WSJ com In Lean Times Big Companies Make a Grab for Market Share Page 1 of 6 September 5 2003 PAGE ONE In Lean Times Big Companies Make a Grab for Market Share P G Digs Deep to Gain Ground On Rival Kimberly Clark In Bitter War Over Diapers By SARAH ELLISON Staff Reporter of THE WALL STREET JOURNAL With the economy sagging last summer Kimberly Clark Corp the nation s leading diaper manufacturer turned to an old tactic for pumping up profits It tried to sneak in a 5 price increase by cutting the number of diapers in each pack of its Huggies Instead of more profit though the company got a hard lesson in how its archrival Procter Gamble Co is aggressively exploiting economic hard times and pummeling its competitors Kimberly Clark s chief executive officer Thomas J Falk expected U S No 2 P G to follow up with a similar price increase with its Pampers as it had in the past But as smaller packs of Huggies hit store shelves P G dug into its own deep pockets It splurged on promotional dollars to prod retailers into slashing prices on its bigger Pampers packs or putting up special displays And it dramatically boosted the value of its discount coupons P G sought to highlight the greater number of diapers in its diaper packs by stamping the word Compare on them In some stores Huggies buyers even received coupons on their receipts offering 5 off their next diaper purchase of Pampers To Mr Falk the surprising blitzkrieg was unprecedented and unthinkable He lamented We didn t expect them to take a 15 price reduction on Pampers for five months Kimberly Clark was forced to cancel its price increase before it got off the ground and race to match some of P G s promotions narrowing its profit margins It ended up falling short of third quarter earnings expectations an announcement that caused its stock to plunge 12 in a day Months later Kimberly Clark s prospects for sales growth are so sluggish that it recently cut its long term targets essentially admitting it has lost pricing power in the diaper market At P G CEO A G Lafley is unapologetic We have a philosophy and a strategy he says When times are tough you build share http online wsj com article print 0 SB106270979153222900 00 html 9 8 2003 WSJ com In Lean Times Big Companies Make a Grab for Market Share Page 2 of 6 P G raised estimates for the seventh time in eight quarters Thursday when it upped its fiscal first quarter earnings projections The company s shares rose 3 or 2 63 to 91 43 in 4 p m New York Stock Exchange composite trading P G said broad based volume and market share progress led growth P G is just one of many big companies following this harsh playbook They spent the record boom years restructuring operations piling up cash and making acquisitions Entering the tougher economic times larger and leaner than they had been before these companies now are using their new muscle to try to grab business away from their competition Consider the auto industry In past recessions the Big Three auto companies tended to act in lockstep offering some generous rebates but for the most part holding prices steady and simply absorbing drops in volume They assumed that debt laden consumers would cut their spending in a downturn and that companies just needed to ride it out No more Pressured by imports General Motors Corp has relentlessly courted consumers throughout the economy s recent doldrums with generous rebates and cheap financing in a brash effort to grab share from Ford Motor Co and DaimlerChrysler AG While those weaker rivals have been forced to follow suit they have seen their sales and profit margins erode badly Ford s net income fell 27 in the second quarter as escalating consumer incentives failed to stoke auto sales DaimlerChrysler hurt by its embattled U S arm said net income fell 90 in the second quarter GM has taken some hits too though it s market share has held up better than its smaller U S rivals GM has also come under fire for hurting the profitability of the entire sector But at an industry conference this year GM CEO Rick Wagoner brushed off such criticism I say it is time to stop whining and play the game he said In prior recessions grocery stores grew accustomed to raising prices to preserve some of their profits But this time they have faced an enormous competitive threat from Wal Mart Stores Inc which is seeking to expand its grocery operations a category in which it barely competed five years ago Leaning on its efficient logistics and lower cost structure Wal Mart has kept grocery prices low throughout the recession and its aftermath Other chains are struggling to differentiate themselves in other ways but at a heavy cost Kroger Co recently issued a profit warning blaming competitive conditions Albertson s Inc Thursday reported a 37 drop in second quarter net profit Safeway Inc reported a 48 slide in profits for its fiscal second quarter due mostly to shutting down weakly performing stores PC Battle A similar battle is raging in personal computers where Dell Inc relying on its lean cost structure has been steadily slashing prices on its PCs in an effort to gain more market share from archrival Hewlett Packard Co The latest cut came days after H P reported that its PC unit slipped into the red in its fiscal third quarter because of steep price cutting An earlier price cut by Dell in late 2000 as an Internet fueled boom in PC sales faltered helped push Compaq Computer Corp into a merger with H P and drove home computer maker Gateway http online wsj com article print 0 SB106270979153222900 00 html 9 8 2003 WSJ com In Lean Times Big Companies Make a Grab for Market Share Page 3 of 6 Inc toward a new business in consumer electronics In the 19 billion global diaper industry the recession has intensified a longstanding battle between P G and Kimberly Clark P G commercialized the disposable diaper when it rolled out Pampers in 1961 but it has tended to lag in innovation and focus most of its efforts on marketing It has been the No 2 player in the U S in sales and market share since the mid 1980s Still Pampers is P G s largest global brand with 5 billion in annual global sales that account for nearly 12 of P G s total Though it came to the industry later Kimberly Clark which is less than a third the size of P G passed P G in the U S and opened up a lead by consistently investing in technical innovations such as elastic leg openings to help diapers fit better With 3 billion in global sales much of that from the U S Huggies