Mid 2015, Eveready Managing Director Jackson Mutua walked into his office along Mombasa Road, powered on his computer and an email came in.
It was from Energizer Holdings. The American firm was splitting into two firms and as a result, Eveready would no longer be supplied with Schick razors.
“Just like that, without warning or prior consultation, we were going to lose about five per cent of our revenue,” said Mutua.
That was the second in as many emails from the global supplier of batteries and spotlights that got Eveready sweating. Towards the end of 2015, another one came in.
The one-dry cell spotlight, a popular product on the Kenyan market that was contributing about 40 per cent of its flashlight revenue, had been rendered obsolete.
“They told us that the product would no longer be available because it doesn’t make sense in those other markets (US and Europe). They were not willing to manufacture it for Kenya alone,” said Mutua.
That decision switched off their flashlight revenue by 40 per cent. The board had to swiftly move into action. But before that, another email with a heavier bearing on the business came in last year.
Energizer Holdings, the firm that owned 10.5 per cent stake in Eveready but controlled over 80 per cent of the company’s revenue as a chief supplier, informed Mutua it had cut the 50-year old contract.
“We suffered a significant impact on revenue…… All the batteries and flashlights that we were selling were being imported from one supplier (Energizer). That was producing about 85 per cent of our revenue,” he told The Financial Standard.
The company suffered stock outs. Sales were disrupted and it booked a 51 per cent decline in revenues in 2016.
That, the CEO said was the heavy price for depending on one supplier. In its 2013/2017 strategic plan, Mutua says, the board had identified it as “single most critical risk” for the business.
In an interview with The Financial Standard, the word ‘restrictive’ featured prominently. He says misfortunes that have befallen the company that was once a darling stock on the Nairobi Securities Exchange (NSE) had to do with the nature of contract with Energizer.
Last year, when the board went into a record six months of negotiations with Energizer up to September, they decided not to renew the contract.
“There were terms that were extremely restrictive from a commercial perspective. They were basically going to control our pricing strategy right from purchase to consumer price,” observed Mutua.
According to the Eveready boss, committing to a one-year contract was untenable especially that it offered no options for renewal.
The terms, Mutua added, saw his board resort to a new brand of portable power solutions called Turbo. This was launched last December.
Under this arrangement, all the products that the firm was offering under Eveready Energizer brand started being offered under Turbo brand. This angered Energizer.
At the moment there is an ongoing litigation between Eveready and Energizer. Eveready believes that Energizer should not compete with it since it is a shareholder.
But for Eveready, opting out the contract was the beginning of freedom. For 50 years, Eveready had nothing of its own from a brand perspective.
As a local company, it was supplying brands owned by a foreign shareholder under what the Managing Director terms “restrictive contractual arrangement offering zero room for creativity.”
All the brands it used to sell were operated under license or agreement. And over time, it was operating on evergreen contract that was self-renewing, keeping it in darkness over its renewal or lack of it.
Mr Mutua told The Financial Standard, the contract with Energizer was detrimental since it denied the firm the opportunity to innovate and match needs of the Kenyan market.
In almost every Annual General Meeting, Mutua could face stern-faced investors asking why Eveready could not ride on its strong brand to bring in other products.
“They wouldn’t know that we didn’t own the brand ‘Eveready’ and therefore we couldn’t use it for any other purpose rather than accept and trade in only what was given by Energizer,” he said.
Further, Eveready had no control of pricing. The margin, he says was being fixed by Energizer, making it difficult to react to dynamics in the market.
According to Mutua, US and European markets where Energizer serves is 20 years ahead of Kenya in terms of gadgets being developed? Since consumption of batteries is gadget-driven, supplies meant for other regions could not perfectly serve Kenya.
“We were dependent on ‘one suit fits all.’ What the American consumer wanted is what a Kenyan consumer had to fit into,” said Mutua.
As the company awaits the outcome of court decision, it is now focusing on the Turbo brand. This, Mutua says, is giving it room to innovate on timely basis to server the local market.
“We have created partnerships with global manufacturers who are able to give us those product lines in a manner that we need them and in quality parameters that serve local needs,” he said.
The company has finalised negotiations with a key partner on manufacture of rechargeable batteries and torches and expects to stock them in next four months.
It is also bringing Turbo-branded bulbs to the market.
Its one-dry cell spotlight is back to the market under the Turbo brand as it hopes to recapture the lost market.
Locally, it has also entered into partnership with Orbit Company for Everclean, a washing powder, as part of diversifying revenue streams. It is also involved in detergent selling as well as car battery. “We have eliminated the single most significant risk that this business has been facing,” says Mutua as the firms embarks on next plan of action.
Even as the talk about rural electrification and use of solar energy gains momentum in the country, Eveready boss believes it will work for firm’s recovery.
Mr Mutua told The Financial Standard that as more people get connected to the grid and invest in gadgets such as TV, video player, set top box, music system and wall clocks, the demand for batteries will rise.
“Energizer is a multibillion dollar business and their sole business is to sell batteries and flashlights in Europe and US where every household has electricity. If we get each and every household with electricity, our revenue will be up by about ten times,” says upbeat Mutua.
With increased diversification pegged on existing distribution channels he sees costs of operation falling, leading to improved returns.