Nonfoods Talk: Batteries not included

The highly profitable batteries category is not getting the exposure it should at many grocery retailers. 

There is a lot about the batteries segment that has me scratching my head these days. For example:

•A senior executive at a major battery manufacturer keeps informing me that supermarkets are no longer a priority emphasis for his company and he has turned his attention to other segments, mostly drug stores and home improvement outlets. This logic comes despite the fact that he must be aware of the fact that supermarkets still have much more of the traffic that drives sales in this high-impulse category than those other outlets.

•Some grocery store retailers must be listening to him because they have moved the category, which still produces great margins, away from the front-end and into less visible and prominent sections of their stores. Even one of those aforementioned drug store chains has units where batteries are now placed in a less conspicuous location. “We don’t have to push very hard because it sells itself. It can go anywhere,” says a clearly misinformed official with that retailer.

•Category sales are declining at a steady 2% to 4% clip, thanks in large part to the growth of rechargeable battery usage. This, despite a still-strong demand for disposable batteries in more and more products.

•Then Berkshire Hathaway, run by Warren Buffett, the guru of Wall Street and the man with the golden touch who rarely makes a mistake, goes and buys the Duracell batteries brand from Procter & Gamble for the tidy little sum of around $3 billion last month. You cannot make this stuff up.

By most accounts, P&G dumped the brand because it realizes that the battery category has seen its best days and it wants to concentrate on higher-grossing product lines. So what does Buffett see in Duracell?

The answer, of course, is that, taking a page from Mark Twain, reports of the death of the batteries category have been greatly exaggerated. Despite the drop in volume, the batteries market is still huge. According to IRI, battery sales approached $3 billion for the 52 weeks ended August 10. And the category still has the potential to add tremendous profits to a retailer’s bottom line, if merchandised correctly.

That means retailers must place the product at the front-end and utilize displays to build awareness with shoppers. They must offer the multi-packs that consumers want at reasonable and competitive price points and they must cross merchandise the category with appropriate segments.

Manufacturers have to play along. If you are really going to walk away from supermarkets, then do not expect supermarkets to continue to give you the proper space needed for batteries to be successful.

In the end, I am willing to bet on Buffett. This guy does not get involved with an industry unless he sees a silver lining. My guess is that he believes that Duracell will increase in value over the next few years by stressing the new technologies hitting the marketplace, including lithium-ion batteries, and backing that up with a great merchandising effort on existing product.

So expect a price war between Duracell and archrival Energizer and expect other players in this category to do things to make a place for themselves on store shelves. Even if batteries best days are behind the category, a fight for survival amongst the major brands can only be good news for those retailers who want to stay in the game.