After years of slugging growth, sales in the household cleaning category began to slump as consumers searched for bargains among the raft of sprays and spritzes out there. Compounding the problem, say industry experts, is a lack of innovation and rising raw material costs.
“Two-thousand eleven is shaping up to be a very challenging year due to the weaker than expected consumer demand, higher than expected commodity prices and continued price wars,” observed James Craigie, president and CEO, Church & Dwight.
What’s worse, most industry experts say that while costs may seem to have stabilized a bit, they are projecting raw material prices to continue to rise into 2012.
“We think there is stabilization (but) we see a slight increase this year and next,” said Kaspar Rorsted, CEO, Henkel.
With raw material price volatility the norm these days, driven in part by currency fluctuation, Procter & Gamble executives say that they are determined to find alternatives as oil prices topped $100 a barrel again at presstime.
“We’re working very hard to find substitutes for raw materials that have volatility in price. Not that we would move to the substitute wholesale, but what we want to do is have the ability to replace materials that spike in price,” Robert A. MacDonald, chairman, president and CEO of P&G told analysts in a conference call. “A lot of those PhDs that we have are working to find substitutes for oil-based chemicals and other chemicals, which are not renewable. We want to get to 100% use of renewable ingredients for our products, and we’re working very hard on that. So over time, you’re going to see a dislocation between the price of oil and our cost of goods sold.”
Sales Slip in Most Categories
Add to all that the growing lack of product loyalty from consumers who have come to rely on deep discounts before making their household care purchases.
These on-going pressures come at a time when sales of household disinfectants, cleansers and related products are slipping in the US. According to Euromonitor International, US sales of household cleaners fell 1% last year to $9.7 billion (retail). In contrast, global sales rose 5.5% to $62.0 billion.
Taking a closer look at the US household cleaning market, sales fell 1.87% to $1.44 billion in supermarkets, drugstores and mass merchandisers, excluding Walmart, Club store or gas/convenience stores for the 52 weeks ended Oct. 2, 2011. Within the biggest product segment, all-purpose cleaners and disinfectants, sales fell 2.38% to $377 million (see chart on p.58), according to SymphonyIRI.
To pull itself out of the doldrums in the US and get growing again, Bill Schmitz, an analyst with Deutsche Bank, said the industry needs discontinuous innovation.
“Retailers want category growth, faster turns and higher margins,” he told attendees at Cleaning Products 2011. “Promotions win innings, [but] innovation and advertising win ballgames and championships.”
According to Schmitz, marketers can’t afford to ignore megatrends, such as convenience, sustainability, wellness and multiculturalism. Indeed, according to the SymphonyIRI data, while other all-purpose cleaner brands were losing share, Method’s sales jumped 32% and sales of Mrs. Meyer’s surged nearly 26%, both brands appeal to environmentally-conscious consumers.
Green brands aside, Schmitz cited Reckitt Benckiser (RB) as one of the few players in the home care space that has done a good job when it comes to discontinuous innovation.
“Reckitt forced consumers to trade up in the UK,” he asserted. “A point of growth is always better than a point of margin—especially given current valuations.”
A few of RB’s innovations in 2011 include Air Wick 100% natural propellant spray and Freshmatic Odor Detect, which provides an instant boost of freshness when odor is detected. Harpic Max, an in-the-bowl rim block, cleans above and below the water line and provides continuous fragrance for up to four weeks. Finally, Resolve QuicknClean carpet cleaning system offers deep cleaning in a convenient all-inclusive kit. Although Schmitz is high on RB, other household product marketers insist that they have their own growth strategies built around innovation.
In its fiscal first quarter, which concluded Sept. 30, Clorox reported that home care sales and market share rose behind higher shipments of Clorox disinfecting products, which were driven by stronger merchandise and support for the back-to-school and cold-and-flu seasons.
“We also saw growth behind innovations like our new bleach foamer spray and new Liquid-Plumr Double Impact. Gains in Home Care were more than offset by lower shipments of Clorox laundry additives, driven by continuing weak category trends and recent pricing actions,” explained Lawrence S. Peiros, chief operating officer and executive vice president.
Peiros told analysts that Clorox’s home care business is in very good shape, with expanding volume and market share. At the same time, Clorox reported another good quarter on disinfecting wipes, as well as other disinfecting products.
Henkel executives, too, had a strong quarter, as laundry and home care sales rose 3.8% on price increases. Sales rose in Eastern Europe, Africa/Middle East and Latin America. The Africa/Middle East region continued its recovery following the political upheavals, contributing to organic expansion with a high single-digit growth rate. Sales in North America increased despite a further contraction in the market. An improvement in sales was also achieved in Western Europe, due particularly to continuing strong growth in Germany. This positive sales performance in generally declining markets led to a further increase in Henkel’s global market share.
“The Eurozone is turbulent, the US is weak and emerging markets are sluggish. Despite the challenging environment we had a great quarter,” noted Rorsted, who said Henkel was able to push through price increases thanks to its balanced portfolio and very global footprint.
“Through innovation and increased market share we are able to increase prices,” he insisted.
Some of the most recent innovations from Henkel have come from within the fabric care sector, and include Purex Triple Action, which provides improved whitening (North America); Dixan Super Dosi, a pre-dosed liquid heavy duty detergent capsule that delivers cleanliness and freshness (Italy) and Pril 3X Action, a new triple action dishwashing liquid that is rolling out globally. It boasts high degreasing power and effectively neutralizes unpleasant food odors.
Windex Mini Is a Big Deal
More than a year ago, SC Johnson chairman and CEO Fisk Johnson said US consumers would never change their habits to accommodate green products. But maybe, just maybe, consumer attitudes are changing. Earlier this year, SCJ began testing Windex Mini, a concentrated product that requires 90% less plastic than a standard 26floz trigger bottle and avoids shipping nearly 1.5lbs of water. In its first 30 days of online sales, SCJ filled more Windex Mini online orders than any other Windex product.
Sales of Windex Mini may be driven by the consumer’s interest in doing the next right thing when it comes to the environment. In October, SC Johnson and GfK Roper Consulting released a study that found 75% of American consumers say they feel good when they take steps to help the environment.
“It is empowering to see the dramatic shifts in behavior change and to gain greater insight into ties of consumer influence,” said Johnson. “Refilling with a concentrate is an example of a very small behavior change that could make a real difference in minimizing waste. But many people don’t want the inconvenience. We want to crack the code and figure out what it would take to make concentrated refills an accepted—even demanded—choice.”
It may not be all that innovative, but P&G has captured the popular scent from one of its laundry brands in new Mr. Clean Multi-Surfaces Spray Cleaner with Gain Scent. The 32oz all-purpose cleaner removes grease and dirt from counters, stovetops and other kitchen appliances.
Innovative and Sustainable
At the Cleaning Products 2011 conference, Robert Monaghan, director at Air Innovations, suggested that innovation is easy…it’s sustainability that’s so hard. With that in mind, the speaker offered several ways to develop eco-innovations. He explained that the most effective means of innovating is to connect with other activities around the world and adapt them to suit your needs.
“Connecting reduces resources, cost, risk, lead times and increases likelihood of success,” said Monaghan.
But first, a company must understand the consumer landscape, which is filled with consumer types ranging from Behavioral Green (those who buy only with a neutral or positive impact) to True Brown (those who ignore environmental issues and are cynical about brands and others who do care). Next, marketers must understand that sustainability is not a marketing fundamental. Products must be promoted for their benefit, convenience and value—kinder to the environment is a tertiary benefit. Three, there is no need to be perfect, as sustainability is an evolutionary process.
Four, create a culture with bigger what ifs? For example, what if Coca-Cola embossed, rather than printed its Coke cans? Think of all the savings from ink reduction? Five, whatever the idea, it must be flexible enough to evolve with the changing sustainability landscape. Six, inject some energy into sustainability by taking a team approach to the issue; Seven, keep renovating to maintain green consumers.
According to Monaghan, where there is sustainability maturity, companies must keep feeding the pipeline with products that meet needs, such as Bic’s launch of disposable razors and pens that contain bioplastic. Eight, sustainability needn’t stifle innovation. Monaghan noted that renewable and reusable paper is often viewed as being boring. But Kleenex broke through the barrier with the launch of its Slice of Summer tissue boxes that denotes fresh fruit. Finally, lock onto future leaders by encouraging others to submit their big ideas. One of those big ideas, said Monaghan, is Xeros Ltd., which is focused on the development of “virtually waterless” laundry cleaning.
“When needs, technology and sustainability synergize, the results can be astounding,” insisted Monaghan.
According to research by The Shelton Group, 66.6% of consumers are searching for greener household cleaning products. That percentage is higher than paper products (65.7%), laundry detergent (64.8%), and even personal care products (53.9%). But these searchers won’t become buyers if marketers fail to connect to personal values and afterward, keeping them motivated.
“Twenty-three percent of green product buyers have been disappointed by their purchases and 12.9% were disappointed by home cleaning products,” she said. The biggest complaints were that the product didn’t clean well and the user wasn’t confident that it killed germs,” said Suzanne Shelton, CEO, Shelton Group.
What green home cleaning products were they most dissatisfied with? All-purpose spray cleaners drew the biggest complaints, with 46.1% of dissatisfied buyers voicing their displeasure. That percentage was well ahead of the No. 2 category, bathroom tub and shower cleaner, at 26.0%. Still, according to Shelton’s data, 48% were likely to try another green home cleaning product.
“As you market to the mainstream consumer, remember this: it’s not about the planet,” she warned. “Price and performance have to be the same or better than conventional products.”
The Cost of Poor Quality
The most innovative ideas can fair poorly and end up being costly for the companies that try to implement them. According to Lloyd Moberg of Church & Dwight, poor quality can cost as much as 15-25% of sales. In contrast, a world-class operation loses less than 1% of sales to poor quality.
While most executives are familiar with visible costs such as rejects, warranty, inspection, recoding and rework, it is the hidden costs such as lost customer loyalty and sales, late delivery, excessive inventory and material orders, and long cycles that can be most damaging for a household product company.
“Most companies don’t see the big picture,” Moberg told the audience at Cleaning Products 2011. “They look at rejects and rework costs, but they should also include costs associated with excess inventory, lateness—the non-traditional parts of quality.”
Moberg noted that in order to solve these problems it is critical to understand customers’ needs. Once those needs have been identified, process maps must be drawn up to identify the complexity of the process and to communicate the focus of problem-solving. He described process maps as living documents that must be changed as the process is changed.
“They represent what is currently happening, not what you think is happening,” he explained. “They should be created by people who are closest to the process.”
Once the process is fully understood, data is collected—after all, you can’t improve what you don’t measure. From there, a strategic program can be developed to understand why the quality is lacking.
After marketers have created innovative products that can be duplicated again and again, they should make sure that their supply chain systems are just as effective.
Lisa Mitchell of Henkel told Cleaning Products 2011 attendees that monthly supply chain updates won’t work in the consumer goods environment. Instead, they demand weekly and daily updates, and even then, estimates aren’t very accurate.
“I go to work every day knowing that I am going to be wrong,” joked Mitchell.
Henkel runs programs such as SAP AG’s Advanced Planner and Optimizer, but she observed that there haven’t been any real advances in supply chain management for 10 years or so, because of issues such as lower consumer loyalty and shorter life cycles. As a result, Henkel struggled to meet high demand for its new Purex Crystal Fabric Softener.
Another tool is Electronic Prediction Markets (EPM), which was created for the purpose of making predictions. EPM may be particularly useful in predicting new product success.
But regardless of what system is used to improve supply chain efficiency, Mitchell urged suppliers to use the same systems as their customers to ensure accuracy.
“The answer isn’t always more inventory,” she added.
Finding the Money
Understanding the consumer’s willingness to spend is critical in today’s precarious economies in developed markets, according to P&G’s McDonald, who said that in terms of consumer spending patterns, the market remains as it did in 2008.
“In the developed markets, you have a bifurcation, you have on the high end, people with their incomes continuing to expand, growing very strongly and continuing to spend on premium products,” he explained. “Innovation is very attractive to these people.”
But at the other end of the spectrum, where people are unemployed or seeking employment, they continue to try to find ways to cope by shifting the channel or shifting the brand.
“That’s one of the reasons it’s so important for us to have a vertical portfolio of brands,” added MacDonald.
Ah, so there’s the secret—create effective, affordable cleaning solutions that consumers trust and return to time and again.
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