' a 1nanujactur-ing opportunity in Geor-gia ludusfl'iu! rlr ,.( luj)}JJ{Jif dil'i...,(r!/1 f'.,ll!}iJt( '( J'IJ/[j (.1'fH i'l/J/1 ' /If :~fUfltt/1 Gcuryirt iu:-:fitiltc u/ kr/!Jiu!uyy Pr e]JCirefl j(J r tIre Gr?o rg1:a De]Ja rt n~e n.t of~ (,10nt ;nerce .]aclc Mi1tter, cl1. Jector Project B-209 TOILETRIES A MANUFACTURING OPPORTUNITY IN GEORGIA Prepared for The Georgia Department of Commerce Jack Minter, Director 100 State Capitol Atlanta, Georgia by Wade McKoy Industrial Development Division Engineering Experiment Station GEORGIA INSTITUTE OF TECHNOLOGY January 1963 Table of Contents Foreword i Sunnnary ii INTRODUCTION 1 THE MARKET FOR TOILETRIES 2 The National Market 2 Regional Market 3 LOCATION OF THE INDUSTRY AND ITS MARKETS 9 Production Centers 9 Regional Markets 9 ADVANTAGES OF A GEORGIA LOCATION 11 Lower Freight Costs 11 Availability of Containers in Georgia 12 Lower Production Labor Costs 14 Lower Property Taxes 16 Other Factors 16 Increase in Earnings 17 Conclusion 18 APPENDICES 1. Market Forecast Calculations 20 2. U. S. Retail Sales of 30 Toiletries 24 Tables 1. U. S. Retail Sales of Toilet Goods (1951-1961) 2 2. Retail Sales of Toiletries in Descending Order (1961) 5 3. Sales Performance of Toiletries with Largest Dollar Increases in 1961 6 4. Motor Freight Class Rates for Toilet Preparations, Medicines and Drugs from New York and from Atlanta to Southern Cities 11 5. Manufacturers of Metal, Plastic and Glass Containers in Georgia 13 6. Plants Manufacturing Paper, Fiber and Wood Containers in Georgia 14 Figures 1. Correlation Between Personal Expenditures for Services and Toilet Goods Sales 7 Maps 1. Georgia Freight Advantage Area 8 2. Production Concentration Shown by Value of Shipments for Toilet Preparations (SIC 2844) 10 3. Regional Markets for Toiletries 10 Appendix Tables 1-A Calculations for Coefficient of Correlation between Personal Expenditures for Services (X) and Toilet Goods Sales (Y) and for the Correlation Line Fitted by Least Squares 21 2-A U. S. Retail Sales of 30 Toiletries 24 Appendix Figure 1-A Trend and Forecast of Personal Expenditures for Services 23 Foreword The gross imbalance which exists between the volume of toilet goods consumed in the South and the amount produced there -- with only one ninth the total consumed being manufactured in the area -- points up one of the most obvious reasons for considering a central location in Georgia for the production of toilet goods. As in the case of many other products analyzed in the more than 40 special industry studies completed over the past five years, the present large and growing markets are only one of several important economic reasons for considering a Georgia location for the type of plant under consideration. This is the third in the current series of reports being prepared for the Georgia Department of Commerce. Questions or comments regarding the study will be welcomed. Where appropriate, further analyses can be prepared to meet the specific requirements of individual firms. Kenneth C. Wagner, Chief Industrial Development Division GEORGIA INSTITUTE OF TECHNOLOGY -i- Summary Retail sales of toilet goods in 1961 were almost $2 billion and have been growing at an average annual rate of 7.8% since 1951. By 1967, sales of toiletries are expected to reach $3.2 billion -- a 65% increase over 1961 sales. A manufacturer of toiletries in Georgia would have a freight advantage over present producers in Chicago and New York in serving an area represented by 11 southern states.l/ The retail market for toiletries in the South was more than $380 million in 1961. Sales in the area should exceed $630 million by 1967. Whereas the markets for toiletries are spread widely over the United States, almost 83% of the production is concentrated in the northern manufacturing belt. The South's consumption of toiletries is more than nine times greater than its production. A plant in Georgia, formulating and packaging toiletries for the southern market, could capitalize on the advantages of low freight costs, locally available sources of containers, low production labor costs, favorable property taxes, low construction costs, economical sources of natural gas and electricity, and satisfactory availability of supplies and raw materials. Considering only those major savings that can be readily quantified, a company presently producing in the New York area could increase earnings 30% on sales in the South by serving the southern region from a plant in Georgia. A Georgia plant with annual sales of $20 million would save more than $700,000 annually, resulting from: 1. $263,000 reduction in freight costs, 2. $420,000 reduction in labor costs, and 3. $36,000 reduction in property tax. ll Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and Texas. -ii- INTRODUCTION The toiletries discussed in this report are the types of products that are formulated and packaged. These include hair products, cosmetics, shaving products, products used in oral hygiene, hand products, and related types of toilet goods. The U. S. Department of Commerce's Standard Industrial Classification (SIC) is 2844. This study is concerned with the feasibility of establishing manufacturing operations in Georgia to serve the southern market. The present and future markets are considered. In pointing out the characteristics of the industry, the concentrated production centers and the dispersed regional markets are contrasted. The need for a broad base of low cost labor, due to the relatively low pay received by the production workers in the toiletries industry, is pointed out. By formulating and packaging these products in close proximity to large consumer markets, it is possible to effect considerable freight savings in distributing the finished packaged products. Savings result from reducing the distances that containers must be shipped, Ingredients can be shipped from a central source to a regional market area more cheaply in bulk form than in packaged form or, in many cases, can be procured on a delivered price basis. Additional shipping cost savings result when the formulation contains a large amount of water, which can be added at the point of packaging. In considering the advantages of having a toiletries plant in Georgia, this report concentrates on the labor advantages, freight advantages and lower property taxes the Georgia plant would have. Georgia's many other attractions are also analyzed: construction costs, natural gas rates, electric rates, property taxes, and the availability of containers and other packaging materials. -1- THE MARKET FOR TOILETRIES The National Market Retail sales of toilet goods in 1961 were barely under $2 billion and have been growing at an average annual rate of 7.8% since 1951. (See Table 1.) This is a substantially higher rate than population growth, indicating a rapidly rising per capita consumption. Year 1961 1960 1959 1958 1957 1956 1955 1954 1953 1952 1951 Table 1 u. s. RETAIL SALES OF TOILET GOODS (1951-1961) Sales $1,933,500,000 1,784,000,000 1,622,000,000 1,523,000,000 1,430,000,000 1,321,000,000 1,192,000,000 1,086,000,000 1,020,000,000 1,004,000,000 912,000,000 Per Cent Increase Over Previous Year 8.4 10.0 6.5 6.5 8.3 10.8 9.8 6.5 1.6 10.1 Source: "Toilet Goods Association 27th Annual Meeting," Chemical Week, July 14, 1962, p. 41. Sales of toiletries reported in Table 1 include perfumes, cosmetics and other toilet preparations but do not include toilet soap. According to Drug Topics, 1961 sales of toiletries by product categories were as follows: hair products, 25%; cosmetics, 22%; oral hygiene, 17%; shaving products, 6%; hand products 5%; and other toiletries, 24%. -2- The sales leader in 1961 was toilet soaps followed by tooth paste, shampoos, face creams and lipsticks. The 30 leading toilet goods items are listed in descending order of 1961 retail sales in Table 2. Historical sales records of these products are shown in Appendix 2. The largest dollar increase in 1961 sales was made by lipsticks, with a gain of $21.3 million over 1960. Other products with more than $10 million sales increases in 1961 were aerosol colognes, mouth washes and gargles, and spray hair fixatives. Products that have excelled in their annual sales growth are given in Table 3 along with measurements of their growth. Retail sales of toiletries are expected to reach $3.2 billion in 1967, a 65% increase over 1961 sales. This forecast is based on the extremely close correlation (0.997) between sales of toilet goods and the U. S. Department of Commerce figures on "Personal Expenditures for Services" (PES) for the years 1951 through 1961. Using the U. S. Department of Commerce statistics, the McGraw-Hill Department of Economics has made forecasts of PES. The PES forecast provided the base for forecasting toilet goods sales. (See Figure 1 and Appendix 1 for details.) Regional Market The market for a Georgia manufacturer of toiletries is considered to be that area to which it is cheaper to ship from Georgia than from Chicago or New York. The Georgia freight advantage area is shown on Map 1. Atlanta was used to fix the shipping point in Georgia, and Chicago and New York were chosen as representative centers for the present producers. Retail sales volume of toiletries in the Georgia freight advantage area was approximately $387 million in 1961. The freight advantage area contained 41.68 million people in 1960, or 23% of the U. S. population. This area is estimated to have 20.0% of the national market for toiletries. Several sources of data are available with which to measure the area's Share of the mark et. S .~nee . f ~n ormat~on ~s g~ven b y state, 11 states1-I were ll Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and Texas. -3- chosen as representative of the freight advantage area, and adjustments were made based on population. In 1958 the 11 states accounted for 19.6% of the U. S. wholesale sales of drugs, drug proprietaries, druggists' sundries, and toiletries (SIC 5022).1/ In retail drug store sales (SIC 591), the 11 states accounted for 20.4% of the U. S. sales. Retail grocery store sales (SIC 541) for the 11 states amounted to 21% of the U. S. sales. Topics Publishing Company reports that 1960 retail sales of non-prescription items in drug stores for the 11 states accounted for 20.2% of the U. S. sales. In summary: 11-State Percentage of U. S. Sales 1958 Wholesale drug sales 1958 Retail drug store sales 1958 Retail grocery store sales 1958 Retail drug store sales of non-prescription items Average for 11-state area 19.6 20.4 21.0 20.2 20.3 It is estimated that retail sales in the 11-state freight advantage area will reach $636 million by 1967. Methods used in the forecast are given in Appendix 2. Sales in the freight advantage area are expected to remain 20% of national sales through 1967, since a population forecast indicates that the area's percentage of the national population will change little in the immediate future. 1/ United States Census of Business: 1958, U. S. Department of Commerce, Burea~ of the Census. -4- Table 2 RETAIL SALES OF TOILETRIES IN DESCENDING ORDER ( 1961) Product Toilet Soaps Tooth Paste Shampoos Face Creams Lipsticks Spray Hair Fixatives Mouth Washes and Gargles Hair Coloring Preparations Men's Hair Tonics Face Cleansing Creams Home Permanent Kits and Refills Aerosol Cologne Aerosol Shaving Cream After-Shave Lotion Pressed Cake Face Powder Nail Polish and Enamel Roll-On Deodorants Hand Lotions Perfumes Cream Deodorants Colognes, Toilet Waters (non-aerosol) Talcum and Body Powders Liquid Facial Cleaners Women's Hair Dressings and Conditioners Loose Face Powder Face Lotions and Astringents Make-Up Lotion False Teeth Adhesives Face Lubricating Creams Squeeze Container Sprays (External Personal Deodorants) Sales $266,740,000 243,730,000 172,740,000 127,600,000 121,680,000 91,490,000 87,570,000 74,440,000 74,360,000 71,190,000 70,210,000 65,420,000 54,790,000 49,440,000 41,790,000 38,370,000 38,070,000 37,860,000 37,440,000 35,380,000 35' 310,000 34,450,000 29,640,000 25,770,000 24,680,000 24,630,000 23,790,000 20,540,000 19,580,000 15,020,000 -5- Table 3 SALES PERFORMANCE OF TOILETRIES WITH LARGEST DOLLAR INCREASES IN 1961 Product Dollar Volume 1961 Dollar Increase 1961 over 1960 Per Cent Increase 1961 over 1960 Average Annual Per Cent Increase Number of Years Covered Lipsticks $121,680,000 $21,290,000 21.2 10.3 12 Aerosol Cologne 65,420,000 12,280,000 23.1 21.0 4 Mouth Washes and Gargles 87,570,000 ll,750,000 15.5 11.1 12 Spray Hair Fixatives 91,490,000 10,240,000 12.6 17.3 7 Tooth Paste 243,730,000 8,920,000 3.8 8.3 12 Toilet Soaps 266,740,000 8,890,000 3.4 5.3 12 Hair Coloring Preparations 74,440,000 6,830,000 10.1 16.2 12 Shampoos 172,740,000 6,160,000 3.7 7.4 12 I "I ' Roll-On Deodorants Pressed Cake Face Powder 38,070,000 41,790,000 6,100,000 5,950,000 19.1 16.6 40.0 10.0 5 6 Home Permanent Kits and Refills 70,210,000 5,560,000 8.6 -4.0 5 Face Creams (all) 127,600,000 5,430,000 4.4 3.3 12 Nail Polish and Enamel 38,370,000 5,380,000 16.3 8.0 12 Men's Hair Tonics 74,360,000 4,440,000 6.4 6.4 12 Aerosol Shaving Cream 54,790,000 3,680,000 7.2 12.3 6 Make-Up Lotion 23,790,000 3,140,000 15.2 10.1 6 Cream Deodorants 35,380,000 2,340,000 7.1 3.8 9 Colognes, Toilet Waters (non-aerosol) 35,310,000 2,190,000 6.6 After-Shave Lotion 49,440,000 2,170,000 4.6 6.9 12 Face Cleansing Creams 71,190,000 2,140,000 3.1 2.6 12 Source: Topics Publishing Company, New York, N. Y. FIGURE 1 CORRELATION BETWEEN PERSONAL EXPENDITURES FOR SERVICES AND TOILET GOODS SALES 3.2 /'(! 3.0 //FORECAST 2.8 v / FOR 1967 ! 2.6 V) et: <{ _J /v _J 0 2.4 Cl /v ll.. 0 2.2 zV) I "'-.1 Q _J _J 2.0 /v I aJ 1961c:V V)- UJ _J 1.8 <{ / ,1-11960 19v V) / V) Cl 0 1.6 ~--~----~--~----~--~----~--~--~~~~199~599 0 THE CORRELATION LINE FITTED BY LEAST SQUARES --~--~----~--~ The Coefficient of Correlation for 0 19570"' 1951 to 1961 is 0.997 1UJ _J 0 1- Yr 1.4 1.2 ~--~----~--~----~---b~~11955~---+----+----+----+----+----~---+----~--~----~--~----~--4 ~9.'i4 1.0 1?52~~953~+----+----+----+----+----+----+----+----+----+----+----+----+----+----; 1951v 0.8 v / Industrial Development Division 0.6 / ____ ~--~~---L----~--~~--~----~----L---~-----L----~----L---~ Engineering Experiment Station GEORGIA INSTITUTE OF TECHNOLOGY _ L_ _ _ _~_ _ _ _L __ __ i_ _ _ _ i._ l 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230 SOURCE: U.S. Department of Commerce PERSONAL EXPENDITURES FOR SERVICES, BILLIONS OF DOLLARS McGraw-Hi II Department of Economics Topics Publishing Company MAP 1 GEORGIA FREIGHT ADVANTAGE AREA (Area Where Freight Costs Wi II Be Less From Atlanta Than From Chicago Or New York) I 00 I SCALE IN MILES 0 100 200 300 Oklahoma City e Industrial Development Division Engineering Experiment Station GEORGIA INSTITUTE OF TECHNOLOGY Motor freight rates are lower from Atlanta to points in U. S. south of line than from Chicago or New York LOCATION OF THE INDUSTRY AND ITS MARKETS Production Centers Almost 83% of the production of toiletries in the United States is concentrated in the northern manufacturing belt (six New England states, three Middle Atlantic states, and five East North Central states). New Jersey and New York account for 49% of U. S. production. New Jersey ranks first with $330 million or 31%, and New York is second with $190 million or 18%. The concentration of production centers is shown on Map 2. Regional Markets In contrast, the markets for toiletries are spread widely though un- evenly over the entire country. Drug store sales provide a reliable indica- tion of the market for toiletries, since over 30% of all toilet goods sales are made through drug stores. Regional markets, based on 1960 retail drug store sales, are shown below and on Map 3. Arproximate Region Per Cent of U. S. Retail Sales Upper Atlantic (11 states) East North Central (5 states) Southern (12 states) Pacific (5 states) West North Central (7 states) Southwestern (3 states) North Western Mountain (5 states) 27.2 22.6 18.6 12.3 8.5 7.9 2.6 When Map 2 and Map 3 are compared, the significant variation between production centers and regional markets is evident. The South's consumption of toiletries is more than nine times greater than its production. It is feasible, therefore, to consider Georgia as a production center for the southern market. -9- MAP 2 PRODUCTION CONCENTRATION SHOWN BY VALUE OF SHIPMENTS FOR TOILET PREPARATIONS (SIC 2844) SOURCE, U. S. Census MAP 3 REGIONAL MARKETS FOR TOILETRIES (Shown by 1960 Retail Drug Store Sales) SOURCE: Top ics Publish ing Company T he Circle Areas in Both Mops 2 and 3 ore Based on the Some Scale and The refore Con be Compared. Industr ia l Oev lopme nt Div i s i on En'ilinee tl n'il E.pe rim e n l Stat ion GEORGIA INST ITUTE OF TECH NOLOGY -10- ADVANTAGES OF A GEORGIA LOCATION Lower Freight Costs A plant in Georgia, formulating and packaging toiletries for the southern market, would enjoy a considerable freight advantage over a similar plant in the Northeast. Table 4 demonstrates possible freight savings. It shows a comparison of motor freight rates from New York and from Atlanta to major markets in the South. Table 4 MOTOR FREIGHT CLASS RATES FOR TOILET PREPARATIONS, MEDICINES AND DRUGS FROM NEW YORK AND FROM ATLANTA TO SOUTHERN CITIES (Truckload Shipment of 30,000 Pounds) Savings From New York City Area From Atlanta ~'c (Estimated New Rates) Atlanta vs. New York City Area To ($/ cwt.) ($/cwt.) ($/cwt.) New Orleans Dallas Memphis Jacksonville Charlotte 2.66 2.64 l. 75 1.59 1.30 0.80 1.24 0.73 0.66 0.60 1.86 1.40 1.02 0.93 0.70 * The estimated new rates are 27% of the Class 100 rates applicable to truck- load shipments. They are on the same relative basis as the present rate of $1.20 on 30,000 pounds from New York to Atlanta. Present rates from Atlanta are: $1.18 on 22,000 pounds to New Orleans; $1.61 on 30,000 pounds to Dallas; $1.08 on 22,000 pounds to Memphis; $0.98 on 22,000 pounds to Jacksonville, and $0.89 on 22,000 pounds to Charlotte. A hypothetical case study for a New York area company with annual U. S. sales of $100 million in toiletries and related items illustrates that an Atlanta regional plant would save the company $263,000 annually in freight -ll- costs.l/ This would provide an increased profit on southern regional sales of more than 10%. The case study company was assumed to be located in the New Yorknortheastern New Jersey area and to distribute products nationally from this location. Other pertinent facts concerning the company: Annual sales Earnings before taxes2- / Annual freight bill $100,000,000 $12,000,000 $2,314,600 It was assumed that 20% --or $20 million-- of the company's output would be sold in the Atlanta freight advantage area. If a manufacturer were serving this regional market from Atlanta, the following freight savings would result: Freight cost from New York plant Freight cost from an Atlanta plant Estimated annual freight savings $462,941 199,832 $263,109 Profit on southern regional sales from the New York plant would be $2,400,000. This would be increased by $263,109, or 10.9%, if the market were served by a plant located in Georgia. Availability of Containers in Georgia Container and box manufacturers in the area are a primary advantage to a toiletries manufacturer. Located in Georgia are plants manufacturing metal, plastic and glass containers. These plants are listed in Table 5. l l McKoy, Wade, Packaging Opportunities in Atlanta, Industrial Develop- ment Division, Engineering Experiment Station, Georgia Institute of Technology, September, 1962, p. 24. ~/ Average earnings before taxes for the Chemicals and Allied Products industry averaged 12% of sales in 1961, according to Quarterly Financial !!Port for Manufacturing Corporations, Federal Trade Commission. -12- Table 5 MANUFACTURERS OF METAL, PLASTIC AND GLASS CONTAINERS IN GEORGIA Plant American Can Company Location Atlanta (Forest Park) American Can Company Crown Cork & Seal Company Savannah Atlanta Knox Glass Company Owens-Illinois Glass Company, Glass Container Division Plastic Products Division Atlanta (Forest Park) Atlanta Atlanta Polyco, Inc. Atlanta (Smyrna) Products Oblong cans, beer cans, carbonated beverage cans, paper tubes with metal ends, lithographing facilities. Coffee cans and other cans. General open top cans, aerosol cans, aluminum cans, beer cans, bottle crowns, oblong cans, lithographing facilities. Glass containers. Glass containers. High density polyethylene bottles. High and low density polyethylene bottles. In addition there are many manufacturers of paper, fiber and wood containers located in Georgia. The number of plants are listed by Standard Industrial Classification (SIC) in Table 6. -13- Table 6 PLANTS MANUFACTURING PAPER, FIBER AND WOOD CONTAINERS IN GEORGIA Number of SIC Plants Products 2651 2652 2653 2654 2655 2441 2442 2443 6 Folding paperboard boxes 7 Set-up paperboard boxes 14 Corrugated and solid fiber boxes 10 Sanitary food containers 8 Fiber cans, tubes, drums, and similar products 14 Nailed and lock corner wooden boxes and shook 20 Wirebound boxes and crates 6 Veneer and plywood containers, except boxes and crates Nearby sources of containers are critical to a manufacturer of toilet goods since packaging materials are a major part of the shipping weight of some toiletries. Examples are: Aerosol Shaving Cream 30 to 70% of shipping weight Cream Deodorants 85% of shipping weight Hair Shampoo 50 to 70% of shipping weight Hair Spray Fixatives 35% of shipping weight Tooth Paste 15 to 60% of shipping weight Lower Production Labor Costs In the toilet preparations industry production workers receive relative- ly low pay. Nationally the production wage in 1958 averaged $1.85 per hour.l/ Production workers comprised 63% of all the employees and received 50% of the Wages paid. Production wages amounted to 6.3% of the value of shipments. 1/ United States Census of Manufactures: 1958, U. S. Department of Comme;ce, Bureau of the Census. -14- Location of a plant in a low wage area, therefore, would provide a significant competitive advantage. Not only are labor costs per man hour lower in Georgia than in the northern manufacturing belt, but production per man hour is often higher.l/ The following tabulation from the U. S. Bureau of the Census compares incomes of operatives in Georgia with incomes of similar workers in other locations in the country: Region of State Median Incomes of Male Operatives and Kindred Workers Georgia South North East New York North Central West Illinois California $2,771 3,196 4,414 4,450 4,759 4,839 4,970 5,062 The occupation group, male operatives and kindred workers, was selected from the census groups as being the most representative of the production employees in the toiletries industry. The median income of male operatives in Georgia is less than two-thirds of the median income outside the South. Based on these figures, profits can show an increase of approximately 17% due to a 34% saving in production wages for a plant located in Georgia rather than in the New York area. The illustration is worked out below: New York plant production wages Georgia plant production wages (6.3 X Georgia plant Profit of New 0.66 savin York = 4.2) gpslainnt3-y a ges2-/ Profit of Georgia plant due to benefit of lower wages = Georgia plant profit greater by 6.3% of sales 4.2% of sales 2.1% of sales 12.0% of sales 14.1% of sales 17.5% due to labor savings 1/ Sewell, Charles, A Formula for Labor Productivity in Georgia, Industrial Development Division, Engineering Experiment Station, Georgia Institute of Technology, July, 1961. / This amounts to $420,000 for the hypothetical example on page 11. ll See footnote 2, page 12. -15- Lower Property Taxes The following comparison shows a saving of $35,938 for a Georgia plant over a New York area plant due to lower property taxes. The specific areas being compared are Clayton County on the fringe of Atlanta and Caldwell Town- ship in Essex County, New Jersey. Caldwell Township has the lowest tax rate in Essex County. The property tax in Newark, also located in Essex County, is about 2.5 times greater than in Caldwell Township.l/ Property taxes in the City of Atlanta are lower than the lowest Essex County rate.2- / A description of the property follows, with a tabulation of comparable tax charges in the two locations. Property I n v e s t m e n t3- / Tax Geo rigr:la4-1 NewTYaxo r ki nA r e a5- / Land and building Equipment Inventory Total $1,900,000 2,350,000 750 2000 $5,000,000 $24,344 30' 109 9 2 609 $64,062 $38,000 47,000 15 2 000 $100,000 Based on these data, a plant located in Georgia would save $35,938 in property taxes over a similar plant in the New York area. Assuming a profit of $2,400,000 on sales in the southern region (see illustration on page 12), the property tax advantage in Georgia would represent a savings of 1.5% of profits. Other Factors The cost advantages of a Georgia plant over a plant in the Northeast are increased by the following factors: 1. Lower capital investment is required for a given production capacity in Georgia than in the Northeast. This lowers the amount spent on property 1/ Property tax in Newark on a $5 million investment would be $245,100. If Newark were used in the illustration, the tax savings of a Georgia plant Would be more than $181,000 --or 7.5% of profits. II Property tax in Atlanta, Georgia, on a $5 million investment would be $92,235. 3/ It is estimated that a capital investment of $5 million would be required for $20 million in annual sales (see illustration on page 14). 4/ Tax is for Clayton County, Georgia, unincorporated area. Source: ~x G~ide 2 Atlanta Metropolitan Area, Atlanta Chamber of Commerce. 5/ Tax is for Caldwell Township, Essex County, New Jersey. Source: ~60-l961 New Jersey Industrial Directory. -16- taxes even more and increases the per cent return on the investment as well as increasing the actual earnings. Construction costs are proven to be low in Georgia. Leading contractors are building plants in the Atlanta area at costs that are 15 to 40% less than construction costs in many other areas. A specific example is two buildings built for the same company and to the same plans. The bid in Atlanta was $60,000, and on a site in New Jersey the bid was $95,000. Another comparison under the same conditions found Atlanta costs 20% lower than costs in a central Illinois town. Contractors say the main reasons that construction costs are lower in Georgia are climate and worker productivity. There are more working days under favorable conditions. The attitudes of the workers both union and non-union -- are superior and permit effective use of new labor-saving tools. 2. Natural gas rates in Georgia are 30 to 50% of the rates in the New York area. Additional savings are realized because of the milder and shorter winters in Georgia. 3. Electric rates in Georgia are 60 to 80% of the rates in the New York area. 4. In general the availability of supplies and raw materials are as satisfactory in Georgia as in the present manufacturing locations. For many products water is an ingredient that forms a major part of the net weight. The use of concentrates and the increasing number of suppliers have created a competitive situation where freight is now either equalized or allowed on many raw materials and supplies. This reduces the freight cost factor for the formulator's raw materials. ~crease in Earnings Earnings of a Georgia plant that formulates and packages toiletries for the southern market are estimated to be 30% greater than those of a similar Plant in the New York area. As illustrated earlier, the earnings of a hypothetical New York plant on sales to the Georgia freight advantage area are assumed to be $2.4 million. The increase in earnings of a Georgia plant over a Plant in the New York area are: -17- From freight savings From labor savings From property taxes Increase in earnings Calculation: $ 719,047 $2,400,000 $263,109 420,000 35,938 $719,047 X 100 = 30.0% increase in earnings. Conclusion In serving the southern market, greater earnings are possible from a Georgia plant than from a northern plant. However, the actual increase in earnings that a company would realize can only be determined from a case study for that company. As mentioned in the Foreword, studies can be made for interested companies. -18- APPENDICES -19- Appendix 1 MARKET FORECAST CALCULATIONS The toilet goods sales forecast was made by relating toilet goods sales to personal expenditures for services (PES)l/ and then using an authoritative forecast for PES. Toilet goods sales versus personal expenditures for services for the years 1951 through 1961 are shown in graphic form in Figure 1 of the text. The coefficient of correlation for the data is 0.997, and the calculations are shown in Appendix Table 1-A. Personal expenditures for services are graphed in Appendix Figure 1-A on semilogarithmic paper with expenditures on the log scale. McGraw-Hill's Department of Economics figures and forecasts for personal expenditures for services are: Year 1950 1960 1965 1970 1975 PES in 1960 Dollars 85.4 131.8 168 209 260 Interpolating for 1967 and changing from 1960 to 1967 dollars puts the PES estimate at $227 billion for 1967. Toilet goods sales for 1967 are calculated to be $3.18 billion by correlating to PES, using the least squares equation. Using national sales estimates and a regional market share of 20.0%, the following regional sales forecasts for 1967 were derived: 1967 U. S. Sales Atlanta Regional Market (20.0% of U. S. Sales) Toilet Goods $3,180,000,000 $636,000,000 Regional forecasts are rounded off to the nearest $10 million in the text. l l Survey of Current Business, July issue, U. S. Department of Commerce, -20- Appendix Table 1-A CALCULATIONS FOR COEFFICIENT OF CORRELATION BETWEEN PERSONAL EXPENDITURES FOR SERVICES (X) AND TOILET GOODS SALES (Y) AND FOR THE CORRELATION LINE FITTED BY LEAST SQUARES Year 1961 1960 1959 1958 1957 1956 1955 1954 1953 1952 1951 Sum (S) Toilet Goods Sales (Billions of Dollars) y 1. 934 1.784 1.622 1.523 1.430 1.321 1.192 1.086 1.020 1.004 0.912 14.828 Services (Billions of Dollars) X 139.1 131.9 122.8 114.3 107.1 100.0 92.5 86.3 81.8 75.6 70.2 1' 121. 6 Functions Used in the Calculations y -X- +.586 +37.1 +.436 +29.9 +.274 +20.8 +.175 +12.3 +.082 + 5.1 -.027 - 2.0 -.156 - 9.5 -.262 -15.7 -.328 -20.2 -.344 -26.4 -.436 -31.8 .000 - 0.4 xy y 2 21.740 .343 13.036 .190 5.699 .075 2.153 .031 0.418 .007 0.054 .001 1.482 .024 4.113 .067 6.626 .108 9.082 .ll8 13.865 .190 78.268 1.154 2 X 1,376.4 894.0 432.6 151.3 26.0 4.0 90.3 246.5 408.0 697.0 1.011.2 5,337.3 Mean 1.348 102.0 N ll Gy ~lf+- ~~ll .32389 ~~~~ G X N ll = 22.0273 Coefficient: r = Sxy NG y G X 78.268 (11)(.32389)(22.0273) 0.9973 -21- Appendix Table 1-A (Cont'd) The correlation line fitted by least squares: General Equation Yc =a+ bx b = SSxxy2 = 78.268 5,337.3 0.01466 a Y- b X = 1.348- (.01466)(102) -0.147 Formula for Correlation Line: Yc 0.01466X- 0.147 Points on the Correlation Line Yc 1 2 3 3.18 X 78.2 146.4 214.7 227 Percent increase from 1961 to 1967: 3.18 1.93 1.65 or 65% -22- APPENDIX FIGURE 1-A TREND AND FORECAST OF PERSONAL EXPENDITURES FOR SERVICES BILLIONS OF DOLLARS 600 300 200 100 90 80 70 / 60 50 /. 40 I I I I I v I I I # ~~~ ' / / /" I I I I / I I I / [ L I : / v/ I I I I I I I I I 0 McGraw-Hill Department of Economics, Figures and Forecast, 1960 Dollars 30 Curve A: Current Dollars Trend Line by the Method of Least Squares Using - 1950-1960 Date. Data Source is U. S. Department of Commerce Curve B: Current Dollars Forecast Converting McGraw-Hill Forecast in 1960 Dollars I 20 I I I I I Industrial Development Division Engineering Experiment Station I GEORGIA INSTITUTE OF TECHNOLOCY 10 I I I I I I I I I I I I I I I I I I I I I I I I J I J I I I I 1945 1950 1955 1960 1965 1970 1975 1980 -23- Appendix 2 Appendix Table 2-A u. s. RETAIL SALES OF 30 TOILETRIES Year Toilet Soa12s Millions of Dollars % Change Tooth Paste Millions of Dollars % Chan&!:_ ShamJ200S Millions of Dollars % Change Face Creams Millions of Dollars % Change Li)2sticks Millions of Dollars % Change Spray Hair Fixatives Millions of Dollars % Change 1961 266.74 3.4 243.73 3.8 172.74 3.7 127.60 4.4 121.68 21.2 91.49 12.6 1960 257.85 4.4 234.81 3.1 166.58 4.5 122.17 4.6 100.39 9.2 81.25 6.7 I 1959 246.95 5.8 227.65 2.3 159.44 2.3 ll6.79 4.7 91.93 11.6 76. 15 -6.6 N +=- 1958 233.39 6.6 222.59 10.0 155.9 6.3 lll.52 4.4 82.36 7.6 81.50 -1.3 I 1957 218.96 15.5 202.34 13.5 146.68 10.3 106.8 2.7 76.54 7.3 82.54 10.0 1956 189.58 6.6 178.27 13.4 133.00 8.4 103.96 4.1 71.33 10.1 75.05 51.6 1955 177.82 6.1 157.25 4.4 122.65 4.9 99.84 2.7 64.77 13.7 49.49 65.4 1954 167.58 7.1 150.62 0.6 ll6.92 1.0 97.23 1.3 56.94 5.4 29.92 41.8 1953 156.51 3.3 149.72 6.7 llS. 74 7.7 96.00 2.7 54.02 13.2 21.10 201.3 1952 151.5 7 -1.2 140.32 24.8 107.45 13.2 93.52 0.1 47.72 9.5 7.0 170.0 1951 153.5 8.0 ll2.44 9.5 94.92 17.7 93.41 2.6 42.58 5.9 2.6 1950 142.09 -0.7 102.68 9.6 80.68 9.4 91.01 5.1 41. 15 9.6 1949 143.12 93.69 73.77 86.59 37.55 Year Mouth Washes and Gargles Millions of Dollars % Change Hair Coloring PreEarations Millions of Dollars % Change Men's Hair Tonics Millions of Dollars % Change Face Cleansing Creams Millions of Dollars % Change Home Permanent Kits and Refils Millions of Dollars % Change Aerosol Cologne Millions of Dollars % Change 1961 87.57 15.5 74.44 10 .l 74.36 6.4 71.19 3.1 70.21 8.6 65.42 23.1 1960 75.82 9.8 67.61 46.9 69.92 0.1 69.05 3.1 64.65 -4.8 53.14 15.4 1959 69.05 8.0 46.01 23.4 69.85 5.0 66.98 3.7 67. 9l -8.6 46.05 22.4 1958 63.94 17.0 37.30 15.2 66.52 2.7 64.62 3.9 74.27 -6.7 37.62 22.9 I 1957 54.65 39.0 32.37 14.9 64.74 7.9 62.18 2.5 79.64 -7.9 30.62 24.3 N Vl 1956 39.32 14.0 28.17 15.0 60.00 11.6 60.65 2.6 85.51 7.8 24.63 41.3 I 1955 34.49 4.5 24.50 9.7 53.75 9.6 59.12 -0.6 80.29 9.1 17.43 1954 33.00 4.4 22.33 6.7 49.06 3.8 59.49 0.8 73.61 6.3 1953 31.62 11.5 20.93 10 .l 47.27 10.6 59.00 2.7 69.23 6.3 1952 28.36 4.6 19.01 7.5 42.74 4.5 57.45 0.8 65.12 17.7 1951 27.10 5.0 17.68 17.5 40.91 13.6 57.01 3.3 55.32 4.3 1950 25.82 4.2 15.05 23.2 36.02 1.6 55.18 5.0 53.06 7.6 1949 24.78 12.22 35.46 52.57 49.32 Year Aerosol Shaving Cream Mill ions of Dollars % Change After-Shave Lotion Millions of Dollars % Change Pressed Cake Powder Millions of Dollars % Change Nail Polish and Enamel Millions of Dollars % Change Roll-On Deodorants Millions of Dollars % Change Hand Lotions Millions of Dollars % Change 1961 54.79 7.2 49.44 4.6 41.79 16.6 38.37 16.3 38.07 19 .l 37.86 4.6 1960 51.11 14.8 47.27 5.8 35.84 6.1 32.99 6.0 31.97 22.1 36.20 3.8 1959 44.52 12.6 44.68 7.2 33.78 10.3 31.12 9.7 26.18 28.2 34.87 3.7 I N 1958 39.54 9.8 41.68 7.3 30.63 11.8 28.36 -2.7 20.42 48.8 33.63 3.3 0\ I 1957 36.00 16.9 38.84 11.0 27.41 7.4 29.16 11.4 13.73 93.4 32.54 4.8 1956 30.80 12.6 35.00 7.6 25.53 13.2 26.17 6.1 7.10 31.04 5.3 1955 27.35 31.7 32.52 7.2 22.56 24.66 8.7 29.48 6.3 1954 20.76 39.3 30.32 5.9 22.69 11.6 27.74 2.0 1953 14.90 245.2 28.64 4.3 20.32 7.4 27.19 4.2 1952 4.32 332.0 27.47 4.6 18.92 8.5 26.10 5.3 1951 1.00 26.26 8.4 17.44 6.3 24.79 5.3 1950 24.22 9.2 16.41 3.7 23.55 15.4 1949 22.18 15.82 20.40 Year Perfumes Millions of Dollars ---- % Change Cream Deodorants Millions of ])ollars % Change Colognes, Toilet Waters ~other2 Millions of Dollars % Change Talcum and Body Powders Millions of Dollars % <:;hang_! Liquid Facial Cleaners Millions of Dollars % Change Women 1 s Hair Dressings and Conditioners Millions of Dollars % Change 1961 37.44 1.4 35.38 7.1 35.31 6.6 34.45 2.8 29.64 2.1 25.77 4.5 1960 36.92 4.1 33.04 8.2 33.12 8.0 33.51 0.9 29.03 7.9 24.66 14.4 1959 35.47 7.2 30.53 -0.7 30.67 6.4 33.21 3.5 26.90 1.1 21.56 2.4 1958 33.07 5.6 30.75 -3.6 28.82 6.9 32.09 5.7 26.61 1.9 21.06 9.3 I N -...) 1957 31.33 5.6 31.91 1.6 26.96 4.0 30.38 3.8 26.12 4.2 19.27 l3 .3 I 1956 29.68 6.6 31.39 9.5 25.92 -6.7 29.26 9.3 25.06 15.8 17.01 7.5 1955 27.85 6.0 28.67 5.6 27.78 26.76 6.8 21.64 154.6 15.82 8.5 1954 26.26 3.4 27.14 1.2 25.07 6.0 8.5 77.1 14.59 12.4 1953 25.40 1.2 26.81 6.3 23.64 3.3 4.8 12.98 1952 25.10 1.7 25.22 22.89 2.8 1951 24.69 3.3 22.28 2.6 1950 23.89 -3.0 21.72 5.2 1949 24.62 20.64 Year Loose Face Powder Millions of Dollars % Change Face Lotions and Astringents Millions of Dollars /, Change Make-UE Lotion Millions of Dollars /, Change False Teeth Adhesives Millions of Dollars % Change Face Lubricating Creams Millions of Dollars /, Change Squeeze Container SEray Deodorant Millions of Dollars 7, Change 1961 1960 1959 1958 24.68 -1.1 24.63 0.9 23.79 15.2 20.54 8.9 19.58 3.9 15.02 3.7 24.96 -2.1 24.41 4.1 20.65 9.7 18.86 6.1 18.85 4.4 14.48 -2.5 25.49 1.8 23.45 5.1 18.82 5.4 17.78 10.0 18.05 6.3 14.85 -3.5 25.03 -0.4 22.31 4.8 17.87 13.4 16.16 10.0 16.98 4.9 15.39 -7.8 I 1957 25.13 -0.7 21.3 4.0 15.75 5.6 14.69 8.3 16.19 1.5 16.70 0.3 N 00 I 1956 25.31 1.8 20.49 4.8 14.91 11.9 13.56 10.1 15.95 6.5 16.65 9.3 1955 24.86 1.9 19.56 2.0 13.33 12.32 11.5 14.97 4.0 15.24 4.4 1954 24.39 -1.7 19.17 2.9 11.05 2.5 14.40 1.4 14.59 0.2 1953 24.82 -1.0 18.62 3.4 10.78 4.9 14.20 3.4 14.56 22.5 1952 25.06 -0.5 18.02 2.5 10.28 6.1 13.74 -2.1 11.89 1951 25.19 0.7 17.58 4.8 9.69 2.9 14.04 0.1 1950 25.03 0.5 16.78 5.3 9.42 9.4 14.02 7.5 1949 24.90 15.93 8.61 13.05