Primary Batteries, Dry and Wet

SIC 3692

Companies in this industry

Industry report:

This industry covers establishments primarily engaged in manufacturing primary batteries, dry or wet.

Industry Snapshot

After suffering through the doldrums of the economic recession in the early 2000s demand for primary (disposable, nonrechargeable) batteries returned to health in the mid-2000s because of the ever-expanding use of portable electronic products. The recession of the late 2000s caused some decline in sales and a trend toward cheaper varieties, but the overall trend was expected to continue to be a heavy consumer reliance on batteries well into the 2010s. Longer-lasting alkaline batteries, introduced in the 1980s, retained roughly two-thirds of the U.S. retail (household) market. Although sales of standard alkaline batteries were growing, the sector faced increasing competition from the rechargeable segment, where significant strides in research and development had been made. Given their relative convenience and low initial cost, however, disposable batteries were expected to remain dominant in the household sector. Wal-Mart was a major outlet for battery manufacturers, accounting for approximately 20 percent of both Energizer and Rayovac's battery sales.

Duracell, which operates within the portfolio of conglomerate Proctor and Gamble and Energizer are the dominant players within the disposable battery industry, representing nearly 80 percent of U.S. sales in 2009. The value of shipments in this industry was more than $3.6 billion in 2008, up from $3 billion the previous year and $2.75 billion in 2006. Duracell and Eveready are also powerful players in the European market as well as in other international markets.

Background and Development

Around the start of the nineteenth century, the first battery was constructed by Alessandro Volta. The Leclanch cell, developed by the French engineer Georges Leclanch in 1866, immediately became a commercial success in large sizes because its component materials were easily available. Until fairly recently, however, the major use for primary batteries in the home was in flashlights. The strong growth in primary battery sales began to accelerate in the 1950s, with expanding demand for transistor radios. The continuing introduction of new electronic products, including pagers, hand-held video games, cellular phones, and portable CD players, and the increasing desire for portability, has fueled the growth in sales for primary batteries. Zinc chloride batteries, which are similar to Leclanch cells but produce more energy, were dominant in the U.S. market in the 1970s and the early 1980s, when longer-lasting alkalines began to overtake them. Alkalines represented the dominant share of the U.S. consumer battery market in the late 2000s.

Other important primary batteries include silver oxide-zinc cells, which are used in watches, hearing aids, and cameras. Lithium cells attracted the most research in the early twenty-first century because they are well-suited for applications such as personal paging systems, heart pacers, and automated cameras.

Despite new developments in rechargeable batteries in the late 1990s and early 2000s, throwaways did not become obsolete or even lose their dominant position in many consumer markets. Most consumers still preferred the convenience of throwaways, even if they ultimately saved a few dollars by consistently using rechargeables.

Some of the supposed environmental benefits of rechargeables also were open to question, since primary batteries, while numerous, represented less than 1 percent of all municipal solid waste. Battery makers have made additional efforts to cut their waste products. Panasonic, for example, designed packaging for its batteries that was made of high-density polyethylene and was therefore recyclable through 6,000 service centers nationwide.

The top three battery companies battle fiercely for the consumer's dollar, especially at Christmas, when batteries are needed for toys, games, and other electronic gifts. Historically, about 35 to 40 percent of all household battery sales are made in the final quarter of the year, while less than 20 percent take place in the first quarter. To distinguish their brands and maintain or expand share, the major firms spend huge sums on advertising. For example, in 1999, Duracell spent $60 million, which paid off with an increase in market share of almost 50 percent. Such heavy expenditures create a significant barrier to entry for new companies. They also make advertising characters like Eveready's Energizer Bunny familiar to almost every American who has a TV.

At the beginning of the twenty-first century, battery manufacturers attempted to maintain a robust market by developing improved-technology alkaline batteries. In addition to increasing the potency of interactive elements to create long-lasting cells, batteries also incorporated designs that facilitated electric flow. Longer-lasting batteries and improved flow resulted in faster, more robust performance of battery-powered devices.

Throughout the late 1990s, the retail market for battery sales in the United States was characterized by constant growth. In 1997, shipments were valued at $2.39 billion, and by 2000, the value of shipments had increased to $2.93 billion. A majority of sales consisted of round and prismatic battery cells for the consumer market. During the sluggish economy of the early 2000s, the primary battery industry was stagnant but fairly stable. Shipment values fell 6 percent during 2001, to $2.75 billion, and then rebounded slightly to $2.82 billion in 2002.

After falling off slightly again in 2003, with shipment values of $2.77 billion, the industry was poised for growth by the mid-2000s. Sales of both primary and secondary (rechargeable) batteries were expected to grow 5.5 percent through 2007. While primary batteries were expected to grow 4.8 percent, rechargeables were projected to grow 5.9 percent, slowly edging into the market.

In 2007 the primary battery industry employed 7,004 people compared to 8,418 in 2003. Production workers in 2006 numbered 5,519 and they earned $317 million in wages.

Current Conditions

In 2009 the recession stagnated the overall economy, causing consumers to purchase fewer items requiring batteries. Given consumer dependence on battery-powered devices, batteries continued to be purchased, although sales were depressed and consumers showed a preference for less expensive brands. However, sales of replacement battery sales remained relatively steady. Energizer's revenues declined from $4.33 billion in fiscal 2008 to $4.00 in fiscal 2009, ending September 30. Household products (i.e., batteries) accounted for 53 percent of revenues; personal care products (including brands Playtex, Schick, Skinimate, and Edge).

Nearly 75 percent of the market is in AA batteries because so many household and consumer items require this size, including toothbrushes, toys, and remote controls. Regular alkaline batteries continue to hold more two-thirds of the market, but to compete with longer lasting rechargeables, the industry introduced high-end niche AA batteries for use in high-drain equipments, such as digital cameras. Because the number of battery-operated components within an average household continues to grow as Americans move to smaller, more mobile devices with advanced electronic functions, the primary battery industry is expected to have a solid consumer base for years to come.

However, in the late 2000s and into the early 2010s certain trends had industry executives concerned. Specifically, more and more manufacturers were putting out devices with built-in, rechargeable batteries, thus negating the need to purchase off-the-shelf batteries. With sales also depressed due to the economy, Duracell and Energizer found themselves in a fiercely competitive battle for market share. P&G began selling its Duracell batteries in bigger packs at the same price, and Enegizer cuts its prices. Morningstar Inc. analyst Lauren DeSanto told Portfolio.com that P&G had the upper hand: "P&G doesn't break a sweat clobbering Energizer's battery business." She continued, "With little visibility to the future for the category, given shifting device trends, declines in mature markets, and growth in developing markets, the only certainty is that the category will remain volatile for some time."

In 2009 the industry continued to be dominated by Duracell and Enegizer. Duracell owned 47 percent of the market, compared to a 32 percent share controlled by Enegizer. Another 17 percent went to private label batteries. Other brands accounted for just 4 percent.

Industry Leaders

In 1988, a leveraged buyout (LBO) led by Kohlberg Kravis Roberts (KKR) took Duracell private. While some LBOs have come under attack for weakening strong companies by saddling them with debt, Duracell's LBO was generally judged a success. The company completed an initial public offering in 1991 that reduced its $1.6 billion of debt by one-third, and it once again became profitable in fiscal 1992.

In 1996, Duracell once again changed hands when Gillette bought the company for $7.1 billion in stock. Most analysts were pleased with the combination, since they believed Gillette's international marketing muscle would help Duracell overseas. The company already held a solid lead in the global alkaline market, with a 42 percent share compared to 24 percent for Eveready. Since only 20 percent of Duracell sales came from outside North America and Western Europe, Gillette management believed the company offered excellent opportunities for international expansion. In 2005 household and personal care conglomerate Proctor and Gamble purchased Gillette for $57 billion. Thus, Duracell came into P&G's umbrella of companies.

Batteries made by Duracell have been marketed worldwide under the Duracell trademark, giving the company an advantage in Europe over Eveready, which initially marketed its alkalines there under local brand names. In the late 2000s, Duracell's worldwide sales of its copper-topped battery product line outperformed all other manufacturers of alkaline batteries. Duracell also continued to be a leading producer of lithium batteries for consumer applications and zinc air batteries, most of which are so-called button cells used in hearing aids and medical equipment. In fiscal 2010, P&G had sales of $78.9. Its household product business sector, of which Duracell is a part (along with other brands such as Ace, Ariel, Dawn, Downy, Gain, and Tide) accounted for 30 percent of revenues.

Energizer Holdings (previously Eveready) is one of the oldest battery companies, dating to the nineteenth century. Eveready was sold by Union Carbide in 1986 to Ralston-Purina, which also markets pet foods and other consumer and agricultural products. At the time of the merger, the former Energizer Battery Co. became known simply as Energizer Holdings. In 2000, Ralston-Purina spun off Energizer Holdings.

Although Duracell holds the majority of the overall market share, compared to Energizer's 32 percent share of the market, Energizer excels in certain market sectors, especially dry cell batteries and flashlights. While Energizer is a leading manufacturer of alkaline batteries, it continued to make carbon brands in huge numbers. Although zinc carbon use is declining worldwide, these batteries (marketed as "heavy duty" batteries) remain good money makers. The margins of profit for zinc carbon batteries are generally higher than those of alkalines because they are cheaper to produce. In fiscal year ending September 2009, Energizer posted sales of $4.25 billion with 15,500 employees.

In 1996, Boston financier Thomas Lee bought an 80 percent interest in Rayovac Corp., which had the third highest sales in the battery business. Rayovac was a pioneer in the rechargeable sector, introducing a secondary battery in 1993. Nevertheless, despite a $20 million advertising campaign featuring Michael Jordan in 1996, Rayovac's Renewal alkaline rechargeable line did not catch on with U.S. consumers. However, by 2006 some 15 percent of the company's revenues were generated by rechargeables.

The company found more success selling low-cost alkalines, growing from $432 million in sales and 2,300 employees in fiscal 1997 to $1.4 billion in sales and 6,500 employees in fiscal 2004. In 2005, after purchasing United Industries of St. Louis, Missouri, Rayovac changed its name to Spectrum Brands, which supplies an array of household items. Sales in 2008 were just under $2.7 billion, with 7,000 employees. The company emerged from bankruptcy on August 28, 2009.

America and the World

Overall, the annual worldwide disposable battery market is about 20 billion units. The widespread diffusion of portable electronic products in Europe and Asia was accompanied by strong sales of batteries to operate them as it was in the United States. There also was a move to more powerful alkaline batteries from zinc-chloride cells globally. Nonetheless, non-alkaline batteries predominate, holding a 68 percent market share.

In 2009, the United States exported $868.6 million in primary batteries and imported $571 million. China was the leading importer into the United States, accounting for 42 percent of U.S. battery imports. Canada and Mexico were the top countries for U.S. battery exports.

Research and Technology

One major focus of research and development in the early 1990s was the effort to produce mercury-free alkaline batteries. By 1994 researchers were able to reduce mercury levels, which had once been as high as 6 to 8 percent, to merely trace elements. With the goal of mercury-free batteries largely accomplished, manufacturers were able to concentrate on producing lighter, more powerful, and longer-lasting batteries. As electronics makers produced ever-smaller and smarter products, traditional batteries accounted for an increasing proportion of total weight. Thus, the development of lithium batteries has been emphasized, since these cells have the advantages of extremely high-energy density and long shelf life. In addition to their widespread use in consumer products, lithium primary batteries had become the power source of choice for a range of medical implants by 1996.

Heading into the mid-2000s, battery manufacturers continued to improve battery design. One important strategy that was first introduced by Duracell and later embraced by the industry involved improved cell designs that increased efficiency and maximized output. Changing consumer needs necessitated better designs for alkaline batteries due to increased power needs of products such as digital assistants, digital cameras, handheld computers, and wireless peripheral devices.

To compete with rechargeables for these high-drain electronics, primary battery manufacturers worked to develop high-end disposables. In 2005, GE/Sanyo introduced a new product line called superlattice alloy that increased the power of AA batteries 10 percent and AAA batteries 20 percent. In addition, Panasonic began to market its new Digital Xtreme Power batteries that were based on oxyride technology and were aimed at the digital camera market. Xtreme Power batteries reportedly last twice as long as regular alkaline batteries. The company introduced the high-end battery to compete with Duracell's Ultra and Energizer e2 Lithium batteries, the two top selling premium batteries.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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