uploads/2015/07/CL-swot21.jpg

What Hurdles Are in the Way of Colgate’s Growth?

By

Updated

Potential weaknesses

Instances of product recalls, like when the chemical Triclosan was found in Colgate-Total toothpaste, weaken the consumer staples (XLP) brand Colgate. Triclosan is said to be harmful, as it generates cancer cells and disrupts development in animals. These instances reduce customer loyalty and brand equity. However, the FDA’s (or Food and Drug Administration) approval and annual product safety updates have established that Triclosan is safe and effective in toothpaste.

Article continues below advertisement

Dependence on retailers

Also, dependence on large-format retailers like Wal-Mart (WMT), Target (TGT), and Costco (COST), which have a great deal of bargaining strength, can be a weakness for Colgate. These retailers are able to leverage their size to demand higher trade discounts, allowances, or slotting fees. This may lead to reduced sales or profitability for Colgate.

According to a Reuters report published on June 24, Wal-Mart is seeking to increase supplier fees, which might have a significant impact on Colgate and other suppliers.

Unlike peers Unilever (UL) and Procter & Gamble (PG), Colgate has a more limited brand and product portfolio, which reduces brand diversification.

Innovation and pricing threats

Colgate faces stiff competition in terms of pricing decisions, product development, and innovation. Also, other threats to the company include advertising and promotional events from Dove (UL), Clorox’s (CLX) home cleaners, and the rise in the popularity of store brands.

According to Kantar’s Global Footprint report, half the world’s fastest rising brands are local. For example, Dabur Red toothpaste in India is the most viable option for people in rural markets.

Article continues below advertisement

Infrastructural hurdles

New retail outlets face infrastructural challenges in emerging markets like China and Brazil. This can pose a threat to the future sales growth of Colgate’s products. However, according to Milward Brown in the Statisa report, Colgate’s brand value in US dollars worldwide in 2015 is $17.9 billion, while that of Crest (PG) is $3.9 billion.

Currency movements

Apart from Colgate’s competition, currency fluctuations also have a significant impact on the revenue and market share of Colgate. CL along with Kimberly-Clark have exposure in the iShares Global 100 ETF (IOO) with weights of 0.6% and 0.4%[3. Updated as of July 15, 2015], respectively.

Advertisement

More From Market Realist