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Competition from Trident gum, long the underdog in the U.S. chewing gum industry, is giving executives at the Wm. Wrigley Jr. Co. new reason to worry, analysts told the Chicago Tribune.
In the past two years, No. 2 Trident has been revving up its marketing operation while Wrigley's attention has been diverted by problems integrating the Altoids and Lifesavers candies into its lineup after it acquired the brands last year from Kraft Foods Inc., the newspaper reported.
"They're getting more competition now," said Peter Goldman of Chicago Asset Management, who met with Wrigley officials earlier this year. As a result, "it remains to be seen" whether Wrigley can step up to the challenge.
Dealing with such a threat is a major change for Wrigley, which has easily held a huge lead over Trident and Ice Breakers through much of the first half of the decade. It comes at a time when William Wrigley Jr., the great-grandson of the founder, is attempting to force more change within the 110-year-old company.
He has faced resistance from old-guard executives over his forays into hard candy, mints, lollipops and eventually chocolate, which are not part of Wrigley's traditional gum-only business, a source close to the firm told the Chiciago Tribune.
Two of the company's top five executives left the gum giant this summer. "Change comes easier to some than others, but overall there is a vision for the growth and expansion of the company that I think the people support and are moving toward," said Chris Perille, a spokesman for the Chicago-based company. "The moves Bill has made are very strategic and are not overly aggressive."
Many analysts have also backed the drive for change. "Bill was right when he said when he came in that Wrigley needed to be a different company," said Mitch Corwin, an analyst with Morningstar Inc. "But it is very difficult to transform a company like Wrigley."
Wrigley appears to be experiencing some growing pains, the newspaper reported. In an effort to broaden its approach, Wrigley has missed Wall Street estimates for three straight quarters. It saw profits drop last quarter, in spite of increased sales, because of costs related to the Altoids and Lifesavers acquisition. And it has watched its stock price dip more than 18 percent from its 52-week high after decades of steady growth.
It's even struggling in its core gum business: Wrigley's U.S. market share has dropped 3 points to less than 60 percent in the last six months, erasing some gains garnered in the early part of the decade. Between 2000 and 2004, Wrigley's domestic market share rose from 56.3 percent to 65 percent, according to ACNielsen data, as Cadbury Schweppes-owned Trident and Hershey-owned Ice Breakers struggled to deal with their own merger and competitive issues. The shift came at a time when overall sales of gum were on the decline as Americans switched to sugar-free products produced by Wrigley and London-based Cadbury.
In the past two years, however, Wrigley has lost 6 points of U.S. market share, while Cadbury has boosted its share by about 7 points after a $50 million advertising campaign for Trident. Cadbury spent a similar amount earlier this year when it launched Stride, the first new gum in the Trident family since the 1980s.
Wrigley's Perille, however, said data that includes convenience store sales shows Wrigley's market share has only declined 1.5 points.
Wrigley's advertising spending is down 11 percent from a year ago, according to data compiled by TNS Media. Through the end of May, TNS estimates that Wrigley has spent $89.2 million in support of 13 products, compared to $100.4 million spent in support of 15 products.
Last week, Cadbury reported that its advertising spending was having an effect. Chief Executive Todd Stitzer announced during the company's London investor conference that its Trident gums now held 31.4 percent of the U.S. market according to data compiled by Information Resources Inc.
Perille, however, said ACNielsen data that includes convenience stores showed Trident's share was only 27.2 percent.
Observers say Bill Wrigley, who has been at the helm for seven years, needs to restore advertising spending, ramp up the company's innovation efforts and repair the U.S. operation. He appears to be moving on many of these fronts.
This summer he hired the company's first chief marketing officer, who will have global responsibilities. The company also is shifting toward new marketing efforts that go beyond traditional advertising to reach its core teenage demographic.
The firm has also invested heavily in innovation, opening a $45 million research and development center on Goose Island in Chicago earlier this year. At least eight new products, including Doublemint Twins mints, came out of the lab this year.
"I think they understand what they need to do at this point, but it is going to take some time. And it will take some time to get the innovation they need to compete and build their market share back up," Corwin told the newspaper. "They have taken for granted their market share in the U.S.
"To address that, Wrigley is going to have to be a different organization today than they were three or four years ago."