea: making soap not from animal fats but from oils, specifically palm oil and olive oil. His first came in 1898, a floating soap to ride on the coattails of Procter & Gamble’s hugely successful Ivory brand. At the 1909 St. Louis Exposition, however, Caleb discovered some French machinery for making hard-milled soaps, which he immediately purchased, and, from that moment, Palmolive assumed its modern form. The brand’s unique formulation sold well, but it was advertising that made the difference. In 1910, Charles Pearce, Johnson’s Sales and Advertising Manager signed up with the Lord & Thomas advertising agency: together they would craft a long-running campaign that created a whole new category: luxury soap.
‘The luxury-loving Greeks equipped the bath with extravagant accessories – but they lacked PALMOLIVE, the famous modern luxury for toilet, bath and shampoo. True, Palm and Olive oils were the favourite cleansing agents – but obtainable only in their crude natural state. Their scientific combination in the smooth creamy PALMOLIVE lather is a triumph only twentieth century knows how.’ Pearce also knew that money for such luxuries was tight, but innovative value-based promotions - buy two, get one free – was his answer. This combination of the best of the ancient with the modern, and at a good price, powered the brand to such heights that in 1917 the B.J. Johnson Company renamed itself the Palmolive Company.
The 1920s saw a great shakedown in the American soap business via merger and takeover mania. While P&G and Lever Brothers were vacuuming up small regional players by the dozen, Palmolive merged with Peet Brothers Company in 1927. A year later they merged again with the Colgate Company to create a $100 million turnover business that was now large enough to fend off any predatory advances P&G or Lever might make. The newly merged company was initially run by Palmolive-Peet’s management who, within a year of the merger, were looking at an even bigger deal. Charles Pearce had been seduced by a Wall Street proposal to create nothing less than an industrial behemoth.
The idea was to form a food, drug manufacturers and retailers combine, the first stage of which was to merge Colgate-Palmolive with the Kraft-Phoenix Cheese Company and Hershey Chocolate. The deal was ready to sign by October 1929 and negotiations had been opened with a grocery chain, a meat packer and a canning company. Rumours of the deal sent Colgate stock up 50% and on October 29th it was signed. The merger would have created the largest consumer products company in the world, one of the greatest what could-have-beens in consumer products history. Would have? Could have been? When they returned from a lavish celebratory lunch, the would-be executives had a shock coming. The stock market had crashed, and the deal was off. Colgate-Palmolive stock, which had peaked at 90, bottomed at 7 by 1933, at which point the previously sidelined Colgate family promptly bought back control, installed Bayard Colgate as President, and kicked Charles Pearce upstairs to Chairman.
How International Are They?
In a word, very. Most unusually for an American packaged goods company, international expansion happened very early and would play the key role in defining the modern company. Both Colgate and Palmolive had already been pioneers of international expansion well before the merger. A Colgate Canadian subsidiary was set up in 1913, the same year a Palmolive subsidiary there began exporting Palmolive soap into Britain. During the 1920s, there were healthy exports of Colgate products to Australia, the United Kingdom, Germany and Mexico. Colgate subsidiaries were also set up in several South American countries and a factory established in the U.K. in 1933. Following the 1933 coup by the Colgate family, international development was considerably ramped up, led by the new head of sales and advertising who had spent the previous five years building the company’s exports in Europe.
The crucial insight was that businesses which simply exported their products could never compete seriously with indigenous giants - Lever Brothers in the United Kingdom and Henkel in Germany - because of the cost. What was needed were production facilities in situ and these could best be gained through acquisition. The company acquired Cadmun in France and Binder-Ketels in Germany, plus local operations in Sweden, Italy, Poland and Switzerland. Factories were converted to Palmolive production with only one acquired brand allowed to continue on sale, as Cadmun in France. In 1938, Goodwin & Sons of Manchester, England, one of the few sizeable soap companies to escape Lever Brothers, fell to Palmolive, whose UK production began in October 1939. A year later a German bomb flattened the London Colgate factory. The R.A.F responded by demolishing the Palmolive-Ketel works in Hamburg.
Post-war, Colgate-Palmolive European sales boomed. In Britain, Colgate production had been re-established at the Manchester Palmolive factory and new brands such as Ajax cleanser and Fab detergent, both launched in 1949, quickly became very successful. New factories appeared in France, Italy, Denmark, Switzerland, Spain, Greece, Belgium, Portugal and Ireland. Largely by necessity, overseas subsidiaries often operated with a high level of autonomy, each with their own new products groups, which es
tablished early the culture of meeting local needs in the most suitable and profitable ways, although, even as local brands were developed, good advertising ideas were shared across markets, such as Madge the Palmolive Liquid manicurist.
European successes in the 1950s and 60s, largely carrying the company, encouraged Colgate-Palmolive to look further afield. It set up operations in emerging markets such as Malaysia, Thailand and India before they had really started emerging. Unlike in Europe, however, these factories produced only Colgate brands; any potentially competitive local soap makers simply added to the product flow by turning their own capacity over to Palmolive too. By the 1970’s, Colgate-Palmolive was well established throughout Europe, Asia, South America and even Africa, a crucial competitive advantage that gave Colgate-Palmolive first mover advantage in dozens of markets that would become increasingly important. As early as 1961, over 50% of sales were coming from outside the United States.
How Did They Build Their Modern Business?
However, Colgate-Palmolive’s core U.S. business entered the 1960s in poor shape. The company had made no acquisitions since their original merger, the new product pipeline had been wheezing for decades and the combined forces of P&G and Unilever were taking the core brands of Palmolive soap to the cleaners.
New president George H. Lesch had been appointed from the company’s international division in the hope he could transplant some of the foreign success back into the parent company. It was a successful appointment. George’s initiatives shaped modern day company: a ramped-up innovation programme, funded by an aggressive and constant pressure on costs. Long before it became fashionable, task forces were set up to look at every aspect of product cost, process and management, engineering out anything that didn’t add consumer value. Sacred formulations were changed, suppliers corralled into looking for new compounds and workforces slimmed. Simultaneously, extra resources were poured into consumer research and the core science needed to find breakthrough products. Palmolive washing-up liquid, Cold Power laundry detergent and Ultra Brite toothpaste were just three of the products that emerged to reinvigorate a sagging top line. The reformulation of Colgate toothpaste to include MFP Fluoride boosted sales, as did the adoption in the U.S. of overseas innovations such as fabric conditioner from France and Irish Spring deodorant from Germany. 1961’s $500 million sales doubled by 1967.
As the company entered the 1970s, Colgate-Palmolive was doing well everywhere but America, where the product pipeline was steadily failing to produce blockbusters. Management came to what was a quite common conclusion in that era: growth in the U.S was largely maxed out, so further growth could only come from increasingly expensive battles against larger and better funded competitors such as P&G. The 170 year-old company strategy of ‘overcoming housewife resistance through advertising’, as new Chairman and CEO David R. Foste described it, was played out. Growth would have to come from elsewhere.
Colgate-Palmolive dipped its toe in the waters of diversification in 1971 by acquiring the U.S. rights to sell Wilkinson Sword razors and blades. Next came the acquisition of Kendall & Company, a manufacturer of hospital supplies, bandages, sporting goods and – yes - coatings for oil pipelines. The company ventured further afield in 2003, when it bought the Helena Rubinstein cosmetics business. After cosmetics came sports: the Ram Golf Company, Bancroft Racket Company and Penfold golf balls. The moves certainly boosted sales and earnings. But the core US business continued to languish: every one of these ventures would be sold off within a decade. The one acquisition that would have long-term benefit came in 1976 with the purchase of Riviana Foods, a producer of long-grain rice that had its own subsidiaries in kosher hot dogs, confectionery and, more interestingly, prescription pet foods, in the shape of Hill’s Pet Products. The rest of the Riviana Empire would be sold off during the 1980s. But Hill’s has been retained to this day.
With the exception of Hill’s, the 1980s saw Colgate-Palmolive returning to its core business, re-invigorating its product range through innovation and acquisition while keeping a tight grip on costs. In 1983 the Colgate Total toothbrush was launched, the genesis of a product line that still sells 1.6 billion toothbrushes a year. Two years later came Protex antibacterial soap, now sold in over 50 countries. And in perhaps the company’s best-ever acquisition, the Softsoap brand was purchased in 1987, with Vipont Pharmaceutical’s oral hygiene products a useful addition two years later. Colgate-Palmolive also realised that, in mature categories such as toothpaste and washing needs, format innovation could be just as powerful as product innovation. Thus they were first to market with gel toothpaste, pump-action dispensers and throw-in pouch laundry detergent.
There were further successful acquisitions in the early 1990s: the Murphy-Phoenix Corporation in 1991 (Murphy’s Oil Soap), the Mennen Company a year later (Mennen Speed Stick and Baby Magic) and in 1993 S.C Johnson’s liquid soap brands in Europe and Australasia, which together made Colgate the worldwide leader in liquid soap. Colgate Total toothpaste was launched overseas in 1992, although delayed a further five years before American introduction owing to a convoluted FDA approval procedure for its gingivitis-fighting claim. But backed by the company’s biggest-ever launch, the brand shot to number one. Colgate toothpaste enjoyed market leadership in the US for the first time.
Colgate-Palmolive was now not only fighting back against P&G in the U.S. but also far outstripping them around the world, and not just because of its far-sighted positioning in those early non-emerging, emerging markets. Early entries into Central Europe and Russia in 1995 and major acquisitions such as Kolynos Oral Care in Latin America were rapidly extending the market share; in Latin America, the oral care market reached a staggering 79%. In what was now a key part of the company’s modus operandi, stringent cost-saving measures were initiated not during crises but during periods of relative strength to fund further growth. In 1995, for example, in no sense a problem year, 3,000 employees and 24 factories bit the dust. Hill’s Pet Food business also demonstrated its long-term value to the company in 1999. During the first half of the 90s, Hill’s – the worldwide leader in therapeutic and wellness pet food – grew at 15% a year and generated margins ten points higher than the company average.
Further progress in oral care market via lines such as Colgate Simply White Gel and Total Plus Whitening, plus the continued growth of Hill’s, convinced the company that its future lay more in these two areas than in a toe-to-toe laundry care battle with P&G, where P&G was proportionately much stronger. Consequently, Colgate began to shed its detergent products, selling its Mexican brands to Henkel in 2001 and, in 2003, its European laundry brands to P&G, cheekily strengthening both Henkel and P&G in each other’s home turf. Further laundry care divestments soon followed, the capital from which went to strengthen the European oral care markets through the acquisition of the pharmacy-based oral care business, GABA, whose strong links to tooth care products echoed Colgate’s historic presence in the same area. GABA increased Colgate’s total European market share from 27% to 33%.
How Are They Structured?
With the conglomerate phase and its attendant turmoil essentially at an end, the structure of Colgate-Palmolive has remained extremely consistent, with little to distract managers from their day jobs of generating growth and cutting costs. The company competes in four core segments with a tightly focused range of key brands: oral care (primarily Colgate brands); personal care (Palmolive, Mennen, Irish Spring, Softsoap); home care (Ajax, Fab detergent, Suavitel fabric softener, Murphy’s) and pet nutrition (Hill’s Science Diet, Hill’s Prescription Diet).
As the company is so global, operating in over 200 countries and generating over 70% of sales from outside North America, it is structured along essentially geographical lines, with oral care, personal care and home care brands organised together in into four regions: North America, Latin America, Europe and Asia/Africa.
That it is one of the very few American companies with South American sales substantially greater than those
of North America testifies to the truly global nature of Colgate. The only recent structural change came in 2006 when it was seen that the regional arrangement was too crude: developed was beginning to mix with developing. Consequently, the developing Eastern European markets were moved to the similarly developing Africa/Asia region, whilst the developed Australia/South Pacific moved the other way into developed western European Group. Only Hill’s is geographically undifferentiated. Operating as a discrete 5th division of the company, it remains responsible for worldwide sales of its brands, primarily through vets and specialist pet food stores.
What Have They Been Doing Recently?
2004
2004 was a milestone. Sales topped $10 billion for the first time, driven by a 7% sales increase in sales, in turn led largely by volume growth. In a pattern that had become familiar over the years, North America still found growth hard to come by, even though Colgate toothpaste reached a record 35% market share of nearly. Elsewhere volume was more robust, helped not least by Colgate’s legendary emerging market strength. On the back of a packaging and advertising re-launch of Total, the company increased its global toothpaste market share by 1.2%, across more than 100 countries, with a record 33% in China and a rapidly rising 17% in Russia.
Emerging market strategy had always focused on increasing category usage through schools education, smaller pack sizes, lower cost formulae, and innovative distribution strategies, all of which propelled to products into tens of millions of small, local stores. In the Philippines, for example, Palmolive Naturals and Aromatherapy shampoo brands in sachet format had added ten points to their shampoo market share in two years. In Central America toothpaste consumption had doubled since 1990. The fact that Colgate held the number one position in toothpaste in 53 of their 67 largest markets meant the onus was on them to build the category.
