Energizer Holdings – Strategic Update Amid Elevated
Battery & Automotive Demand – 24 May 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Robert Lorch (RL)
Former President, Global Operations at Duracell International Inc
Agenda:
1. Battery demand trends across channels
2. Energizer Holdings' (NYSE: ENR) category innovation across battery and auto care
3. Raw material cost inflation
4. Pricing power and profitability outlook
Contents
Q: Could you give an overview of the household and speciality batteries industry? What are the main drivers
and top competitors?
3
Q: How fragmented is the household and speciality batteries industry?
Q: Could you give an overview of Energizer Holdings and the categories or markets it operates in?
Q: How would you say Energizer’s acquisition of Spectrum Brands
Q: To what extent are the industry trends you outlined driven by coronavirus? How would you say
coronavirus has impacted Energizer and its recent performance?
4
4
5
5
Q: Do you think the recent battery demand will stick post-coronavirus? How might the current performance
drivers shift as economies start reopening?
5
Q: How much flexibility does a company such as Energizer have to pass on higher input costs?
Q: How do battery companies or suppliers usually work to mitigate commodity inflation issues? Is it purely
hedging for futures? Are there different techniques to mitigate raw material shortages?
5
6
Q: What impact has the increased demand from EV [electric vehicle] companies and the electrification of
many transportation vehicles had on traditional battery suppliers such as Energizer? Has it made their jobs
significantly harder? Is there a base premium on top of some raw materials because of this increased
demand?
Q: Do you think there are any challenges unique to Energizer?
Q: How strong would you say brand loyalty is for Energizer products? Is brand loyalty that significant a
factor for batteries?
6
6
7
Q: What are the dynamics for speciality and households? What is driving the performance in speciality? You
mentioned it was growing by 10-15% due to coronavirus, but where was most of the growth coming from
before this bump?
7
Q: Do you think Energiser is a leading player in terms of market share in the lithium category, or do you
think there is robust competition for market share?
Q: How willing are Energizer and other players to cut prices to gain market share? What are your overall
thoughts on Energizer’s strategy?
7
8
Q: You mentioned the 25% tariff on China-based manufacturers. How has the tariff landscape changed over
the years? Is it up and down dependent on administration, or has this 25% rate been fairly consistent? How
have tariffs historically affected sales?
8
Q: What are your thoughts on the private label competition? How has the relationship between labelled and
branded products evolved in household and speciality batteries?
8
Q: How have the market’s barriers to entry changed? Has it become a lot harder to enter the market due to
tariffs? What does a new player need to create a significant market presence, given how consolidated the
industry is?
Q: What are the distribution dynamics for bricks-and-mortar retailers vs B2C players such as Amazon? I
noticed that Energizer had some distribution gains.
Q: Has there ever been a want or need to control pricing further down, closer to the end consumer? How
quickly could Energizer adjust to changing costs, such as raw material costs? How quickly could it pass that
pricing on to the consumer? Would it have to work with the retailers and wait until the contract is
readjusted? How well is that managed, and how much control does Energizer have with retailers?
9
9
9
Q: Has e-commerce provided an outlet to open up the distribution mix and take away some of the retailers’
power? The industry has consolidated quite significantly and it’s not as easy to find competitors willing to
give up negotiating power.
10
Q: What is your 6-12-month outlook for Energizer? What are the best- and worst-case scenarios?
10
Energizer Holdings – Strategic Update Amid Elevated
Battery & Automotive Demand
Transcription begins at 00:00:01 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview, entitled Energizer Holdings – Strategic Update Amid
Elevated Battery and Automotive Demand. I am Nyree Hinton and I will be facilitating today’s Interview with
Mr Robert Lorch, former President Global Operations at Duracell International, Inc.
Robert, before we get started with today’s Interview, please state I agree or I disagree to the following
statement: You understand the definition of material non-public information and agree not to disclose any
such information, or any other information which is confidential, during this Interview.
RL: I agree.
NH: Thank you, Robert. Could you start by giving the audience an overview of your background and various
roles you’ve held in the industry?
RL: I am, or I have just recently retired at the end of 2020 as President of Duracell Global Operations, and I
was with Duracell for the period when it was purchased by Berkshire Hathaway from P&G in March 2016 until
I retired in 2020. Before that I was in various leadership positions and Chief Financial Officer of Marmon
Holdings, which happens to be another Berkshire Hathaway subsidiary. Before that in France a large global
electronics company and really grew up in the consumer electronics business prior to that with both RCA and
GE. That’s my resume in a nutshell.
[00:01:52]
Q: Could you give an overview of the household and speciality batteries industry? What are the main drivers
and top competitors?
RL: First of all, the household battery industry consists of a couple of a forms. One is alkaline batteries, which
is the primary battery used in most developed nations both in North America and in Europe as well. This is
where parts of the battery, the anode is zinc material and the cathode is magnesium oxide. Global sales volume
of alkaline batteries is about USD 7.7bn last year, and that’s expected to grow with a compound annual growth
rate of 5% to about USD 11bn by 2028. The North America sales volume by the way is about half of that. It’s
about USD 3.6bn last year. Applications are about 40% used in consumer electronics, and that includes games,
30% in toys and radios, 10% in remote controls, and 20% in other applications. The market segments for
alkaline are AA, which is a higher storage, a longer-life product, AAA, which is used in smaller more portable
devices, and 9v, which most folks recognise as being applied in smoke detectors, some kinds of clocks and,
interestingly, parking meters. Then there’s the infamous larger round C and D batteries, which are used in
flash lights and for various medical applications. The second form is the speciality battery business, and it’s
comprised of two primary segments. One is hearing aid batteries and the other is the lithium coin, or what’s
commonly referred to as the button battery, and they’re used for medical, industrial, defence, and other home
applications, like household remotes, lifting and dropping of shades and remote control for your garage. Their
volume is much smaller. The global volume is, but it has been growing at around a 10-15% per year rate due to
new applications, which actually deploy these types of batteries.
The top players in the alkaline and in the household battery industry are Duracell and Energizer both. The
trends in North America have actually been was rather a limited market growth, in the period in 2016 and
Private and confidential 3
2017, of only about 2% increase per YoY, and then we saw greater market growth of 4-5% in the 2018 and 201
period, but no thanks or thanks to the pandemic lockdown, it created an elevated demand for household
batteries, a 15% increase in 2020, which was driven by increased consumer spending for stay-at-home
electronic gadgets, and it actually outstripped the increasing demand for rechargeables in the marketplace.
The second form I should mention of batteries, household batteries, used more in under-developed countries,
is the zinc carbon battery, which is much cheaper and much lower performance and longevity. It usually costs
about anywhere between one-quarter and one-half the price of alkaline, and it’s almost in under-developed
countries, in Latin America, Africa and Asia, and this volume has a tendency to be declining globally as people
transition to the alkaline battery. The trends that were really in place prior to COVID, and now we have this
elevated level thanks to the lockdown, we still see this continuing, at least through the month of April 2021.
Interestingly another trend that’s become very evident is the increase of AAA batteries, because people are
buying more and more smaller, more portable devices, but as I say, despite the vaccination of the US
population, the elevated demand continues through April, and now I think we’re really at a real interesting
intersection. As normalisation is expected to take over, will alkaline demand really continue to be elevated?
Interestingly, the elevation of demand that we saw in North America, and even to some degree in Europe, did
not occur nearly as much in the under-developed countries due to their own COVID-19 lockdowns. That, I
think, completes your questions with respect to the background and the trends currently.
[00:08:55]
Q: How fragmented is the household and speciality batteries industry?
RL: I think it just really is dominated primarily by the two larger players, as I indicated, Duracell and
Energizer, not just in North America, but also, even, globally, they have the largest percentage and, quite
frankly, Energizer has a very large presence globally in the carbon zinc battery, which they market under the
Eveready brand mostly, and that picks them up in terms of market share in those under-developed areas.
Given that situation, and the dominance of the two in the more-developed areas, like Europe and North
America, there’s not a lot of fragmentation. There is clearly a few number of other participants, certainly
between Panasonic and FDK in Japan, and Gold Peak and Nanfu in China, but they are the smaller players, at
least in North America markets, but they have a good presence elsewhere in the world, but it’s pretty limited, I
would say, in terms of the number of competitors and the actions of those competitors.
[00:11:23]
Q: Could you give an overview of Energizer Holdings and the categories or markets it operates in?
RL: Energizer operates really two basic businesses, batteries globally, which represents about 80% of their
revenue, and auto care, which represents about 20%. Also they have a small presence in the lighting business.
Interestingly, about 70% of their revenue comes from the Americas, both North and South America, which
30% of their revenue coming elsewhere in the world. Their batteries are marketed under the Energizer brand
mostly for alkaline and Eveready for the carbon zinc product, and they also, since they purchased Spectrum,
which really was the Rayovac battery brand, they market Rayovac as well, along with some private label
product. Auto care brands include something called Refresh Your Car, California Scents, Lexol, Nu Finish,
Armor All, STP and A/C Pro, so it’s quite a (? 13.04) of brands for auto accessories. Energizer has actually
alkaline battery factories in Wisconsin that they actually have purchased from Rayovac. They have two factors
in Ohio making components. They make the largest portion of their North American batteries in Asheboro,
North Carolina and Singapore, which is largely where their lithium product is made. They have carbon zinc
battery manufacturing facilities in Guatemala, Brazil, Egypt and Indonesia, and they have their hearing aid
and lithium coin operators primary in Wisconsin.
Private and confidential 4
[00:14:04]
Q: How would you say Energizer’s acquisition of Spectrum Brands changed the market share landscape,
globally or locally?
RL: I think their intent, certainly, was to enhance both their auto care business and their battery business
globally. Since they were forced, after about a year, to dispose of their Varta brand and business in Europe by
virtue of the actions of the EU, they know they don’t have a significant position any longer other than with
their own Energizer brand in Europe, but certainly they’ve got the Rayovac brand and marketing it in North
America, and in several other places, so, to a degree, they got what they had hoped to get. They have enhanced
their share by the multiple of combination of the Rayovac brand and the Energizer brand. They are very close
to Duracell in terms of overall market share, in North America that is.
[00:15:45]
Q: To what extent are the industry trends you outlined driven by coronavirus? How would you say coronavirus
has impacted Energizer and its recent performance?
RL: COVID-19 affected them in a good way, obviously, with the elevated demand, but that was the upside. The
downside was a very tight supply chain, which it’s my understanding caused several of their customers to miss
battery shipments from Energizer. However, they did grow their online sales and they also gained space at
Sam’s Club. The downside though has been production shortfalls, as I say, leading to those missed shipments.
There have been inflationary increases, particularly in the critical commodities that are used in batteries, like
manganese, like zinc and like copper, and also in transport costs, particularly from Asia, and certainly there
was a premium that really all the North American battery manufacturers sustained in the form of, what I
would call, COVID-19 cleaning costs and special shift arrangements and shift changes to accommodate the
spacing requirements on the factory floor.
[00:17:36]
Q: Do you think the recent battery demand will stick post-coronavirus? How might the current performance
drivers shift as economies start reopening?
RL: I think that the demand situation will stick to a degree. As I indicated, it has certainly been sustained
through the month of April, and I think because COVID-19 prompted the purchase of, I think, one-and-a-half
times the number of devices per household, I believe the current level in 2020 and 2021 will be sustained. By
the way, there is no indication whatsoever that there is what used to be called pantry hoarding of batteries
during this period, unlike what happened with toilet paper and sanitisers, as you well know. I think the second
thing is I think they will be sustaining their growth in online sales, that is Energizer, both to Amazon and really
for their other brands as well, auto care brands.
[00:19:24]
Q: How much flexibility does a company such as Energizer have to pass on higher input costs?
RL: I think that’s interesting, because they have done, historically, and it was even a subject of discussion in
their most recent earnings call, they are completely, well I shouldn’t say completely, for the most part they’re
hedged through the end of their FY2021 and some into FY2022 on these major commodities, which at least
gives them a good handle on what their cost situation is. They have obviously used their cash to make those
longer-term commitments of hedging, so I think that’s a very positive thing for their cost control. I think as far
as labour costs are concerned, which was another input cost mentioned on the earnings call, most of their
Private and confidential 5
operations have existing contracts, which they should be well-controlled going forward. I think that the one
item that still remains is the issue of transport costs and even port availability going forward. The cost of
shipping from Asia has grown tremendously just in the last six months, and this is something that they’ll have
to deal with, but at least, as far as commodity cost control or labour cost, I think they’re in pretty good shape,
and, of course, they have now the benefit of being able to relax some of the factory spacing issues and shift
configurations now that most workers have been vaccinated, so that’s actually a cost reduction vs a year ago.
[00:21:55]
Q: How do battery companies or suppliers usually work to mitigate commodity inflation issues? Is it purely
hedging for futures? Are there different techniques to mitigate raw material shortages?
RL: Actually most of the battery-critical materials, like manganese oxide, and even other chemicals, are
largely located either in China or in Africa, specifically Western Africa, and, as a result, those countries
actually can manage the supply and the availability to others, which represents a risk. It was pointed out even
in The Wall Street Journal this weekend. There’s nothing for sure, but the fact that the supply is there, albeit at
a higher price, they’re able to manage that through their hedging operations, which are very, very helpful
indeed. You can say, “Yes, but if these prices actually drop on these commodities and they’re holding contracts
with higher prices, that’s true.” I don’t think people foresee, because of the movement in EV product and other
electrification batteries, I don’t see that potential for reduction in those commodities in the near term.
[00:24:06]
Q: What impact has the increased demand from EV [electric vehicle] companies and the electrification of
many transportation vehicles had on traditional battery suppliers such as Energizer? Has it made their jobs
significantly harder? Is there a base premium on top of some raw materials because of this increased demand?
RL: I think it’s an interesting question. So far I don’t see it having a significant impact, but I think the growth
of e-vehicles is obviously projected to be huge, particularly if the administration gets their wishes with respect
to granting incentives to purchase these vehicles, but so far, as I say, it hasn’t had a real big impact.
Remember, still we’re talking, to a great degree, different material. In other words, obviously the e-vehicles are
operated with a lithium product and lithium, it certainly is less than 20%, probably closer to 15% of the North
American market between Energizer and Duracell, and so because of its limit in the household battery
business, there hasn’t been a great deal of competition for the metal between the vehicle manufacturer and the
battery manufacturer. The manganese oxide is clearly more of a product used in the household battery than in
the electric vehicle, but there are some common elements too. There’s zinc and there’s copper, both of which
are consumed by both, and I think you have to say that that’s had an impact on the inflationary trend in both
of those commodities.
[00:27:04]
Q: Do you think there are any challenges unique to Energizer?
RL: Yes. Certainly compared to their primary competitor, and even the Japanese, they have a very debt load,
and I know they just unloaded some of that, about USD 1bn of it and refinanced in the last quarter, but, at the
same time, they have significant interest expense, which their primary competitor and others don’t necessarily
have to contend with. Also, I would mention I think they have a weaker technology base, and they make a
lower technology investment than their primary competitor. I think the other weakness they have, and I’m
sure they’re very well aware of, is their European market position is very slim, unfortunately, and it was
brought about primarily because they were not able to improve it with their purchase of Spectrum or Rayovac,
whatever, Varta really, because they had to sell Varta for competitive reasons. I think those are what I would
Private and confidential 6
categorise as the three challenges that they have that some of their major competitors don’t.
[00:29:09]
Q: How strong would you say brand loyalty is for Energizer products? Is brand loyalty that significant a factor
for batteries?
RL: I think, to a great degree, one’s brand position is largely a function of their technology and their
innovation capabilities, and I don’t think their brand loyalty is as strong, certainly not as strong for Energizer
as their primary competitor, and that’s, quite frankly, demonstrated by the fact that their primary competitor
is able to enjoy a larger share with higher pricing, like market pricing, than Energizer. At the same I say that, I
think it’s important to point out that Energizer’s strengths are a global presence in carbon zinc that their
primary competitor doesn’t even offer, and that could really, in the future, be used to translate the population
using carbon zinc into a greater alkaline battery usage, particularly in the under-developed countries. They
also, I think, enjoy a technology position, which could be expanded in rechargeable batteries and also hearing
aids, because, clearly, the hearing aid market has moved from batteries that are not rechargeable to batteries
that are rechargeable, and that’s a plus in the speciality business that Energizer has.
[00:31:53]
Q: What are the dynamics for speciality and households? What is driving the performance in speciality? You
mentioned it was growing by 10-15% due to coronavirus, but where was most of the growth coming from
before this bump?
RL: It’s very interesting. First of all, lithium, it’s primary driven by button batteries, or lithium coin batteries,
and the beauty of the product is that it’s very small and, by virtue of that, it can be inserted in very portable
applications and the number of those applications has been driven by a number of reasons. One is what
everybody calls the Internet of Things, which has clearly created a whole plethora of products utilising the
lithium coin, and the other area, where I think it’s really being developed, is all the medical and industrial
applications utilising lithium coin product for more portability, for home measurement of vital signs on the
human body, and not only in the hospital, but also in the home, so it’s that type of thing. Then people are more
and more remote controls, whether it’s your garage or it’s your window shades, or whatever, being converted
from round cell batteries to lithium coin batteries, so those are the drivers primarily. Mostly Internet of Things
and other applications, which really require the miniaturised battery for which a lithium coin is a solution.
[00:34:34]
Q: Do you think Energiser is a leading player in terms of market share in the lithium category, or do you think
there is robust competition for market share?
RL: I think there’s real robust competition in the higher-end market. The first product that Energizer
introduced was the purely lithium product, which certainly has the life and performance advantages over
alkaline. However, it carries a pretty steep price tag with it, and, therefore, the acceptance was pretty limited.
Their competition came out with a product which is much improved over alkaline, but not nearly as expensive
as pure lithium. It’s a lithium-based product that Duracell introduced in 2019 which has about 50% longer life
and 50% stronger performance that they have demonstrated in their advertising, so I think one of the keys
here is what will or how will Energizer respond to that product. It’s now in the marketplace and is growing
share even at the expense of Energizer lithium.
Private and confidential 7
[00:36:23]
Q: How willing are Energizer and other players to cut prices to gain market share? What are your overall
thoughts on Energizer’s strategy?
RL: The point about price cutting, quite frankly I do not see a lower pricing strategy to gain share in North
America alkaline market as being a viable one, and I believe, quite frankly, that the two largest players, ie
Energizer and Duracell, learned the hard way in the prior decade that a price war is not a very appropriate
methodology or strategy. Just to give you some specifics on this, the price per cell on an alkaline battery
reached a low point in North America of about USD 0.60-0.65 per cell in the year 2010, and that was
obviously due a price war, but today, the price has rebounded to more like USD 0.90 to almost USD 1 per cell,
so it’s up significantly. I believe both of the largest North American competitors realise this and maintain
respect for each other as a result, so I don’t see a pricing strategy being, let me call it a price war being waged.
Even the Chinese and even imports from other countries haven’t taken this on, particularly the Chinese,
because they’re facing a 25% Trump tariff on top of their normal export pricing, so they’re not in a position to
get into any price ware if they want to maintain margins. I think Energizer’s pricing power is substantial, and I
think that’s really been demonstrated by their recent price increases, which they registered and sustained to
try to maintain their margins due to the inflationary items that we discussed earlier.
[00:39:34]
Q: You mentioned the 25% tariff on China-based manufacturers. How has the tariff landscape changed over
the years? Is it up and down dependent on administration, or has this 25% rate been fairly consistent? How
have tariffs historically affected sales?
RL: The 25% tariff has been sustained since 2018, and it doesn’t appear, that necessarily with the change in
administrations, that that’s going to be disbanded. What that has done is a couple of things. First of all, it’s
made the imported product much more expensive and, quite frankly, it puts it on, at least, par with North
America manufacturing cost and price. It’s not even at a premium. What has happened is some of the Chinese
manufacturers have altered their locations for manufacture, specifically from China to Vietnam or Malaysia,
and even Energizer has enhanced and, of course, purchased their factory in Indonesia, and they have, I
believe, totally now gotten out of China manufacturing, so there’s been an exodus from China in the battery
and household battery business. Duracell still maintains a very, very productive facility in China, and there are
lithium coin manufacturers in China. I don’t necessarily see these tariffs coming off, and there are certainly
other measures on more of the, I’ll call it, ingredients in batteries facing continued anti-dumping tariffs, which
have existed for a long time in this country, specifically processed manganese oxide.
[00:43:15]
Q: What are your thoughts on the private label competition? How has the relationship between labelled and
branded products evolved in household and speciality batteries?
RL: Private label has been used some retailers to offer a lower priced product, but this is usually, I don’t know,
quite frankly, unfortunately, coupled with an inferior performing product, particularly with respect to the life
of the battery and leakage, and most of these private label products have been coming from offshore imports,
and as I mentioned just a few minutes ago, the ability to bring that product in on a more cost-effective basis
has been limited due to the tariffs. I really think that, quite frankly, there is some private label going on, and,
of course, even Amazon has offered some private label product or off-brand product, but I don’t see that
portion of the marketplace increasing at all. If anything, I think Energizer and Duracell have made much more
progress at Amazon in getting their branded product, and people, quite frankly, when you talk about home
devices, quite frankly the purchaser is interested in getting something reliable, something that’s going to last
and something that’s not going to leak, and, as a result, I think they’re just tempted to buy more of the
branded product for that reason.
Private and confidential 8
[00:45:33]
Q: How have the market’s barriers to entry changed? Has it become a lot harder to enter the market due to
tariffs? What does a new player need to create a significant market presence, given how consolidated the
industry is?
RL: What’s interesting, in my opinion, is the fact that importers must not think that the tariff situation will
continue, because if they did you would expect that they would relocate or just develop factories in North
America, or, for that matter, in Europe, and they’re not doing that, so that tells you they don’t necessarily
believe that the obstacles to import, like tariffs, will continue. Of course the other thing they’re facing is the
growing transport costs from Asia, so it will be interesting to see if that strategy changes, particularly if the
tariffs continue, but there really hasn’t been any new entrants either in the form of manufacturing in North
America or Europe, nor in the form of new entrants period into the household battery market. If anything, the
Japanese, Sony and, to a lesser degree, Panasonic, have decreased their presence, not only in terms of imports,
but even in local manufacture, so to your point, if anything, it’s become more concentrated.
[00:48:07]
Q: What are the distribution dynamics for bricks-and-mortar retailers vs B2C players such as Amazon? I
noticed that Energizer had some distribution gains.
RL: As in most industries, the battery retailer-manufacturer relationship has evolved similarly. I say that,
really most of the retailers insist upon either an annual or a multi-year bi contract, and they run a competitive
bidding process for that, which they feel offers them the best price and often better guarantees of shipment
performance. More recently, many national retailers now impose fines on manufacturers for shipment delays
or shipment shortages. As far as the changes in distribution, the club segment, and I say club segment, I’m
talking about Costco, I’m talking about Sam’s Club and BJ’s, has grown considerably in the last 10, 15 years,
along with, of course, the online segment with Amazon, so those are probably the two areas, club and online,
which represent an increasing percentage of overall shipments to the North American populous. The
interesting thing is that, for the most part, have really managed inventory well, and that was demonstrated,
quite frankly, in the last year with the elevation in North America demand, and which the retailers were able,
for the most part, to support that demand, but household, and especially distribution, is mostly through retail
outlets, DIY, clubs and online, but some household and speciality volumes are now distributed through the
B2B channels, especially, as I indicated, for the medical, industrial and defence applications. Overall the
distribution challenges, I think, are two-fold. One is educating the population about newer product offerings
or performance differences or advantages, and the second is the supply chain distribution, which could be due,
eventually, to a commodity shortage or to transport costs or port availability. That, I think, gives you a pretty
good idea of the overall battery market distribution.
[00:52:19]
Q: Has there ever been a want or need to control pricing further down, closer to the end consumer? How
quickly could Energizer adjust to changing costs, such as raw material costs? How quickly could it pass that
pricing on to the consumer? Would it have to work with the retailers and wait until the contract is readjusted?
How well is that managed, and how much control does Energizer have with retailers?
RL: I would say neither Energizer nor their competitor have a lot of control over existing contracts. If there’s
inflation they’ve got to figure out a way to control it, or they’re going to suffer in their margins, but despite the
fact they may go to the retailer, for whom they have a yearly or a multi-year contract, and plead their case,
they’re not going to get a lot of sympathy, and therefore, I would say, the retailer is in charge based on the
Private and confidential 9
contract he has in place with the manufacturer. The other thing about that is, ultimately, if, as a result of not
getting the price increase, there are either shortages for that retailer or missed shipment timing. The
manufacturer will ultimately pay for that in two ways. (1) he’s going to pay for it with a fine, and (2) he’s going
to pay for it because the retailer is not going to be interested in doing business with him longer term when that
next round of negotiations comes along, so I guess, to summarise, I believe, quite frankly, that, based on the
contractual commitments, a retailer manages and is in charge of it, not the manufacturer, the retailer.
[00:55:05]
Q: Has e-commerce provided an outlet to open up the distribution mix and take away some of the retailers’
power? The industry has consolidated quite significantly and it’s not as easy to find competitors willing to give
up negotiating power.
RL: Certainly online has an increasing presence, there’s no question about it, Amazon specifically, but, at the
end of the day, at least up through 2020, Walmart was still the largest seller of household batteries in North
America, higher than Amazon, so they still have a significant presence that hasn’t been deluded, necessarily,
by Amazon, and in fact I think the interesting trend is that Amazon has chosen to purchase more branded
product from Energizer and Duracell, obviously, and reduced their percentage, at least, of import product,
partly because of terrorism, I’m sure, but also based on the fact that, as I said before, the ultimate is brand
preference, brand recognition, which the private label in imports don’t really have.
[00:57:28]
Q: What is your 6-12-month outlook for Energizer? What are the best- and worst-case scenarios?
RL: Best-case scenario for Energizer I think would be, obviously, the elevated battery demand continues, as
we’ve conjectured on quite often in this discussion and that that demand continues in the US and also
increases internationally, because they enjoy a very strong international presence, mostly in carbon zinc, and I
think that demand is not elevated as much in those countries. I think secondly, thanks to hedging the
commodity purchases, their cost escalation should be limited and that’s probably something that perhaps their
competition hasn’t done as well or as much of. Also, I think it’ll be interesting to see if they offer a response to
the Duracell lithium product that was developed and introduced in 2019. So far in the last, almost two years,
we’ve seen nothing more than advertising continuing for their lithium product, but not a more cost-effective
price competitive response to the Duracell product. I think finally with regard to their auto care business and
brands, if they get refined a bit, it seems like quite a combination of brands, and perhaps they would be able to
refine that thrust for only a certain number of brands and products within the auto care business. That I would
categorise as the best case. Worse case, of course, would be the battery demand, which they’ve enjoyed in the
last year, declines post-vaccination. So far it hasn’t happened, but it certainly could, and, if not totally, it may
at least be reduced to some degree vs the increase of 15%. Chinese import tariffs could be dropped by the
Biden administration and, therefore, making the imported product put some price pressure on them. Supply
disruptions could occur, either on commodities, albeit that they have got the price right, but maybe the
availability of it gets worse, or the Asian transport issues get worse. Also, if there’s no product response to the
Duracell Optimum product, I think that could be a downer for them. Finally, I think if they don’t do something
with this plethora of brands in auto care, I think would have missed the mark a bit. That’s as I see the
downside over the next 6-12 months vs the upside I described earlier.
[01:01:24]
NH: Let me close by saying thank you, Robert, for your input. Clients, if you would like to speak to Robert in a
private call or meeting, please let your relationship manager know. Thank you again for joining Third Bridge
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Forum's Interview today, this now concludes our meeting. Goodbye.
RL: Goodbye. Thank you.
Transcription ends at 01:01:37 of the recorded material
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