WD-40 Company (NASDAQ:WDFC) is a company that specializes in affordable multipurpose maintenance products and home-care and cleaning products. It was established in 1953 under the name Rocket Chemical Company, headquartered in San Diego, CA. At this time, it only had one product: WD-40. It got its name due to the fact it was a water displacement that was perfected on the 40th try.
Today WD-40 Company sells the same water displacement that it did nearly 60 years ago, with a few small alterations to its appearance and its packaging, but with the same formula. It was found in 1993 that four out of five households had at least one can of WD-40, and was used by 81% of professionals. They now also offer two other multipurpose maintenance products to go along with their staple product WD-40, and eight homecare and cleaning product brands.
For the fiscal year ended August 31, 2010, WD-40 Company generated revenue of $322 million, up 9.3% from $292 million the year prior; although, revenue was up only 1.6% in 2010 compared to their 2008 revenue numbers of $317 million. Net income earned the fiscal year ended August 31, 2010 was $36 million, up 27.8% from $26 million in fiscal 2009, and up 22.2% from $28 million in fiscal 2008.
Analysts view WD-40 Company to be very stable, with an earnings per share (EPS) projected to grow $2.31 in the current fiscal year ended August 31, 2011. Last year’s EPS was $2.15 for the fiscal year ended August 31, 2010. Few analyst recommend selling WDFC, instead encouraging investors to hold. Analysts estimate a sales growth of 7% in the upcoming fiscal year 2011, and sales growth of 6.4% for fiscal year 2012.
WD-40 Company has put a strong emphasis on global volume growth of the WD-40 brand, along with expanding their gross margin, stabilizing their homecare and cleaning products, and producing record sales and earnings. This is a company that has seen little competition in its industry since inception, and is now looking to grow beyond its invincibly stable WD-40 brand.
The WD-40 Company is, of course, widely known for the famous lubricating product that shares its name; however, the company also manufactures and distributes a small variety of other related products including lubricants, household chemicals & cleaners, and hand cleanser. The company saw revenues drop 7.9% between fiscal years 2008 and 2009 with cost of goods sold decreasing by 12.7%. However, this last reporting period produced stronger numbers, with sales jumping up 10.1% with a COGS increase of 5.9%. Of the $321.5 million in sales, $258.1 million came from its all-purpose lubricating maintenance products—representing a 15% hike from last period—and the remainder from its homecare and cleaning products.
The following products contributed to 80.3% of total sales for fiscal year 2010, making up the multi-purpose segment of the company's product line.
The following products contributed to 20.7% of total sales for fiscal year 2010, making up the homecare/cleansing segment of the company's product line.
The WD-40 Company faces competition from top companies such as Clorox and Church & Dwight Co. The company’s products, especially in its homecare line, also face stiff competition from an array of many retailers’ private label “generic” brands, further pressuring the company to continue its emphasis on brand recognition. The company’s main strategic initiatives include expanding geographically; maximizing its position in the multi-purpose maintenance product line; developing business through M&A’s, joint ventures, and other strategic partnerships; and leveraging its brand image to further enhance growth in revenues and profit.The threat of new entrants is composed of two factors: barriers to entry and expected retaliation. Companies, when deciding the attractiveness of a specific market, must consider the barriers to entry in strong detail, as it can be severely costly to fail in the attempt to compete in a new market. Product differentiation, capital requirements, and switching costs are three factors that must be measured in order to judge the firm’s ability to successfully obtain a competitive position. For the WD-40 and its rivals, there is a significant threat of new entrants. Despite the scale economies achieved by Clorox and Church & Dwight—and to a lesser degree, WD-40—the products that make up the competitive landscape of this industry can and are replicated with relative ease. Multi-purpose maintenance and cleaning products, as demonstrated before, are produced by many companies both in heavily-marketed and generic forms. This is because the products in question do not require a high degree of differentiation. Customers use these products all year around, so they are important products; however, they do not require significant changes to attributes whether considering stain removal, fragrance, ease of use, etc. The main concern is that the product does what is needed at a desirable price. This is not considerably difficult to achieve for any company as the chemical makeup can be imitated closely in a lab.
With respect to capital requirements, a firm simply must have the equity and debt mix required to manufacture, distribute, and sell these products. Scale economies play a role for smaller firms, but those already in the high market capitalization bracket will not find capital expenditures to be a troubling concern. Finally, switching costs in this industry are quite low. Consumers simply choose a close substitute if needed. Those companies wishing to enter into this market simply need to imitate WD-40 and its rivals’ products and list at a competitive price. It is in no respect costly for the end customer to switch from WD-40 to any number of other firms.
With all this in mind, managers must also weigh in on potential retaliation from existing firms. In this case that retaliation would take place in the form of aggressive marketing and pricing from Clorox with responses from WD-40 and C&W (as well as all others) to try to force new entrants out quickly. Those new entrants would need to carefully assess the environment and their own marketing capabilities and distribution networks.
Companies seek to maximize their return on invested capital (ROIC), yet buyers seek valuable products at the lowest possible price—causing the industry as a whole to earn the lowest acceptable ROIC. Consumers (buyers) have power when there is a high level of competition, causing firms to lower prices and/or provide more value in order to beat their rivals to the punch. As with the threat of new entrants, differentiation and close substitutes play a large role in the bargaining power of buyers—in this case, end consumers. As demonstrated, the products that define the main business of this industry are relatively less difficult to imitate than is the case with many other industries. Accordingly, many substitutes exist and switching costs are limited; thus end consumers are able to exhibit power over the industry and by, switching between companies when prices/value are undesirable, cause WD-40 and others to, again, lower prices and/or add value. In this competitive environment, there will always be a battle between rival firms to attract customers because the products are more or less a necessity. The multi-purpose maintenance products and, more so, homecare products of this industry are going to run at competitive prices.
Suppliers, on the other hand, can also have power. Essentially, the WD-40 Compny and its rivals act as the consumers in this case. If there few suppliers within a concentrated setting, close substitutes exist, and/or suppliers’ play a large role in the final product, then they have power over their customers. Because WD-40, Clorox, etc. buy raw materials in order to process them into final products, there really is not much room for supplier bargaining power. The chemicals and supplies needed to manufacture their products cause these firms to exert more bargaining power over their suppliers (buyer bargaining power) than they can on them. These firms suffer from and exert buyer bargaining power due to low switching costs, available substitutes, and abundance of firms. Moreover, firms like WD-40 and Clorox are able to exploit their brand image and reputation to attract suppliers who would be more than willing to be affiliated with such recognizable companies.
Probably the most significant factor of Porter’s 5 Forces Model in this industry is the threat of substitute products; it has provided the foundation for all other forces thus far (new entrants and bargaining power of buyers/suppliers). Because these products—lubricants, oils, bathroom cleaners, soaps, etc.—are essential for at least most of the targeted customers (those from developed countries) and production materials are not scarce necessarily, many firms produce high quantities of them. Threat of new entrants is high due to low switching costs, low-to-medium capital requirements, and low differentiation requirements. Although buyer power is high, profits are still there to be had as buyers will at most force companies to earn the lowest acceptable return (profits will be realized nonetheless). Thus, the market yields opportunities and this has paved the way for many acceptable substitute products, some generic and some name brand.
Lastly, rivalry intensity contributes to Porter’s 5 Forces Model. Several factors contribute to intensity including number of competitors, industry growth, fixed costs, differentiation, switching costs, and exit barriers. Of particular interest here is slow industry growth, low switching costs, and differentiation. Because the industry isn’t growing substantially, WD-40, Clorox, and all other competing firms fight to gain the most market share by stealing their competitors’ customers. Since other opportunities are scarce, each company strives to outwit the others and win the hearts and minds of all the customers. This can lead to a competitive arena where all firms trade up market share and profits. Additionally, though differentiation is hard to truly achieve in this market, it even the slightest improvements can allow WD-40 to reap the benefits of more market share, if only for a short while. In relation to both growth and differentiation here are switching costs. Because it is not costly for consumers to switch between X-14 (WD-40) and 409 (Clorox), both firms attempt to lure them with intense marketing, pricing, promotion, and the like.
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Originally known as Rocket Chemical Company during WD-40's founding in 1953, the firm only sold one product known as WD-40 for 40 years. WD-40 acts as a lubricant, rust preventative, cleaner, and moisture displacer.
Over the years WD-40 acquired a number of different brands including 3-IN-ONE brand of general purpose and specialty maintenance products. WD-40 also acquired Lava brand of heavy-duty hand cleaners, 2000 Flushes automatic toilet bowl cleaners, X-14 toilet bowl cleaners and hard surface cleaners, Carpet Fresh rug and room deodorizers, Solvol brand of heavy-duty cleaners, 1001 line of carpet and household cleaners, Spot Shot carpet stain remover. 
WD-40 sells its products through mass retail stores, home center stores, warehouse club stores, automotive parts outlets, industrial distributors and industrial suppliers. WD-40's multi-purpose maintenance products are sold in North America, Central America, South America, Asia, Austrailia and the Pacific Rim, Europe, the Middle East and Africa. Meanwhile homecare and cleaning products are sold in North America, the U.K., Austrailia and the Pacific Rim. 
WD-40 counts on heightened consumer awareness of the brands of the firm, the value offered as perceived by the customers, large number of distribution channels, and the superior product innovation and renovation produced by the firm's research and development department. The firm also trademarked WD-40's aerosol can silhouette and color scheme and as a result many consumers instantly recognize the lubricant. 
WD-40 offers superior household and automotive maintenance products than its competitors. WD-40 recognizes that it has a good marketing division that increases consumer awareness of the quality of its products. Since consumers perceive a higher value in WD-40's products the company can price its products somewhat higher than its competitors. 
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