Capping an aggressive climb since launching Pur four years ago, Recovery Engineering claimed its brand captured dollar share leadership in water-filtration systems for the first time ever in July. That was the payoff for aggressive promotional spending combined with a $15 million ad budget, unprecedented for the category, and gutsy considering Pur's sales of $77 million.
Even though it still lags rival Clorox's Brita in unit sales, Pur's steady gains caught the attention of Procter & Gamble Co., which launched a tender offer to acquire the heretofore unprofitable company for $265 million. That's nearly 3.5 times Recovery's 1998 sales, a premium price tag for P&G, which bought profitable Iams Co. two weeks earlier for less than three times sales.
In chasing Pur, P&G elbowed its way past three other potential suitors for a deal expected to close next month.
Buying Pur's category leadership claim requires a fairly steep leap of faith in Recovery's estimates of club store sales. Information Resources Inc. figures for food, drug and mass merchandise outlets (but not most clubs) continue to show Clorox Co.'s Brita commanding unit sales in the category.
Clorox, for instance, cites IRI figures showing a 55% to 22% lead in unit sales over Pur for new water-filtration systems. That includes the month of July, which marked a low point for Brita.
SELLING THE INITIAL UNIT
Selling the initial unit is key, according to analysts, because that determines future sales of filters, much as sales of razor handles determine subsequent sales of blades.
"This business is basically an annuity system where you sell the [water-filtration] system and you want them to repeat purchase on the filters, which are very high margin," said James Dormer, analyst with Morgan Stanley Dean Witter & Co. Replacement filters can cost $10 or more each.
Pur's dollar share is higher than its unit share because its strength is in faucet-mount systems, which sell for more than twice the price of pitchers, a business dominated by Brita.
But however it's measured, Pur clearly has found success in a category pioneered and once dominated by Brita.
"In July we had some [promotional] programs that allowed us to go over the top," said Brian Sullivan, president-CEO of Recovery Engineering. "And while we won't necessarily expect every month to be the No. 1 brand of systems sold, we think our progress toward becoming that No. 1 brand is fairly clear; and we expect to get there in fairly short order."
The time frame could be accelerated under P&G ownership.
P&G HELP BUILDING DISTRIBUTION
P&G should help Pur build distribution, which is spotty outside Target Stores, Mr. Dormer said, though Mr. Sullivan said Pur has 55% of the water-filtration shelf space in the top five U.S. retailers.
Spending, too, should increase. Pur spent $15 million in measured advertising last year via Campbell Mithun Esty, Minneapolis, according to Competitive Media Reporting. But P&G will get more bang for the buck, Mr. Sullivan said.
"P&G's marketing prowess, in addition to its great distribution," Mr. Dormer