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Soaps and detergents: Consumers remain cautious

1:21 PM MST | January 17, 2014 | —Rebecca Coons

Soapers are facing a number of headwinds in 2014, including slower economic growth in emerging markets and cautious consumer spending in the United States. Consumer product companies say innovations that offer value to customers can help grow market share.

Soap and detergent manufacturers forecast modest growth in 2014 as they grapple with decelerating growths in emerging markets and tepid volumes in developed regions. “Worldwide, demand growth continues, although both developed and developing markets are challenged,” says Eric Schwartz, senior v.p. and general manager/laundry and home care at Henkel. “US consumer demand for cleaning chemicals remained lackluster in 2013, dragged by volume declines in laundry detergents, with a major factor being consumers restricting their dosing behavior.”

IHS Chemical expects the global household detergents market to grow 3.4%/year through 2017. Emerging markets will largely buoy the growth: Chinese consumption is projected to grow 6.0% annually, while the Mideast and Africa will increase consumptions by 4.0% and 4.1%, respectively. Comparatively, developed regions will grow tepidly. The United States and Canada are projected to net 2.0% growth, while Western Europe will eke out anemic gains of about 0.6%/year.

Price continues to be an important factor in the United States, where value-priced detergents outpace their middle- and top-tier counterparts. Consumers are also increasingly shopping at big-box retailers, like Costco, where soapers are under increased pressure to discount in order to win limited shelf space.

“There are consumers for whom a lower price is a more critical element of their personal value equation,” A.G. Lafley, Procter & Gamble (P&G) CEO, said in a recent investor presentation. “We need to have brands and products that are relevant for them as well.”

P&G, whose Tide brand sits in the top tier, recently announced that it would be introducing Tide Simply Clean & Fresh in the midpriced tier of North America laundry detergents. “This is about a $2-billion segment in which we are currently underdeveloped, with about a 30% [market] share,” Lafley says. Lafley believes the new product will not cannibalize Tide sales, which was the case with Tide Basic—a cheaper detergent P&G launched in 2009 but scrapped just a year later.

“We are confident that our consumer understanding in premarket testing has helped us design a mid-tier Tide Simply that is very attractive to mid-tier consumers but not very interesting to current regular Tide users. This is exactly the same approach we use with Bounty and Charmin Basic,” Lafley says.

Some consumers have been willing to pay higher prices for convenience, however. Unit-dose laundry detergents have been a fast-growing category. Launched in 2012, P&G reported half a billion dollars in North American sales for its Tide Pods during its 2013 fiscal year. The company is now expanding the product globally, starting with Latin America, Western Europe, Central Europe, and Africa. Market watchers, however, say the product category eliminates widespread overdosing of laundry and has contributed to declining per capita laundry detergent consumption in the United States.

However, growth opportunities remain for suppliers that “deliver the differentiated value that allows them to maintain competitive pricing,” Schwartz says. “We have a wide variety of innovation needs, ranging from chemicals to packaging materials to ready-to-go technology. Our key strength lies in our ability to collaborate with our strategic suppliers. In North America, this resulted in a string of innovative launches.” An impressive area of growth has been fabric finishers, “where solids continue to grow and trade consumers up from less expensive liquid softeners and dryer sheets,” he adds.

The competitive costs of lauric oils in 2013 helped enable formulators to use oleochemicals to build their business, says Tom Nelson director/customer business development at P&G Chemicals. Cost increases for both coconut and palm kernel oils in the fourth quarter, however, present a challenge to the oleo chemical, soap and detergents industries. “P&G Chemicals is focused on optimizing our supply chain costs to help our customers grow and win in the markets they serve,” he adds.

Global growth engine stalls

With the global economy struggling to regain traction, many emerging-market economies are learning the hard way that they must deal with their own domestic political and economic obstacles to growth if they are to advance economically, IHS says. Real GDP growth rates in the BRIC countries—Brazil, Russia, India, and China—have slowed considerably from the rates in the previous decade. Brazil’s real GDP growth rate was just 0.9% in 2012 compared with an annual average of almost 4.0% in 2000–08. “In the near term, Brazil and Russia, as well as a few other emerging markets outside of BRIC, are likely to grow at the same sluggish pace as the United States,” IHS adds.

Even India and China—long touted as examples of large, fast-growing economies—are faltering in some respects, IHS says. India’s real GDP growth rate is likely to be 5–6% in 2013 after growing 8–10% in 2003–07. According to the World Bank, nearly 70% of India’s population lives on less than $2 a day. Real GDP growth in China has averaged about 10%/year over the past 30 years, but even the Chinese government is now predicting slower growth, 7–8%, in the coming years, IHS adds. However, China’s GDP per capita is more than four times that of India.

Slowing growth in emerging markets has consumer goods companies aggressively fighting for market share. Unilever, which gets about 57% of its sales from emerging markets, reports underlying sales growth of 3.2% for its fiscal third quarter, ended 30 September 2013, compared with 5.0% and 4.9% for its second and first quarters, respectively. “Growth continued to slow in emerging markets, as macroeconomic headwinds and the consequences of currency weakness affected consumer demand across a significant number of the emerging countries,” Unilever says. “The developed markets have not recovered and remain flat to down with little sign of any improvement so far. In this context, we continue to see high levels of competition in many markets, and promotional intensity remains high.”

Unilever’s home-care segment posted a 6% increase in underlying sales, to €2.2 billion. ($2.9 billion). The company says laundry products grew increased volumes and the success of premium formats, such as liquids, but says it will respond to ongoing “competitive intensity” by reinvesting cost savings in product performance and brand support. “Household care continued to grow as we converted consumers from cheaper but less effective alternatives,” it adds.

Meanwhile, P&G’s fabric-care and home-care segment—which includes the company’s Tide, Gain, and Ariel brands—posted sales of $6.7 billion for its fiscal first quarter ended 30 September 2013, 3% higher year-on-year (YOY). Organic segment sales were up 6% with strong growth in each product category. Segment earnings were down 2% YOY, however, to $857 million. P&G expects earning to grow 5–7% in fiscal 2014. P&G says it had earned $3.03 billion, or $1.04/share, in the first quarter, ended September 30 2013, up from $2.81 billion, or 96 cts/share, a year earlier. Developing regions comprised 39% of P&G’s sales in fiscal 2013.

This fiscal year, P&G is planning more than $1.4 billion of cost-of-goods savings across materials, logistics, and manufacturing expense. “We expect to improve manufacturing productivity by at least 6% this year. We’re continuing the work on North American and European supply chain redesign to lower cost, reduce inventory, and improve customer service,” says P&G CFO Jon Moeller.

“We are committed to make productivity a core strength—systemic, not episodic,” Lafley says. “We’ll measure productivity; we will recognize it; we will reward it. Productivity is particularly important in the slower-growth world and in an environment of increased volatility.” Lafley was named CEO in May 2013 after Bob McDonald—facing pressure from investors who felt P&G was losing market share and lagging its peers in emerging market growth—resigned. Lafley had previously served as CEO from 2000–09.

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