Detergent Market Update

November 8, 2005

With store shelf space at a premium, marketers escalate turf war with a plethora of new offerings. Despite the jostling, P&G remains king of the hill.

With store shelf space at a premium, marketers escalate turf war with a
plethora of new offerings. Despite the jostling, P&G remains king of the hill.

They kill bacteria to keep your family safe, alleviate irritation by minimizing allergens and leave your clothes smelling mountain spring fresh. Hmm, if laundry detergent can only keeping you looking young.... That might not be far off, if consumers demand it. For now, detergent marketers continue to roll out a greater range of products in the race for market share. As the battle escalates, consumers can expect more items offering a plethora of functions. Product claims of brighter colors and softer fabrics aren't enough to captivate buyers. These days, innovative technology is paramount, and chasing consumer trends is pivotal to new-launch success. From new formulations to color-safe wash additives to home dry cleaning kits, the proliferation of laundry products is giving consumers more choices and cleaning methods when it comes to doing the wash.

One clear choice consumers are making is their preference for liquid detergents. Market data show the shift to liquid remains strong, and regional markets such as southern and western states traditionally strong in powder sales are migrating to liquids at an accelerated rate. Powder unit sales at drug, food and mass merchandisers dropped considerably in the 52 weeks ended Oct. 10, 1999, according to Chicago-based market tracker Information Resources. At the same time, liquid detergent unit sales are slightly higher. The perception that liquids are easier to use and have no solubility problems is largely driving the switch, according to some detergent marketers. Although they believe the shift will continue for the next several years, they also say powders will never go away because there will always be some consumers who prefer them.

In the liquid category, consumers are still trying to decide which formulation they like best. While ultra concentrated products have gained a lion's share in recent years, IRI sales data paint a mixed picture. Category leader Ultra Tide actually fell in unit sales while other ultra brands posted remarkable growth. Some market observers believe consumers are shying away from super concentrated formulations, while others predict ultra products will gain share.

The Rise of Private Label
One brand sure to gain share in the three-tiered laundry detergent market in the near future is Wal-Mart's Sam's American Choice detergent, which was rolled out nationwide at the company's 2,800 stores in August. The country's largest retailer successfully markets numerous other products under its own brand, and that has some national brand marketers wary. Even though the line is value-positioned, some premium brand marketers say they are keeping a close eye on its impact on the detergent market, especially because the company is also a key retailer. One detergent executive cited the rollout as the most important development in the category last year.

The impact of Wal-Mart's line may ultimately push prices down in the near future, especially in the value tier. Even so, the category enjoyed higher prices in the past year. Dollar sales rose significantly higher than unit sales for all liquid detergents while dollar sales for powder products fell slightly. Unit sales dropped sharply, indicating higher prices for both categories.

Tide, P&G on Top
If death and taxes are the only sure things in life, then Procter & Gamble's dominance in the laundry category is a close third. Tide remained the most popular brand in the U.S. last year, accounting for four of the top 20 brands. It leads in both powder and liquids and has a 35% share of the overall market. Add in P&G's other brands, which account for five more of the top 20, and it's easy to see why P&G has about half of food, drug and mass merchandiser sales.

Despite its dominance, P&G's flagship brand suffered steep declines in the latest reporting period. Unit sales of Tide powder, the category leader, fell nearly 20% and dollar sales dropped more than 10%. Although the overall liquid category is up, category leader Ultra Tide posted a 6.2% decline in unit sales and a 0.8% gain in dollar sales. Regular liquid Tide's dollar sales nearly doubled. Tide spokesperson Molly Humbert said new rollouts for liquid Tide-Tide with hydrogen peroxide was launched last May and a reformulated Tide with bleach came out in February-may have shifted purchasing from one Tide product to another. The company's other brands delivered mixed results; Gain powder, ranked second in powders, rose 13.4% in dollar sales, but Cheer fell 4.2%.

As P&G extends the Tide brand, it's also offering novel cleaning products such as Dryel, the in-home dry cleaning system, and Cheer with liquifiber. Ms. Humbert said these new products respond to consumer demands. For instance, Tide with bleach was reformulated specifically to help kill bacteria in the wash, she added.

Concerns about bacterial contamination in the home have grown in the past year, and one recent study announced last June raised awareness about germs in the washing machine. At last year's American Society of Microbiologists meeting, an Arizona researcher reported that 60% of washers examined had fecal bacteria, and others had staph bacteria. The researcher suggested that using bleach kills 99.9% of bacteria in the wash, and P&G has firmly keyed into consumer concerns by marketing Tide with Bleach as an effective tool against bacterial contamination.

"We heard from consumers that this was something they were looking for in a laundry detergent, and using (conventional) bleach (wasn't acceptable) because it wasn't safe with colors," she said.

Another new area P&G hopes to tap into is the dry cleaning segment. While Dryel isn't a dry cleaning substitute-the company said it's made for consumers who want to clean and freshen their clothes in between trips to the cleaners-P&G is clearly charting new territory. It launched the product late in 1999 and heavily promoted it with product demonstrations at 275 malls during a 10-day period.

Many of the company's new laundry products last year were aimed at assuring customers that their clothes would be protected and require less attention in the wash and dry process. For instance, Cheer with liquifiber, launched last summer, helps reduce the wear on fabric by easing fiber breakdown. This new technology is only available in Cheer, and the company said it doesn't plan to incorporate it in other brands. Tide with hydrogen peroxide helps clothes achieve a deeper clean, and late in the year the company brought out Downy Premium Care, a fabric softener it claims can help reduce wrinkling, protect clothes and help retain color.

P&G said the new introductions were the results of consumer feedback, but some industry observers see it purely as a move to grab shelf space. At the same time, the company needs a full pipeline of new products to keep ahead of second-tier and private label competitors.

Unilever Posts Strong Gains
Unilever, second in the category, has been shifting its marketing efforts to grow its share. The results? All Ultra posted a 117% gain in dollar sales and a 107% rise in unit sales for the 52 weeks ended Oct. 10. Liquid Wisk, its largest brand, fell 1.3% in dollar and 12.1% in unit sales. On the powder side, Surf and Wisk each posted double-digit losses in dollar and unit sales, but Ultra Surf is up 123% in dollar sales and 72% in unit sales. Among top brands, the company had the fastest growing brands in both powder and liquids Peter Ryan, Unilever's vice president of laundry categories, said the company's marketing plan was to shift sales among its products. "That was right on with our plan," Mr. Ryan reflected on the results.

He noted that All Free Clear, which was rolled out about a year ago, is doing particularly well in the market. The product claims to rid clothes of allergens. Unilever increased its ad spending on the brand by 25% to promote the launch, and sales data suggest the company has recovered the cost.

Detergents offering anti-allergen, anti-bacterial and perhaps even UV protection in the near future are part of a growing trend to develop multi-functional products. Marketers differ over the need for the host of new features being offered. Premium brand marketers need innovations to stay ahead of the pack, while the lower-tiered manufacturers adopt a wait-and-see approach. They won't incorporate any new technology unless it has been widely embraced and minimally adds to the cost.

For example, value-oriented brands waited more than five years after enzymes were first incorporated in detergents before adopting the technology, said Uri Evan, chairman and CEO of USA Detergents, which markets the Xtra value brand. He pointed out that anti-bacterial and anti-allergen features are being offered only in the premium tier, and it may be years, if ever, before mid- and lower-tier marketers offer them.

"P&G is innovating, and its role is to innovate. Mid-price and value brands are adapters. They're not innovators," Mr. Evan said.

Pricing Pressure on Brand Marketers
Value brands may have to begin innovating in the near future if one retailer's private label detergent takes off. Wal-Mart's rollout in August means detergent shelf space has become even more crowded, and for brands that sell on price alone, this is bad news. Even premium brand marketers are keeping a close eye on the brand, said Mr. Ryan.

"Certainly the biggest news is the Wal-Mart introduction in the second half of the year. Time will tell [what effect it will have on the market]," he added.

The company rolled out four SKUs under the Sam's American Choice label: a powder with and without bleach and a liquid with and without bleach.

Some industry observers said the most immediate impact will be on price. Wal-Mart, already the market leader in the garden fertilizer category and possibly a few others, according to Advertising Age, said it doesn't plan to spend any money on marketing the detergents. Therefore it won't need to build additional costs into the products' pricing, making it one of the lowest-cost detergents on the market. Additionally, the company said the product will perform as well as any other in the value tier.

"Whenever we put out a private label, we put out a quality product at a low price," said Wal-Mart spokesperson Jessica Moser.

Not all value brand marketers see the launch as a threat. Mr. Evan said this will allow his company to introduce an Xtra Plus at mid-tier.

"This is an opportunity for us," he said.

Powder or Liquids? The Choice Is Clear
When it comes to detergent use, consumers in the past have been slow to change their habits. But the rapid shift from powder to liquid breaks the rule. Two years ago, dollar sales of liquid detergents outpaced powder for the first time, and 1999 saw the trend continue. In 1998, liquid detergent sales accounted for 53% of the overall market, while powders were 47%. In 1999, the ratio changed from 56% to 44%, a swing of three percent. Will many more consumers opt for the cup over the scoop? Most industry observers believe so.

"Liquids continue to move ahead. I wish it would slow down, but it's not slowing," said John Langford, senior vice president of sales for Salt Lake City-based Huish, one of the country's largest independent detergent manufacturers. Mr. Langford pointed out that in some regions of the country powder detergents account for as much as 90% of sales. He added that in the South and West liquid detergents are still trying to get a foothold.

Mr. Langford said ease of use largely drives the shift. Consumers find powders too messy, and solubility issues still present a problem. He said the shift will likely continue and reach an equilibrium. The question remains, however, what will be the equilibrium.

What's not likely to catch on with U.S. consumers, though, is washing tablets. While their popularity is growing in Europe, no major marketer here plans to roll them out, especially considering that previous attempts have failed miserably, several marketers said. Furthermore, tablets require that they be placed in a bag. Other product forms include washing gel, introduced in Europe, but there is little discussions about a possible U.S. introduction.

Convincing U.S. consumers to try any form other than powder or liquid may be an exercise in futility. As Mr. Langford noted, consumers here don't want additional steps, and they like the familiarity of the scoop or cup. "Consumers like what they are doing," he said.

Another European trend receiving a lukewarm U.S. reception is the use of high-efficiency (HE) washers. Arno Cahn, a Pearl River, NY-based consultant, estimates that U.S. sales of these machines comprise less than 10% of the total. Although brands such as Tide and Wisk offer a HE formulations for these washers, they account for a small percentage of the overall market. And until more HE machines are sold, that ratio won't change much.

As laundry detergent marketers reshape the category with new products and technologies, one critical factor remains beyond their control. With the retail sector consolidating and as retail giant Wal-Mart gear up to become the No. 1 food chain this year, detergent marketers can expect wholesale changes in distribution and profitability. And an unknown factor is the impact e-retailing will have on future sales and profitability.

Even though the U.S. laundry detergent category seems anything but exciting, many changes are forthcoming in the new millennium. New and emerging consumer trends, innovative products and greater price pressures are sure to shift product positioning and market share allocation. Leaders, will have to balance thinner margins against the need to innovate. At the lower end, marketers must figure out how to keep ahead of private label. And detergent brands in the middle have to protect themselves from being squeezed by the tiers above and below.

Related End-User Markets:

Related Raw Materials:

Related Packaging, Equipment and Services: