Nothing dull about explosive batteries sales at discounters; mass merchants grab share away from drugstores

Discount Store News, Nov 21, 1994

NATIONWIDE DSN REPORT -- Nothing much is happening in the dull, boring battery category, except that sales continue to explode, by 11.1% to $3.4 billion during the 12 months ended August 1994; and mass merchants keep grabbing market share away from drugstores and supermarkets.

In addition, alkaline batteries continue to gain dominance over zinc carbon batteries, including general purpose and heavy duty, which are clinging to a declining 20% market niche for flash-lights and low-drain devices such as smoke detectors.

The big news in batteries for '95 could well be manufacturer price increases of about 5%. Commodity prices across various merchandise categories have been rising in the United States, leading to increases next year in the prices of many finished goods.

Duracell has held the line on prices for the past two years, absorbing increased material costs through better manufacturing efficiencies. The company is now studying whether it can hold the line for a third year, said Bruce Davis, senior vice president of sales for Duracell.

At today's prices, discounters' margins run in the high 20s, Davis said.

For mass merchandisers, sales grew faster than in the overall market, with an increase of 14.1% in '93 over '92, said Davis. Drugstores and supermarkets trailed that growth figure.

Discount chains now account for 35% of sales, said Davis, citing A.C. Nielsen studies, and wholesale clubs account for an estimated 7%. Davis "guesstimated" that category-killer specialty chains such as Toys "R" Us and consumer electronics chains have at least a 5% share. Drugstores, supermarkets, hardware stores, home centers and other classes of trade still account for slightly more than half of all battery sales, he said.

Nielsen tracks only sales at discount chains, supermarkets and drugstores.

"Last year was a banner year for batteries," Davis added.

Driving the market is the increasing number of battery-powered devices in the home. The average household now has 9.7 battery-operated items compared to 6.8 in 1987.

Duracell projects that sales will grow at a compounded annual rate of 8.2% through 1998 to a total of $4.5 billion.

Excluded from that total are sales of power-pack rechargeable batteries for such uses as computers and cellular and cordless phones. Those sales are approaching $1 billion a year, he said, but the huge number of skus, about 60 for computers alone, makes it prohibitively expensive for discounters to carry them. A nickel cadmium computer battery retails for $80 to $90, while a nickel metal hydride unit retails for $129 to $149, he said.

Duracell is pressing for industry standardization that would reduce the number of skus to three. Until that happens, computer battery replacement sales will remain the province of specialty stores, which stock only batteries for the computer brands they carry.

As an example, Davis noted that Kmart stocks replacement batteries for cordless phones, but only for the AT&T phones it sells.

Another popular battery package format, the multipack, accounted for 37% of sales in '93, and should max out at about 40% of the market, Davis predicted. The only question is how long it will take. He predicted increases of one point per year for the next three years. Davis defines multi-packs of eight or more AA or four or more C or D batteries.

By type, Duracell figures alkalines accounted for 69% of all battery sales in '93, he said. Zinc carbon, along with lithium and mercury specialty cells for cameras, hearing aids and watches, and nicad for rechargeables, accounted for the balance.

Out of $125 million in net sales gains last year, alkaline accounted for $120 million, he said. Sales of zinc carbon batteries, a category Duracell abandoned several years ago, declined by $17 million. Sales of zinc carbon have been shrinking about 2% per year for the past 10 years as the alkaline category grew. Rechargeables, which account for 3% of the battery market, rose by $1.7 million in '93.

Other suppliers calculated the market differently.

According to Rayovac, No. 3 in the U.S. market, alkaline accounted for an even greater share than Duracell figured, 79%, while heavy duty zinc carbon accounted for 16%, general purpose zinc carbon, 4%, and rechargeables, 1%. The rechargeable category includes Renew, Rayovac's rechargeable alkaline battery. Rayovac cited a combined study by Nielsen and NFO Consumer Purchase Diary for its data.

Almost three-fourths of batteries are bougth on impulse, and only 28% of battery purchases are planned. The Rayovac study showed that the largest percentage of batteries, 24%, were bought last year as spares, while 17% were bought for audio devices. Toys and games accounted for 15%, while flash lights amounted to 12%.

By class of trade, Rayovac figures that mass merchants sold 39% of all retail batteries, or the same percentage as in 1988, while warehouse clubs accounted for 11%, up from 2% five years earlier.

Supermarkets sold 18% of batteries in '93, drugstores, 15%, hardware and home centers, 4%, and all others, 13%.