Corporations: Company in a Quandary

Millions of American housewives daily stop in front of a supermarket shelf and pick up a bar of Ivory soap, a box of Tide or Cheer, a package of Duncan Hines Cake Mix, a bottle of Clorox or Mr. Clean. For the maker of all these products, the Procter & Gamble Co. of Cincinnati, the pickings add up to sales of more than $2 billion a year and profits that reached $133.2 million in the fiscal year ended last June. P. & G. dwarfs its closest rivals, Colgate-Palmolive Co. (1964 sales: $806.6 million) and Lever Bros. Co. ($436.4 million), is the largest advertiser and 24th largest industrial company in the U.S.

Consistently judged one of the best-managed American corporations, P. & G. has reached its dominant size by competing fiercely, using its financial power and mammoth marketing abilities to leave competitors in a cloud of suds. The Federal Trade Commission feels, in fact, that the distance between P. & G. and its rivals has grown too great. In a case about to be decided in court, it charges that P. & G. has violated the bounds of the Clayton Antitrust Act by competing too aggressively. The charge has put the hard-driving salesmen of P. & G. in a quandary: How can their company continue to grow if it is already big enough to be anticompetitive?

Clorox v. Purex. The FTC case arose from P. &G.’s acquisition in 1957 of Clorox Chemical Co., which held 49% of the market for liquid household bleaches. Second-place Purex Corp., which had 16% of the market, had managed by heavy promotion to boost its share in several areas, including the Erie, Pa., market, where it had captured 33%. Clorox, now backed by P. & G.’s marketing know-how and money, did not let the gains go unchallenged. It blanketed the areas with ads, offered $1 ironing-board covers for 50¢ and cut the price of Clorox by 5¢ to 7¢ a bottle. Purex gave up, and by March 1958 its share of the Erie mar ket had sunk to 7%. Said the FTC, charging P. & G. with overwhelming its competitors: “In a fight to the finish, Procter & Gamble, whose aggregate scale of operations and fiscal resources dwarf the entire liquid bleach industry, cannot be bested.” In 1963 the FTC ordered P. & G. to sell Clorox, and a decision on the company’s appeal of that order is pending in the U.S. Court of Appeals in Cincinnati.

For P. & G., the case has significance far beyond the possible loss of Clorox’s nearly $40 million in annual sales. Its management has relied on acquisitions and such selling devices as giveaways and selective price cuts to keep P. & G. growing. Under the FTC’s steady gaze, the company has already had to compete less aggressively and slow down its acquisition of new companies. The results are showing up in earnings: in 1960, before the FTC order, profits rose 20%; in 1964 they rose 13%; last year, earnings before taxes actually declined. Says President Howard J. Morgens, 55: “We’re not planning on any more acquisitions in the U.S. at the present time. Of course, the FTC plays a part in our thinking on this. It has made us lose heart a bit.”

Holding Back. Overseas, too, P. & G.’s brand of competition is running into reaction. In Germany, many of its sales methods have been outlawed to protect German firms, its advertising criticized in the press. Rival Colgate, which has adapted to foreign ways, now gets 87% of its profits from abroad v. 17.5% for P. & G. All of this has created a certain air of frustration among P. & G.’s dedicated employees, who believe with P. & G. Chairman (and former Defense Secretary) Neil McElroy that “in a competitive market like ours, you just can’t afford to hold anything back.” If the FTC wins its case, P. & G. may have to learn to hold back.