Stephen Saroki Short Energizer Holdings Inc (ENR) [Slides]

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Stephen Saroki’s presentation from the 2017 Sohn Conference discussing his short position in Energizer Holdings Inc (ENR).

Energizer Holdings Overview

  • 2000 – Spun off by Ralston Purina
  • 2015 – Spun off by Edgewell Personal Care
  • May 2016 – Acquired HandStands (Auto Care)
  • Batteries (Alkaline): #1 or #2 player in most/all markets, #2 in US with 30% share
  • Lighting (flashlights – ~15% US share, headlights, and lanterns)
  • Auto Care (fragrance – ~20% US share, appearance)

Alkaline Batteries Are In Long-Term Secular Decline

Energizer Holdings

Secular Decline Of Alkaline Batteries Likely To Continue

  • Global Alkaline Battery Market expected to decline at 0.16% CAGR from 2015 to 2019
  • In the US and Europe, battery sales have been declining in the ~3-4% range over the last several years

Energizer Holdings

  • Products, like mobile phones and smart watches, now featuring lithium-ion batteries
  • Lithium-Ion Market forecast to grow at 11.6% CAGR from 2016 to 2024
  • OEMs and their suppliers provide lithium-ion batteries, not Duracell or Energizer

High Customer Concentration With Major Retailers

  • Some argue that, with Berkshire’s acquisition of Duracell, the players in the space will act more rationally
  • The Problem: All of the power lies in the hands of retailers
  • In the US, ~90% of battery sales are concentrated among only 8 or 9 retailers
  • Retailers have all the leverage over their suppliers, forcing them to drop their margins, threatening to give preference to other branded players or private players

Energizer Holdings

Retailers will continue to beat up the branded players, resulting in declining prices and margins for battery suppliers.

Costco Case Study

Costco beat up their suppliers so much that the winner in the competition to be their exclusive supplier, Duracell, was forced to also make a private label battery for them. The kicker is that the private label lasts longer as well.

Energizer Holdings


Energizer Holdings

Private Label Vs. Branded Batteries: Value Proposition

Energizer Holdings

  • Private Labels have 10-15% share in the US and ~30% share in Europe
  • Private Labels have turned batteries into commodities. With little overhead and no advertising, they offer essentially the same product at a much lower price
  • This low-priced alternative should lead to declining share, pricing, and margins for branded players, regardless of what they do
  • Brand doesn’t carry the same weight for batteries as it does for other products, like detergent or shaving razors
  • The products are not differentiated, and consumers, given the availability of information, have begun realizing it
  • Energizer and Duracell have cut their advertising budgets accordingly

Private Label Vs. Branded Batteries: Performance

Energizer Holdings

Private Label vs. Branded Batteries: E-Commerce

Energizer Holdings

See the full slides below.

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