Chewed Out: Street Dubs Wrigley a 'Fallen Angel'

Lackluster Launches, Weak Innovation Hurt Marketer

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Wrigley has lost its flavor on Wall Street.

Long the shining star among food stocks, gum giant Wm. Wrigley Jr. Co. has slipped precipitously in analysts' and investors' estimation due to failed innovation, disappointing sales from acquired brands, such as Altoids, and competition from a buoyed Cadbury Adams, which has boosted its ad budgets.

"Wrigley's a bit of a fallen angel," said Neuberger Berman analyst Bill Leach, who noted the one-time Wall Street darling, whose stock price has fallen 19% for the calendar year to date, is the worst-performing stock in his 37-company portfolio. "In 30 years, I think this is the first time Wrigley has fallen out of favor," he said.

Mr. Leach blames the slump in large part on the hubris of CEO Bill Wrigley Jr. who, he said, "did a really good job when he first took over, but got a little ahead of himself buying Life Savers and Altoids [from Kraft Foods]." Sometimes, he said, "CEOs can't leave well enough alone." In addition, he said, Cadbury has had 10 months of double-digit sales gains, while Wrigley has basically been flat.

Credit Suisse analyst Dave Nelson, who recently downgraded Wrigley from outperform to neutral, offered data in a July 12 report that showed Wrigley had lost 4% market share, mostly to Cadbury, during the prior 12-week period. He predicted sales growth at a below-trend rate of 4% vs. the 6% he had previously expected based on new product introductions and aggressive marketing support.

"Wrigley has bet heavily on innovation ... dialing up new product activity from 6% to 17% of sales and opening a $45 million R&D facility," but that innovation has been lackluster lately, Mr. Nelson said in a note. Mr. Nelson's research showed that the eight new products Wrigley launched in the first quarter generated only a disappointing 1% organic growth and the media spending to support those efforts during January through May fell 11%. The recent departure of two top executives at Wrigley suggests, he said, "that these problems will not be easy to solve."

Wrigley's chief marketing officer, Martin Schlatter, the first to hold the newly created global position at the company, refuted the failure of its eight launches this year, offering that six were "tremendous launches," among them Extra's Cool Watermelon flavor, which rose to the No. 1 gum flavor, and Doublemints Twins mints, which gained a 4.5% share for the latest four weeks.

keeping the faith

Mr. Schlatter attributed the measured-media decreases to a shift toward nonmeasured marketing efforts that better reach Wrigley's core teenage demographic. "We have a lot of faith in these new ways of reaching consumers, and there will be a shift as we increase investments into more nontraditional arenas," he said.

Company spokesman Chris Perille said that Wrigley spends nearly 17% of every brand dollar on marketing and that the company is "investing behind brands that are growing," namely its newer sugar-free brands Orbit and Eclipse. Meanwhile, though, Mr. Nelson said he feared further declines on such heritage brands as Juicy Fruit, Spearmint and Doublemint, considering the scant ad support Wrigley has put behind them this year.

And with Cadbury hot on Wrigley's heels-Lehman Bros.' analyst Andrew Lazar said Cadbury is "raising their game in Wrigley's core U.S. market"-every marketing avenue is important.

Norma Drew, senior VP-marketing for the nascent Cadbury Adams USA division of Cadbury Schweppes, is eyeing all methods of reaching the crucial 18-to-24 gum target for top brands Trident and Dentyne as well as its newest gum launch, Stride, which Cadbury has told retailers will get $150 million in marketing over the next three years. "The elusive 18-to-24 target consumes media very differently ... and our plan is to surround the consumer in a way that's appealing to them," Ms. Drew said.

In addition to a TV campaign from WPP Group's JWT, New York, Stride is sponsoring the second world tour of Matt Harding, a 29-year-old who videotaped himself dancing around the world, and has developed displays for retail.

For Dentyne, Cadbury is shifting from divergent advertising for various sub-brands (such as Dentyne Ice and Dentyne Fire) to one umbrella theme: "Happy Hunting," from Interpublic Group of Cos.' McCann Erickson, New York. The campaign will command $15 million in media over the next five months. Cadbury spent $44 million on Dentyne last year.

The renewed support for Cadbury brands has begun to pay off. Cadbury grew 14% to $288 million in its primary sugarless-gum category for the 52 weeks ended June 18 in food, drug and mass outlets excluding Wal-Mart, according to Information Resources Inc. During that same period, Wrigley grew 9% to $461 million in sugarless and fell nearly 12% to $199 million in regular gum.

While share results for the last four to eight weeks are "not on the level we want them to be," Mr. Schlatter said, there have always been ebbs and flows over the last six years, a period during which the company was able to add eight share points. "We're in this for long-term growth," he said.

To that end, a number of introductions are slated for the back half of the year, to be overseen by Mr. Schlatter, who was named to the CMO post in late April. Among them: a cup-holder-size bottle package, the Big-E-Pak for Eclipse and new flavors for Orbit and Altoids.

Despite Mr. Schlatter's enthusiasm, analysts are uncertain. Mr. Nelson said the lineup "does not look materially better" than the January new-product roster. And Mr. Lazar is taking a wait-and-see approach: "We will have a better idea in the early fall. Wrigley certainly does need a better flow of innovation."
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