Corporations: Company in a Quandary

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Millions of American housewives daily stop in front of a supermarket shelf and pick up a bar of Ivory soap, a box of Tide or Cheer, a package of Duncan Hines Cake Mix, a bottle of Clorox or Mr. Clean. For the maker of all these products, the Procter & Gamble Co. of Cincinnati, the pickings add up to sales of more than $2 billion a year and profits that reached $133.2 million in the fiscal year ended last June. P. & G. dwarfs its closest rivals, Colgate-Palmolive Co. (1964 sales: $806.6 million) and Lever Bros. Co. ($436.4 million), is the largest advertiser and 24th largest industrial company in the U.S.

Consistently judged one of the best-managed American corporations, P. & G. has reached its dominant size by competing fiercely, using its financial power and mammoth marketing abilities to leave competitors in a cloud of suds. The Federal Trade Commission feels, in fact, that the distance between P. & G. and its rivals has grown too great. In a case about to be decided in court, it charges that P. & G. has violated the bounds of the Clayton Antitrust Act by competing too aggressively. The charge has put the hard-driving salesmen of P. & G. in a quandary: How can their company continue to grow if it is already big enough to be anticompetitive?

Clorox v. Purex. The FTC case arose from P. &G.'s acquisition in 1957 of Clorox Chemical Co., which held 49% of the market for liquid household bleaches. Second-place Purex Corp., which had 16% of the market, had managed by heavy promotion to boost its share in several areas, including the Erie, Pa., market, where it had captured 33%. Clorox, now backed by P. & G.'s marketing know-how and money, did not let the gains go unchallenged. It blanketed the areas with ads, offered $1 ironing-board covers for 50¢ and cut the price of Clorox by 5¢ to 7¢ a bottle. Purex gave up, and by March 1958 its share of the Erie mar ket had sunk to 7%. Said the FTC, charging P. & G. with overwhelming its competitors: "In a fight to the finish, Procter & Gamble, whose aggregate scale of operations and fiscal resources dwarf the entire liquid bleach industry, cannot be bested." In 1963 the FTC ordered P. & G. to sell Clorox, and a decision on the company's appeal of that order is pending in the U.S. Court of Appeals in Cincinnati.

For P. & G., the case has significance far beyond the possible loss of Clorox's nearly $40 million in annual sales. Its management has relied on acquisitions and such selling devices as giveaways and selective price cuts to keep P. & G. growing. Under the FTC's steady gaze, the company has already had to compete less aggressively and slow down its acquisition of new companies. The results are showing up in earnings: in 1960, before the FTC order, profits rose 20%; in 1964 they rose 13%; last year, earnings before taxes actually declined. Says President Howard J. Morgens, 55: "We're not planning on any more acquisitions in the U.S. at the present time. Of course, the FTC plays a part in our thinking on this. It has made us lose heart a bit."