Church & Dwight Co., Inc. (NYSE:CHD) is a diversified manufacturer of consumer favorites, seen in probably every household across the country. The company’s deep portfolio is home to iconic brands such as Oxi Clean, Arm & Hammer, Nair, XTRA, and Trojan. to name a few. In this article, I would like to focus on the potential profits available to the company, should it decide to penetrate international markets with its Trojan brand.
Domestic success
If you’re not familiar, Trojan brand is America’s No. 1 condom brand on the market. Earlier this month, the company announced the Trojan brand achieved record quarterly sales and grew its share to 76.2% of the U.S. condom business, driven by having all 10 of the top 10 selling retail SKUs in the condom category. Quarter after quarter, the company has continued to innovate and develop a diverse line of styles to meet specific demands. The top offerings include many familiar names such as Magnum, Ectasy, ENZ, Charged, Bare Skin, Fire & Ice, and Natural Lamb. In 2013, the innovation has continued with the launch of Trojan’s new Pure Ecstasy condom, and a new line of Trojan lubricants that have since seen strength. The company has impressive gross margins of 45% as a result of strong pricing power, low manufacturing costs, and improved manufacturing technology.
International potential
The global condom market has been forecast to hit a market value of $5.4 billion by 2018. The growth is driven by growing concern toward the spread of various sexually transmitted diseases, particularly HIV/AIDS, rising incomes in developing countries, and the demand for a cost-effective method of contraception. The company has seen strong international sales growth in recent quarters of roughly 6%, fueled by organic growth in current markets. However, the company’s Trojan brand lacks the market share and brand recognition seen here in the United States. As shown in the World Health Organization statistics, contraception use is far lower in developing countries, as these countries do not provide adequate education and availability.
Going forward, the company should look primarily to Middle Eastern, African, and South American markets for expansion. To build name brand, the company should offer its products for free, or at very discounted prices, in the early stages of a campaign. Perhaps a deal could be struck with the World Health Organization to distribute Trojan products to the regions most in need of protection. As income rises, traditionally the demand for contraception rises as consumers look to minimize the opportunity costs associated with raising children. Along the same line, consumers will seek to maximize utility by avoiding deadly diseases contracted through unsafe sex.
Competition
Church & Dwight Co., Inc. (NYSE:CHD), although dominant in the domestic market, faces global competition from Reckitt Benckiser which trades as an ADR here in American markets. Reckitt is the producer of the popular Durex brand of condoms, which currently has an estimated market share of 15% in the United States. Reckitt has struggled in comparison, as the company has failed to innovate and differentiate its products in the monopolistically competitive condom market. On a global scale, Trojan needs to introduce its lower-end products early to build brand loyalty in emerging markets. Consumers, as income rises, would then be likely to climb the condom ladder. However, if Durex can cement a foothold early in the game, Trojan may be unable to gain monopoly-like market share.
Conclusion
The condom market is a predictable and growing business in which there are very few manufactures. Trojan is the market leader in the United States condom industry as a result of continued innovation and choices. Should Church & Dwight Co., Inc. (NYSE:CHD) take the Trojan Brand overseas, the company could sustain high long-term growth rates. The growth would be fueled by rising incomes, adequate educations, and increased demand for cost-effective contraception.
The article Finding Strength In Condoms originally appeared on Fool.com and is written by Nathaniel Matherson.
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