ARM & HAMMER (1998): Poised for Growth?

Introduction:
Church & Dwight Co., Inc., founded in 1846, is the leading U.S. producer of sodium
bicarbonate, popularly known as baking soda, a natural product that cleans, deodorizes
leavens and buffers. The Company’s ARM & HAMMER brand is one of the nation’s
most trusted trademarks for a broad range of consumer and specialty products developed
from the base of bicarbonate and related technologies.
Church & Dwight’s consumer products business is organized into two segments:
Consumer Domestic, which encompasses both household and personal care products.
Products are sold under the ARM & HAMMER brand name and derivative trademarks,
such as ARM & HAMMER DENTAL CARE Toothpaste and ARM & HAMMER
LAUNDRY DETERGENTS.
Church & Dwight’s another business segment is Specialty Products. This business is a
leader in specialty inorganic chemicals, animal nutrition, and specialty cleaners.
Arm & Hammer brand can now be found on a variety of consumer products in 95% of all
US households.
By capitalizing on its easily recognizable brand name logo, ARM & HAMMER, Church
& Dwight moved into such products as: (1) laundry detergents (2) carpet deodorizers -
(3) air deodorizers (4) toothpaste (5) deodorant/anti-perspirants .The company's family
branding strategy has allowed the company to promote multiple products using only one
brand name. Baking soda has become synonymous with environmental safety in the
consumers' minds. "As a result, environmentally-conscious consumers automatically turn
to the yellow box." This has led to the introduction of new products. Church & Dwight
controls over 75% of the sodium bicarbonate production and 85% of the baking soda
market in the U.S.
Problems with Company;
• Either the company is unable or unwillingly to successfully expand
internationally.
• Market maturity.

FINANCIAL ANALYSIS

1997 Sales: $574,906,000

1997 Net Income: $24,506,000

Fiscal Year Ending 12/31 12/31 12/31 12/31/

/97 /96 /95 94
Current Ratio 1.18 1.37 1.23 1.23
Quick Ratio 0.70 0.88 0.80 0.68
Inventory Turnover 9.38 10.8 11.75 8.92
Net Sales/Total Assets 1.64 1.71 1.66 1.67
Total Liabilities/Total 0.49 0.46 0.48 0.48
Assets
Times Interest Earned 43.42 95.24 13.98 11.93
Long-Term Debt/Equity 0.04 0.05 0.05 0.05
Net Profit Margin 0.04 0.04 0.02 0.01
Return on Equity 0.14 0.13 0.07 0.04
Return on Assets 0.07 0.07 0.03 0.02

The financial health of Church & Dwight can be characterized as being a mixed picture.
It is highlighted by the strong upward trend in net profit margins and return on equity.
However, when attention is turned to other key ratios, the picture becomes cloudy. Both
the current and quick ratios have drifted downward. In addition, the inventory turnover
ratio, after showing some improvement, has also drifted downward. Overall, a review of
the financial ratios listed indicates that there continues to be room for improvement.

SWOT Analysis:
Strengths;
• Over 150 years of experience as a sodium bicarbonate producer
and marketer.
• Fifty percent of the outstanding shares of common stock are owned
by descendants of the company's co-founders.
• Company controls approximately 75% of the sodium bicarbonate
production in the U.S. and is also the only producer of ammonium
bicarbonate and potassium carbonate.
• Company controls 85% of the baking soda market.
• Extensive consumer brand name recognition and loyalty (in 95%
of U.S. households) which allows the company to promote multiple
products using a single brand name.
• Controlling the production of raw materials, the manufacturing and
processing facilities, and the primary marketing functions allows the
company to price its products below those of competitors - thus creating
a barrier to entry.

Weaknesses;
• Company's lack of financial strength (although borrowing is
possible) and international marketing and management expertise are
hampering expansion outside of North America.
• Primary focus on the ARM & HAMMER brand name has left the
company with a void in product promotion experience.
• Inability to determine the strategic fit of Specialty Products
Division into overall company operations.
 • Lack of financial strength to launch aggressive marketing
campaigns for new products.
• Top management turnover.

Opportunities;
• Potential expansion into international markets.
• Expanded uses of company’s basic raw materials for pollution
control and potable water applications as stricter environmental
legislation are enacted.
• Potential use as a paint stripping compound and an industrial
cleaner based on the low abrasion qualities and environmental safety of
sodium bicarbonate.
• Diversification of product line to include related consumer
products using the ARM & HAMMER brand as well as other brand
names, similar to The Dial Corp. acquisitions.
• Potential medicinal (pharmaceutical) applications of sodium
bicarbonate formulations.

Threats;
• Competitors with greater marketing and financial strength entering
the company's traditional markets.
• Operations in many mature markets with limited growth potential.
• New or increased domestic production of the company's basic raw
materials by other potential producers.
• Potential consumer confusion through overuse of the family
branding line extension strategy which could eventually weaken the
ARM & HAMMER brand name.
• Potential substitutes for current products.
IFE Matrix (Internal Factor Evaluation):

Weighted
Internal Strategic Factors Weight Rating Score

Strengths
US largest producer of sodium bicarbonate .10 4 .40
products

Experienced top management .05 3 .15

Specialty Products Division .10 3 .30

Arm & Hammer name and logo .10 4 .40

Protected from hostile takeover .05 4 .20

Controlling the production of raw materials, .15 3 .45

the manufacturing and processing facilities

Weaknesses
Financial – poor performance .20 2 .40
Top management turnover .05 3 .15

Market share down .10 3 .30

Primary focus on the ARM & HAMMER .10 2 .20

brand name

TOTAL SCORES 1.00 2.95

The score 2.95 is significantly above 2.5 average that shows the internally strong
position of the Church & Dwight.
EFE Matrix (External Factor Evaluation):

External Strategic Factors Weight Rating Weighted Score

Opportunities

Potential medicinal(pharmaceutical) .12 3 .36

applications

Baking soda has become synonymous with .12 4 .48

environmental safety

Diversification of product line .09 3 .27

Industrial and animal feed products industry .10 4 .40

International expansion .11 3 .33

Threats

Potential substitutes for current products .10 3 .30

More competition in domestic markets .10 3 .30

Potential consumer confusion through .15 3 .45

overuse of the family branding line extension
strategy

Mature domestic markets .11 4 .44

TOTAL SCORES 3.33

The score 3.33 is significantly above average of 2.5 which shows the strong response
of Church & Dwight towards its external environment.
Internal and external analysis:

During the analysis of Church & Dwight, the conclusion can be drawn that company has
greater strength and it can avail opportunities in the external environment. The company
needs to minimize their weaknesses to avoid external threats. The company has 150 years
experience of baking soda. Hence the company has fully controlling the production of
raw materials, processing facilities and primary marketing function.
It can use the sodium bicarbonate into different industrial products, pollution control and
potential medical (pharmaceutical) applications. The company can expand their business
outside of North America, through market development. The company can barrow funds
through debt financing. The Debit-to Equity ratio is low which indicates that currently
company is not that much leveraged. And this option is easy for the company.
The other major strength of company is that 50% shares are holding by descendents of
co-founders. So there is no chance of hostile takeover. And the Arm & Hammer brand
reached to 95% of US households.
Competitors with greater financial and marketing expertise can enter into the consumer
product market, so company needs to bring diversification in the product line. The
company has already achieved economies of scale. The US market is very environmental
and hygienic conscious market. The yellow Box has already a soft image, can get benefits
of it.

Opportunities;
O1. Potential expansion into
international markets.
O2. Potential use as a paint
stripping compound
O3. Potential
medicinal(pharmaceutical)
applications
Threats:
T1. Operations in many mature
markets with limited growth
potential.
T2. Potential consumer
confusion through overuse of
the family branding line
extension strategy
T3. Competitors with greater
marketing and financial
strength entering the company's
traditional markets.
TOWS Matrix:
Strengths:
S1. 150 Years experience of sodium
bicarbonate
S2. descendents of co-founders holding
50% shares
S3. Brand name recognition
S4. Controlling the production of raw
materials, the manufacturing and
processing facilities
SO
S4O3
The company can use its
strength of producing raw
material (sodium bicarbonate)
for multiple purposes of
Pharmaceutical application,
e.g. Kidney dialysis
applications and Pregnancy
test Kit (Solutions).
ST
S4T3
The company has full
command on production of raw
materials, manufacturing and
processing and offering
products on lower prices so it
can creates barriers to entry
Weaknesses:
W1. Company's lack of financial
strength( Expansion-for outside
North America)
W2. Primary focus on the ARM &
HAMMER brand name
W3. Top management turnover.
WO
W1O1
The company can opt for
the debt financing ( by
reviewing Debt-to Equity
Ratio) and can expand
their business outside of
North America
WT
W2T2
The company needs to
bring Transition Change
Like;
Walls(Polka)
Pepsi (Aquafina)
SPACE (Strategic position and action evaluation matrix) matrix:

Space Matrix
Internal strategic dimension External strategic dimension
X-Axis (-6 worst, -1 best) (+1 worst, +6 best)
CA (competitive advantage) IS (industry strength)
Brand image -1 Mature Market 2
Experience -3 Competition 3
Value chain -2 Entry Barrier 2
Total score -6 Total score +7

Average score= -6/3 = -2 Average score = 7/3 = +2.33

X-Axis average = +2.33 -2 = +0.33

Y-Axis (+1 worst, +6 best) (-6 worst, -1 best)
FS (financial strength) ES (environmental stability)
Debit-to-Equity 3 Environmental –Conscious -1
ROA 5 Hygienic – Conscious -2
ROE 4 Govt Regulations -3
Total score +12 Total score -6

Average score = 12/3 = +4 Average score = -6/3 = -2

Y-Axis average = +4 -2 = +2

From Space Matrix, we got the value of X-axis, 0.33 while the Y-axis value is 2. Both
values are positive and line comes in the Aggressive quadrant.
 FS

Conservative Aggressive

+2

CA IS
+0.33

Defensive
Competitive

ES
 +0.33

Recommended Strategies:

The company needs to go for Market development Strategy because the company has
already achieved maximum market share, and domestic market is at maturity stage. The
company can easily avail the opportunity of debt financing. Up-till now the company
didn’t use that much of it. There is need of balance between equity and debt. So through
taking money they can go outside North America for expansion, like to different
countries of Europe. The Europe has same environmental and hygienic conscious law.
And already Church and Dwight have made their name in the home country (US).