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A Dirty Job



Sales of chemical specialties, including household cleaners, have stalled in recent years as cash-strapped consumers cut back on purchases and recession-weary manufacturers put the breaks on innovation.



By Tom Branna, Editorial Director



Published April 5, 2011
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Is there any innovation in the worldthat’s great enough to convince consumers to put down the television remote and pick up the toilet bowl cleaner? Not likely, which is why the chemical specialties market continues to swoon. Sales in food, drug and mass merchandisers are declining, as consumers forgo non-essentials and marketers can’t seem to find that truly novel product innovation. Meanwhile, retailers continue to push prices lower and raw material prices are surging. It all adds up to a pretty bleak landscape for many segments within the overarching specialty chemicals sector.

“We are in a challenging operating environment,” observed J.R. (Jon) Moeller, chief financial officer, Procter & Gamble. “We see little category growth and commodity costs are on the rise.”

According to data from SymphonyIRI, household cleaner sales fell 1.89% to $1.46 billion for the year ended Jan. 23, 2011 in food, drug and mass merchandisers, excluding Walmart. Many categories tracked by SymphonyIRI posted declines, with the most dramatic coming from spray disinfectants, where sales fell more than 17% to $98.7 million (see chart, p. 58). Most observers attribute part of that decline to a less severe flu season and the absence of an H1N1 scare that took place during the previous year.

At the same time, SymphonyIRI data confirms that household unit sales dropped 3.2% for the year ended Jan. 23. Susan Viamari, an analyst with SymphonyIRI, said that consumers remain very cautious in their spending—even when it comes to a $3 disinfectant.
 

Mr. Clean has teamed up with Febreze.
“They are really trying to only purchase what they need, reducing the variety of what they are buying, searching for deals and trading down,” she said. “All of these activities confirm that we are still in a very conservative economic environment.”

When shoppers get in this state,say industry experts, they are more likely to opt for cheaper cleaning alternatives such as ammonia and bleach rather than purchasing a multipurpose cleaner with bells and whistles.


Trading Down
“Although many are breathing a sigh of relief since the ‘Great Recession’ officially ended in mid-2010, other consumers are still on the fence and wondering if it’s a bit premature,” said John McIndoe, senior vice president, marketing, SymphonyIRI, in a statement.“Make no mistake, the CPG industry will continue to serve a very conservative consumer base in 2011.”

That mindset is especially true when it comes to the household cleaning category, according to Lynn Dornblaser of Mintel.

“Many consumers will trade down in household cleaning categories to private label or less expensive brands,” she told Happi. “It’s easy for them to do this because, for the most part when it comes to household cleaners, there isn’t a huge amount of differentiation.”

Many executives in the category expect weakness to continue a bit longer. According to Jim Craigie, chairman and CEO at Church & Dwight, consumer spending will remain weak in 2011, but it will not get any worse.

In a recent presentation to the Consumer Analyst Group of New York (CAGNY), Craigie said he expects the business environment will improve as the year progresses. He predicted that while commodity costs will stay high in the first half of 2011, they should start to decline in the second half. If so, the price wars that have plagued the household segment for nearly a year (see p. 79, January 2011, Happi), should ease as marketers try to recoup at least some of their higher commodity costs.

“The net is, plan for the worse, but there is more upside than downside,” said Craigie.


Church & Dwight’s Plans
At the CAGNY meeting in Boca Raton in February, Craigie observed that the company had a strong 2010 as it grew share for six of eight powerbrands, despite a tough business climate. Those eight brands account for 80% of C&D’s sales. At the same time, during the past four years, C&D grew share in 26 of those 32 quarters for its powerbrands.

“With 40% of our portfolio on the value side, we have the most recession-resistant product portfolio,” said Craigie.

He noted that the bulk of laundry detergent formulas are devoted to water and surfactant and that premium brands may contain an enzyme or two. But Craigie insisted that enzymes are overused, not needed in everyday laundry operations.

“Americans are using more value detergents; they won’t pay all that money for premium products,” he charged. “P&G dominates in the premium sector with a 73% share; we own value (with a 46.8% share).”

According to Craigie, when the price wars broke out in laundry last year, only Church & Dwight and P&G managed to add market share. Church & Dwight plans to build on those gains with a pipeline of fewer but better new products that Craigie would only say stem from a better new product strategy going forward.

Last year, C&D introduced Arm & Hammer with OxiClean, a combination that helped boost A&H Liquid to an 8.1% share—its highest quarterly share ever. Building on that idea, this year the company is introducing Xtra with OxiClean. Also this year, A&H Liquid is introducing Sensitive Skin Scent, which is billed as the only scented detergent that is clinically tested to be safe for sensitive skin.

Craigie lauded P&G as the greatest consumer product company on earth, noting that P&G spends more on R&D every year than C&D has in sales, but size won’t deter “little” Church & Dwight.

“If you come up against us, you better bring a lot of band-aids and a triage kit,” he joked at CAGNY.

For example, C&D’s OxiClean laundry additive is still No. 1 in the category, growing its share from 26.5% in 2006 to 38% in 2009, thanks to the rollout of products such as OxiClean Max Force (2008) and OxiClean Stain Fighter (2009), and an increase in marketing spending of 400%. Last year, C&D expanded OxiClean’s positioning with the launch of OxiClean Versatile, which promises to get “tough stains out all around the home.”

These moves helped C&D defend its No. 1 position when P&G launched Tide Stain Release in 2009. In 2010, Oxiclean held a 38.8% share vs. P&G’s 17.5%—although while OxiClean was losing 1.1 share points, P&G was adding 7.1 points.

Acquisitions remain a key component of C&D’s growth strategy, with Craigie
noting that the company has acquired seven of its eight power brands since 2000. Last year, C&D added Simply Saline nasal spray and Feline Pine cat litter to its lineup. In 2011, by Craigie’s calculations, the company has $1.5 billion on hand for more
acquisitions in the future.

With aggressive management, a good marketing plan, successful new product launches and an ambitious acquisition schedule, it all added up to an incredible decade of growth for the company as sales more than tripled to $2.6 billion, marketing spending increased 530bps to 13.1% and EPS increased 330% to $3.96, according to Craigie. No wonder why C&D’s market cap rose from less than $2 billion to $5 billion during the past decade.


A Turnaround at Clorox
It’s been a different story, however, for most household product companies during the past year. According to Mintel data, Clorox, Reckitt Benckiser (RB), S.C. Johnson, Procter & Gamble and 3M dominate the household cleaner space, accounting for 66.1% of sales in 2010—although that includes sponges, a category not covered by Happi. That share is up from 65.9% in 2009, thanks to gains made by RB.

But all is not well with the big multinationals these days. Most are concerned will falling revenues and rising costs that were brought about by higher trade spending and raw materials, respectively. At the same time, they anticipate a weak retail environment as consumer spending remains cautious.

Clorox reported a 3% decline in sales in the quarter ended Dec. 31, but chairman and CEO Don Knauss told CAGNY members that the company will get back to growth in the second half. Getting its product mix right is one way to return to form. Clorox did just that last fall when it sold its auto care business, which included the Armor All and STP brands, to an affiliate of Avista Capital Partners for about $780 million. Clorox’s auto care sales were about $300 million.

In contrast, Clorox sees room for growth in healthcare, as witnessed by its acquisition a year ago of Caltech Industries, a maker of hospital disinfectants.

“Stopping infection is the right way to win,” Knauss insisted.

Another way to make a comeback is via new product launches and Knauss is confident that the addition of four new bleach scents, new Pine-Sol scents, Lemon-To-Go Wipes, Clorox 2 Foaming Soil & Stain Remover and a full assortment of bleach-based cleaners will provide a lift.

“Innovations are ramping up across every major brand and segment,” said Knauss.

For the past five years, Clorox has had a 70% share of voice in the bleach category. The introduction of new bleach scents as well as an outdoor bleach with a special anti-corrosive formulation should attract new consumers to the company.

“We have a whole new generation of consumers to educate about bleach,” he insisted. “There’s a dosing issue, especially with high efficiency machines. But we’ll soon have a dosing cap on the package to take away some of that confusion.”

At the same time, Knauss asserted that the focus on private label’s success is overblown in the household category.


Clorox improved Pine-Sol’s lavender scent and added variants, too.
“Private label is not a major factor on our business at all. Retailers look to us to innovate to drive the category,” he
explained. “When we are within 35-40 cents of private label we can grow our share.”

P&G’s Moeller agreed with Knauss’ outlook for private label, noting that store brands have suffered through four consecutive quarterly declines in the U.S. and seven quarterly declines in Europe.


Purpose Driven At P&G
Although P&G has delivered four consecutive quarters of 6% growth, Moeller admitted that the tough one-two punch of stagnant categories and rising commodities, not to mention problems in Venezuela and Egypt (and now Japan), has been drain on the company. To get out of that funk, P&G is committed to its strategy of touching and improving the lives of the worlds’ consumers.

In the upcoming months, P&G will roll out Febreeze in Latin America and expand Ambi Pur’s reach from 17 to 84 countries.

“Over the past 18 months we have implemented our purpose-inspired growth strategy,” explained Moeller. “We will expand into higher and lower price tiers to reach new customers in new countries.”

One target, of course, is Asia with its 3.3 billion consumers. During the next decade, China will add 270 million middle class consumers, according to the Boston Consulting Group. If P&G is able to increase Asia’s consumption rate to that of Mexico’s, it would add $50 billion to annual sales, according to Moeller.


Green Opportunities
Mintel’s Dornblaser observed that the most innovative ideas in cleaning have come from products and brands with a green positioning. One such company is Method, which has a strong environmental position, but one that takes a back seat to efficacy and a “cool” factor, according to Dornblaser.

“They talk about the fragrance or how the product works and then add, ‘Oh, by the way, here is what we do for the environment,’” said Dornblaser. “It is an interesting way to go about it (and) makes them more attractive to consumers who don’t think about the environment first.”

The newest offerings from Method do just that. The company is hyping its Powergreen technology in its new line of surface cleaners. According to Method, Powergreen is cutting edge technology that harnesses the strength of naturally-derived, non-toxic ingredients to deliver powerful cleaning using plant-based solvents and surfactants. The line includes all-purpose cleaner, glass + surface natural glass cleaner and bathroom tub + tile cleaner. Using a third-party lab, Method all-purpose cleaner outperformed Formula 409; Method bathroom tub + tile cleaner outperformed Scrubbing Bubbles and Method glass + surface natural glass cleaner delivered a cleaning performance that was on par with Windex. Each 28oz. bottle retails for $3.

The Earthworm product line from Clean Earth Brands includes all-purpose cleaners, carpet cleaner and drain cleaner (above). All are packaged in easy-to-read containers, according to the company.


Clean Earth Brands, Marlboro, NJ, entered the green household cleaning product category a few years ago with the launch of Earthworm drain cleaner. Today, the product is the fastest growing natural drain cleaner in the U.S., posting a gain of 230% during the past year, according to SymphonyIRI Group.


As the Worm Turns
Earthworm’s inventor, Ricky Greer, who is also the president of Positive Attitude Industries, noticed a void in the market for a natural drain cleaner and looked to fill it with an enzyme-based product that was non-corrosive.

“People are looking for something that’s safe and easy to understand,” he insisted. “Our label is easy to comprehend.”

The price point is easy on the wallet, too. While other natural drain cleaners retail for $7.99-8.99, Earthworm drain cleaner is priced the same as conventional products, $3.99 to 4.99. The Earthworm line also includes all-purpose cleaner, floor cleaner, bathroom cleaner, mold and mildew cleaner, carpet cleaner, septic cleaner (powder and liquid) and odor eliminator.

Line extensions are always in the works, and the company is investigating natural oven cleaners. As he expands the Earthworm brand, Greer insists that he isn’t keeping tabs on his multinational competition.

“I don’t look at P&G or Reckitt Benckiser, I keep my head down and go,” he told Happi. “My goal is to gain distribution in different retail points before they do, so I try to stay under the radar as much as possible.”

Today, the Earthworm line is available in 3,000-4,000 retail locations throughout the U.S., including Whole Foods, Bed Bath & Beyond, Wegmans, Stop & Shop, Foodtown, select Walmart stores and 177 Winn Dixie stores. The company even distributes Earthworm in single retail locations in Hong Kong, Guatemala, Panama and Jamaica.

“I’ll gain international distribution, my distributors are already out there,” noted Greer, who began his career in the industrial and institutional cleaning market 20 years ago. “I want to have a $50-70 million business in 10 years.”



Understanding Consumers
While bean counters worry about rising costs, the folks in NPD are confident that the right products will ultimately provide the boost that the chemical specialties category so desperately needs. Although the challenges are great, McIndoe of SymphonyIRI insisted that 2011 still offers great opportunities for marketers.


Church & Dwight has strengthened its Arm & Hammer brand by adding the benefits of oxygen.


“The key is to act with a clear and precise understanding of the changing attitudes, needs and behaviors of your most important shoppers and target segments,” he observed.

To effectively compete in an unpredictable economy, SymphonyIRI recommends that CPG and retail companies should consider the following action items:
• Identify discreet micro segments;
• Target opportunities and risks of serving each;
• Evaluate pricing, promotion and merchandising strategies;
• Explore opportunities to enhance product assortment; and
• Create new strategies for collaboration throughout the entire value chain.

Or, to put it another way, build better, smartly-priced products that will please consumers—even those faced with the drudgery of household cleaning.

“We continue to see consumers be very responsive to innovation,” explained Moeller. “As we head into an inflationary environment, we do so in an innovative atmosphere with a much better performing product.”


CSPA Mid-Year Meeting Set for May 3-5 At the Chicago Marriott Downtown

The Consumer Specialty Products Association (CSPA) will hold its annual meeting May 3-5 at the Chicago Marriott. This year’s theme, “Finding Opportunity in Adversity,” illustrates that in this time of changing fortune, no company has a guaranteed place at the top, according to the association.

The meeting’s keynote speaker, Christopher Gardner, is a perfect example of finding opportunity in adversity. In the early 1980s, Gardner became homeless and the sole guardian of his toddler son. Yet, he worked his way up the financial industry ladder and his autobiography, “The Pursuit of Happyness,” became a best-seller and critically-acclaimed film.

In addition, the meeting includes informative programs from the Association’s six divisions—Aerosol Products, Air Care, Antimicrobials, Cleaning Products, Industrial & Automotive, Pest Management and
Polishes & Floor Maintenance. In addition, there will be updates by CSPA groups such as Consumer Aerosol Product Council (CAPCO), Government Affairs Advisory Committee and the General Committee.

The mid-year meeting provides ample opportunity to connect with customers, with an opening reception at the Innovention Center, complimentary lunches and a closing reception at the Adler Planetarium.

The CSPA Mid-Year Meeting and Innovention attracts almost 500 industry executive and senior management teams for business-focused education and networking. According to CSPA, the event is the perfect opportunity to launch a new product, build brand awareness, get ahead of the curve on key current and emerging issues, and set your company apart from the rest of the crowd.
More info: www.cspa.org


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