The II Regroups

November 9, 2005

The events of Sept. 11 had a direct impact on several key segments.

The issues that normally dominate any discussion regarding the industrial and institutional cleaning market—maintaining a steady workforce, keeping abreast of regulatory issues, dealing with the ongoing effects of consolidation and improving product efficacy—retreated into the background following the events of Sept. 11. The terrorist attacks on the Pentagon and World Trade Center dealt a severe blow to the hospitality industry, one of the key customers of I&I cleaning market manufacturers.

"This has been a difficult year for the market," noted Bruce Boynick, senior associate at Kline & Co., the Fairfield, NJ-based research firm that closely tracks activity in the I&I market. "It had already been a slow first three quarters and then the events of Sept. 11 really hit our market, especially in the hospitality sector."

Food safety, always an important topic for the I&I market, is more critical than ever.

According to Kline & Co., the $7.6 billion I&I market rose 4% overall in 2000. But the gains were deceiving, because the growth rate had begun to slip by the presidential election last year. Through the first three quarters of 2001, the growth rate was cut in half to 2%, according to Mr. Boynick. By market segment, Kline estimates sales within the janitorial market at $2.8 billion. Similarly, sales in the food processing and industrial cleaning segment totalled $2.8 billion combined. Food service sales were next at $1.4 billion and laundry sales totalled $600 million.

The steep decline in activity for airlines and other travel-related industries in the aftermath of the terrorist attacks was reflected in the high numbers of initial claims for unemployment insurance. The moving four-week average reached a 10-year high of 491,250. The number of individuals continuing to receive benefits rose to its highest level since 1983.

The Damage Done
Every manufacturer, regardless of size, that operates within the travel, hospitality and restaurant business has been affected by the events of Sept. 11. Ecolab, for instance, said earnings will be lower than originally estimated. Last month, the company predicted diluted earnings per share would fall from an estimated $1.63-1.61 to $1.45-1.50 a share.

"The current concerns over travel have resulted in unprecedented declines in the lodging and convention business, and its ripple-down effects have also affected other areas of the hospitality industry, including restaurants," said Allan L. Schuman, chairman and chief executive officer, Ecolab, in a statement. "While we have a diverse customer base that enables us to offset some of this, the extraordinary events and the general economic uncertainty and slowdown have presented a challenge to our earnings for the remainder of the year."

To help offset the slowdown, Mr. Schuman said Ecolab has undertaken a number of activities to enhance sales growth in this difficult environment. He said new products, new accounts, cross-selling, various promotional activities, enhanced service levels and a focus on global programs are all a part of that effort.

While acknowledging a bit of a slowdown in the wake of the Sept. 11 attacks, Ross Harding, executive vice president of marketing and strategic accounts for the NSI Chemicals Group, told Happi that business remains surprisingly strong at his company. "We saw some some reduction in the average order size, but no softening of total orders," he reported. "Our business is robust and diversified; we're not particularly exposed to any one segment."

But not every company is so diversified. In fact, the travel and hospitality sector plays a major role in many I&I manufacturers' sales. The week before the attacks, U.S. airlines carried 9 million passengers, a slight increase from 2000. The entire air fleet was grounded for two days while airports and airlines improved security after the four terrorist hijackings.

The first full week after flights resumed, 5 million passengers flew, only half of the number during the same period in 2000. Six million passengers flew the following week. Airlines have reduced flights and laid off more than 100,000 employees to compensate for the loss in business.

While there are fewer flights, there are also fewer passengers on those planes. About a month after the attacks, planes on U.S. domestic routes were flying an average of 54% full, compared with 67% before Sept. 11. Still, there are signs that Americans are returning to the air. During the first week in October, planes flew 61% full on routes within the U.S, compared with 70% during the same period in 2000.

The increase is just one of the signs that travel schedules are beginning to return to normal again. The Air Transport Association (ATA), the major airlines' trade group, said that during the first week of October, air travel fell by more than a quarter compared with the same period in 2000, but was substantially higher than the previous week.

In recognition of its 65th anniversary, Zep is rolling out Zep 65, a general-purpose aerosol cleaner.

"It's a gradual return to business as usual," said Michael Wascom, spokesman for the ATA, Washington D.C. The hotel industry is desperate for a return to normalcy. Many industry observers called September the worst month in the history of the hospitality industry. Infact, Smith Travel Research estimates the industry lost $690 million in September alone.

A Look at What's New
Although terrorist activities are in the news, that hasn't stopped marketers from launching new products for I&I markets. Many of the newest launches take their cue from product ideas that are already available on supermarket and mass market shelves.

For example, Ecolab is introducing EpiSoft, a new foaming hand soap line with a dispenser that features a built-in foaming mechanism. In addition to providing foam, the EpiSoft system is extremely efficient. According to Mike Miner, marketing manager, in the Ecolab professional products division, one cartridge of EpiSoft lasts four times longer than conventional liquid hand soap cartridges.

"We've offered foaming soaps for quite some time in the health care market," noted Mr. Miner. "That experience, plus the fact that we're seeing foaming soaps from Dial and Johnson & Johnson in the consumer market, told us that the time is right to introduce a product such as EpiSoft."

Other marketers are also taking a hands-on approach when it comes to new product development. For example, earlier this year, DiverseyLever rolled out Lever San, an instant hand sanitizer that is targeted to the food processing and retail industries. The water-thin, quick-drying hand sanitizer has an E3 USDA rating, according to Ellie Birch, marketing director,retail and personal care, DiverseyLever.

"After sanitizing with Lever San, an employee can touch food without rinsing off the hands, unlike gels that legally have to be washed off before touching food," noted Ms. Birch. "Everyone has a heightened awareness of cross-contamination and personal hygiene. If food processing employees aren't practicing good hygiene procedures, they may contaminate the food."

Ms. Birch said demand has been strong for Lever San and Diversey- Lever may introduce the sanitizer in institutional segments for restaurant employees.

NSI expanded its hand soap range with a new heavy duty industrial hand soap called Cherry Bomb. The red, cherry-scented product contains micronized pumice in a new surfactant delivery system. According to Mr. Harding, "Cherry Bomb is easy to use, works well on heavy grime and is extremely rinseable."
NSI has also introduced a dispensing system called Dilution Solutions for hospitality, food service and school use. The fully integrated dilution station accepts NSI products in gallon and 2.5 gallon sizes. Dilution Solutions is available in fixed and mobile systems.

"Dilution Solutions is flexible and cost-effective," said Mr. Harding. "We just shipped several hundred units and we can't build them fast enough."

Advances in Aerosols
The Zep division of NSI is celebrating its 65th anniversary this year and the company has historically rolled out a new aerosol product to mark the occasion. In fact, Zep 30 and Zep 45 are still on the market. New Zep 65 is a foaming citrus-based general purpose cleaner with good degreasing properties and deodorizers that is very easy to use, according to Mr. Harding.

Chase Products, Naperville, IL, continues to expand the number of products available in its patented, ergonomically shaped aerosol cans. Earlier this year the company repackaged the five most popular aerosols in its Champion line. According to Ron DeSimone, director of corporate marketing, 72% of users preferred Chase's easy-to-hold can to traditional aerosol cans. Mr. DeSimone noted that ergonomic issues will play an ever-increasing role in the industrial and institutional market.

"At this time, many worker compensation claims revolve around repetitive stress disorders," noted Mr. DeSimone. "We've appealed to that and are fitting equipment to the human."

Ergonomics continues to be a major issue in the I&I market, agreed Dan Wagner, manager of regulatory compliance for the International Sanitary Supply Association (ISSA), the leading trade group for the I&I industry. In recent months, ISSA submitted comments to the U.S. Occupational Safety and Health Administration on the subject. The association argued that it is impossible to take a coherent regulatory approach to address ergonomic injuries because there is no consistent workable definition of ergonomic injuries. ISSA observed that current science has not been able to define ergonomic injuries or musculoskeletal disorders on the basis of objective medical criteria, relying instead on subjective factors such as tingling and numbness rather than measurable tissue damage.Ê

But the biggest regulatory issue remains product labelling, according to Mr. Wagner. "Labelling is an enormous issue," he noted. "The No. 1 issue facing our members is the constant revision of labels for products with EPA registration."

A Breath of Fresh Air
As they research ways to improve hard surface cleaning, many I&I manufacturers remain committed to improving air quality in schools, office buildings, restaurants and other insitutions. State Industrial Products, for example, has introduced several systems of products that dispense fragrance on a regular basis under its 24/7 air care program.

"Our entire 24/7 program revolves around products and dispensing equipment that doesn't rely on having someone spray a product," noted Tammy Westerman, vice president, research and development. "As a result, customers save on labor costs."

The 24/7 program allows industrial and institutional customers to treat problem dumpster areas around the clock. The product features an automatic dispenser that can spray a dumpster throughout the day.
"The best way to achieve automatic odor control is to get the product to the source of the odor," she noted. "Automation reduces costs and the product works better. It is more effective to spray small amounts several times a day."

In conjunction with the 24/7 system, State Industrial has introduced DumpStar, a spill control and odor control product that is designed for use around dumpsters. The granular material even contains citronella for insect repellency.

Chase, too, has introduced a metered fragrance system. New Allscents is billed as the first metered air system that automatically eliminates restroom odors by encapsulating them, rather than just masking them. In addition, Chase has introduced a carpet freshener to treat odors. The product contains Ordonene, a encapsulating ingredient that eliminates odors. Moreover, the disappearing foam disintegrates after application so there is no need to vacuum, which saves labor costs.

An Anthrax Bounce?
Executives at some companies insist sales actually jumped after Sept. 11 and the ensuing Anthrax scares. One of these firms is Cleaning Ideas Corp., a subsidiary of Titanium Holdings Group Inc. In mid-October the company announced that it has experienced a significant increase in the sales of its EPA-approved product Magic, a quat tuberculocidal disinfectant cleaner.

Magic is an EPA-registered hospital type quaternary based tuberculocidal disinfectant/cleaner designed to provide intermediate-level disinfection. This hospital type tuberculocidal disinfectant provides a high level of disinfection against a broad spectrum of both gram negative and gram positive microorganisms.

"Over the past month the sales of all our disinfectant products has increased at our Cleaning Ideas stores and at our wholesale division," said Feyga Gofman, chief operating officer and chief chemist, Cleaning Ideas Corp. "We have experienced an increase in customers requesting more information about products that can be used to clean and protect against various viruses and bacteria."

Magic exhibits disinfectant efficacy against Mycobacterium tuberculosis (BCG) on previously cleaned, hard, nonporous, inanimate surfaces. When used as directed, Magic exhibits effective disinfectant activity against the organisms Staphylococcus aureus, Salmonella choleraesuis, Pseudomonas aeruginosa, Escherichia coli 0157:H7, Methicillin-resistant Staphylococcus aureus (MRSA), Vancomycin-resistant Staphylococcus aureus (VRSA), Vancomycin-resistant Enterococcus faecalis (VRE) and meets the requirements for hospital use.

When used on environmental, inanimate, non-porous surfaces, Magic exhibits effective virucidal activity against HIV-1 (the AIDS virus), Canine Parvovirus and Poliovirus Type 1.

Where's the Growth?
After several years of strong growth, the I&I market has begun searching for new areas of opportunities. Mr. Miner of Ecolab told Happi that floor care still offers plenty of growth opportunities for savvy marketers. "It's tough to grow the business," he acknowledged, "but that's where the room for innovation is greatest because floor care is very high profile for our customers. It is the literal and figurative foundation of a cleaning program for most of our customers."

Johnson Wax Professional is expanding its already formidable presence in floor care through new avenues. Earlier this year, it formed a joint venture with Tennant Company, Minneapolis, to launch NexGen Floor Care Solutions, a revolutionary multi-tasking floor cleaning machine and chemical system. According to Johnson Wax, the system significantly reduces labor, eliminates expense and concerns associated with propane-powered equipment and improves the quality and consistency of floor cleaning results.

The machine performs three functions—sweeping, scrubbing and polishing hard floors in one pass—at a rate of up to 15,000 square feet an hour. The chemical system was designed by Johnson Wax Professional specifically for optimum performance with the 3-in-1 machine. According to Johnson Wax Professional, these jointly developed products promise significant productivity gains and increased performance over existing methods and practices used by large retail store chains and building service contractors, and in other commercial markets.

NexGen will operate as a separate entity, with separate sales force and distribution channels for the system. Initially, NexGen will focus its sales on end-users in North America. NexGen's distribution channels and plans for global expansion will be developed over time, following its North American success, according to the company.
Ms. Birch of DiverseyLever noted that the issues that have been around the I&I industry for years continue to play an important role in new product development.

"Customers want to save on labor, water consumption and reduce the amount of wastewater they produce," she noted. "We're looking at chemical and dispensing systems that help them accomplish that."
Many I&I marketers figure that they've got all those walls and floors covered with a multitude of cleaning products, so now they are turning their attention to the inner workings of buildings such as heating, air conditioning and ventilation systems. All are prime spawning areas for mold and mildew, which have been blamed for "sick building" syndrome.

"Right now, heating and cooling systems are a gray area for I&I companies because it's been a job for building maintenance," noted Mr. DeSimone. "This could be a cross-over market for us as we try to bridge the gap between the maintenance engineer and the jan/san worker."

Ventilation systems are the lungs of a building, agreed Bill Griffin, president of Cleaning Consultant Services, Seattle, WA. "The things blowing out of there are causing a lot of health problems and as science gets better, we'll find out what's causing these problems," he said.

I&I executives appear willing to spend money to learn more about mold, according to Mr. Griffin. He recently attended a three-day mold seminar that attracted more than 200 people who were willing to pay $900 each for certification.

Although new product ideas grab headlines, keeping costs down is important too. "Our customers continually look to us for high quality specialty products, rather than commodity glass cleaners," noted Dr. Westerman. "We're developing programs and systems that take into account the total cost of use."

There's no need to rinse after applying DiverseyLever's Lever San hand sanitizer.
Mr. Harding of NSI said the company is focusing on value across many of the categories it competes in, whether it is in the car wash segment or food processing division. "Our sales force is helping customers understand per-wash cost," he noted. "That's also true in food processing, where we've done a good job of explaining to the customer the cost of running their facilities and the cost of non-performance."

Finding Good Help
Labor remains the biggest cost when it comes to the I&I market. In fact, cleaning products represent only a few pennies of every dollar spent on the I&I market. Unfortunately companies spend a lot of time and money training new employees only to see them quit a few months after being hired. As a result, there has been a shortage of janitorial employees for several years.

"The I&I market can't get or keep help no matter how much it pays," noted Mr. Griffin. "Nobody goes to school to become a janitor. We must find ways to put people into their own business." He pointed out that 10 years ago, franchising opportunities didn't exist in the I&I cleaning market. Today, however, franchise operations are growing quickly and the trend has an impact on manufacturers of I&I cleaners.

"Manufacturers must focus on a different audience that wants to operate a small business," said Mr. Griffin. "Instead of just dropping off cleaning products at the loading dock, manufacturers must help the customer with more technical training and certification."

In the short term, manufacturers will be forced to confront the effects of Sept. 11. But in the long run, regulatory issues, new product development and employment shortages will move to the forefront again.

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