THE RUBBER BARONS Their product was moribund and vaguely disreputable until medicine hailed condoms in the fight against AIDS. Now sales are taking off. Makers of the old stalwart brands are advertising like never before, even to women. And entrepreneurs want into the business.
By Colin Leinster REPORTER ASSOCIATE Ann Goodman

(FORTUNE Magazine) – HAS ANY other product received such free advertising? As AIDS extends its deadly shadow, doctors, scientists, and public health authorities unanimously recommend one product against it: the condom. The National Academy of Sciences recently advocated it in an attention-getting report. A week earlier the Surgeon General endorsed it. On the front pages, on news broadcasts, in classrooms and lectures scientists are bluntly urging people to use condoms. At a recent conference on the threat of AIDS to heterosexuals, New York City's health commissioner declared to ringing applause: ''The day of the condom has returned.'' It is a day of startling brightness for condom manufacturers. For decades their product could not be talked about in polite society. By the Seventies, when it could be, few people wanted anything to do with it. The birth control pill and penicillin conveniently answered most people's worries about pregnancy and veneral disease, and the condom seemed a distasteful relic of more primitive times. It was a has-been product on its way to oblivion: U.S. sales (adjusted for general inflation) fell by half in the past ten years, to about $150 million a year at retail. But with condoms suddenly in the news, they are selling better than they have in a decade. Sales are up 10% this year and are expected to climb steeply in the months ahead. These prospects have sparked a marketing battle among established manufacturers and have attracted new competitors. While male homosexuals and intravenous drug users still account for the great majority of AIDS cases, the scourge is growing among heterosexuals who don't inject drugs. Researchers at the Centers for Disease Control estimate that 4% of cases are transmitted through heterosexual contact. Within five years, they estimate, the proportion could double. Sexual intercourse has become an activity that can kill. The terrified include many women. They account for up to 50% of U.S. condom buyers, claims Alfred T. Mannino, vice president of Mentor Corp., a catheter manufacturer that recently entered the condom business with a product aimed at women buyers. Male homosexuals also are buying condoms at an increasing pace. Sales to heterosexuals get additional lift from the waning popularity of other birth control methods. The pill can produce dangerous side effects, such as blood clots, in some users. The major manufacturers of intrauterine devices, threatened by thousands of product liability lawsuits charging dangerous side effects, have withdrawn the products from the U.S. market. In addition condoms are a barrier against sexually transmitted diseases besides AIDS. These include new strains of gonorrhea that resist antibiotics; hard-to-detect chlamydia, which can cause infertility and birth defects; and incurable herpes. Investors have already spotted the condom's potential. The price of stock in Carter-Wallace Inc., which makes Trojans, the No. 1 U.S. brand, has increased 55% this year. In Britain security analyst Andrew C. Brown of Morgan Stanley recently issued a buy recommendation for London International, which owns both Durex, the leading brand of condoms in Britain, and Schmid, the U.S. company that produces Ramses and Sheik, which together rank second after Trojan. The noncommunist world used about 3.2 billion condoms last year. The biggest consumer: Japan, which never approved the pill as a contraceptive. The Japanese buy 864 million condoms a year, some from sidewalk vending machines, others from door-to-door saleswomen pushing models decorated with designs of roses and other flowers. About 80% of sexually active Japanese favor condoms as contraceptives. In contrast, says Lewis R. Brenner, a senior vice president at condom maker Ansell-Americas, ''the vast majority of the acts of sexual intercourse in the U.S. do not involve condoms.'' While there are nearly twice as many Americans as Japanese, until the recent surge Americans bought only 288 million condoms a year. Beyond the retail market, the federal government buys twice that many and contributes them to Third World population control programs. Because the government buys in bulk directly from manufacturers, it pays only $15 million. COMPETITION will grow more intense as sales of all manufacturers increase. U.S. market shares have changed little in recent years. Carter-Wallace's Trojan has an estimated 56% and Schmid's Ramses and Sheik 34%. The remaining 10% is divided about equally between Circle Rubber, a subsidiary of Japan's Fuji Latex, and Ansell-Americas, which is owned by Australia's Pacific Dunlop. Circle Rubber specializes in private-label products that others market. Ansell sells various brands, including the popular LifeStyles line. Ansell also racks up a lot of lower-profit sales because it invariably gets most of Uncle Sam's business. Carter-Wallace and Schmid are both increasing advertising to build market share. Mark Klein, marketing vice president at Carter Wallace, promises an unprecedented ''multimillion-dollar ad campaign'' for Trojans. Don W. Falk, president of Schmid, says he will spend $1 million on ads next year and that the market will grow enough to keep everybody happy. Ansell wants much more. In 1985 it tried to buy the No. 1 spot when Youngs Drug Products Corp., the privately held company that made Trojans then, was up for sale. But the U.S. Justice Department said that combination would have too much power in the condom industry, and Trojan went to Carter-Wallace, a large toiletries company that hadn't been in the business. So now Ansell will try to capture market share with a beefed-up sales force and distribution system. ADVERTISING, pricing, and distribution will be the battlefields because technologically, U.S.-made latex condoms are all basically the same. Most of the raw material hails from the same Malaysian rubber tree plantations, where it is tapped like maple syrup into buckets and processed into bulk liquid latex, then shipped to the U.S., where suppliers sell it to manufacturers. Not-so-different processes in their factories vulcanize the material to strengthen it. Not-so-different molds dip into the liquid and emerge with a condom in place. With the exception of Mentor, all the companies offer styling extras, which also overlap. Sometimes, for example, molds are ribbed or stippled. Although flesh tone is the most popular shade, other latex is dyed in various primary colors to provide what Eugene V. Freed, a senior vice president at Ansell, enthusiastically describes as ''lush, visual excitement.'' Mentor makes only one variety, though it is proud of two innovations, the ''applicator hood,'' designed to assist in the donning of its product, and the adhesive that keeps it leakproof and in place. Two nonlatex brands still sell: Trojan's Naturalamb and Schmid's Fourex. Both are produced from an appendage of lambs' intestines. These are a refinement of the condoms that company founder Julius Schmid, who once worked making sausage casings, first produced. A competitor who asked not to be identified disparages such natural materials because of their occasional mutton-like odor. ''It all depends on what the animal had to eat on its last day,'' he says. Falk of Schmid disagrees, adding that demand outstrips supply. Both companies use New Zealand lambs, which, says Falk, are raised in a benign climate and on a healthy diet. Besides, he adds, the New Zealand lamb's cecum is just the right circumference and length (''The lamb doesn't need it. It's like a human appendix,'' Falk says). Carter-Wallace and Schmid buy all available cecums from New Zealand and say they could use more. Setting up a latex condom production facility, which the People's Republic of China recently did, costs only about $15 million. But new manufacturers are not rushing into the industry because, at least in capitalist countries, they must also invest heavily in packaging and in establishing a distribution system. They face major outlays for testing as well. The Food and Drug Administration requires condoms to meet certain standards. Accordingly Ansell lab technicians test condoms' strength by inflating them to 1 1/2 cubic feet, which is considerably larger than a watermelon (see photo). A basic condom apparently costs about a dime to manufacture, test, and package. For the retail market, makers sold their goods to distributors or to chain stores for about $50 million last year, or an average of 17 cents each. Distributors sell to retailers, who price condoms at about $3 to $8 a dozen, depending on such optional extras as ribbing and lubrication (lambskin models cost up to $20 a dozen). The markup is considerable for all involved. Condoms offer pharmacies, convenience stores, and other outlets a higher-than-average profit margin. This situation may not last much longer. Duane Reade, a major New York drugstore chain, is planning to cut condom prices 25% to 30% and expects competitors to follow. If prices stay down, distributors and wholesalers may have to absorb some of the decrease. The condom industry is a particularly private world. It is small, and its executives are a close fraternity, though not necessarily a friendly one. Some are card-carrying members of the Carter College of Condomology, a tongue-in- cheek group founded 17 years ago by Fred C. Poppe, an advertising executive working on the Trojan account. Insiders have a weakness for elbow- in-the-rib industry jokes (none printable here) but gaze blankly at outsiders who try one. They also move around a lot. Mark Klein, 37, for example, moved to Carter- Wallace from Schmid. Lewis Brenner, 58, joined Ansell after 27 years with Trojan. Salesman and vice president Kerry Hoffman, 33, made the same move, but his twin brother, Kim, stayed on with Carter-Wallace and sells Trojans, as did their father until his recent retirement. In the twins' high school days, Kerry recalls, they got into great conversations when they told classmates what dad did for a living. The condom fraternity will soon increase as new competitors join the business. Two are nearly ready to go: David Mayer, 26, of Oakland, California, and James H. Kabler III, 38, of Greenwich, Connecticut. Both will import Japanese-made products. Kabler has already established his import-marketing wizardry with Le Zinc, a sunblock available in iridescent colors, and Donvier, a counter top ice cream maker. Both have been highly successful. They also make for good small talk at cocktail parties, he says. When he first decided to get into the condom business, he worried whether he would get invited anywhere. So he bounced his idea off his father-in-law, Walter H. Annenberg, owner of TV Guide and a former U.S. ambassador to Britain. Far from recoiling in horror, Kabler says, Annenberg's sole and immediate reaction was: ''That's a million-dollar idea.'' David Mayer, formerly a health educator, had none of Kabler's what-will- people-think qualms. Even before he, his sister, and two brothers were teenagers, their father, Sausalito pharmacist Frederick S. Mayer, discoursed freely at the dinner table about the virtues of the condom. David lacks Kabler's marketing expertise and so has hired a consultant, but he does have unique promotional experience. He has taken over from his father as coordinator of National Condom Week, seven days of on-campus festivities at several U.S. colleges. The event starts on February 14, Valentine's Day. IN 1987, says David, a dozen or more colleges -- including the University of California at Berkeley (his alma mater), Virginia Tech, and Emory University in Atlanta -- will join in the festivities. In addition to tossing water-filled condoms around, the events include the distribution of free condoms, condom-motif T-shirts and posters advising ''Keep a Rubber on hand,'' and free condom-promoting literature. A pin-the-condom-on-the-man contest mirrors pinning the tail on the donkey, with obvious differences. Trojans, Ramses, and Sheiks have been donated to such events over the years, though sometimes confusingly. One year participants in National Condom Week celebrations at the University of Southern California, where the football team is called the Trojans, were supplied with Ramses, a gaffe that local wits delightedly pointed out. Next year David Mayer plans to distribute his own brand, and no others, on the various campuses. Ansell disdains such a giveaway promotion. Says President John Silverman, a 32-year veteran of rubber products and a former theatrical publicist: ''There's no evidence it does anything for sales. You might just as well stick it in your ear.'' All competitors are benefiting from the condom's move toward respectability from earlier days when it was associated by many with illicit sex and prostitution. Such a reputation was international. The British, for example, call it a French letter; to the French it is an English hat. This reputation wasn't helped by the condom's usual sales outlets: vending machines or under- the-counter drawers in pharmacies. ANSELL FOR YEARS was the dominant marketer in the Midwest, South, and Bible Belt, and in the 1960s it outsold Youngs and Schmid, which were strong in the rest of the country. Ansell relied heavily on mom-and-pop stores, but more and more of those were shuttered as drugstore chains moved in. Another company outlet, vending machines in service stations, suffered badly in the gas shortages of the 1970s. Many independent stations went out of business, taking the vending machine operators with them. Some operators have survived, but their days are probably numbered. Reason: At about the same time that gas stations were folding, condoms began to appear on open shelves in retail stores. Today they are widely available and no more startling to see or sell than Vitamin C, says Robert E. Wunderle, a spokesman for the Pathmark drugstore and supermarket chain, which has displayed condoms openly for years. Even so, male customers still sometimes blush and make hasty purchases, while women are more likely to stop and read the fine print on packages. Like retailers, media companies have become more willing to put condoms on display. Once, practically the only publications to accept condom ads were the so-called skin magazines. The general press still harbors some holdouts, among them magazines from Time Inc., publisher of FORTUNE. But many others have dropped longstanding restrictions on condom advertising. Among them: Modern Bride, Vogue, and Family Circle. Says James Fraguela, Family Circle's director of advertising: ''In the past, advertisers used to supply us with the same material as in Playboy. Very suggestive, more emphasis on the pleasure of the product.'' Now, he says, the ads are ''more clinical, nonsuggestive, and informative. It's a service to our readers.'' Carter-Wallace has taken the early lead in magazine advertising, producing the type of copy that Fraguela and other magazine executives admire. Sample headline: ''Very often the best contraceptive for a woman is the one for a man.'' That ad goes on to discuss the dangers of sexually transmitted diseases, plus the condom's easy availability and reliability as a contraceptive. A year ago Schmid experimented with billboard advertising in the Atlanta area. While it was controversial, overall public reaction was good, says James A. McGlaughlin, managing partner of Turner Outdoor Advertising, which accepted and displayed the ads. ''We told Schmid in advance that if we thought it was in our best interest to remove the ads, we could do it,'' he says. But the ads ran their contractual two-month course. Schmid, however, has ruled out any repeats. ''Print is the way to go,'' says Falk, the company president. ''It gives us the space to tell a serious story.'' NETWORK TELEVISION advertising remains taboo in the U.S. because of resistance by the networks, which set their own advertising standards. Mark Klein of Carter-Wallace believes the resistance may soon break under social pressure to reduce teenage pregnancies, which number more than a million a year. Alfred F. Moran, director of Planned Parenthood for New York City, hopes it happens soon. Along with sex education at school and home, he says, television may be the best way to reach teenagers. He would like to see condom ads run as a balance to such shows as Miami Vice, Dynasty, and virtually all daytime soap operas, where people tumble into bed with each other all the time. Many people abhor promotion of contraceptives on grounds that it encourages promiscuity, especially among the young. Schmid president Don Falk replies: ''If anything encourages promiscuity, it's the entertainment on media and in the movies. Our advertising tells young people what the choices are and why to use protection if they engage in sex.'' TV Guide staff writer Joanmarie Kalter agrees. She wrote in a recent issue that the networks should present the consequences of sex if they persist in showing its lure and adventure. In an average year, she reported, network television contains more than 9,000 scenes of suggested sexual intercourse. Reader response to her column was overwhelmingly favorable, she says. Some cable stations take such ads. Sex mother figure Dr. Ruth Westheimer, for example, promoted Ansell condoms on cable TV briefly last year. But Warner- Lambert, which was then marketing Ansell condoms, concluded the ads were not effective and stopped them. Contraceptives are advertised on television in some European countries. Viewers in such disparate societies as sexually frank Sweden, Denmark, and Finland, and the Catholic bastion of Italy are exposed to such ads. France, where AIDS is a growing problem, may soon follow. As in any marketing war, good brand names will be crucial. The longtime familiarity of Trojan (which is to condoms what Kleenex is to tissues), Ramses, and Sheik gives them an apparent edge. But executives of other makers believe that modern times need modern images. Ansell's Brenner, for example, thinks that LifeStyles' Nuda brand comes through as the ''Porsche of condoms.'' Newcomer James Kabler is considering Four Seasons, a name that he thinks will appeal to the monied customers he hopes to snare though such outlets as Bloomingdale's department stores and high-quality catalogues. He also hopes to launch his product at a party at the expensive Manhattan restaurant of the same name, downstairs from his office in the Seagram Building. David Mayer has yet to pick a name for his product, which he hopes to market primarily to college students. He has discarded more than 80 candidates, he says, after polling friends and associates. Among the rejects: Seaman's Choice (''too gimmicky''); Helen's Choice (he got a ''terrible reaction'' from pollees, perhaps reflecting their ignorance of Greek mythology); and Sociables (''very popular,'' but it turned out that Nabisco had trademarked the name for a line of crackers). Trademark laws also came into play when a Philadelphia man began selling a line called Sergio Prevente. No way, said lawyers for the company that makes Sergio Valente jeans; a federal judge agreed. In Britain, where the market is dominated by London International's dull-sounding Durex, the Stirling Cooper company has introduced a new line called Jiffi, with such slogans as ''Real Men Do It In A Jiffi.'' Lighthearted promotion may seem odd, considering the grim reason for the condom's resurgence. But as barriers to sexually transmitted diseases, including AIDS, all major brands of condoms are the same, and on that subject doctors and scientists speak more authoritatively about the advantages of condoms than any advertisement could. It was an odd turn in the story of this dying product when a horrific disease revived it. Another is that in the battle for market share, competitors will find little advantage in talking about their good fortune.