Score Another One For the Good Guys

by BILL WADDELL

Someone said the definition of insanity is doing the same thing over again and expecting different results.  Try telling that to the boys running Clorox and P&G.  It seem Walmart decided that having four brands of sandwich bags is two too many.  Their own Great Value brand was sure to stay, but between Glad, Hefty and Ziploc, two were going to get the heave ho.

Glad is made by Clorox, in a joint venture with P&G - the same P&G that has made 'brand management' both a science and an art, racking up big earnings selling mediocre stuff at high prices with overwhelming marketing and advertising – as opposed to creating genuine value for customers.  The same P&G that has been taking a pounding since the economy turned down (as if an economic downturn reduces the need for soap – it doesn't – it just reduces the demand for overpriced soap); but I digress.

So Walmart decides to skinny down the sandwich bag line up, and Clorox responds by spending $58 million more in advertising.  That is what they did because that is what they know – about all they know it seems.  Their official strategy is to create shareholder value now – this quarter  – and to do so with the 'Three D's – Desire – Decide – Delight.  They went 0 for 3 at Walmart.  Customers neither desired Glad bags, decided they were worth the money, or were particularly delighted – so out the Glad bags went.

It might have had something to do with the fact that Clorox was laying their employees off to pay for the advertising, or the fact that they were jacking up their prices in the face of shrinking 'desire for, decision to buy or delight with' their overpriced stuff.  "Shipments were lower than our projections due to retailer inventory reductions and soft consumer demand in some categories,"Don Knauss, Clorox's chairman and CEO, said in the company's earnings release. "That said, the impact of price increases earlier in the fiscal year was in line with our pricing models. We continue to be cautiously optimistic about the remaining six months of our fiscal year. Overall, we remain well-positioned given the challenging economic environment.”  Don said that last Wednesday – then got kicked out of Walmart.  I wonder if losing their biggest customer was "in line with the pricing model"?  So much for brand managers coupled with old school accountants.

Pactiv, the makers of Hefty, got to stay – at least their factories got to stay.  Their brand managers and pricing wizards got kicked out of Walmart.  They got the contract to make Walmart's private label brand, but their Hefty brand got tossed onto the same trash heap as the boys from Clorox.  Imagine their shock at learning the customers of the world's biggest retailer think their bags are OK, but their cherished 'brand' isn't worth a dime.  I can imagine production workers snickering up their sleeves at the overblown boys and girls at headquarters struggling to absorb that one.

No doubt a big part of their ouster, arising from the same lethal combination of believing that marketing and accounting are value adding endeavors - value creating, for that matter – can be found in the statement, "Over time, we have been able to raise selling prices in many areas of our business to offset the dollar effect of resin cost increases, although there usually is a lag of several months.  We continually monitor the resin marketplace.  As oil prices have fallen from their historic highs, we have seen a reduction of resin costs, which has had a favorable impact on the spread (the difference between selling prices and raw material costs)."  Roughly translated – 'we gouged our customers by jacking up prices, blaming it on the cost of oil, then kept the prices high when oil dropped'.  I wonder how their pricing model works now that they are peddling Great Value brand bags to Walmart?

These guys have a 'lean' focus that revolves around laying people off and economy of scale buying, and they spend a ton of money on advertising.  Look at the leadership resumes and operating principles of Clorox, P&G and Pactiv and you can't find a nickel's difference.

There is a difference between the two losers in the battle of the bags and SC Johnson – the makers of Ziploc bags that are still on the shelves of Walmart.  SC Johnson hasn't laid anyone off since they were founded 124 years ago – in 1886.  They have won 'Great Place to Work' awards in the United States just about every year such awards have been given, as well as similar awards in Canada, Mexico, Argentina, Australia, Chile, Venezuela, Germany, Italy and Turkey.  They practically invented employer provided day care, profit sharing, employment for the handicapped, and employee pension plans.

“The goodwill of the people is the only enduring thing in any business,” said Herbert Johnson, son of the founder Samuel Johnson, way back in 1927. “It is the sole substance. The rest is shadow.”  Great description for what passes for management at the bag losers – 'shadow'. The great-great-grandson now running SC Johnson agrees with him, or he lives in mortal fear that the old man will come out of his grave and there will be hell to pay if he strays from that vision.  Either way, he understands and lives his principles with SC Johnson's "This We Believe" statement, that makes it crystal clear that taking care of every stakeholder is vital.  Still a privately held company, of course, that doesn't go in for the claptrap of the supremacy of short term 'shareholder value, and could care less what any Wall Street industry analyst thinks about them or anything else.

"SC Johnson was built by people who understood that what we do every day has lasting consequences."  The big thinkers and brand managers at Clorox and Pactiv who play games with prices regardless of product value, and trash their employees' lives for the sake of this quarter's earnings might want to read that statement and think about it a little.  Or not … and get kicked off the rest of their customer's shelves.  Either way, SC Johnson will keep following the same business model and will keep growing and taking good care of their stakeholders.