Financial Daily from THE HINDU group of publications
Sunday, Mar 13, 2005
Industry & Economy
Soaps & Detergents
All for a slice of the cake
THESE are challenging times for the makers and marketers of home and personal care products.
At one end of the spectrum, the key players in this market and the entire chain of suppliers have had to contend with significant inflationary pressures. The skyrocketing prices of crude oil have exerted upward pressure on basic chemicals such as benzene that make up the key building blocks for home care products. But as markets for consumer goods enter a mature phase, passing on such increases to consumers through periodic price hikes is becoming increasingly difficult.
Consumers too are demanding more from brands, for every rupee spent. The rising clout of large retailers such as Wal-Mart and Cotsco, with the success of their private label brands, have also pegged up levels of competition in the industry.
The players in the soaps and detergents industry are responding to these changes in several ways. At a global level, they are consolidating their operations for bigger cost savings and a larger portfolio of products. They are also rejigging their basket of products to deliver more convenience, flexibility and ease of use to their consumers. Many of the industry leaders are looking outside their traditional markets in the US and Europe to emerging markets such as Asia, to drive growth.
At the global level, mergers and acquisitions appear to be picking up pace once gain, after a dull period spanning 2002 and 2003. In end-2003, chemical and laundry giant Henkel KgaA acquired Dial Corp, maker of the Purex brand of detergents and Dial soaps. American home products maker P&G's recent deal with Gillette Inc is also seen as a further trigger to consolidation in the home and personal care market. By acquiring competitors with strong brands and a wide portfolio of products, these players are trying to acquire a bigger geographical spread for their products and exercise greater clout over their distributors.
Another industry trend is the effort to drive upgradation of consumers to premium products. Estimates indicate that in the US, the liquid laundry detergents market, at approximately $2.5 billion, is about three times the size of the conventional washing powder market. Liquids offer greater washing convenience and are more easily dispersible compared to powders.
But the growth of liquid detergents has also been powered by new fragrances and benefits for these products as compared to traditional washing powders. New stain removing devices (such as Tide Stainbrush), value added liquids (such as Tide with a Touch of Downy) and unique fragrances have recorded strong sales, prompting companies to experiment with new products with multiple attributes and new benefits.
In soaps, liquid body wash products and shower gels have been gradually replacing the traditional bar soap in the American and European markets. Liquid soaps with moisturising effects and those infused with natural ingredients and scents have been instrumental in keeping growth rates robust in the wash category.
Eye on emerging markets
Many of the larger players in the industry are also looking to the emerging markets such as Asia, to drive growth rates for their products. Unilever, which has $17 billion of its annual sales originating from the emerging markets, has been a major player in these markets. But others such as Procter & Gamble, Colgate-Palmolive and Henkel are also striving for a larger presence in these markets.
Focus on `value'
The Indian market, with its large working population and the promise of demographic transition, has seen heightened activity with several soap and detergent makers striving for a larger slice of the pie. While Hindustan Lever has a long standing presence in this market with brands such as Surf, Lux, Lifebuoy and Dove, P&G's Indian arm has also been trying to ramp up its presence by expanding the franchise for Tide and Ariel.
Business strategies for the Indian market have, however, substantially differed from those in the developed world. The emphasis in the Indian market has been on offering superior "value" to the consumer. The Indian market for soaps and detergents follows a pyramidical structure, with the low-priced and popular segments still accounting for a lion's share of the sales.
Players such as HLL and P&G have tried to prompt consumers to upgrade by offering sachet packs at affordable prices. Efforts in recent times have turned from simply offering an attractive price to offering superior product attributes at an attractive price. HLL's recent reformulation of Surf as Surf Quickwash and the launch of Rin Advanced are pointers.
Product launches targeted at the premium market have also continued. Colgate Palmolive India, for instance, has been marketing the Aromatherapy range of shower gels in India for some time. HLL's Lux Body Wash range too has been available for a couple of years now. These products have been made over, to attract the more affluent consumers to upgrade to products that offer a superior wash experience.
At the same time, efforts are also on to increase the Indian usage of soap and detergent products, which continues to be low compared to international standards. Sachet and affordable low unit packs are being used to attract more consumers. New distribution initiatives such as HLL's Project Shakti and its Sangam Direct initiative that help consumer goods brands to reach out to new consumers are also being experimented with, with good results.
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