ANDREX DOG HAS ITS DAY
Ten months after it received approval for the $8.8bn (5.7bn) takeover of Scott Paper, Kimberly-Clark is beginning a policy of wilful neglect that will see one of the strongest brands in the UK market disappear to support its born-again brand, Andrex.
In simple advertising terms, the Andrex dog has triumphed over the Kleenex girls. Ironically the move could expose KC to the type of competition in the 967m household paper market, from the likes of Procter & Gamble and Jamont, that the deal was designed to eradicate.
"KC is leaving itself exposed in the toilet tissue and kitchen roll markets," says a source close to the company. "It is inviting competitors to come in."
It is taking this gamble to put more support behind Andrex. The sixth largest grocery brand in the UK is now expected to replace the Kleenex name on some KC brands, including its successful Huggies nappies.
While the Scott Paper deal was finalised ten months ago the first indications of the new strategy have only emerged in the past two weeks. KC is consolidating its advertising and media arrangements across Europe, switching Scott Paper brands to KC agencies. Foote Cone & Belding (FCB) won the creative account ten days ago (MW October 4) and the 21m UK media account is believed by sources close to the decision to be destined for John Ayling & Associates.
The slow death of Kleenex began in January when, to satisfy European Union competition regulations,
KC agreed to give up control of its UK Kleenex toilet tissue and kitchen towels to the Swedish paper giant Svenska Cellulosa Aktiebolaget (SCA). However, it retains control of the Kleenex facial tissues.
The asset swap between the two companies freed KC to take control of Andrex. But just as importantly it left SCA with a ten-year licence to use the Kleenex brand on toilet paper and kitchen towels and on the Scotties and Handy Andy brands for facial tissues. It also gave it KC's Prudhoe paper mill in Newcastle and the opportunity to offload the Peaudouce brand in France, which it has controlled since 1988, on to KC.
On the surface the deal had the air of a "deal that never was". An accommodation to get round European competition rules. Some observers believed that KC would continue to pull the strings and control the destiny of Kleenex despite undertakings to withdraw from day-to-day involvement.
But the bizarre deal means KC cannot promote the Kleenex brand in the toilet tissue and kitchen roll market for 15 years, though Kleenex and Scotties remain its registered trademarks.
It appears to be committing "brandicide" by allowing the UK Kleenex toilet tissue and kitchen roll products to go to a company with no marketing presence in the UK.
So on the one hand there is KC which "owns" the brand but is not allowed to promote it in any way and on the other is SCA - a surrogate parent - which has no real experience or, interest it seems, in promoting the brand. In 15 years there will be little of the brand left for KC to own.
It leaves the brand vulnerable. Jamont's Dixcel, third in the branded toilet tissue sector behind Andrex and Kleenex, will try to capitalise on that vulnerability. But it is P&G, which is known to have wanted to buy the Kleenex licence, which represents the greatest threat.
Apparently, it is preparing to accelerate the launch of its successful kitchen and toilet tissue product Charmin in the UK and Europe, to capitalise on the temporary weakness.
KC's hope is that by deliberately weakening Kleenex it can rebuild Andrex's market dominance through its toilet tissue and Andrex Ultra Kitchen Roll. It aims to regain the 30 per cent share of the market Andrex controlled five years ago. But that is a gamble - those who forget about Kleenex will be made attractive offers by the likes of P&G and Dixcel - there will be no automatic switch to Andrex.
"SCA running the Kleenex brand is a bit of a joke in the toilet tissue market," says a source close to KC, who adds that SCA is not serious about the Kleenex brand. "The intention is to pick up sales from Kleenex to help defeat own-label." According to this scenario, SCA will merely be a surrogate, investing virtually nothing in the marketing of the Kleenex brand.
So why is KC doing this? It is giving up two of its most successful Kleenex products for a brand which, though market leader, has lost a third of its market share in the past five years.
To understand its decision fully you have to look beyond this deal to KC's wider corporate strategy. Its innovation-led approach is in sharp contrast to Scott Paper and the takeover was a popular move among City analysts who felt that Andrex and Scottex (as it is known in Europe) had suffered from severe under investment. "Scott Paper failed to protect Andrex from the own-label assault by cutting ad spend and marketing," says one analyst.
It failed to promote and innovate in the market when own label, which now accounts for 50 per cent of the market, began making substantial inroads. On past performance, the City believes, KC should be a good steward for the Andrex brand.
The US company is renowned for its investment in advertising, product innovation and aggressive launches into new markets. Ironically, in the light of events, it relaunched toilet tissue brand Kleenex Double Velvet last year, backed by a heavyweight campaign through FCB.
Kleenex facial tissue was the third fastest growing brand last year, achieving a 33.4 per cent increase in sales - in excess of 40.7m, according to AC Nielsen. Innovation was cited as the reason for the success.
Its nappy brand Huggies was the fastest growing top 100 UK brand in 1995, achieving a value share of 19 per cent of the grocery nappy market, according to Nielsen. Underlining its desire to build on that last month, KC unveiled a new ad campaign, part of a 15m marketing programme.
By contrast, little promotional support will now be put behind Kleenex facial tissues where it is clear market leader. The famous "three girls" umbrella campaign for the facial, toilet and kitchen roll business, seems destined to be axed.
Certainly SCA seems at best disinterested in the future of the brand it has been asked to look after. Its management in Sweden does not know which division will promote the Kleenex brand. SCA Mlnlycke, which has handled the Peaudouce brand in the UK since 1988, began running down the operation two years ago. And pulled its branded nappy products out of Germany and Belgium last year.
According to an SCA source, the company has given up on the branded nappy market in Europe and intends to become an own-label supplier instead. "SCA is pleased to have had Peaudouce taken off its hands. The brand nappy market is extremely expensive," he says.
Ironically it was KC's launch of Huggies in Northern Europe in 1994 which contributed to that expense. It sparked an aggressive price war with prices coming down as much as 20 per cent. Huggies sales increased year on year by 60 per cent, provoking market leader Pampers to cut its price in an every day low pricing (EDLP) move against Huggies and own-label rivals last December.
Now that KC's consolidation is well underway it is likely that major cost-cutting programmes will have to be implemented to fund campaigns against P&G and other rivals. P&G is still three times the size of the paper giant and has much deeper pockets.
KC is reported to want cuts of $400m (263m) through rationalisation and axing jobs before 1998. The Scott Paper takeover points the way to a larger plan to transform KC into a marketing-led company and float off the production sides of its business - the sale of the Prudhoe site is an opening gambit. KC postponed the flotation of its pulp mills in 1994 because of the sharp rise in pulp prices. The company supplies 60 per cent of its pulp requirements from its own timber lands and pulp mills. But it plans to divest this side of the business and use the money to expand its brands through marketing.
It seems inevitable that KC will roll out its Huggies brand into southern Europe while pushing Scottex, Huggies and sanitary brand Kotex into eastern Europe.
Andrex, benefiting from extra marketing spend, is likely to go from strength to strength. The puppy has had a stay of execution - a sharp contrast with Scott Paper's plans for the brand last year. Senior executives told Marketing Week that it was prepared to kill off Andrex in the UK for the sake of global alignment of its Scottex brand and in an effort to cut costs (MW May 19 1995).
Now, under KC, not only is Andrex here to stay, but it is likely that the puppy icon will feature on KC brands globally.