Clorox Hack Opens Door For Competitors to Grab Market Share

(Bloomberg) -- Clorox Co. is at risk of losing market share to competitors after a cybersecurity attack idled its US factories, tightening supplies of the company’s goods from bleach to cat litter. 

The producer of Pine-Sol floor cleaner and Kingsford charcoal briquettes said earlier this week that the vast majority of its US factories have resumed output after production was halted amid the fallout from the mysterious attack. Some plants are still offline, however. Following the output pause, outages are now showing up at retailers. Empty shelves mean that shoppers will buy competing products — and analysts say some of the shifts may stick.

“Any time a company has an out-of-stock product, that’s the opportunity for the consumer to shift to a different brand. I think we saw that during the pandemic,” said Edward Jones analyst Brittany Quatrochi. “There are some other companies that could pick up the pieces.”

Clorox has been tight-lipped on the details of the hack, while telling investors “the unauthorized activity has been contained.” The company is working with the Federal Bureau of Investigation, and said on Sept. 18 that it’s “aware of an elevated level of consumer-product availability issues.” It’s repairing its information-technology systems that were damaged and its automated ordering system is expected to resume next week. Production is ramping up but Clorox says it doesn’t have an estimate for how long before the situation is back to normal. 

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Store checks at a Target and two Walgreens in Chicago showed that some Clorox products were running low or out of stock, including toilet cleaner, Glad garbage bags and Formula 409 all-purpose cleaner. In Dallas, Fresh Step kitty litter was running low or was out of stock at multiple Target and Walmart locations. Scoop Away, another Clorox product in the same category, was only available at a handful of Walmart stores. In Manhattan, a Duane Reade store was out of various Clorox cleaners and Glad garbage bags, along with litter.

When contacted by Bloomberg News, Clorox referred to its Sept. 18 statement. 

The company is by far the biggest player in the US bleach category, followed by private labels, according to data from Euromonitor. For toilet cleaners, the company had about 41% of the market in 2022, while it had about 18% of kitty litter sales.  

“We’ve been getting limited supplies from them,” said Chief Executive Officer Tony Sarsam of SpartanNash Co., adding that the disruption is affecting both the company’s grocery retail business and its distribution operations. SpartanNash operates more than 140 stores in nine states.

Clorox’s cleaning supplies and its Hidden Valley ranch salad dressing have the most significant outages, he said. SpartanNash is providing alternatives where possible, but it’s difficult to find replacements for the Hidden Valley brand, Sarsam said.

US Foods Holding Corp., a supplier and distributor for foodservice companies, is monitoring the availability of Clorox products and is ready to substitute them if supply problems emerge, a spokeswoman said in an email, noting that the Clorox items it handles are relatively low volume. 

“Clorox’s brands could suffer long-term damage as competitors seek to make inroads during this period of disruption,” DA Davidson analyst Linda Bolton Weiser said in a recent research note. She lowered her price target for Clorox to $152 from $176. 

Big rivals for Clorox include Lysol cleaners, Reynolds Consumer Products Inc. for trash bags and Church & Dwight Co. with its Arm & Hammer litter.

“They will lose some market share,” Bloomberg Intelligence analyst Diana Gomes said in an email. As a result, retailers will fill their empty shelves with competing brands, she said, adding that it’s unlikely shoppers will go to the trouble of hunting for Clorox-specific items in other stores or online.

“Many may just go for their next favorite brand,” she said. “So that’s a sale that Clorox lost.”

Clorox shares have dropped 16% since the company reported on the hack on Aug. 14. That has erased the stock’s advance earlier this year. 

The Oakland, California-based company is restructuring its ranks to cut costs, launch products faster and adapt more rapidly to shifts in consumer preferences. The cyberattack will likely delay Clorox’s goal of boosting profitability back to pre-Covid levels, according to Quatrochi. 

“There are a lot of costs,” she said. “You’ve got the opportunity cost of not having stuff on shelves, you’ve got the cost of addressing the incident.”