Why Business as Usual Won’t Work Anymore

By Tom Branna, Editorial Director | January 21, 2013

The world is changing, and not all for the better. The global detergent industry meets in Singapore to grapple with the complexities that define this New Normal.

Laundry detergents get clothes clean, eliminate stains and keep fabric looking like new. That’s all good stuff, but how about tackling really stubborn issues such as the environment, water shortages and poverty? Unilever chief executive Paul Polman insisted that the global detergent industry has an important role to play in some of the biggest problems that are impacting the world.

Conference chairman Keith Grime, Unilever CEO Paul Polman and Unilever’s Mike Parkington.
“It’s the end of abundance,” warned Polman, noting that the amount of sea ice is dwindling, nitrogen levels are rising and climate change may have reached the point where it is irreversible. “We face major challenges.”

And while Polman leads one of the biggest companies on earth, he acknowledges that free market capitalism has its limits.

“Two-and-a-half billion people have no access to drinking water, and 1.2 billion live in poverty,” he noted. “I’ve seen the power of capitalism, but it has its shortcomings. We need something more functional. The status quo is not an option. We have to change the way we do business.”

Polman issued these warnings at the World Conference on Fabric and Home Care in Singapore in October. The event attracted more than 600 industry executives from around the world who came to hear from some of the leading voices in the global household and personal products business.

“The diversity of the audience is amazing,” said Keith Grime, conference chairman. “We have 600 registrants from 36 countries representing 197 companies. It is truly a global conference. There is no other forum where you can hear from the CEOs of Unilever, Kao and Procter & Gamble.”

True, but what the Unilever CEO had to say, was difficult to hear, let alone implement. Polman called for changes at a time when the world is changing dramatically. He noted that since the Fabric & Home Care Conference in Montreux in 2010, China has become the No. 2 economy in the world. Observers say China is poised to overtake the US as No. 1 as early as 2015, while others say it will happen by 2030. Elsewhere, the Arab Spring bloomed in the Middle East when Egyptians overturned their government in just 17 days and the Occupy Wall Street Movement took hold in cities around the US and the world.

All of these events, and many others, were recorded on Twitter, Facebook and other social media platforms, which are proving to be powerful new forms of communication and change agents in their own right. Polman went on to say that the home and fabric care industry can be an agent of change as well, and it must be as the new world order evolves.

Agents of Change?
Polman insisted that brands, companies, the industry and individuals must be part of the solution. He pointed out that 3,000 children die each day due to infectious diseases, many of which could be eradicated with proper hand washing. But rather than wait for guidance from health officials, Unilever’s Life Buoy brand instituted a hand wash campaign that educates people about the importance of proper washing, with the goal of reaching one billion consumers.

Besides using brands as change-agents, companies must undergo dramatic change as well. When he became CEO in 2009, Polman said that his first order of business was to stop issuing financial guidance, which he said fosters short-term thinking.

“You have to look long-term to grow sustainably,” he said. “(But) cutting carbon output and reducing packaging is not enough.”

That’s why Unilever has set the seemingly outrageous goal of doubling turnover as it reduces the amount of resources it uses.

“We are audacious, but no one else is following our lead,” he observed.

And that’s where industry comes into the equation. Polman acknowledged that anytime companies discuss working together, everyone (including regulators) get nervous. But with the average tenure of CEOs lasting just three years, solution to so many vexing problems will take the efforts of hundreds of companies and thousands of employees, he predicted.

According to Polman, 20% of climate change is due to illegal deforestation. He urged the industry to join Unilever in purchasing raw materials such as sustainable palm oil and called for the industry to be sustainably sourced by 2020—for its own good.

“Do we want to be policy makers or policy takers?” he asked.

All of these initiatives, of course, require leadership. Unilever executives are in touch with policy makers, environmentalists and others on a daily basis. In fact, the company is working with the United Nations for sustainable, equitable growth on a global level. In closing, Polman urged the audience to move quickly to build a better outcome for the next generation.

“We can’t tell our children that we made things worse,” he said. “We have to stop stealing from future generations. What we hand over to them has to be better.”

Innovation Is the Answer
Polman’s sobering message was met with a bit of optimism from Procter & Gamble CEO Bob McDonald, who told the audience that they must embrace the challenges ahead and view them as opportunities. He noted that if the Chinese, Indian and other emerging market consumers were to increase their household product expenditures to the level of Brazilians ($43 a year), global category sales would soar to $162 billion. How can the industry reach this lofty level? Through empathy-driven innovation that’s inspired by core human needs, according to McDonald.

“Understanding the consumer and understanding her tension creates deep empathy that leads to insights to big ideas that can grow an industry,” he told the audience. “You have to know the consumer’s culture and his language.”

For example, P&G researchers lived with Filipinos to discover that it normally takes three buckets of water to rinse laundry detergent residue completely from clothes. That insight led to the creation of Downy Single Rinse, which has saved 35 billion liters of water.

Another consumer insight, this one in the US, found that only 68% of consumers were satisfied with the laundry process. That revelation led P&G researchers to develop Tide Pods that, along with similar PVA-based delivery systems, has gone on to capture more than 6% of the US laundry category, according to experts.

Innovation comes from multiple sources, as McDonald noted that researchers can take the knowledge gained from bleach laundry systems and apply it to hair color or teeth whitening.

“Innovation is everybody’s job,” he explained. “P&G is in 38 product categories. We want every P&Ger in the innovation game.”

With everyone “all-in” when it comes to innovation, Procter & Gamble is able to pursue the next “Big Idea.”

“We need to avoid narrow incrementation,” insisted McDonald. “We need innovation that is discontinuous.”

That kind of thinking, he explained led to the creation of Febreeze, which, in turn, created a billion-dollar fabric refresher category.

But it’s not enough to have a great idea—you’ve got to sell it to the consumer. And that’s where effective communication comes in. As McDonald explained, innovation is the conversion of an idea to the consumer. P&G’s legendary marketing might convinced Japanese consumers that while detergent was for clothing, Febreze was for everything else and fragrance-conscious Japanese flocked to the brand to freshen sneakers and other items that they wouldn’t put in a washing machine.

Finally, innovation drives sustainability initiatives. Tide Pods, for example, represent an 8x compaction rate and Tide Cold Water helps save energy. In fact, P&G is determined to get 70% of consumers washing in cold water by 2020—up from 40% today.

“Innovation improves lives and it can lift the industry,” McDonald concluded.

Innovation and the Environment

Kao chairman Motoki Ozaki
Kao chairman Motoki Ozaki blended the concepts of the previous two keynotes with his presentation on Eco-Innovation. He explained that two megatrends, the environment and an aging population have tremendous impact on society and the industry for decades to come.

Three key problems are shaping the environment megatrend—global warming, water shortages and waste issues—according to Ozaki and he detailed his company’s 2020 target goals to tackle all three. He called life cycle analysis (LCA) critical to good product development and explained how “Genba-ism” or keeping close to the consumer, led Kao to create Attack Easy which helps consumers wash clothing more easily.

Emerging Strength
Nearly every speaker at the conference noted that emerging markets will play a key role in future growth, yet they also noted that these markerts are highly complex and require successful companies to rethink their traditional strategies—especially when it comes to retail. Damien Veilleroy, regional operating officer at retailer Metro AG, noted that low-end products hold dominant positions in Asian emerging markets. To increase the value proposition to consumers, marketers must understand the complex distribution system. For example, in Vietnam, with its population of 90 million, 87% of retail is still conducted by tap hoa, traditional, mom-and-pop stores that range is size from 20 to 200 square meters and have an average turnover of 80 euros a day. There are more than 190,000 of these establishments throughout Vietnam and their sales continue to grow even as multinationals eye the Vietnamese market. Detergent is the No. 7 category in these outlets, trailing items such as beverages, milk and cigarettes. Many shop owners purchase products not on a monthly or even weekly basis, but rather on a daily schedule. How, then, can marketers reach these companies? Certainly not through traditional methods, as Veilleroy figures that if the typical sales rep could handle 50 stores, it would take 4,000 reps in Vietnam alone! Therefore Metro AG has built a system to train storeowners, help them manage their inventory and provide display assistance.

“FMCG companies, as well as retailers, need to address the complexities of emerging markets and intelligently manage the channel portfolio,” he concluded.

If Vietnam, with its 90 million consumers, is difficult to navigate, what does that say about India with its 1 billion consumers? Saikiran Krishnamurthy, a partner with McKinsey & Company, Inc. of India, acknowledged that it is difficult to get a manufacturing facility up and running, let alone get consumers to purchase products.

“Most multinationals don’t get it right,” he observed. “80% of companies don’t properly address the growth opportunities in India.”

To be among the 20% of companies that do get it right, Krishnamurthy explained that there are eight success factors that must be met in order to win in India. They are:
  • Establish high aspirations for growth and empower the top management team;
  • Shape market demand by improving sales skills, customer insights and key account management functions;
  • Develop a unique business model for India;
  • Develop local products at the right price and prevent commoditization by innovative service models;
  • Use M&A and partnerships to grow;
  • Leverage India’s strength in manufacturing and research globally;
  • Work actively with end-use industries and regulators to shape relevant standards; and
  • Build a strong value proposition to attract talent; focus on getting the organization right.
According to Krishnamurthy, companies that have successfully implemented all eight factors include Asian Paints and United Phosphorous. He noted that in order to win in India, companies must understand the consumer and the culture and that means visiting India on a regular basis to understand the market’s unique attributes.

Sustainable Solutions
Regardless of the region, sustainability plays an important role in all product development and ingredients are a key element of any sustainable product development program. For example, Per Falhout, executive vice president and chief science officer, Novozymes, noted that incorporating enzymes into a formula enables detergents to clean clothes as effectively at 20°C as they do at 30°C. In a typical Chinese detergent formula, the addition of enzymes reduces CO2 emissions by 30%, according to Falhout.

“Biotechnology has a large role to play in sustainable laundry applications,” he maintained. “We are paving the way for a bio-based society.”

Like enzymes, polyvinyl alcohol films have had an enormous impact on laundry detergent formulas. P. Scott Bening, president of Monosol LLC, said PVA could have the same impact on several CPG categories, as the product form enables formulators to keep disparate ingredients from interacting with one another until they dissolve. That means creating products without stabilizers, which leaves more room for active ingredients and ultimately more compaction. Monosol is putting perfume-boosters in PVA film to help put expensive fragrance on clothing and keep it from going down the drain.

As Bening noted, when the chemistry is right, the film becomes an active part of the formulation and that improves product performance.

Thomas Müller-Kirschbaum, senior VP, Henkel AG, concurred, noting that the delivery form drives innovation and sustainability. He predicted that integrated product design, which combines technical and emotional innovations, will ultimate replace classic product development.

For example, Henkel relied on integrated product design to launch Bref Power-Active with chlorine power balls within the toilet bowl cleaner segment. The product’s novel, four-ball design, clearly conveyed how it delivers four functions, cleaning foam, long-term protection, fresh scent and hygiene, with every flush, according to the speaker. Similarly, the company introduced a boat-shaped toilet bowl cleaner that plays off the consumer’s desire for fun-to-use products.

“Traditionally, consumers do not want to see their in-bowl toilet bowl cleaners,” Müller-Kirschbaum reminded the audience. “But if they do see them, they have to be fun. Emotional innovation drives purchasing.”

Supply-Side Views
When it comes to feedstock choices, is green the new black? That was the question asked by Frank Pacholec, VP-R&D and corporate sustainability officer, Stepan Company USA. He predicted that green feedstocks such as biomass would grow from 3% of the market in 2010 to 17% by 2025. But if formulators are hoping these green raw materials will lead to price stability—think again. Raw material price volatility will continue as long as the food v. fuel debate rages, according to the speaker.

“As the technology evolves, you move away from that debate,” explained Pacholec, who predicted algae will play an important role in the future. “Algae is exciting because it has a high volume of oil, but it is process intensive.”

To overcome processing obstacles, Stepan teamed with Elevance to effectively use metathesis catalysis to unlock the potential of raw materials such as rapeseed, soy, palm and algae to create low-cost, superior-performance surfactants.

“These emerging technologies come with risk, along with superior opportunities and potential,” Pacholec reminded the audience. “You have to be in the game; don’t wait for perfection. You can make your companies more sustainable while you help create a more sustainable world.”

“CEOs want sustainable solutions by 2020. We’re giving it to them today,” insisted Andy Corr, platform leader, consumer intermediates and ingredients, Elevance Renewable Sciences. Using olefin metathesis, the company has developed an elegant conversion process that relies on flexible feedstocks to create detergent raw materials with improved cold water performance and compaction. In hard surface cleaners, these raws provide better stability and cleaning properties, with low VOC emission and odor.

The company has production facilities in Indonesia and the US with plans to add another plant in either Southeast Asia or South America, according to Corr.

LS9 Corporation has created fatty alcohols derived from a wide range of renewable feedstocks, such as bagasse, corn stover and wood chips that are obtained through biotechnology. LS9 obtains this biomass and ferments it with E. coli to produce a range of alcohols, acids and esters. According to Gary Juncosa, EVP-chemicals, the LS9 technology can replace refineries with bacteria, while the supplier will rely on software to decide what feedstock is developed from E. coli.

“It represents a real opportunity for change in the supply chain,” observed Juncosa. In September, the company started up a pilot plant in Okeechobee, FL, and production will expand this year. Juncosa expects to start making products in 2014 and he predicted that detergent makers’ interest in the LS9 will grow as they learn how the low-cost process reduces green house gas emissions, pollutant levels and water consumption.

“Our industry faces big challenges,” noted Gabriel Tanbourgi, president, care chemicals, BASF. “But they are huge opportunities for us and for you.”

Gabriel Tanbourgi, BASF
BASF is tackling these challenges with an R&D budget that exceeded $2.2 billion in 2011. Company researchers worked on more than 2,000 projects and BASF was ranked No. 1 in the Patent Asset Index. Tanbourgi predicted that Asia will lead in R&D spending by 2020. BASF, he noted, already has eight R&D sites in the region with an innovation center set to open soon in Singapore. More investments are in the works as BASF expands production at its Geismar, LA plant in the US and builds a surfactant facility in India. These global capabilities enabled BASF to develop solutions such as Lutropur MSA, a high-purity, biodegradable methanesulfonic acid for the I&I market; Trilon M, a biodegradable chelating agent for detergent and cleaning formulas and Glucopon, a range of nonionic surfactants derived from vegetable oils and starch.

“We work in the B-to-B environment, but we think B-to-C,” insisted Tanbourgi. “We have deep market knowledge and regional supply of innovative materials.”

Innovation for the Next Generation
As the conference entered its final session, speakers focused their remarks on the future. For example, Hiromitsu Takaoka, Lion’s director of fabric care, predicted that odor reduction will be the primary goal of laundry detergents in the future. He noted that clothes just don’t get all that dirty anymore as consumers throughout the world spend more time indoors.

“Odor is the target soil in the next generation,” he insisted.

He described the seven types of odor, which include moldy and musty, sour and sweaty, and explained how Lion researchers used gas chromatography to identify the medium chain fatty acids and aldehydes that cause these odor. Using palm oil, Lion chemists developed a methyl ester sulphonate that eliminates these odors better than alcohol ethoxysulfates or linear alkylbenzene sulfonate. Lion also developed a methyl ester ethoxylate that removes these odors better than alcohol ethoxylates, according to Takaoka, noting that other key laundry ingredients in odor removal are enzymes and chelants.

The automatic dish detergent category is a tremendous growth opportunity, according to Jürgen Kielholz, VP-R&D, Reckitt Benckiser. After all, while household penetration of laundry machines is nearly 56%, compared to just 16% for dishwashing machines. Moreover, while Asia accounts for 60% of the world’s population, it represents just 10% of the world’s dishwashing machine market. Despite this relatively low penetration rate, autodish detergent sales have accounted for 46% of household cleaning product growth in recent years, according to Kielholz. In contrast, laundry detergent sales have accounted for just 3% of category growth.

At the same time, the sector has a good sustainability record as US products have been phosphate-free since 2010 and European formulas will be phosphate-free by 2017.

As suppliers and marketers work together to solve the next generation of cleaning products, they must not forget appliances, the third part of the equation, according Dave Szczupak, executive VP, Whirlpool.

After all, since high-efficiency laundry machines debuted in the US in 2010, 10 trillion liters of water have been saved in North America alone. Now, appliance makers and their partners are bracing for new regulations in China that, if they go into effect, will reduce energy and water use levels. Still, the speaker remained optimistic.

“With innovation, you can deliver clean and green and at a reasonable price point,” explained Szczupak.

Andy Corr, Elevance; session chairman Manfred Trautmann, Clariant; Gary Juncosa, LS9 and Frank Pacholec, Stepan.
The final conference presenter, David Jago, Mintel’s director of insight and innovation, emphasized the important role that Asia plays in the industry’s success—now and in the future. For example, from 2005 to 2015, Asia is expected to post a 35% increase in household cleaner sales, compared to a 5% decline in North America. Within laundry care, sales in Asia will grow 125%, compared to no growth in North America; and while dish detergent sales are expected to grow 35% in North America, they will double in Asia during the 10-year period.

“It’s all due to the growing middle class,” explained Jago. “42% of the middle class in China have purchased a major appliance in the past three months, and 43% say they will make a similar purchase in the next three months.”

To reach these consumers, marketers must go mobile, as Jago predicted that by 2015, there will be 7.1 billion mobile devices in the world. By that time, 788 million consumers will only access the net via their mobile devices, compared to just 14 million in 2010. These consumers expect to access anything, anywhere, and they will rely on apps to tell them what to buy and when to clean.

“Forty-seven percent of US consumers say that their mobile phone is an essential part of their lives,” he explained. “40% of people in the US put off cleaning their house for as long as possible. BrightNest is an online organizational tool that tells them when to clean.”

Other technologies that are impacting the way people clean include smart fabrics, apps to indicate the presence of bacteria and washing machines that wash, dry, iron and dry clean all in one. Through it all, of course, will run the sustainability thread.

In his closing remarks, Grime reminded the audience that the World Detergent Conference will take place every two years, rather than four, with the next event set for Montreux, Switzerland, in 2014.

“It keeps things dynamic,” explained Grime. “It gives us continuity of theme. Sustainability was PR five years ago. Now it’s real chemistry, with real technology and real raw material choices.”

Grime continued, “The barrier (to sustainability) is less in the technology and more in the business model.”
Clariant Expands Presence in Asia
In recent years, Clariant has stepped up its visibility in the Asia-Pacific region, with new facilities, new ventures and new products that meet the needs of consumers in the fastest-growing part of the world. Clariant executives recently welcomed the detergent industry to Singapore, which served as the host city of the World Conference on Fabric and Home Care, as well as the headquarters of Clariant’s Asia-Pacific operations.

From Singapore, the company serves customers in nine countries, including Singapore, Malaysia, Indonesia, Thailand, Australia, New Zealand, Vietnam, Bangladesh and the Philippines. The company also has operations in other key Asian markets including China and India.

Little more than a year ago, in fact, Clariant inaugurated an ethyoxylation plant in Daya Bay at Huizhou, Guangdong Province, China. The plant was Clariant’s first ethoxylation plant in Asia, as well as the largest Asian site under its global Industrial and Consumer Specialties (ICS) Business Unit. According to Clariant, the plant will enhance regional offering for a wide range of industries including crop protection, construction, personal care, and industrial and home care. Applications from these industries will help satisfy the rapidly growing demand in China and other Asian markets.

Overall, Clariant operates two plants in China, and one each in Japan, India and Indonesia.
Most recently, Clariant signed a 50/50 joint venture with Wilmar International for the production of amines and amine derivatives. The JV is expected to be operational in Spring 2013.

“We are expanding aggressively in Asia,” explained Michael Willome, head of business unit for industrial and consumer specialties. “Asia-Pacific is now our biggest growth market. We look forward to doing more JVs in the future.”

At the same time, Clariant is expanding its consumer knowledge in the region.

“Sustainability has become very important to consumers in China and India,” explained Gregor Keil, head of sales and applied consumer care, Asia-Pacific. “To meet their needs we are supplying products derived from sustainable palm.”

Clariant is a member of the Roundtable on Sustainable Palm Oil, an international multi-stakeholder organization and certification program for sustainable palm oil. To meet this growing demand for sustainability, Clariant is rolling out a new, mild, sustainably-produced surfactant. The surfactant, which is billed as a replacement for sodium lauryl ether sulfate (SLES) will debut in the first quarter, and company executives say they are committed to expanding Clariant’s range of sustainable solutions in the future.

“Innovation is a pillar of Clariant,” concluded Willome. “And it starts with social responsibility.”