Batteries Not Included in Portable Device Boom

Personal Electronics Are Hot, but Don't Require Disposable Power; Toys Lose Ground to Online Play

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The Energizer Bunny is taking quite a pummeling from the likes of Xbox and smartphones these days.

With the explosion of personal electronic devices in recent years, portable power has been a high-growth industry for just about everyone but the big brand names in batteries: Duracell and Energizer. These titans and onetime advertising heavyweights have been watching their core business drain away as people and devices turn from disposable alkaline and similar batteries to rechargeable lithium-ion and other power sources. Even kids' play, which drives a lot of sales thanks to batteries-not-included toys, is increasingly migrating to online play and gaming.

So far, the big brands haven't found a "Duracell Inside" or "Energizer Inside" strategy akin to Intel's tactic for personal computers that would tap into the growing number of items that take portable power. And while such strategies are at least on the drawing board -- P&G's Duracell unit invested in lithium-ion powerhouse A123 in 2008 and has been working on product development ever since -- they have yet to bear fruit.

That leaves the battery brands fighting over a dwindling pie in the U.S. Sales of alkaline batteries fell 4.9% to $1.1 billion, and volume dropped 7.4% in the 52 weeks ended May 15, according to SymphonyIRI. Sales of batteries overall, including the small rechargeable segment sold in mass outlets and cheaper heavy-duty zinc batteries, were down 5.6% to $5.4 billion as unit volume plunged 9.3%.

Can Energizer keep going?
Can Energizer keep going?

When Walmart sales -- which are not covered by that scanner data -- are brought in, things look even worse. Consumer panel data from SymphonyIRI reported by Deutsche Bank show alkaline-battery sales at the chain plunged 13.8% last year and by an even steeper 16.9% in the first quarter compared to prior-year periods.

To be sure, households with kids, particularly younger ones, use more batteries than others. And some more-popular gaming devices, such as Wii controllers, chew up disposable batteries. But fewer people are having babies in the recession (with live births in the U.S. down around 5% from annual levels prior to the recession, according to Kimberly-Clark Corp. Chairman-CEO Tom Falk on a recent conference call). Another is that those babies are outgrowing battery-operated toys remarkably fast.

The Ipsos LMX Family survey of 715 parents of more than 2,000 children 12 and under earlier this year found that "playing with toys," named as the favorite pastime of 45% of kids 2 and under, was the favorite activity of only 27% of 3- to 5-year-olds. Gaming and going online, which collectively were listed as favorites for 21% of kids, were primarily what ate into toy time.

"My generation always needed batteries," said Donna Sabino, senior VP-kids and family insights at Ipsos. "Batteries were always on the shopping list. But now many of the devices kids are using are rechargeable," she said. "It's amazing where digital change is affecting a lot of places people didn't expect."

Another source of growth for battery brands has faded, too. Digital cameras, the high-drain devices that were chewing up disposable batteries and fueling growth of Energizer E2 Lithium batteries only a few years ago, have increasingly been replaced with models that use rechargeable batteries or with high-powered cameras on smartphones.

Even as the category in the U.S. has shrunk, Energizer and P&G's Duracell have won back some share lost to private labels in prior years. Duracell has picked up 0.85 points and Energizer 0.3 in alkaline batteries.

Standard batteries sold by Duracell "still fill the greatest areas of device demand," a P&G spokesman said. "Ultimately we believe in the strength of the Duracell brand." Share gains in North America of late have come in part from the brand's support for volunteer firefighters, who benefit from donations based on sales, backed by "Trusted Everywhere" ads from Acme Idea Co., Norwalk, Conn.

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