Gillette Energy Drain : the Acquisition of Duracell

1834 Words May 26th, 2008 8 Pages
Industry: Portable power industry in the US

The acquisition of Duracell was seen as many as a smart move. Analyst, shareholders, executives, had high expectations with this merger. Unfortunately, this acquisition created several problems for Gillette since their main goal of profit maximization was not being accomplished. Main issues:

• Should Gillette divest Duracell?
• Is Gillette using the appropriate strategies to deal with the big and small competitors?
• Stock prices are decreasing considerably

External Analysis
Industry Structure
• Dry cell batteries industry generated US$ 2.6 Billion in US domestic sales in 2000.
• 75% of all alkaline battery sales were impulsive purchasing.
• AA size batteries accounted for almost 50%
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Threat of substitutes: this is low since there are not too many products with similar functions that could replace portable power.

Competitive rivalry: the industry is highly competitive. There are only three big players, but they have to constantly respond tactically to each other’s actions. Analysis of the competitors
• Duracell: Wide array of products, innovation and strong distribution channels –Differentiation strategy
• Rayovac: it offers similar good quality products at lower prices – Cost leadership strategy
• Energizer: it is constantly innovating. It uses a differentiation strategy based on brand equity.
• Sony, Panasonic and Kodak: Brand Equity, good quality in secondary market. It focuses on a different group of consumers, i.e. Sony rechargeable batteries; Kodak camera batteries.
• Private brands: this are the most benefit from the distribution channels. They control the display of their own brands and offer low prices - Cost leadership strategy

Internal analysis
Financial Analysis: by referring to the appendix 1 and 2 we can conclude that:
Liquidity
• Payables are increasing, while receivables are decreasing
• Operating margin decrease from 19, 30% in 1998 to 16.27% in 2000 because of the downsizing and restructuration of the company.
Price-Earnings Ratio - P/E Ratio
• Investors have higher expectations of profit generation
• A better allocation of resources, which Gillette has, is needed to

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