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Henkel Grabs the Sun

By Ian Bell, Euromonitor International | June 24, 2016

Euromonitor's Ian Bell on the impact the purchase will have on the US detergent industry.

In other news (other than the fateful “independence day of the UK”), Henkel is set to make immensely noteworthy inroads into the North American home care market by signing an agreement to purchase all shares in Sun Products, the US laundry and home care products manufacturer. At $3.5 billion, Henkel’s purchase is pretty momentous, so much so that the deal will be subject to regulatory approval.


Should the deal get finalized, Henkel will find its position in the North American home care market significantly supplemented. In 2015 the company occupied a value share of the North American home care market which is $1.3 billion in (RSP) value sales. This acquisition will catapult Henkel’s No. 8 ranking in North American home care (currently generating US$1 billion of value sales) to No. 4 with combined RSP value sales of $2.3 billion, jumping ahead of CloroxChurch & Dwight and Colgate-Palmolive.


A Changing Landscape


The acquisition rewrites the US laundry care landscape, by boosting Henkel's position to No. 2, and  giving Henkel three well known but ailing Sun Products brands, namely All, Sun and its fabric softener Snuggle. While the addition of Sun’s laundry detergents will give further depth to Henkel’s portfolio a real bonus in the deal is the acquisition of Snuggle. Currently Henkel has only a limited presence with Purex (2% value sales 2015) in the lucrative North American fabric softener category, worth $2.1 billion in 2015.


Henkel’s move will be of keen interest to market leader P&G, which has seen the laundry care landscape in its largest (home care) market rapidly changing in 2016 due to Henkel’s earlier launch of Persil in 2015. While initially the launch was limited to Walmart stores, this exclusive deal ran out in 2016 and has seen the Persil brand expanding its distribution. Trade interviews have illustrated that the threat of Persil has seen a spate of discounting in the US market which has undermined the key laundry care categories meaning that the expectation for value sales growth in 2016 will be flat at best.


Gaining Scale


Through the acquisition of Sun, Henkel will gain scale in North America, which given market conditions will be vital to its long term success in what is an increasingly competitive landscape. With many reports suggesting that P&G’s relationship with Walmart is under strain and other key national retailers, namely Target looking to add diversity to its shelves, a bigger more robust Henkel, with a broader portfolio and greater capacity is a very interesting proposition.


In terms of scale, Henkel, even with the addition of Sun, will still be in the shadow of P&G whose value sales in home care topped $10 billion. But there is still much opportunity in the US market, a market in need of reinvigoration and further innovation in order to reverse the value erosion evident in 2016.


Future Challenges


The challenge for Henkel will be to assimilate Sun swiftly and invest in its new brand inheritance while at the same time pushing on with Persil expansion. If the first half of 2016 was anything to go by, this move is likely to spark yet more discounting making medium term innovation and normalization of the US laundry care (home care) market paramount to long term success for incumbents and new entrants alike.


About the Author
Ian Bell is head of home care, tissue & hygiene research at Euromonitor International.

 


 

 

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