Analysis of a spin-off company marketing their product through supermarkets.
Conventional wisdom says you can't introduce a new product in the supermarkets without spending millions of dollars. So Brooks O'Kane launched a very old product instead
Sometime in May 1989 Brooks O'Kane got lucky. He doesn't remember the day, but that doesn't matter. What matters is that, in his fifth month as the first-ever marketing director for Lawrence Plate Glass Co. (LPG), of Lawrence, Mass., someone handed him a folder and said, "This is the file on our ClearVue glass cleaner. Why don't you take a look at it?"
What O'Kane found astounded him. Here was an unmarketed, thinly distributed product -- a largely ignored sideline to the company's glass business. It was scarcely available outside the Lawrence area: Lawrence Plate Glass carried ClearVue in its five New England glass stores and also sold it locally to auto dealers, jewelers, other glass shops, and a nearby supermarket chain. Yet the folder contained dozens of letters from people all over the country who were crazy about the product.
As O'Kane thumbed through the letters, he decided he had stumbled onto a marketer's dream. "The second I saw those letters, I knew this was how I was going to make money." Forget pushing windshields and mirrors. Here was a product that inspired such loyalty that people would go out of their way -- sometimes by thousands of miles -- to buy it. Why not sell it nationally?
The answer was simple: money and priorities. Walter Demers Sr. had founded Lawrence Plate Glass in 1918; by the late 1980s his son, Walter Jr., was running a 180-employee company with five locations in New England. Over the years LPG had diversified, and by that time, one-third of its revenues came from a subsidiary that made garage doors. Another third stemmed from construction projects. The remainder came from wholesale glass sales to contractors and auto-repair shops, and the five retail locations. While those divisions typically produced $18 million in annual revenues, ClearVue had had record 1987 sales of a whopping $62,000.
Not that ClearVue had ever benefited from a lot of attention at Lawrence Plate Glass. Sometime around 1950 Walter Demers Sr. bought the glass-cleaner formula for $500 from an inventor who sold the product from the back of his car. It was bought for in-house use, but soon the company began selling the colorless fluid in its glass shops, under the name ClearVue. The company hired a high school kid to mix up a batch in the back room on Saturday mornings.
Walter Demers Jr. remembers looking several times into seriously marketing ClearVue and always coming back with the same answer: introducing a consumer product on supermarket shelves costs big money. And Lawrence Plate Glass was a small, family-run business that didn't know anything about supermarket distribution and certainly didn't have millions to spend on advertising and promotion. So the product languished. "Quite frankly, it used to be a nuisance for us," says Walter Demers III, who manages one branch of the company and will someday inherit the rest.* * *
If Clearvue had always been a nuisance, Brooks O'Kane quickly made it a much bigger one. "Brooks is a fantastically persistent person," says Walter Demers Jr. "He eats, drinks, and sleeps ClearVue."
O'Kane, now 31, studied marketing in college, then went to work for a direct-marketing company. After a failed real-estate venture, he found himself looking for a job at the same time the Demerses decided they needed someone to coordinate the company's advertising and marketing. Besides his background, O'Kane had one key qualification for the job: he is married to Ellen Demers, one of Walter Jr.'s four daughters.
Unfortunately, O'Kane's hiring coincided with a drastic decline in the New England real-estate market. Since plate-glass sales are closely tied to the construction industry, Lawrence Plate Glass's revenues plummeted. (This year, after the sale of one division, company revenues will be about $12 million, down from $18 million two years ago.) With his advertising budget cut, Brooks O'Kane had plenty of time to work on a strategy for ClearVue.
Of course, he didn't know the first thing about the channels through which he might sell the product, and he was given no resources to do so. In fact, O'Kane's only real encouragement within the company came from Dave Berryan, LPG's controller. In the fall of 1989 the two men began plotting a new life for their glass cleaner.* * *
O'Kane's first step was to begin orchestrating a grass-roots marketing campaign, pitching his story to newspaper and magazine reporters. With persistence and a colorful story, he managed to get several articles written in the New England press. Those generated phone calls and letters, many from consultants who wanted to talk about their services. Even though he couldn't afford consultants, O'Kane made appointments to listen to them all -- to try to learn as much as he could about retailing. In some cases, vendors contacted him as well. And some consumers did seek out the product, a fact O'Kane hoped might carry weight with supermarket buyers. But he knew publicity alone wouldn't sell his product, so he pursued every possible sales lead. That meant working with everybody from a car-wash supply company to the New England St. Bernard Club. (According to one letter writer, ClearVue is unsurpassed at removing St. Bernard slobber.)
O'Kane's first big success was with PPG Industries Inc., a $6-billion manufacturer of glass and other products. PPG had been trying to expand the number of accessory items it sells through its 126 glass-distribution centers. Carl Tompkins, PPG-North America's manager of market development in branch distribution, tried and liked ClearVue, as did many of the marketing people -- and they especially liked the fact that the product didn't have general retail distribution. An agreement in principle was reached between O'Kane and PPG that the giant manufacturer would be the exclusive national distributor of ClearVue to the glass industry. O'Kane could keep a retail base, as long as he didn't sell anywhere outside New En-gland. If he broke that rule, PPG could call off the deal.
While O'Kane was out selling, Berryan was getting ready for manufacturing in earnest. LPG couldn't supply ClearVue for companies like PPG with just a lone employee mixing chemicals in the back room. So in the fall of 1989 Berryan lined up a contract filler to package the product, and he set about negotiating with suppliers of chemicals and bottle components.
Walter Demers Jr. was becoming impressed. Now that his son-in-law had attracted the interest of one of the glass industry's biggest players, Demers decided to allow O'Kane to form a spin-off corporation for ClearVue. Clear Vue Products Inc. was born in December 1989, with Lawrence Plate Glass owning 40% of the stock, and the remaining 60% evenly divided among O'Kane, Berryan, and Walter Demers III. With the new structure, Clear Vue Products got its own financing: a credit line of $75,000 at a local bank, since raised to $125,000. (Of course, it helped the financing process more than a little that Walter Demers Jr. personally guaranteed the loan.)
In addition LPG invested directly in Clear Vue by lending it $30,000 in existing inventory and materials. Berryan estimates that the parent company had already indirectly invested another $45,000, in the form of office space and services, O'Kane's salary and benefits, Berryan's time, and excess warehouse space. After the spin-off, LPG began charging Clear Vue for those services but let the bills pile up until the start-up began generating cash. Berryan initially used LPG's credit history to negotiate terms with suppliers; LPG would then resell the goods to Clear Vue. As Clear Vue has grown, Berryan has weaned suppliers to selling directly to the new company.
Now that he had his own company, O'Kane planned to do more than just sell to PPG. He and Berryan also had their eyes on the $225-million retail glass-cleaner market -- a market about as difficult to enter as one can imagine. Like most supermarket categories, the glass-cleaner market is dominated by a few large corporations that have millions to spend on advertising and promotions. Windex, which has almost 45% of the market, is produced by the Drackett Co., which in turn is owned by $9.2-billion Bristol-Myers Squibb. Then DowBrands' Glass Plus (owned by $17.6-billion Dow Chemical) and SOS Glass Works (owned by $2-billion Miles Inc., a subsidiary of the larger German-based Bayer conglomerate) each have a market share in the neighborhood of 15%. The rest belongs to stores' private labels and, in some areas of the country, to a few regional brands. Although Nielsen Marketing Research estimates show that supermarket unit sales of window cleaners dropped 3.1% in 1990, Windex just launched a new twice-as-strong "professional-strength" version, and Procter & Gamble is test-marketing a product called Cinch, designed to serve as both a glass cleaner and an all-purpose cleaner.
Because manufacturers in all supermarket categories have barraged retailers with new products, grocery shelves are crowded. Supermarkets are wary of product introductions -- in large part because, according to industry wisdom, 9 out of 10 new products fail. So what O'Kane was trying to do -- introduce a new product with no money to support it -- is largely considered to be impossible today.
To make matters worse, grocery chains have in the past few years taken to charging "slotting fees," which are entry fees charged, on a per-store, per-item basis, to manufacturers that want to introduce new products. Originally, slotting fees were designed to cover costs like rearranging shelves for new products, and to compensate retailers for the costs of the all-too-frequent failures. But retailers quickly discovered that their shelf space, like any scarce commodity, could command a high price. Although no one likes to talk about the details, today slotting fees are said to run as high as several hundred dollars for each item in each store -- a high barrier to entry for any new product with a puny marketing budget.* * *
O'Kane quickly learned that if he was going to get anywhere in the supermarkets, he needed a broker to represent him; supermarket buyers prefer to deal with brokers, who often represent dozens of companies with hundreds of items. O'Kane made an appointment with Chase Kolbin Allen Associates, one of New England's larger brokers.
Freeman Chase, Chase Kolbin's chairman, remembers he wasn't overly impressed with ClearVue at first. He hated the packaging -- the cylindrical, old-fashioned bottle with printed red lettering looked like something that would die on today's supermarket shelves. But when he tried the product, he changed his mind. "It was an item that was vastly superior to anything on the shelf," Chase now says. Indeed, O'Kane claims ClearVue contains six times the percentage of active ingredients in ordinary Windex.
In January 1990 Chase agreed to take on the product. In an even more unusual move, he agreed to serve as its account executive -- mostly because he liked ClearVue, O'Kane, and the challenge of launching a new, unknown product. The crusty 63-year-old chairman of a 230-employee company whose clients include the likes of Clorox and Coca-Cola Foods, Chase gave ClearVue crucial credibility. But before O'Kane could take advantage of his new clout, Chase insisted he redesign the hated package. Play on your name and your clear liquid, he advised. Get a bottle as clear as you can.
Back at Lawrence Plate Glass, that was not an easy sell. When O'Kane started getting estimates of about $20,000 for the package redesign from Boston design houses, the Demerses needed some serious convincing. Twenty thousand dollars, in one of the business's worst years ever, for a product that had never sold more than $62,000 a year?
So O'Kane -- persistent as usual -- found a small local ad agency that, for just $2,500, designed a new label with a distinctive black background and white lettering. And, in what O'Kane thinks of as his "Bartles and Jaymes" strategy, Walter Demers Jr. agreed to write copy for the back of the label (visible through the clear liquid) in which he recounted a folksy, nostalgic history of the product and emphasized the role of "my dad." The copy was illustrated with a photo of an ancient Lawrence Plate Glass truck. "We know you'll love our product and want to tell your friends all about it. You see, you are our ad agency," Demers wrote. To add to the appeal, O'Kane and the agency designed a cardboard attachment to hang from the neck of the new 20-ounce bottle, promising "NO STREAKS!" and guaranteeing customers their money back if they weren't satisfied.
In addition to overhauling the packaging, O'Kane and Berryan had to revamp their pricing. In the old days ClearVue had sold for $1.29 for a 16-ounce container (about 8¢ per ounce), while brand-name glass cleaners retailed in supermarkets typically range somewhere around $1.99 for 22 ounces (about 9¢ per ounce). When Berryan started seriously crunching the numbers, he realized the old price was too low. Chase, meanwhile, believed it was important that the product have "price parity" in order to get people to try it that first time.
At the same time, Chase expected supermarkets to demand a higher profit margin per bottle from a new, unknown item because they, in turn, would expect to move less volume. He suggested ClearVue wholesale for $17.40 a case -- less than the leading brands. That way supermarkets could get that higher margin without, he hoped, putting a higher price tag on the product. Because ClearVue's new bottle contained 20 ounces, while most of the leading brands came in 22-ounce bottles, ClearVue would still be a little more expensive per ounce, but Chase thought the difference was small enough that people would give it a try. However, there was no guarantee that grocers would go along with his request for price parity. They might think that the expected low volume of ClearVue sales called for even higher profit margins -- and thus higher retail prices as well.
As for slotting fees, Clear Vue was prepared to pay what it could, but that wasn't much. Again, O'Kane and Chase planned to make an emotional appeal as they negotiated for reduced fees: here was a young, local guy with a great product, trying to build a business against the odds.
As a final element to their strategy, Chase and O'Kane decided to advertise on talk radio when ClearVue debuted in an area. They needed to maximize every dollar of the $40,000 allocated for advertising and marketing expenses in the 1990 fiscal year. Talk radio was comparatively cheap: it cost about $75 per minute.
O'Kane and representatives from Chase Kolbin began meeting seriously with supermarket buyers in July 1990. Their aim: a rollout of the new package in time for the fall cleaning season. (Glass cleaner is a seasonal product. While most consumers buy it several times a year, the peak purchases occur near fall and spring.) In the next nine months, O'Kane reports, ClearVue got on the shelves of 1,000 New England supermarkets, and 1,000 more in New York and Pennsylvania. Among them was Stop & Shop, New England's largest chain.
By any estimate Clear Vue was quite successful at negotiating slotting rates. Richard Lane, senior vice-president of A. J. Funk & Co., which manufactures a midwestern glass cleaner called Sparkle, says a company introducing a new glass cleaner should count on paying hundreds of dollars per item per store in slotting fees and store promotional requirements. So far, ClearVue has gotten into 2,000 stores while allocating $100,000 to slotting fees and $10,000 to store promotions. That works out to a mere $55 per store.
How did O'Kane do it? Bob Monroe, the household-products buyer at Stop & Shop, remembers what appealed to him about the ClearVue approach. "In trying the product myself, I became a believer," he says. He also liked the packaging and, just as important, liked Brooks O'Kane. He was impressed with O'Kane's drive and his affiliation with Chase Kolbin, and was reassured by the customer following the letters demonstrated. So when it came to slotting fees, Monroe was, well, flexible. "He's certainly not being given a free ride," he says. "But for us to demand the same thing from him that we do from the big companies would be unfair and wouldn't be conducive to free enterprise."
So far, free enterprise seems to be taking its course. ClearVue sales increased steadily until July, traditionally a slow period for glass cleaner. Today O'Kane reports that the product is on the shelves of every major supermarket in New England and has 8% of that region's $10-million glass-cleaner market. In May Clear Vue had its first profitable month. The company has so far been able to get paid for its product before it must pay suppliers. If that continues, Berryan and O'Kane plan to devote those profits to slotting fees, marketing for new stores, and introducing a new refill.
O'Kane hopes to do a solid regional business, perhaps up and down the East Coast. He dismisses the idea of going national in supermarkets: Clear Vue couldn't afford it. In the meantime, what if a good offer comes along from a large company? "Everybody's got a price," he admits -- but claims he's not looking to sell out.* * *
Still, after a good bit of success, O'Kane would like to sit back and catch his breath. But he's far from established, and there are several pressing issues he must confront:
* Until now Clear Vue has manufactured on a just-in-time basis. But as volume rises, a surge of big orders could strain O'Kane's operation. Recognizing that, he's currently working to build up inventory.
* If ClearVue begins to infringe too much on products like Windex or Glass Plus, those products' manufacturers could decide to squash it, as often happens in the consumer-products industry. One obvious route: discounting their products heavily only in the regions where ClearVue sells.
* Alternatively, any competitor could break down the ClearVue formula and imitate it easily, and steal market share. Then again, if it's ClearVue's appealing packaging, and not its formula, that attracts shoppers, that's a competitive advantage that is even easier to duplicate.
* O'Kane doesn't especially enjoy the day-to-day details of running the business. Public relations and selling, he admits, are much more up his alley. How long can or should he wait before putting together an experienced management team?
* Then there's the deal with PPG, which locks him out of all retail distributions outside New England. Will that prove to be too severe a limit on ClearVue's potential market share? O'Kane may already think so, since he has effectively broken the deal by selling in New York and Pennsylvania.
One thing is certain: whatever the outcome, the great ClearVue experiment has changed the mind-set at Lawrence Plate Glass. Walter Demers Jr. talks enthusiastically of a day when ClearVue might be as big as -- or bigger than -- the parent company. "Brooks has taught us all a little bit of a lesson," says Walter III. "We learned that you don't have to set parameters for yourself. The doors we all thought were closed didn't turn out to be."
The Company: Clear Vue Products Inc., Lawrence, Mass.
Concept: Take a popular sideline product that had never been aggressively marketed and introduce it to the mass market. Expand distribution to supermarkets throughout New England and, eventually, up and down the East Coast. Trade on product's strong formula and on testimonials from longtime customers.
Projections: Sales of $802,000 in fiscal year 1991, with sales rising to $5.49 million by 1994. Aiming for pretax margins of 13%.
Hurdles: Gaining distribution in supermarkets without having the budget for the fees they demand for new products. Differentiating a product in the extremely crowded glass-cleaner category. With a minimal marketing budget, taking market share from multibillion-dollar companies.
Family: Married, one son
Source of idea: As the new marketing director in the family business, he was impressed by the letters customers had written praising the company's unmarketed glass cleaner.
Personal funds invested: None
Equity held: 20%
Education: Studied marketing, Plymouth State College, Plymouth, N.H.
Other companies started: None
Last job held: Marketing director, Lawrence Plate Glass; before that, account executive at a small direct-marketing agency.
Clear Vue Products Inc. Projected Operating Statement
Year ending (actual) 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94
Total sales $162,300 $801,774 $1,989,897 $3,416,653 $5,486,105
Cost of sales $133,400 $569,260 $1,253,635 $2,084,158 $3,291,663
(manufacturing and distribution)
Gross profit $28,900 $232,514 $736,262 $1,332,495 $2,194,442
Advertising and promotion $0 $60,000 $102,300 $179,850 $586,250
Slotting fees $20,000 $80,000 $207,700 $365,150 $288,750
General and administrative $51,357 $110,390 $214,184 $366,618 $596,417
Interest $1,043 $7,800 $10,000 $10,000 $0
Operating profit (loss) ($43,500) ($25,676) $202,078 $410,877 $723,025
WHAT THE EXPERTS SAY
Cofounder and president of Smartfoods Inc., based in Marlborough, Mass., a snack-food maker that successfully went from regional to national distribution; Meyers left the company this year to found Silverback Creative Inc., a "guerrilla marketing" firm based in Wellesley, Mass.
A couple of things bother me. For one, if you look at the amount O'Kane has allotted for slotting fees over the next three years, he's hoping to garner 50% of his distribution in the company's fourth year. If he's going to build brand presence, he had better not take four years to get there.
I also think the deal with PPG was ill-advised. To give up the option to retail outside New England was ridiculous, considering there's no evidence that PPG itself can provide that kind of blanket distribution. PPG has distribution through glass stores and hardware stores, but what about the supermarkets and the Wal-Marts of the world? It would have made much more sense to grant PPG exclusivity only in its own distribution arenas.
From a marketing point of view, he should take ClearVue's strongest point of brand differentiation -- that the formula is six times stronger than the big guys' -- and play it for all it's worth. That's an advantage, but it also comes with its own set of risks, notably that it sets consumer expectations very high. And there's nothing worse than delivering less than 100% on a consumer product. Besides that, I suspect glass cleaners may be a product category where it's OK to be just good enough. And even though ClearVue is stronger and better, if it gets down to a price war, it may lose its customer base.
So far O'Kane has gotten where he is on sales-and-marketing moxie, but a point may come soon at which significant strategic decisions will have to be made. If he's not really interested in running his company, he ought to find someone who is.
Has run 60 mass-merchandising brokerages, doing a total of $500 million in sales; took household cleaner Formula 409 national and sold it, six years later, to Clorox for $7 million; now a consultant in Cummings, Ga.
ClearVue has passed the most severe of all tests: consumers are buying and rebuying it. Freeman Chase, an important broker, made a key statement, saying that ClearVue is "vastly superior to anything currently on the shelf." I don't believe Chase would have taken it on, or that supermarkets would have put it on their shelves, if the product did not indeed do what it claims. That's the marketing edge O'Kane needs to build a national business. But time is of the essence -- before someone copies his product.
What should O'Kane do next? First, he should develop a national rollout plan, even if it's a market-by-market strategy. And the key to that must be television advertising that dramatically demonstrates the product's advantage.
Next, to compete with the big boys, he should leverage his relationship with Freeman Chase to attract other large brokers with whom he can strike deals -- effectively, partnerships. He might say, "Instead of your usual 4% to 5% commissions, I'm going to give you 10% the first year and 5% thereafter on a 10-year contract. But you pay the slotting allowances." Brokers like long-term commitments like that.
He'll also need to raise some money. If his numbers are accurate and he's got the distribution and sales he says he has, this is an absolute can't-miss public offering. He could raise $4 million to $5 million. Another way to raise money may be a private offering among the brokers he'd like to deal with. In other words, he could develop a running private placement on a market-by-market basis, as needed.
Brand manager of DowBrands' Glass Plus glass cleaner
Staying strictly regional is the best shot ClearVue has at success, especially with minimal marketing dollars. What's a long shot on a regional basis becomes almost an impossibility on a national basis, because the extent to which big competitors try to eliminate you is directly related to how big an impact you have on their business.
A big strike against ClearVue's entry into the marketplace is that it is somewhat ill-timed. Procter & Gamble is launching its new entry, and Windex Professional Strength was launched in June. Everything is going to heat up in 1992. Spending on a national basis for glass cleaners could approach $20 million next year, and ClearVue's $40,000 ad budget is not going to break through too much clutter. Regionally, the local, homespun marketing pitch may play well, but O'Kane would be foolish to think he could expand that nationally.
The same goes for distribution. You're much more likely to be successful making a heartstrings pitch to a local chain than to a national outfit like K mart, Wal-Mart, or Target. And it would be very difficult for any national cleaning product to be successful if it could not play in the general-merchandise class of trade.
ClearVue supposedly cleans glass better, right? It's difficult, without significant advertising and consumer promotion dollars, to try to prove that. There's also the problem that 90% to 95% of glass-cleaner users are extremely satisfied with their current brand's ability to clean glass. Brand loyalty is strong, especially when you're going up against products with the name recognition of a Windex.