Case Study ;Church & Dwight: Time to Rethink the Portfolio?

(Roy A. Cook)
“A decade ago, Church & Dwight was a largely household domestic products company with one iconic brand, delivering less than $1 billion in annual sales. Today, the

company has been transformed into a diversified packaged goods company with a well-balanced portfolio of leading household and personal care brands delivering over

$2.5 in annual sales worldwide”. Now, after a decade of rapid growth fueled by a string of acquisitions, the top management team is faced with a new challenge. It must

now rationalize the firm’s expanded consumer products portfolio of 80 brands into the existing corporate structure while continuing to scout for new avenues of growth.

This is no easy task as it competes for market share with such formidable consumer products powerhouses as Colgate-Palmolive, Clorox, and Procter & Gamble, commanding

combined sales of over $100 billion. Future decisions will determine if the company can compete successfully with these other well-known giants in the consumer

products arena or remain in their shadows.
Background
For over 160 years, Church & Dwight Co. Inc. has been working to build market share on a brand name that is rarely associated with the company. When consumers are

asked, “Are you familiar with Church & Dwight products?” the answer is typically “No”. Yet, Church & Dwight products can be found among a variety of consumer products

in 95% of all U.S. households. As the world’s producer and marketer of sodium bicarbonate-based products, Church & Dwight has achieved fairly consistent growth in both

sales and earnings as new and expanded uses were found for its core sodium bicarbonate products. Although Church & Dwight may not be a household name, many of its core

products bearing the ARM & HAMMER name are easily recognized.
Shortly after its introduction in 1878, ARM & HAMMER Baking Soda became a fundamental item on the pantry shelf as homemakers found many uses for it other than baking,

such as cleaning and deodorizing. The ingredients that can be found in that ubiquitous yellow box of baking soda can also be used as a dentrifice, a chemical agent to

absorb or neutralize odors and acidity, a kidney dialysis element, a blast media, an environmentally friendly cleaning agent, a swimming pool ph stabilizer, and a

pollution-control agent.
Finding expanded uses for sodium bicarbonate and achieving orderly growth have been consistent targets for the company. Over the past 30 years, average company sales

have increased 10% – 15% annually. While top-line sales growth has historically been a focal point for the company, a shift may have occurred in management’s thinking,

as more emphasis seems to have been placed on bottom-line profitability growth. Since President and Chief Executive Officer James R. Cragie took over the helm of

Church & Dwight from Robert A. Davies III in July of 2004, he has remained focused on “building a portfolio of strong brands with sustainable competitive advantages.”

At that time, he proposed a strategy of reshaping the company through acquisitions and organic growth and he continues to state that “Our long-term objective is to

maintain the company’s track record of delivering outstanding TSR (Total Shareholder Return) relative to that of the S&P 500. Our long-term business model for

delivering this sustained earnings growth is based on annual organic growth of 3-4%, gross margin expansion, tight management of overhead costs and operating margin

improvement of 60-70 basis points
resulting in sustained earnings growth of 10-12% excluding acquisitions.” In addition, Cragie noted that “…[W]e have added $1 billion in sales in the past five years,

a 72% increase, while reducing our total headcount by 5%, resulting in higher revenue per employee than all of our major competitors.” The results of these efforts can

be seen in the financial statements shown in Exhibits 1, 2, and 3.
Exhibit 1: Consolidated Statements of Income: Church & Dwight Co. Inc. (Dollars in thousands, except per share data)
Management
The historically slow but steady course Church & Dwight has traveled over the decades reflected stability in the CEO and a steady focus on long-term goals. The ability

to remain focused maybe attributable to the fact that about 25% of the outstanding shares of common stock were owned by descendants of the company’s co-founders.

Dwight C. Minton, a direct descendant of Austin Church, actively directed the company as CEO from 1969 through 1995 and remained on the board as Chairman Emeritus. He

passed on the duties of CEO to the first non-family member in the company’s history, Robert A. Davies III, in 1995 and leadership at the top has remained a stable

hallmark of the company.
Many companies with strong brand names in the consumer products field have been susceptible to leveraged buy-outs and hostile takeovers; however, a series of

calculated actions has spared Church & Dwight’s board and management from having to make last-minute decisions to ward off unwelcome suitors. Besides maintaining

majority control of the outstanding common stock, the board amended the company’s charter, giving current shareholders four votes per share; however, they required

future shareholders to buy and hold shares for four years before receiving the same privilege. The board of directors was also structured into three classes with four

directors in each class serving staggered three-year terms. According to Minton, the objective of these moves was to “[give] the board control so as to provide the

best results for shareholders.”
Exhibit 2: Consolidated Balance Sheets: Church & Dwight Co. Inc. (Dollars in thousands, except share and per share data)
As a further deterrent to would-be suitors or unwelcome advances, the company entered into an employee severance agreement with key officials. This agreement provided

severance pay of up to two times (three times for Mr. Cragie) the individual’s highest annual salary and bonus plus benefits for two years (three times for Mr. Cragie)

if the individual was terminated within one year after a change in control of the company. Change of control was defined as the acquisition by a person or group of 50%

or more of company common stock; a change in the majority of the board of directors not approved by the pre-change board of directors; or the
approval by the stockholders of the company of a merger, consolidation, liquidation, dissolution, or sale of all the assets of the company.
Exhibit 3: Business Segment Results: Church & Dwight Co. Inc.
As Church & Dwight pushed aggressively into consumer products outside of sodium bicarbonate-related products and into the international arena in the early 2000s,

numerous changes were made in key personnel. These changes can be seen by reviewing Exhibit 4 and noting the original date of hire for these key decision-makers. Many

of the new members of the top management team brought extensive marketing and international experience from organizations such as Spalding Sports Worldwide, Johnson &

Johnson, FMC, and Carter-Wallace.
In addition to the many changes that have taken place in key management positions, changes have also been made in the composition of the board of directors. Four

members of the 10-member board have served for 10 years or more, whereas the other six members range from 50 to 74, with six members being younger than 60. All but one

of the newer additions to the board brought significant consumer products and service industry insights from their ties with com-panies such as Revlon, ARAMARK, VF

Corporation, Welch Foods, and H.J. Heinz. Although in a less active role as Chairman Emeritus, Dwight Church Minton, who became a board member in 1965. Continued to

provide leadership and a long legacy of “corporate memory.”
Changing Directions
Entering the 21st century, “… [m]angement recognized a major challenge to overcome… was the company’s small size compared to its competitors in basic product lines of

household and personal care. They also recognized the value of a major asset, the company’s pristine balance sheet, and made the decision to grow.” According to

Cragie, “Church & Dwight has undergone a substantial transformation in the past decade largely as a result of three major acquisitions which doubled the size of the

total company, created a well balanced portfolio of household and personal care business, and established a much larger international business.” The MENTADENT,

PEPSODENT, AIM, and CLOSE-UP brands of toothpaste products were purchased from Unilever in October of 2003; the purchase of the remaining 50% of Armkel, the

acquisition vehicle that had been used to purchase Carter-Wallace’s consumer brands such as TROJAN, was completed in May of 2004; and SPINBRUSH was purchased from

Procter & Gamble in October of 2005.
Five years later, another major acquisition was finalized when the stable of Orange Glow International products, including the well-known OXICLEAN brand, were added to

the portfolio. The acquisition didn’t stop as Del Pharmaceutical’s ORAGEL brands were added in 2008. What impact has this string of acquisitions made? The numbers

speak for themselves as
revenues have been pumped up from less than $500 million in 1995 to over $1 billion in 2001, then to $1.7 billion in 2005, and finally topping $2.5 billion in 2009.
Explosive growth through acquisitions transformed this once small company focused on a few consumer and specialty products into a much larger competitor, not only

across a broader range of products, but also geographic territory. Consumer products now encompassed a broad array of personal care, deodorizing and cleaning, and

laundry products while specialty products offerings were expanded to specialty chemicals, animal nutrition, and specialty cleaners. International consumer product

sales, which were an insignificant portion of total revenue at the turn of the century, now accounted for 16% of sales. In the face of consumer products behemoths such

as Clorox, Colgate-Palmolive, and Procter & Gamble, Church & Dwight had been able to carve out a respectable position with several leading brands. Regardless, the firm

was not a major market force and needed to evaluate its portfolio of 80 different consumer brands.
Consumer Products
Prior to its acquisition spree, the company’s growth strategy had been based on finding new uses for sodium bicarbonate. Using an overall family branding strategy to

penetrate the consumer products market in the United States and Canada, Church & Dwight introduced additional products displaying the ARM & HAMMER logo. This logoed

footprint remained significant as the ARM & HAMMER brand controlled a commanding 85% of the baking soda market. By capitalizing on its easily recognizable brand name,

logo and established marketing channels, Church & Dwight moved into such related products as laundry detergent, carpet cleaners and deodorizers, air deodorizers,

toothpaste, and deodorant/antiperspirants. This strategy worked well, allowing the company to promote multiple products using only one brand name, but it limited

growth opportunities “… in highly competitive consumer product markets, in which cost efficiency, new product offering and innovation are critical to success.”
From the company’s founding until 1970, it produced and sold only two consumer products: ARM & HAMMER Baking Soda and a laundry product marketed under the name Super

Washing Soda. In 1970, under Minton, Church & Dwight began testing the consumer products market by introducing a phosphate-free, powdered laundry detergent. Several

other products, including a liquid laundry detergent, fabric softener sheets, an all-fabric bleach, tooth powder and toothpaste, baking soda chewing gum,

deodorant/antiperspirants, deodorizers (carpet, room, and pet), and clumping cat litter have been added to the expanding list of ARM & HAMMER brands; however, simply

relying on baking soda extensions and focusing on niche markets to avoid a head-on attack from competitors with more financial resources and marketing clout limited

growth opportunities.
So, in the late 1990s, the company departed from its previous strategy of developing new product offerings in-house and bought several established consumer brands such

as BRILLO, PARSONS Ammonia, CAMEO Aluminum & Stainless Steel Cleaner, RAIN DROPS water softener, SNO BOWL toilet bowl cleaner, and TOSS ‘N SOFT dryer sheets from one

of its competitors, the Dial Corporation. An even broader consumer product assortment including TROJAN, NAIR, and FIRST RESPONSE was added to the company’s mix of

offerings with the acquisition of the consumer products business of Carter-Wallace in partnership with the private equity group, Armkel. The list of well-known brands

was further enhanced with the acquisition of Crest’s SPINBRUSH, Coty’s line of ORAJEL products, and OXICLEAN, as well as other brands from Orange Glow International.

In fact, acquisitions have been so important that seven of the company’s eight brands are the result of these moves. The company has achieved significant success in

the consumer products arena.
Church & Dwight faced the same dilemma as other competitors in mature domestic and international markets for consumer products. New consumer products had to muscle

their way
into markets by taking market share from larger competitors’ current offerings. With the majority of company sales concentrated in the United States and Canada where

sales were funneled through mass merchandisers, such as Wal-Mart (accounting for 22% of sales), supermarkets, wholesale clubs, and drugstores, it was well-equipped to

gain market share with its low-cost strategy. In the international arena where growth was more product driven and less marketing sensitive, the company was less

experienced. To compensate for this weakness, Church & Dwight relied on acquisitions and management changes to improve its international footprint and reach.
With its new stable of products and expanded laundry detergent offerings, Church & Dwight found itself competing head-on with both domestic and international consumer

product giants such as Clorox, Colgate-Palmolive, Procter & Gamble, and Unilever. The breadth of its expanded consumer product offerings composed of 60% premium and

40% value band names.
According to Minton, as the company grew, “We have made every effort to keep costs under control and manage frugally.” A good example of this approach to doing

business can be seen in the Armkel partnership. “Armkel borrowed money on a non-recourse basis so a failure would have no impact on Church & Dwight, taking any risk

away from shareholders.” As mentioned previously, the remaining interest in Armkel was purchased in 2005. This important move cleared the way to increase marketing

efforts behind TROJAN, a brand which controlled 71% of the market.
As more and more products were added to the consumer line-up, Church & Dwight brought many of its marketing tasks in-house as well as stepping out with groundbreaking

and often controversial marketing campaigns. The first major in-house marketing project was in dental care. Although it entered a crowded field of specialty dental

products, Church & Dwight rode the rest of increasing interest by both dentists and hygienists in baking soda for maintaining dental health; enabling it to sneak up on

the industry giants. The company moved rapidly from the position of a niche player in the toothpaste market to that of a major competitor.
In a groundbreaking marketing campaign that some considered controversial, the company aired commercials for condoms on prime-time television. “Church & Dwight

executives said their new campaign was designed to shake people up, particularly those who don’t think they need to use condoms. Attempts were made to shock them out

of complacency and grab their attention.” Other campaigns, such as when the Trojan brand advertised its own stimulus package at the same time as the federal stimulus

package was enacted, stated, “because we believe we should ride out these hard times together.” A Valentine’s Day ad featuring condoms in place of candy in a heart-

shaped box of chocolates continued to highlight the shock theme.
The company’s increasing marketing strength caught the attention of potential partners as is evidenced by its partnership with Quidel Corporation, a provider of

point-of-care diagnostic tests, to meet women’s health and wellness needs. “The partnership combined Church & Dwight’s strength in the marketing, distribution and

sales of consumer products with Quidel’s strength in the development and manufacture of rapid diagnostic tests.” Other product tie-ins, especially with ARM & HAMMER

Baking Soda, have been created with air filter, paint, and vacuum cleaner bag brands.
For the most part, Church & Dwight’s acquired products and entries into the consumer products market have met with success; however, potential marketing problems maybe

looming on the horizon for its ARM & HAMMER line of consumer products. The company could be falling into the precarious line-extension snare. Placing a well-known

brand name on a wide variety of products could cloud the brand’s image, leading to consumer confusion and loss of marketing pull. In addition, competition in the

company’s core laundry detergent market continues to heat up as the market matures and sales fall with major retailers such as Wal-Mart
and Target wringing price concessions from all producers. Will the addition of such well-known brand names as ORAJEL, OXICLEAN, and SPINBRUSH continue the momentum

gained from the XTRA, NAIR, TROJAN, and FIRST RESPONSE additions? Where would new avenues for consumer products’ growth come from?
Specialty Products
In addition to a large and growing stable of consumer products, Church & Dwight also has a very solid core of specialty products. The Specialty Products Division

basically consists of the manufacture and sale of sodium bicarbonate for three distinct market segments: specialty chemicals, animal nutrition products, and specialty

cleaners. Manufacturers utilize sodium bicarbonate performance products as a leavening agent for commercial baked goods; an antacid in pharmaceuticals; a chemical in

kidney dialysis; a carbon dioxide release agent in fire extinguishers; and an alkaline in swimming pool chemicals, detergents, and various textile and tanning

applications. Animal feed producers use sodium bicarbonate nutritional products predominantly as a buffer, or antacid, for dairy cattle feeds and make a nutritional

supplement that enhances milk production of dairy cattle. Sodium bicarbonate has also been used as an additive to poultry feeds to enhance feed efficiency.
“Church & Dwight has long maintained its leadership position in the industry through a strategy of sodium bicarbonate product differentiation, which hinges on the

development of special grades for specific end users.” Management’s apparent increased focus on consumer products has only recently impacted the significance of

specialty products in the overall corporate mix of revenues.
Church & Dwight was in an enviable position to profit from its dominant niche in the sodium bicarbonate products market since it controlled the primary raw material

used in its production. The primary ingredient in sodium bicarbonate is produced from the mineral trona, which is extracted from the company’s mines in southwestern

Wyoming. The other ingredient, carbon dioxide, is a readily available chemical which can be obtained from a variety of sources. Production of the final product, sodium

bicarbonate, for both consumer and specialty products is completed at one of the two company plants located in Green River, Wyoming, and Old Fort, Ohio.
The company maintained a dominant position in the production of the required raw materials for both its consumer and industrial products. It manufactures almost two-

thirds of the sodium bicarbonate sold in the United States and, until recently, was the only U.S. producer of ammonium bicarbonate and potassium carbonate. The company

has the largest share (approximately 75%) of the sodium bicarbonate capacity in the United States and is the largest consumer of baking soda as it fills its own needs

for company-produced consumer and industrial products.
The Specialty Products focused on developing new uses for the company’s core product, sodium bicarbonate. Additional opportunities continue to be explored for ARMEX

Blast Media. This is a sodium bicarbonate-based used as a paint-stripping compound. It gained widespread recognition when it was utilized successfully for the delicate

task of stripping the fragile copper skin. It is now being considered for other specialized applications in the transportation and electronics industries and in

industrial cleaning because of its apparent environmental safety. ARMEX also has been introduced into international markets.
Specialty cleaning products are found in blasting (similar to sand blasting applications) as well as many emerging aqueous-based cleaning technologies such as

automotive parts cleaning and circuit board cleaning. Safety-Kleen and Church & Dwight teamed up through a 50-50 joint venture, ARMAKLEEN, to meet the parts cleaning

needs of automotive repair shops. Safety-
Kleen’s 2,800 strong sales and service team markets Church & Dwight’s aqueous-based cleaners as an environmentally friendly alternative to traditional solvent-based

cleaners.
The company’s ARMAKLEEN product is also used for cleaning printed circuit boards. This nonsolvent-based product may have an enormous potential market because it may be

able to replace chlorofluorocarbon-based cleaning systems. Sodium bicarbonate also has been used to remove lead from drinking water and, when added to water supplies,

coats the inside of pipes and prevents lead from leaching into the water. This market could grow in significance with additions to the Clean Water Bill. The search for

new uses of sodium bicarbonate from pharmaceutical to environmental protection continues in both the consumer and industrial products divisions.
International Operations
Church & Dwight has traditionally enjoyed a great deal of success in North American markets and is attempting to gain footholds in international markets through

acquisitions. The company’s first major attempt to expand its presence in the international consumer products market was with the acquisition of DeWitt International

Corporation, which manufactured and marketed personal care products including toothpaste. The DeWitt acquisition not only provided the company with increased

international exposure but also with much-needed toothpaste production facilities and technology; however, until the 2001 acquisition of the Carter-Wallace line of

products, only about 10% of sales were outside the United States. By 2009, 19% of revenue was derived from sales outside the United States. Most of the growth in

international markets was being fueled by consumer products.
As the company cautiously moved into the international arena of consumer products, it also continued to pursue expansion of its specialty products into international

markets. Attempts to enter international markets have met with limited success, probably for two reasons: (1) lack of name recognition and (2) transportation costs.

Although ARM & HAMMER was one of the most recognized brand names in the United States (in the top 10), it did not enjoy the same name recognition elsewhere. In

addition, on an historic basis, international transportation costs were at least four times as much as domestic transportation costs; however, export opportunities

continued to present themselves as 10% of all U.S. production of sodium bicarbonate was exported. While Church & Dwight dominated the United States sodium bicarbonate

market, Solvay Chemicals was the largest producer in Europe and Ashi Glass was the largest producer in Asia. Although demand was particularly strong in Asia, “… little

of the chemical produced in North America and Europe is exported to Asia because of prohibitive transportation costs.” Two significant projects were completed in 2009.

One was the completion and start-up of a major new manufacturing facility and the other was the disposition of some non-core assets.
With the completion of a 1.1 million square foot manufacturing plant for laundry detergent, the company consolidated into one facility the functions that had

previously been completed in five separate facilities with room to grow. This move took place in an industry facing slowing growth. Global laundry detergent sales had

grown by 8% between 2003 and 2008, but were only forecast to grow by 3% between 2008 and 2013.
Although the company had made some minor asset sales in the past, the disposition in 2009 of five domestic and international consumer product brands acquired during

the 2008 Del Laboratories transaction marked the first major jettisoning of non-core assets for the company. This was followed by the disposition of the Lambert Kay

pet supplies line; then the BRILLO brand in March of 2010. These changes were just the beginning. To remain competitive in a volatile retail market with major

competitors jockeying for shelf space and retailers seeking to rationalize their breadth of product offerings, more changes may be considered.
The core business and foundation on which the company was built remained the same after more than 160 years; however, as management looks to the future, can it

successfully achieve a balancing act based on finding growth through expanded uses of sodium bicarbonate while assimilating a divergent group of consumer products into

an expanding international footprint? Will the current portfolio of products continue to deliver the same results in the face of competitors who, unlike consumers,

know the company and must react to its strategic and tactical moves?

Create a case analysis. Case is attached.

Hints for the Week 3 Case Study

1. What are the major strengths and weaknesses of Church & Dwight?

2. What are the major opportunities and threats facing Church & Dwight?

3. What are the strategic factors facing Church & Dwight?

4. What factors have led to Church & Dwight’s long history of slow and stable growth?

5. Does Church & Dwight have any core competencies? If yes, what are they?

6. Does Church & Dwight have a distinctive competency? If yes, what is it?

7. Do you feel Church & Dwight’s strategy of family branding is an effective or ineffective marketing strategy for the company? Why?

8. Is there synergy between Church & Dwight’s two divisions (chemical and consumer products)? Should there be?

9. Does the stated mission for Church & Dwight correctly represent the entire company?

10. What strategy would you recommend to cash in on its environmental friendly products? Should this be an aggressive or conservative strategy?

11. What is your assessment of the outlook for Church & Dwight?

12. What is your assessment of the financial condition of Church & Dwight?

CASE ANALYSIS FORMAT TEMPLATE

Shown below is the format that your case analysis MUST be in. You should number and label each section and each item in each section.

TITLE OF CASE

I. INTRODUCTION

A. EXECUTIVE SUMMARY

1. Summary statement of the problem:
2. Summary statement of the recommended solution:

This section should be limited to a half page, single spaced.

B. THE SITUATION

A brief introduction and description of the organization and the present situation or conditions.
This section is limited to one page, written in past tense, double-spaced, with one inch margins. At the end of this section, the author(s) of the case should be

recognized. (Miller, p._). This means the author(s) of the case, not you or the authors of the textbook.

Note: The only page spacing requirements for your Case Analysis are for the two sections above; however, for the remainder of your analysis, I would encourage you to

use double spacing and one inch margins.

II. ANALYSIS

A. ANALYSIS OF THE SITUATION

1. Management
2. Operations
3. Marketing
4. Finance
5. Administration (Human Resources)
6. SWOT
a. Strengths
b. Weaknesses
c. Opportunities
d. Threats
7. Products or services

NOTE:  You are REQUIRED to use:
The Boston Consulting Group Growth Share Matrix
The General Electric Business Screen Matrix
Porter’s Five Forces
The TOWS Matrix
Miles & Snow’s Strategic Types
Miles & Snow’s Cellular Organization
The Strategic Audit
Financial Analysis
(Examples of these can be found online.)
At least one of the above tools should be used in each part of this section.
NOTE: The Boston Consulting Group classification, the GE Business Screen Matrix, and Miles & Snow’s Strategic Types should include an explanation for the reason for

the respective classification.  Other types of analyses to be used include Porter’s  five competitive forces, critical success factors, cash flow and financial

performance, and the life cycle stage of the business. These tools should be used to assist you in the preparation of this section. The Boston Consulting Group Growth

Share Matrix, The General Electric Business Screen Matrix, Porter’s Five Forces, The TOWS Matrix, Miles & Snow’s Strategic Types, Miles & Snow’s Cellular Organization,

The Strategic Audit, and Financial Analysis.

Please ONLY use online references for the case study. The majority of information for this section should come from resources other than the case. You may use any of

the following  online magazines and publications as references: Barron’s, Business Week, Fast Company, Forbes, Fortune, Harvard Business Review, Wall Street Journal.

As indicated above, there are certainly other sources that contain valuable information to assist you, so please feel free to use them as well. Just DO NOT use any of

the following sources: Wikipedia, Portable MBA, and Quick MBA. Using Google or other Search Engines can certainly assist you. There is a document in the Doc Sharing

section of the course that gives you some tips on how to do a Google search. Any direct quotes, unique terms,  or  sources of original information should be  followed

with  identification of the source and page where the material may be found.  For additional support information on these requirements in paragraph c above. Also, the

information is to be from the same time frame as the case.

Business magazines, newspapers, as well as on-line sources, are important resources.   Not every situation or case will reflect an organization with an immediate

problem.  If the organization is experiencing success, then one should consider a longer time-frame or perspective to address how to extend success