Markets in India, China beckon new Clorox CEO Inflationary pressures threaten company, but growth may lie overseas

The new boss at Clorox will have two main challenges, inflation pressures on the consumer products company and expansion into new international markets, when he takes the reins in October.

Don Knauss, in an interview with the Times on Thursday, said the Oakland-based maker of bleach and other household products must grapple with rising prices for raw materials and other commodities. And Knauss believes the inflation gremlin will continue to haunt consumer goods companies through 2007 but abate by 2008.

"There is a lot of head wind out there for a lot of companies" from inflation, Knauss said. "You name it, there are rising costs going on. That is always a challenge when you are trying to drive market share and category growth in the face of those kind of commodity costs."

The company's new chairman and chief executive is also going to have to figure out where and how to prospect for the next big revenue stream for Clorox, a stalwart of the East Bay's corporate tapestry. Knauss, president of Coca Cola's North American unit, succeeds Gerald Johnston, who retired as Clorox's top executive in May to recover from a heart attack.

That initial opportunity might come from overseas markets, said Jason Gere, an analyst with investment firm A.G. Edwards & Sons Inc. Clorox captures about 90 percent of its sales from North America, Gere estimated.

"Clorox has a limited presence in Latin America, but that's about it, although they are in Australia and Canada," Gere said. "That is one reason they hired (Knauss), because he has expertise."

The obvious targets are China and India. But if Clorox chases those hypergrowth consumer markets, the company would have to overcome its relative lack of size compared with the biggest giants of the consumer products world, Gere said. Yet it would also be tough for Clorox to eschew such ventures altogether.

"Getting into these international markets is a challenge and an opportunity at the same time," Gere said.

Knauss would not specify whether Clorox might jump into China or India. But he did provide insights on how the company might approach such megamarkets.

"The issue is more of a rifle approach than a shotgun approach to international markets," Knauss said. "Where I have seen people fail is where they scatter their resources. But when you have 95 percent of the world's population living outside of the United States, there is a heck of a lot of growth potential out there."

Major changes in strategy might not emerge right away, Amy Low Chasen, an analyst with Goldman Sachs, wrote in a research report.

"At Coca-Cola, (Knauss) demonstrated a balanced approach of defending core brands, generating some revenue lift from new products, and containing costs," Chasen stated. "Mr. Knauss' international experience is also of note and we believe represents an opportunity for Clorox to focus on international opportunities -- perhaps more aggressively than in the past."

While the international markets may be important, Knauss believes plenty of trends that exist in the domestic sector will be crucial for the company.

"These trends are around health and wellness, convenience, and the environment," Knauss said. "And emerging in this country the fourth one would be the change of ethnicity in the United States with the emergence of the Hispanic market."

Under Johnston, who became CEO in 2003, Clorox strengthened its brands through new products and partnerships, along with cutting costs.

The company's stock is up 3.9 percent over last year and 5.1 percent so far in 2006. Clorox's one-year stock performance lags both the S&P 500 Index and the S&P Household Products Index. However, from July 2003, when Johnston was named president and CEO, through early March 2006, when Johnston suffered his heart attack, Clorox's shares rose about 42 percent.

Clorox would not immediately disclose the salary or other compensation the company will pay Knauss. In fiscal 2005, Johnston received a total compensation package of about $10.2 million. Knauss said Clorox attracted him because of the company's corporate culture, brands, impressive employees, and high-quality board of directors.

"As a marketer, you always look to a stable of brands, and Clorox has a terrific portfolio of brands," Knauss said.