The ubiquitous power cord hasn’t done in the Energizer bunny yet.
Shoppers are paying more for disposable batteries even though the proliferation of toys and consumer electronics powered by built-in rechargeable batteries has reduced U.S. demand.
That is because the two biggest disposable-battery brands, Duracell and Energizer, control over three-quarters of the market. As both focus on profits, they are no longer offering deep discounts as they did when they were racing for market share.
Batteries on average cost 8.2% more than a year ago, while prices in the overall household-care segment rose only 1.8%, according to Nielsen. At a time when prices are stagnating on everything from toilet paper to diapers, such pricing power for a product that is increasingly obsolete has confounded shoppers.
“As far as the prices go, you don’t have a choice,” said Samuel Hurly, a contractor from Mount Vernon, N.Y., as he scanned a Home Depot display of AAA batteries to power flashlights he uses on the job. Batteries ordered online take too long to arrive, Mr. Hurly said, and he finds cheaper, private-label options lose power too quickly.
Battery prices were more likely to fluctuate a few years ago, when Duracell was owned by consumer-products giant Procter & Gamble Co. and Energizer was part of Edgewell Personal Care Co. Those companies were more focused on their bigger, more profitable razor businesses—Edgewell with Schick and P&G with Gillette. They would invest less in batteries, or slash prices to drive up volume, to compensate for weak sales in other units, said SunTrust analyst Bill Chappell.
Energizer Holdings Inc. spun off from Edgewell in 2015, and Duracell broke apart from P&G a year later when it was acquired by Warren Buffett’s Berkshire Hathaway Inc.
Both businesses have become more profit-focused since separating from their previous owners. Energizer implemented zero-base budgeting, a system in which each expense must be justified, and has streamlined the supply chain, while Duracell announced plant closures under a new chief executive. (Duracell’s parent company, Berkshire, lets its subsidiaries operate independently.)
A likeness of Warren Buffett, chairman and chief executive of Berkshire Hathaway Inc. made of Duracell batteries, displayed at a shareholders shopping day before the Berkshire Hathaway annual meeting in Omaha, Neb., in May 2017.
“As soon as the [Duracell] deal was announced, the [discounts] started to dry up. They both started to play well in the sandbox,” Mr. Chappell said. “Now, both are saying, ‘We’re not going to win by just giving the lowest possible price.”
Energizer and Duracell declined to comment. Asked in a January call with analysts how Energizer managed to raise prices, Chief Executive Alan Hoskins said the spinoff “brought a very clear focus” to the battery maker.
“We tried not to overcomplicate it,” he said of the company’s business plan. “And while it may not be superglitzy and sexy, it works exceptionally well in this category.”
Energizer reported pretax earnings of $273 million for the fiscal year ended Sept. 30, up 65% from the year earlier. Duracell posted a profit of $82 million in 2017 after a loss of $89 million the prior year.
Duracell and Energizer control close to 80% of the U.S. alkaline-battery market, according to Nielsen data provided by Jefferies, and that share is likely to grow. In January, Energizer announced plans to acquire the No. 3 company, Rayovac, from Spectrum Brands Holdings Inc.
The big battery brands so far have managed to avoid disruption from Amazon.com Inc. and other online sellers. Amazon’s own AmazonBasics batteries are estimated to account for nearly one-third of batteries sold online, outpacing Duracell and Energizer, according to research firm 1010data. But online sales still make up a minimal portion of overall battery sales, analysts say.
Consumers’ continued preference for more-expensive Duracell and Energizer’s more expensive batteries is partly due to large advertising campaigns that have cemented those brands’ reputations for reliability, analysts say.
“There is still differentiation between the very high-quality batteries and the less-quality batteries,” said Stassi Anastassov, who served as Duracell’s CEO from 2010 to 2014.
While rechargeable batteries have become popular in consumer electronics like cameras and videogames, there are several sectors that continue to stick with the old-fashioned type. Disposable batteries are essential in hospitals and emergency situations like hurricanes. Also, parents still seek out cheaper children’s toys that require them, Mr. Anastassov said.
At Playthings Etc., a specialty toy shop in Butler, Pa., manager and co-owner Allen Difrischia said he opts to stock a lesser-known line of batteries called Tenergy because Duracell and Energizer batteries are so pricey. The big brands, he said, won’t cut his single store the same kind of deal they give to big-box retailers.
“I might as well go to Walmart , buy them, and resell here,” he said. “The prices are so high, you just can’t compete.”