Chattem: Up in a Down Economy

By Carolyn Mitchell

On May 28 the media reported that the country had lost 1.3 million jobs since February, General Motors appeared close to filing the largest industrial bankruptcy in U.S. history and sales of high-end residential properties remained at a standstill.

On the same day Chattem, Inc. announced the largest expansion in its 130-year history -- an 80,000 square foot manufacturing facility, representing a $35.5 million investment and adding as many as 70 new jobs for the production of ACT mouthwash and other new products.

In fact, last year during the deepening recession Chattem ranked number 46 on Forbes’ list of the Best 200 Small Companies in America in 2008 after earning profits of over $66 million on sales of $454 million.

The company, which has been located in Chattanooga since its inception, does business with 110 discount, grocery and drugstore chains (with 68,500 stores). Chattem enjoyed a 12 percent average sales growth over the last five years, and Chairman and CEO Zan Guerry expects that the 2009 earnings per share growth may reach 15 percent.

It’s not surprising then that Guerry and Chattem President Bob Bosworth often hear the question: "Why has the economy not hit you?"

"We’re our brands and our people and five, 10, 15 million loyal consumers," Guerry says. "We’ve been tremendously successful over the past five years -- not just during the downturn."

The officials suggest that the company focuses on quality products that people need -- products that relieve pain, lubricate dry skin and alleviate sleeplessness. "These products really work and people who use them aren’t going to trade down -- even in a recession," Bosworth says.

The people at Chattem also make the difference, says Guerry, from the sales staff to marketing to the research and development department.

"Pamprin is the only brand developed at Chattem," he points out. "All the other 25 brands we acquired. But we improved them."

As an example, he cites Icy Hot, which provides pain relief from sore muscles, aching joints and arthritis. "When we bought Icy Hot from Procter & Gamble it was bringing in revenues of $5 million a year. Today it generates $60 million to $70 million. Why? Because 15 years ago it was a cream. But consumers want something that’s mess-free, effective and easy to use so our people developed the back patches with medication on an adhesive pad."

The Icy Hot Web site illustrates another Chattem strategy -- heavy marketing, to the tune of $120 million a year and sometimes sparked by celebrity endorsements.

Basketball great Shaquille O’Neal endorses the product online as well as on television. Thirty years ago, another famous athlete, New York Jets quarterback Joe Namath, attested to the efficacy of Chattem’s Flexall as balm for his battered knees.

"Top tier celebrities can be very helpful in calling attention to a product," Guerry says. "Christie Brinkley is someone who relates well to consumers and her likeness on our store displays helps our sales force push ACT."

According to Forbes, Chattem paid the model $2 million to endorse the mouthwash, which posted revenues of $60 million in 2008, a 50 percent increase over the year before.

"But we use stars rarely and selectively," Guerry says. "Primarily we rely on steady, strong advertising."

Promotions include point-of-sale displays so that consumers connect the ads they see on TV with the marketing they encounter while they’re shopping.

Chattem’s major brands are among the leaders in their respective categories, giving the company an advantage on the store shelf, as well as with consumers.

"When times are hard, retailers will cut back to the top brands," Bosworth says. "So we get that benefit at the retail level. This also works to protect us during downturns."