When the economy started to tank in late 2007, most companies cut costs by reducing head count, ad spend and R&D initiatives. And who could blame them? Faced with the worst recession in at least 25 years, a lot of executives, regardless of the industry, were certain that survival was somehow linked to cost-cutting. Turns out that they couldn’t have been more wrong. As the economy improves and consumers return to store aisles, they’ll notice that the landscape has changed with new products from companies that weren’t afraid to spend money to roll out innovative ideas in a wide range of categories from personal care to household cleaning products.
“If you’re innovating you’re winning,” explained Ken Wasik, managing director, consumer products and services, Stephens, Inc., a New York investment firm.
And nobody innovates better than Procter & Gamble these days, according to Wasik.
“P&G is taking everybody’s lunch. They’re making a huge land grab by being aggressive while everyone else is retrenching.”
No wonder than that Bruce Brown, P&G’s chief technology officer was named one of the 25 “World’s Masters of Innovation” by Business Week. While Brown oversees a global R&D organization of more than 8000 employees and a nearly $2 billion budget, he notes that more than 50% of the company’s product initiatives involve
significant collaboration with innovators outside of P&G. It’s all part of the company’s Connect + Develop program.
Finish Quantumatic has been a big launch for Reckitt Benckiser during the pas t year.
That innovation program is touching every category in the company. In home care, Ariel Actilift and Dash Actilift laundry detergents are shipping now to Western European consumers. The Actilift technology is designed to help remove stains and also prevent them from setting in. In the U.S., in the coming months, P&G will roll out the next generation of compact powder laundry detergents.
In other home care moves, P&G expanded Febreze’s market share by more than three points following the rollout of the Febreze Home Collections line. At the CAGNY event, McDonald noted that trial use continues to grow and that P&G will expand its air care portfolio in more parts of the world when the AmbiPur acquisition closes later this year.
But, while P&G has sales in excess of $80 billion, operations in more than 80 countries and reaches consumers in 180 nations, McDonald is committed to operating as a smaller company, specifically like the $10 billion company P&G was when he joined the firm back in 1980.
“To do this, we will share purpose which will give meaning to our work. Our people are inspired by the opportunity to touch and improve people’s lives every single day,” he insisted. “I can’t put a price on that, but it is P&G’s greatest intangible strength.”
P&G may have a leg up on its competitors, but that hasn’t kept companies such as Reckitt Benckiser and Clorox from rolling out their own innovative cleaning ideas. In fact, RB has introduced several new cleaning products in 2010, all of them designed to make household chores easier than ever. For example, Finish Quantumatic is a dishwasher detergent dispenser system that automatically releases detergent for 12 washes.
“This is the best new product pipeline that we’ve had in the past couple of years,” RB’s chief executive officer Bart Becht told analysts during the CAGNY meeting. “We remain focused on our power brands, where we will invest, innovate and roll them out with strong cost optimization efforts.”
Another recent U.S. launch is Lysol No-Touch hand soap system, which promises to kill 99.9% of bacteria. The antibacterial hand soap is enriched with moisturizing ingredients and available in three scents and features hands-free dispensing.
“Cut raw chicken in the kitchen and you’ll realize the benefits of the dispenser,” insisted Becht. “And once you use it in the kitchen, you want to use it somewhere else in the house.”
The Lysol brand thrived during the past recession thanks to consumer concerns about the H1N1 virus.
“Reckitt has been on a run because it has introduced some interesting products,” noted Wasik. “Its brands are closely associated with germ-killing benefits.”
Perhaps Clorox is the only other brand (and company) that is so closely allied to germ-killing action, which explains why the Oakland, CA-based firm also received a boost from the latest H1N1 scare.
In fact, the H1N1 pandemic helped Clorox post a 5% gain in its fiscal second quarter (October-December), according to Dan Heinrich, chief financial officer, Clorox.But with pandemic concerns dwindling, unit volume growth will slow. To maintain brand health, Clorox executives are focusing on their 3D Strategy—Desire, Decide and Delight. Desire involves all the activities prior to purchase. Decide is at the point-of-purchase, especially important since more than 60% of purchasing decisions are still made in the aisle. Delight involves activities to motivate the consumer to make a repeat purchase, according to the company.
New Media Outlets
To drive the 3Ds, Clorox has increased its ad spending from $450 million in 2004 to $550 million in 2009. However, the media mix has changed dramatically. In 2004, 90% of advertising was spent in the traditional media outlets of print, radio and television. By 2009, 40% of media dollars went to non-traditional channels such as social media sites like Facebook, Twitter and Pandora.
In the Decide portion of the equation, Clorox has become the category captain for several retailers.
“Where we are the thought leader or category captain, those retailers enjoy a 2% growth higher than the category average,” insisted Heinrich.
Finally, to ensure that the consumer is Delighted, Clorox relies on an open innovation platform to increase productivity. As a result, more than 70% of new product introductions involve a partner. The goal is to create products that can claim a 60/40 blind product win over the competition, according to the company.
Chief executive officer Don Knauss observed that Clorox is well positioned to take advantage of infection control, an issue that he called a megatrend.
“Health and wellness is a global issue,” he told the CAGNY audience. “How do you stop the spread of infection? With prevention, and most of our portfolio is around stopping the spread of infection.”
Health Care Connections
Sales of Lysol disinfectant rose 17% for the year ended Feb. 21, 2010 in supermarkets, drugstores and mass merchandisers (excluding Walmart), according to data from Information Resources, Inc., Chicago. Yet, household cleaner category sales slipped 2.1% to $1.48 billion (manufacturer’s dollars) for the year ended Feb. 21, 2010.
Data for 2009 wasn’t available at press time, but Euromonitor put the U.S. surface care market at nearly $4.1 billion (retail) in 2008; that’s up from $3.8 billion in 2004. Global surface care product sales were $18.3 billion in 2008, versus $15.6 billion in 2004.
Knauss called Clorox bleach, “the best, cheapest disinfectant you can buy.”
“We have the brands, the products and the capabilities across channels. In 2009, the emergence of the H1N1 pandemic virus changed the consumer’s mindset to focus on prevention (rather than treatment).”
The Clorox growth plan includes an infection control platform featuring increased leadership in hard surface cleaning and disinfecting in the Americas, expanded infection prevention in emerging markets and increased health care infection control channel penetration away from the home.
Institutional health care offers a tremendous growth opportunity for Clorox, according to Knauss, who noted that about $1 billion is spent on hard surface cleaning, but only 3% of cleaners used are bleach-based.
“One out of 10 people is getting an infection while in the hospital,” said Knauss. “To stop the spread of infection, they have to use bleach.”
To expand its presence in the health care arena, Clorox purchased Caltech, a 30-year-old company that is the No. 1 provider of sprayable bleach to health care facilities.
“Clorox is already in 400 hospitals. With Caltech we tripled penetration; it’s a significant growth engine,” explained Knauss.
If health and well being is one megatrend, natural products and ingredients is certainly another. But after posting double-digit growth for years, sales of natural products rose just 6% last year, according to industry experts. Moreover, while consumers may still be clamoring for natural food products, they’re not exactly falling over one another to purchase natural cleaners just yet.
In a 2008“Age of Naturals” survey taken by The Benchmarking Company (TBC), Washington, DC, 33% of women said they don’t purchase natural or organic cleaning products, while only 10% said natural or organic products accounted for 75-100% of their cleaning product purchases. Falling in between those extremes, 28% of respondents said natural or organic products made up 1-24% of their purchases, 21% said they made up 25-49% and for 8%, a whopping 50-74%.
“Despite the onslaught of natural/organic brands, and the growing presence of natural/organic seals on everything from milk to moisturizer, the consumer is still in a state of natural confusion,” said Alisa Marie Beyer, founder and creative director of TBC.“She has yet to be wholly convinced of the benefits of products in this category—whether it’s green cleaning products, natural beauty products, or organic cotton sheets.”
According to Beyer, several variables keep consumers from “going green all the way.”While generally she know that these types of products may be safer for her and her family, at times she questions the efficacy of these types of products—do they really work better? If they do, how can she tell? In addition, natural/organic products often come with an extra cost for being green.
“If she’s not sure they’re going to work ‘better,’ she’s not going to spend extra for them,” explained Beyer. “Plus, today’s market is saturated with all types of green/natural/organic claims. Just about every product out there has some kind of ‘natural’ call out, which adds to her confusion and makes it easier for her to stick with the brands that she knows and has been buying in the past.”
To help consumers cut through the clutter, the Natural Products Association recently released natural standards for household cleaners (see p. 26). But not every one is pleased with the standards. In fact, Earth Friendly Products founder John Vlahakis called them, “another watered down standard for home cleaning products.” He insisted that NPA, in conjunction with Whole Foods and Clorox, developed a minimum standard to allow companies to claim that their products are natural.
Brillo has a new owner.
One of the company’s newest products, Wave automatic dish detergent, worked just as well as Cascade in third-party tests, yet costs less. Overall, the company offers more than 150 products. Its top-seller is Ecos laundry detergent and its No. 2 product is DishMate dishwash detergent.
Last month, Earth Friendly Products launched DuoDish, the first combination hand- and autodish detergent. It has a neutral pH 7, compared to pH 10-12 for other green dish detergents. The company is able to create such a mild detergent because of what’s not in the formula. Earth Friendly Products’ Freedom Code ensures that its products are free of a range of ingredients including alkyl phenol, ammonium hydroxide,and artificial colors and fragrances.
Vlahakis-Hanks won’t divulge annual sales, only noting that they’ve quadrupled since 2003—despite the recession.
“We found the right formula of value, efficacy and green,” she explained. “In the future, green will be the only product choice,” she added, predicting that petroleum-based products will be the first to disappear from the market.
New Players, New Owners
The recession may have shaken up the household product category, but it hasn’t discouraged new players from entering the chemical specialties space. For example, Safe-T Brands, Miami Lakes, FL, recently launched a hand sanitizer. But while the gel contains 62% alcohol to ensure disinfection, it also contains moisturizers and vitamin E to reduce drying. Plus, it has a pleasant, “mojito-like” scent, according to Ken Massiello who, along with his wife Maitte, formed the company in 2009 after noticing that hand sanitizers were flying off store shelves.
The first move for Safe-T was hand sanitizer, but the long-term plan includes branching out into a range of categories including lotions, soaps and sun care products.
“My vision is to have a full line of products to offer the big retailers,” he explained. Until then, Safe-T will offer its hand sanitizer in a variety of sizes from 2- to 64oz. bottles and foil packs.
Obviously, Massiello and his wife formed the company to make money, but it’s proven to be an educational tool for his children, who have watched the company grow from the family living room.
“It’s a great experience for my kids to see that their parents are taking a chance and living the American Dream,” he told Happi.
A Buyer for Brillo
A family business is nothing new in the chemical specialties space. After all, S.C. Johnson is one of the largest, privately held, family-owned companies in the U.S. And last month, a new family entered the market when Armaly Brands, a 100 year-old sponge maker based in Walled Lake, MI, acquired Brillo soap pads from Church & Dwight for an undisclosed amount.
Armaly Brands’ president, John Armaly Jr., called the acquisition a perfect fit for his company, noting that Brillo has 85% consumer awareness.
“We will continue to grow the business in the area of cleaning tools,” he told Happi. “We didn’t buy the brand to stare at it.”
With multinationals confident that their pipelines are filled with new products and new players assured that there is room for them in the market, the category still has plenty of growth opportunities for opportunistic companies.