Issue Date: January 27, 2014
Value Proposition In The Cleaning Aisle
The laundry detergent aisle in most supermarkets and big-box stores is dominated by a telltale orange. It’s the color of the rotund plastic bottles holding Tide-brand liquid laundry detergent.
Tide is by far the best-selling U.S. detergent, commanding a market share of almost 40%. But Tide is also expensive, and executives at Procter & Gamble, Tide’s manufacturer, are nervous about the growing popularity of value brands that sell for less. So last fall they told stock analysts that P&G will soon be rolling out a less expensive version of its flagship detergent called Tide Simply Clean & Fresh.
The move is dangerous, analysts say, because it risks cannibalizing sales of the more expensive Tide. But it shows that P&G is taking the threat from value brands seriously.
Also taking value brands seriously are the chemical companies that supply ingredients to P&G and other laundry detergent manufacturers. They see an opportunity to supply such customers with the components needed to create budget-priced detergents that also perform well. It’s a tricky balancing act, but mastering it can mean business in a growing category.
In announcing the new Tide, P&G Chief Executive Officer Alan G. (A.G.) Lafley tried to assure analysts that the detergent will take market share away from other low-priced brands, not pricier versions of Tide.
“We are confident that our consumer understanding in premarket testing has helped us design a midtier Tide Simply that is very attractive to midtier consumers but not very interesting to current regular Tide users,” he told participants at a Barclays conference last fall.
More and more consumers are looking for midtier brands and even lower-priced products, known in the industry as value and extreme-value brands. According to figures from the National Consumer Panel presented by Church & Dwight executives at the Barclays conference, the number of households buying premium detergents has shrunk more than 17% since the recession in 2008. The number buying extreme-value products, on the other hand, has grown almost 12%.
Separate figures from Information Resources Inc., a Chicago-based market research firm, show that the entire laundry detergent sector has been in the doldrums over the past year. IRI reports that detergent sales in supermarkets, drugstores, mass-market retailers, and other outlets fell 3.1% in the 12 months through Dec. 1, 2013, to $7.0 billion.
Sales of Tide products slipped only about 1% during that period to $2.6 billion. However, the product line was supported by rapid growth for the relatively new, single-dose Tide Pods. Sales of the flagship Tide liquid detergents dropped 7.6% to $1.9 billion.
The shifting numbers make sense to David Del Guercio, general manager of the household care business at Evonik Industries, a major supplier of ingredients to the cleaning products industry. Prior to the recession, he points out, retail purchases of consumer products in the U.S. and Europe were often fueled by debt.
“Since 2009, people have had to make choices based on earned income, not on debt,” Del Guercio says. The change “has had a big impact on the growth of premium segments in consumer products.”
Still, P&G has its work cut out for it as it tries to create a new value tier for Tide, cautions Keith Grime, a former head of fabric care R&D at the company who now runs his own firm, JKG Consulting. “Separation of the two products requires crystal-clear product and market positioning coupled with precise formulation and performance that leaves no doubt in premium consumers’ minds that this is not the product for them,” Grime says. “This is a very delicate balance with such a well-established brand.”
By some reckonings, Tide is the only true premium detergent in the U.S. On a per-load basis, it can cost more than three times as much as an extreme-value brand such as Church & Dwight’s Xtra liquid laundry detergent.
But consumers do get benefits for that higher cost. The ingredient list for Xtra shows 11 components, including water. In contrast, the ingredient list for Tide Plus Bleach Alternative, a premium liquid, boasts 32 entries, including eight surfactants, four enzymes, three soil-capturing agents, and two cleaning polymers.
And all those ingredients in Tide translate into a product family that occupies many of the top spots in Consumer Reports magazine’s most recent review of laundry detergents, including the crown as the best-performing product overall. Xtra, on the other hand, came in number 16 out of the 18 conventional detergents tested.
For Grime, such findings are not surprising. He sees two main strategies for formulating value brands: reducing active-ingredient levels across the board and omitting value-added benefits while focusing on basic cleaning. In the second strategy, benefits that are first to go include targeted stain removal, soil release, extended whiteness and brightness, lasting fragrance delivery, enhanced fabric benefits, and color retention.
Imparting such benefits to detergents typically requires customized technology development programs that formulators of budget products can’t undertake, Grime says, because of formula cost caps and limited R&D spending. “At the lowest price levels, performance can fall to minimally acceptable levels where specific stain removal and whiteness are compromised,” he says.
Chemical companies aren’t generally enthusiastic about working with the cheapest brands because of the formulation constraints imposed by their thrifty owners. But falling in between the extreme-value and premium ends of the detergent spectrum are plenty of value and midtier brands ripe for cost-effective ingredients.
One is Henkel’s Purex line of laundry detergents, which is more expensive than Xtra but cheaper than Tide and midtier P&G brands such as Gain and Cheer. Eric Schwartz, head of Henkel’s laundry and home care business for North America, considers Purex a value brand, although one form, Purex Plus Oxi, plays in the midtier category.
Henkel’s strategy for competing in the value segment, Schwartz says, is staying focused on what the mass-market consumer values while keeping operating costs low.
And creating the right formula with the right ingredients is key to delivering what the consumer wants, adds Pamela Lam, head of laundry and home care R&D for Henkel in North America. At any given time, Henkel is working with as many as 20 chemical company partners to develop or perfect ingredients that deliver effects such as cleaning, stain removal, whitening, and color protection at a competitive price. Such projects can last anywhere from nine months to five years, Lam says.
Sometimes, more than one partner is involved. Lam points to a project in the fabric softener field where Henkel and two partners worked to reduce the level of quaternary surfactant and boost the level of silicones and emulsifiers to improve the effectiveness of the Purex line.
Henkel will go so far as to patent critical technology for use in a value brand such as Purex, Lam says. An example is Pure Clean Technology, a patented approach to surfactant synthesis that the firm has drawn on for the past several years to help consumers maintain whiteness in their fabrics.
As Lam explains, a traditional nonionic surfactant is made by adding two or three ethylene oxide molecules to a long-chain alcohol. The patented surfactant, in contrast, boasts more than seven ethylene oxides for improved cleaning. “The higher degree of ethoxylation increases hydrophilicity,” Lam says. “It is more effective toward particulate soil, gives you more whiteness, and helps prevent redeposition,” a process in which soil that has been removed from fabric in one place reattaches elsewhere.
In exploring new technology, Lam and Schwartz can draw on the experience of colleagues in Europe, where Henkel is based and where the firm’s Persil detergent competes in the premium segment.
Pricey brands such as Persil are often quicker to adopt innovative new ingredients than are value brands, but Schwartz contends that the best ingredients eventually become available for less expensive brands as economies of scale make them affordable. “Value lags behind premium,” he says, “but if a concept or benefit is highly appreciated by the consumer, we will find a way to make it available.”
Chemical company executives say they feel the same way. Rather than offer one set of ingredients for value brands and another for premium brands, they typically hit the marketplace with their best products and hope they will find a home somewhere in a customer’s product portfolio.
“We think we have high-performance ingredients,” says Michael Coxey, who heads BASF’s home care marketing team in North America. “High-performance ingredients can support customers who are formulating innovative products. They can also be cost-effective for the midtier level.”
After all, explains Nilesh Shah, director of R&D for Dow Chemical’s consumer and industrial solutions business, even marketers of value brands want to be able to make performance claims on their labels or in their advertising and to do that they need the ingredients to back them up. “Companies are still looking to differentiate themselves, even in the midtier,” Shah says.
Certain label claims, such as cleaning at low wash temperature and removing stains created by organic matter, are tough for detergent makers to achieve without splurging on good ingredients, Shah acknowledges. But other effects can be achieved economically, he says, pointing to Dow’s new Acusol 845 polymer, which customers in multiple tiers are using to prevent redeposition.
Shah points out that ingredients such as Acusol polymers are specialized additives deployed in small quantities. “You put a little bit of our stuff in to get a big effect,” he says. “So one way to reduce costs is to take out surfactant and build the formula back up with a Dow ingredient.”
If even low-volume ingredients are too expensive, a value-brand marketer can resort to creating products without them. But James Mish, who leads Ashland’s care specialties business, suggests that a better approach is to examine what he calls a detergent’s formulation architecture to determine if a smarter approach to building it might achieve the same or better results at a lower cost.
Mish points to fragrance, which can be an expensive ingredient for detergent manufacturers because it gets highly diluted in the wash water. Ashland has developed a formaldehyde-free encapsulation technology that deposits fragrance on fabric so it doesn’t go down the drain. As a result, detergent makers can use less of it. Ashland commercialized the technology in the personal care industry, Mish says, and now is bringing it to the laundry market.
Fabric care ingredient marketers say one of their challenges is getting detergent formulators over preconceived notions about the cost of using certain raw materials. Enzymes, for example, have a reputation for being premium ingredients that sell for premium prices, acknowledges Cynthia Bryant, Novozymes’s director of business development and marketing for household care.
But Bryant says that Novozymes, the enzyme sales leader, has been successful in spreading the word that enzymes, particularly staple varieties such as proteases, can be cost-effective for value brands because they often replace other ingredients. “One of the biggest things we’ve been successful doing is further penetration into detergents that haven’t necessarily used enzymes in the past,” she says. That’s one reason Novozymes’s detergent enzyme sales rose 9% in 2013, she adds.
Much of the firm’s success recently has been in the developing world. In India, for example, some manufacturers have seen the wisdom of adding enzymes to their low-tier laundry products to differentiate themselves from the competition. “That’s the low tier of the low tier,” Bryant remarks. Value brands sold in the U.S., in contrast, often don’t contain enzymes. This is the case with Xtra and most of the Purex line.
Evonik’s Del Guercio says his firm is also enjoying growing sales to purveyors of value-priced laundry products. Evonik is particularly active in quaternary compounds, silicones, and other ingredients for fabric softeners.
Del Guercio points to success with a new ester quat, trade named Rewoquat WE 45, that is liquid at room temperature. Competing products, which tend to be solids or pastes, must be heated before piping or mixing. Rather than scrimp by reducing active-ingredient loadings, customers that use the new Evonik surfactant can save money on energy and heating equipment.
Chemical company executives say they sympathize with customers trying to formulate detergents that clean, whiten, deliver fragrance, and prolong fabric life in a market that seems to reward price more than performance. “It’s difficult to do them all, so folks make their strategic decisions about what to address,” BASF’s Coxey says.
And although ingredient suppliers might wish that all customers would seek optimum performance at any cost, they are happy to help value-brand customers create the best, most distinctive formula they can on the budgets they have.
“Brand owners still come to us seeking differentiation in this category,” Dow’s Shah says. “We keep getting asked to provide the best options for the benefit bundle they’re putting into the midtier brands and the basic brands.”
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