ibisworld industry report 32561 soap & cleaning...

WWW.IBISWORLD.COM Soap&CleaningCompoundManufacturingintheUS September 2011 1

IBISWorld Industry Report 32561Soap & Cleaning Compound Manufacturing in the USSeptember2011 SophiaSnyder

Cleaning up: Emerging markets and strict regulations will facilitate industry growth

2 AboutthisIndustry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 IndustryataGlance

4 IndustryPerformance4 Executive Summary

4 Key External Drivers

5 Current Performance

8 Industry Outlook

11 Industry Life Cycle

13 Products&Markets13 Supply Chain

13 Products & Services

15 Demand Determinants

16 Major Markets

18 International Trade

20 Business Locations

22 CompetitiveLandscape22 Market Share Concentration

22 Key Success Factors

23 Cost Structure Benchmarks

24 Basis of Competition

25 Barriers to Entry

26 Industry Globalization

28 MajorCompanies28 The Procter & Gamble Company

30 S.C. Johnson & Son Inc.

32 Ecolab Inc.

34 Colgate-Palmolive Company

40 OperatingConditions40 Capital Intensity

41 Technology & Systems

42 Revenue Volatility

43 Regulation & Policy

44 Industry Assistance

45 KeyStatistics45 Industry Data

45 Annual Change

45 Key Ratios

46 Jargon&Glossary

www.ibisworld.com|1-800-330-3772| [email protected]


Companies in the Soap and Cleaning Compound Manufacturing industry produce substances that loosen and remove soil from a surface for purposes including personal hygiene,

sanitization or cleaning clothes, linens and furnishings. The industry does not include manufacturers of synthetic glycerin, industrial bleaches or shampoos.

Theprimaryactivitiesofthisindustryare

Cleaning compound preparation, manufacturing and packaging

Soap manufacturing and packaging

32518 InorganicChemicalManufacturingintheUSThis industry is made up of companies primarily engaged in manufacturing basic inorganic chemicals. This includes the manufacturing of industrial bleaches.

32519 OrganicChemicalManufacturingintheUSOrganic chemical manufacturers primarily produce basic organic chemicals. This includes the manufacture of synthetic glycerin.

32562 Cosmetic&BeautyProductsManufacturingintheUSThis industry is involved in preparing, blending, compounding, and packaging toilet preparations, such as perfumes, shampoo, body care and other cosmetic preparations.

IndustryDefinition

MainActivities

SimilarIndustries

AdditionalResources

AboutthisIndustry

Foradditionalinformationonthisindustry

www.soap-wire.comSoap Wire

www.cleaninginstitute.orgThe American Cleaning Institute

www.bls.govUS Bureau of Labor Statistics

www.census.govUS Census Bureau

Themajorproductsandservicesinthisindustryare

Commercial soap and other detergents

Household soap and other detergents

Miscellaneous soap and other detergents

Polish and other sanitation goods

Surface active agents


$ pe

r bar

rel

140

20

40

60

80

100

120

1703 05 07 09 11 13 15Year

World price of crude oil

SOURCE: WWW.IBISWORLD.COM

% c

hang

e

10

10

5

0

5

1703 05 07 09 11 13 15Year

Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2011)

26%Commercial soap

and other detergents

24%Polish and other sanitation goods

23%Surface

active agents

17%Household soap and

other detergents

10%Miscellaneous soap



KeyStatisticsSnapshot

IndustryataGlanceSoap&CleaningCompoundManufacturingin2011

IndustryStructure Life Cycle Stage MatureRevenue Volatility Medium

Capital Intensity High

Industry Assistance Low

Concentration Level Medium

Regulation Level Medium

Technology Change Low

Barriers to Entry Medium

Industry Globalization High

Competition Level Medium

Revenue

$52.0bnProfit

$5.6bnExports

$7.1bnBusinesses

1,996

AnnualGrowth11-16

3.3%AnnualGrowth06-11

2.7%

KeyExternalDriversPercapitadisposableincomeWorldpriceofcrudeoilDemandfromaccommodationandfoodservicesDemandfromjanitorialservices

MarketShareThe Procter & Gamble Company 19.6%

S.C. Johnson & Son Inc. 9.8%

Ecolab Inc. 6.4%

Colgate-Palmolive Company 5.8%

p. 28

p. 4

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 45



KeyExternalDrivers Per capita disposable incomeThe level of disposable income affects how much and what quality of soap people can afford. Retailers and wholesalers adjust their purchases from manufacturers based on consumer demand, which is also affected by population growth. Soaps are staple goods, but consumers will often trade down to cheaper products when household disposable income is low. This driver is expected to increase

slowly over 2011, resulting in a potential opportunity for the industry.

World price of crude oilWith a number of key raw material inputs ultimately derived from petrochemical feedstock, volatility in the price of oil can affect the industrys cost structure. As commodity costs increase, manufacturers may raise prices, which can decrease the number of purchases that consumers make.

ExecutiveSummary

The mature $52.0 billion Soap and Cleaning Compound Manufacturing industry is consolidating, developing new products and expanding to emerging markets in response to steep competition and low demand. In 2011, the industry is expected to grow by 2.4%, representing some improvement from 2010. For a long time, soap manufacturers have modified their product formulas to stimulate demand; however, consumer environmental and health concerns have heightened in recent years. This trend

has caused industry companies to concentrate on eco-friendly chemicals and manufacturing processes.

Because the industry is in the mature stage of its life cycle, demand is steady and will not likely increase significantly. Competition is also intense, particularly among the top four players. As a result, raw material costs have been difficult to pass on to consumers in the form of higher prices. In the five years to 2011, industry revenue is expected to increase by 2.7% on average per year. As the economy improves in 2011, per capita

disposable income is forecast to rise. This trend will contribute to a slight shift back to brand name soaps that carry higher price tags. Additionally, the improving economy will drive better traffic in restaurants and hotels, which are key markets for the industry. Despite these positive factors, IBISWorld projects that industry revenue will grow only slightly faster in the five years to 2016 than it did during the previous five-year period, by 3.3% per year on average to $61.1 billion. Projected growth in 2012 of 5.2% will result from continued improvement in the economy.

The consolidation that has swept the industry in the five years to 2011 is beginning to moderate, as companies restructure to reduce costs and consolidate product lines. As a result, the number of companies is estimated to decline by 1.4% in the five years to 2011 to 1,996 firms; this number is expected to continue to fall in the coming years. Employment has also been on the decline, and restructuring efforts are expected to further reduce employment during the five years to 2016. As the industry restructures, companies will continue expanding in emerging markets in search of new demand. Changes to product formulas that make soaps more eco- or health-friendly will drive demand.

IndustryPerformanceExecutiveSummary | KeyExternalDrivers | CurrentPerformanceIndustryOutlook | LifeCycleStage

Environmental and health concerns are pushing companies toward eco-friendly processes


IndustryPerformance

CurrentPerformance

Despite its maturity, the $52.0 billion US Soap and Cleaning Compound Manufacturing industry is expected to grow at an average annual rate of 2.7% during the five years to 2011. This percentage includes an increase of 2.4% in revenue in 2011, which marks improvement from 2010 but is relatively weak for the industry based on historical growth trends. Continued improvement in the economy in 2011 is expected to boost personal disposable income. Consequently, consumers will be more willing and able to purchase brand name products with special features. Similarly, restaurants and hotels are beginning to see a return in customer traffic in 2011.

This trend has boosted demand for cleaning products from manufacturers. New product development and company restructurings have also buttressed sales and profit, while retailer consolidation and private label products have acted as head winds to continued revenue growth.

While revenue has generally been on the rise during the past five years, growth has been volatile and operating profit has been taking a hit. Volatility and increases in the price of raw materials, including resin, chlor-alkali, sodium hypochlorite, high-strength bleach, linerboard, soybean oil, solvent, natural oils, corrugate and other chemicals and agricultural commodities have dampened

KeyExternalDriverscontinued

Furthermore, volatility and increases in the price of raw materials may harm industry profitability. This driver is expected to increase over 2011, creating a potential threat for the industry.

Demand from accommodation and food servicesHotels and restaurants are major commercial markets for the industry, because these companies use cleaning products in large quantities to meet regulation requirements and customer

preferences for cleanliness. When hotels and restaurants prosper, demand for cleaning products increases. This driver is expected to increase slowly over 2011.

Demand from janitorial servicesJanitorial companies use cleaning products to provide their services; therefore, as these companies supply more services, demand for soaps increases. This driver is expected to increase over 2011.

% c

hang

e

3.5

0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1705 07 09 11 13 15Year

Per capita disposable income


$ pe

r bar

rel

140

20

40

60

80

100

120

1703 05 07 09 11 13 15Year

World price of crude oil


IndustryPerformance

CurrentPerformancecontinued

operating gains within the industry. Oil and other commodity prices have risen since 2006, the reasons behind which are numerous. The rapid industrialization of China and India has spurred an increase in demand because their massive emerging middle-classes are now demanding cars. In addition, many of the leading countries in petroleum production are third world countries, and the threat of political instability is constant. Furthermore, all worldwide oil purchases are conducted using US dollars, meaning fluctuations in the value of the dollar versus other currencies directly affects the price of oil around the world. The value of the dollar has weakened in the past several years, especially following the global financial

crisis, causing oil producers to charge more for their products in order to receive the same value.

Newproductsrenewdemand

Innovation is a strength that has enabled soap and cleaning compound manufacturers to maintain growth. Slow growth in the US population, growing environmental awareness and increasing regulatory pressure have driven innovation. Product developments may entail a novel formula or concept, or simply improvements in existing products and packaging. Extending a well-known brand name to a different product category has helped companies attract consumers who already use the core brand. Procter & Gambles (P&G) Tide Stain Release and a new line of Dawn dish soap with Olay moisturizers are examples of formula improvements, while Cloroxs launch of Green Works laundry detergent demonstrates brand extension.

New products also help boost profit, because consumers are enticed to spend on branded goods rather than private labels that do not have the same features. Despite these efforts, profit margins in the industry have trended downward during the five years to 2011. Falling profit is occurring as more companies are

returning to the basics by offering value products to consumers in response to the poor economic environment. During the economic downturn, personal disposable income declined and caused consumers to shift to more affordable products. P&G has increased its offerings in value-priced segments by introducing products like Tide Basic, Charmin Basic, Bounty Basic and Pampers Basic. All of these basics sell at a substantial discount from the original products, but they typically offer fewer features or benefits. In addition, P&G repositioned its Cheer laundry detergent to compete more effectively in the value segment.

On the opposite end of the spectrum, companies have been able to set higher prices with green products, which are environmentally oriented products that continue to expand in popularity. While the industry has long toiled with health and environmental regulations and consumer demands, companies have amplified their green efforts in recent years. The green movement within the industry broadly includes actions taken

% c

hang

e

10

5

0

5

1703 05 07 09 11 13 15Year

Industry revenue



IndustryPerformance

Newproductsrenewdemandcontinued

to reduce harmful effects on the environment. Such actions include the use of recycled materials and the recyclability of new products; the use of products that can be recovered and are not harmful to humans, animals and the environment; and the use of natural or organic products.

Some companies are strictly natural, such as Method Products and Seventh Generation. For the large soap

manufacturers, moving into this segment has involved a combination of acquisitions and product development. For example, in 2006, Colgate acquired Toms of Maine, a maker of natural personal care products that include toothpaste, mouthwash and soap. Toms of Maine products are made without artificial sweeteners, preservatives or animal products, and they are not tested on animals.

Retailersbullyproductsandpricing

Some of the impetus for the industry to go greener has come from Walmart, which has pushed manufacturers to shrink the size of their packaging. In 2008, the company began evaluating its extensive list of suppliers based on its ability to develop packaging that conserves natural resources. In 2007, when Walmart decided to sell only concentrated detergents, detergent manufacturers immediately reacted with an initiative that completed a nationwide rollout of new products by summer 2008.

The quick reaction to Walmarts demand illustrates the rising power of a handful of large low-priced retailers. During the five years to 2011, the industry has endured increasing retailer consolidation. This trend has resulted in the increased size and influence of large consolidated retailers, which have more leverage to demand lower pricing or special packaging or impose other requirements on operators. In addition to encouraging eco-friendly products, many retailers have pushed their own higher-margin private-label brands in competition with industry players. Store brand products often sell at lower price points and earn higher margins because retailers can control the cost of their production. Retailers benefit from point-of-sale data on consumer behavior, and they are in a better position to market their products to shoppers.

Despite private label growth, companies can maintain some degree of pricing power through brand loyalty and by offering unique features.

As retailers gain more power in the US market, more manufacturers have shifted their sales focus to emerging markets. These areas of the world are less exposed to cleaning products, and product features that are conventional in the United States can generate significant growth in these countries. Over the past five years, household cleaning products have grown in emerging markets by 10.8%, which far outpaced growth in developed markets of 2.1%, according to data from Euromonitor, a provider of international market intelligence on industries, countries and consumers. Colgate Palmolive, one of the industrys major players, has the highest exposure to emerging markets, generating about 51.0% of its sales from these regions of the world. Meanwhile, Clorox has been behind its peers, with sales from emerging markets accounting for about 8.0% of total revenue.

Manufacturers are shrinking the size of their packaging to conserve natural resources


IndustryPerformance

Pricingwillcomeundermorepressure

Retailers are expected to progressively press manufacturers for further price rollbacks. While IBISWorld does not expect extensive price cutting to occur in the five years to 2016, some strategic price adjustments are forecast to occur in response to retailer pressure and private label products. For example, Procter & Gamble is in the process of lowering prices on about 10.0% of its product portfolio.

Lower prices will help increase the number of items sold, keep products on

the shelves of major retailers and compete with lower-priced private-label goods. The resulting benefit from improved volume will be countered somewhat by lower prices per item and higher oil prices. Most soap manufacturers have yet to catch up with

IndustryOutlook

The industry is forecast to grow at the sustained pace of 3.3% per year during the five years to 2016 to reach $61.1 billion. In 2012, revenue is projected to increase by 5.2% after weak performance in 2011. The industry will contend with pressures from retailers, fluctuating raw material costs,

restrained demand and environmental requirements in the next five years. Many of these variables will continue to constrain revenue growth. At the same time, demand for new sustainable products, with higher price tags and stronger profit margins, will help stimulate the industry.

Companiesuseacquisitionstoachievegrowth

Given the growth in retailer size and the low rate of population growth and household formations in the United States, it has become more difficult for consumer products manufacturers to achieve significant organic sales growth. In response, soap and cleaning compound manufacturers are attempting to stimulate revenue and profit growth by acquiring and divesting businesses. Companies are also undergoing restructuring to cut costs and boost profit margins.

After facing high commodity costs during the five years to 2011 and with retail consolidation forcing players to focus on their best-selling brands, many companies are restructuring to cut costs and reduce product lines. The number of industry firms is expected to fall by 1.4% per year on average to 1,996 in 2011. The benefits

of consolidation include savings from raw material purchasing and reduced staff needs. Accordingly, employment is also estimated to fall by 1.8% per year on average to 44,801. These cost savings are expected to help maintain some profitability, though earnings before interest and taxes are expected to decline to 10.7% in 2011 from 10.9% in 2007.

During the past decade, the top US companies have become global leaders through a spree of acquisitions. This large-scale expansion transformed some manufacturers into unwieldy organizations composed of unmanageable numbers of production, marketing and distribution segments located throughout the world. While this global expansion has helped bolster sales, profitability has been difficult to maintain.

Lower prices will help manufacturers compete with private label products


IndustryPerformance

Pricingwillcomeundermorepressurecontinued

the three years of above-average commodity cost increases, and IBISWorld forecasts that oil prices will continue to rise during the next five years. The crude oil price is projected to trend upward as the world economy continues to recover and demand returns. Recovering world economic conditions are expected to be partly offset by higher spare capacity, which will limit fears of supply constraints and may result in some OPEC members increasing output beyond official OPEC quotas.

IBISWorld forecasts that the world economy will continue its slow recovery, and demand for oil will rise accordingly.

Despite the rise in input costs, profitability is forecast to be resilient due to companies reducing wage costs. Automation processes will help the industry be more efficient and will contribute to wages declining slightly to about 5.1% of industry revenue. Profit margin is forecast to fall moderately to 10.3% of revenue in 2016, versus 10.6% in 2012.

Emergingmarketsarethefuture

Weak sales growth potential in developed markets over the next five years will be one of the key issues facing the industry, causing more companies to look to emerging markets for growth. Pricing pressure from US retailers will add to the issue of a saturated market. Because most households and businesses already have soap, manufacturers rely on restocking purchases and population growth. During the next five years, IBISWorld forecasts that the US population will grow at an average annual rate of 0.9%, which is insufficient for providing sizeable new demand. Low growth prospects will cause manufacturers to shift production and sales to emerging markets abroad. This move will contribute to falling industry employment in the United States, which is forecast to decline by 0.3% per year on average through 2016 to 44,089.

While volumes will likely pick up in the near term as the economy recovers, growth beyond this temporary upturn will be more difficult to achieve. The industry is in the mature stage of its life cycle: most consumers already own soap and are not significantly excited by new

products. Also, retailers are expected to decelerate new store openings and continue consolidating (Walmarts dominance is a fitting example), and there may be a long-lasting structural change in consumer frugality. Continued consolidation will support top-line growth from sales in the United States; the number of firms is projected to drop by an average of 1.7% annually in the five years to 2016 to 1,830.

As income rises in developing countries, consumers in these areas pose an untapped market that will demand different products and advertising. Manufacturers may use less-expensive ingredients to offer lower-priced products in developing countries, and they may also employ special marketing campaigns.

Firms will look to emerging markets for growth due to weak potential in developed markets


IndustryPerformance

Moregreenliesahead Environmental concerns among consumers and governmental regulators are expected to continue. Increasing emphasis will be placed on factors such as biodegradability, aquatic toxicity, renewable feedstock and environmental footprint regarding carbon dioxide emissions throughout the supply chain. Manufacturers that are not perceived as environmentally friendly will come under mounting pressure to use less harmful chemicals, particularly those containing less volatile organic compounds.

Retailers are forwarding the consumer demands for greener products. In 2010, Walmart announced that it plans to cut 20 million metric tons of greenhouse gas emissions from its supply operations by 2015. The project will begin with seven product categories, one of which is soap. Walmart has a strong influence over the soap manufacturing process given its dominance in the retail sector, so manufacturers will likely respond to these demands. For example, Unilever intends to have all of its palm oil certified sustainable by 2015. As one of the largest single buyers of palm oil, Unilever has been targeted by retailers, governmental bodies and activist groups.

The introduction of more stringent regulations in the United States that are similar to those recently introduced in the European Union may further

push manufacturers to reformulate their standard formulas. Environmental standards may drive product innovation and technological developments, but they may also result in reformulation costs that can affect profit. New product developments will be a growth opportunity to players in the mature soap industry. For example, products containing natural ingredients or special biodegradability properties can stimulate sales from environmentally conscious consumers. High-efficiency (HE) detergents with low-sudsing properties will increasingly be required for the growing number of HE washing machines.

Standards for natural detergents are expected to be implemented beginning in 2011. As the demand for detergents made from natural ingredients increases, the Natural Products Association (NPA) has developed standards for what is meant by natural. In order to earn NPAs seal of approval, detergents must be made of at least 95.0% natural ingredients (not including water), and they can only use nonnatural ingredients when a natural alternative is unavailable.

Environmental standards will drive innovation and technological developments


IndustryPerformanceLifeCycleStage


30

25

20

15

10

5

0

5

1010 100 205 155 25 30

%G

row

tho

fpro

fit/G

DP

%Growthofestablishments

DeclineCrash or Grow?

PotentialHiddenGemsFuture Industries

QualityGrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

TimeWastersHobby Industries

MaturityCompany consolidation;level of economic importance stable

Shake-out

Shake-out

QuantityGrowthMany new companies; minor growth in economic importance; substantial technology change

KeyFeaturesofaMatureIndustry

Revenue grows at same pace as economyCompany numbers stabilize; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalization of low margin products & brands

InorganicChemicalManufacturing

Supermarkets&GroceryStores

LaminatedPlasticsManufacturing

OrganicChemicalManufacturing

Beauty,Cosmetics&FragranceStores

Soap&CleaningCompoundManufacturing

Revenue growth has slowed and value added closely resembles overall GDP growth

Price competition has pressured profit margins

Products have become less distinguishable from competitors

Companies are using acquisitions to grow revenue

Consumers have unqualified acceptance of soap products, indicating the industrys low level of radical innovation


IndustryPerformance

IndustryLifeCycle The industry is mature and is experiencing low revenue growth, moderate product innovation and increasing consolidation. As a mature industry, little change is expected in the upcoming years. However, increasing environmental standards may result in modifications to product content and packaging.

Revenue growth is expected to average 3.3% annually during the 10 years to 2016. The growth in the industrys contribution to the economy tracks the overall rate of growth in the US economy; during the ten years up to 2016, industry value added is forecast to increase by approximately 2.2% on average per year, which is moderately higher than projected US gross domestic product growth based on IBISWorld estimates.

While industry players have been stimulating purchases by developing new products with different features, innovation is not radical enough to create significant new demand. Soaps and cleaning compounds have been staples of households and commercial businesses for a long period of time, so there is a

widespread acceptance of the products among the purchases. Regardless of inventive toothpastes, households only require a certain amount of this good, so demand cannot extend far beyond current levels. That being said, the intense level of competition among the major players has been causing increased emphasis on innovating products and repositioning brands.

Since most houses and businesses already have soaps and cleaning compounds, industry companies must earn sales from repeat purchases and grow through acquisition. As a result, consolidation is increasing, with the number of companies expected to decline by 1.7% per year on average for the five years through 2011 to 1,196. This consolidation trend is expected to continue through 2016. Additionally, more industry companies are expanding their presence in undeveloped markets, where soaps are not as pervasive. These markets provide companies with opportunities for stronger sales growth and shift employment and production facilities abroad.

This industry is Mature


Products&Services

Products&MarketsSupplyChain | Products&Services | DemandDeterminantsMajorMarkets | InternationalTrade | BusinessLocations

KEYBUYINGINDUSTRIES

44511 Supermarkets&GroceryStoresintheUSInvolved in the downstream retailing of various soap, dental care and detergent products.

44612 Beauty,Cosmetics&FragranceStoresintheUSInvolved in the downstream retailing of various soap, dental care and detergent products.

44619 HealthStoresintheUSInvolved in the downstream retailing of various soap, dental care and detergent products.

72 AccommodationandFoodServicesintheUSTourism related industries are another source of supply for various soap and detergent products supplied by the industry.

81232 Non-Coin-OperatedLaundromats&DryCleanersintheUSLaundries and dry cleaners are a key source of demand for various detergent and cleaning products manufactured by the industry.

KEYSELLINGINDUSTRIES

32518 InorganicChemicalManufacturingintheUSThe Soap and Cleaning Compound Manufacturing industry uses a variety of ingredients from this industry.

32519 OrganicChemicalManufacturingintheUSThe Soap and Cleaning Compound Manufacturing industry uses a variety of ingredients from this industry.

32613 LaminatedPlasticsManufacturingintheUSThe Soap and Cleaning Compound Manufacturing industry uses products from this industry to package its products.

32616 PlasticBottle&ContainerManufacturingintheUSThe Soap and Cleaning Compound Manufacturing industry uses products from this industry to package its products.

SupplyChain

Products and services segmentation (2011)

Total $52.0bn

26%Commercial soap and

other detergents

24%Polish and other sanitation goods

23%Surface

active agents

17%Household soap and

other detergents

10%Miscellaneous soap




Products&Markets

Products&Servicescontinued

There are three main product segments within the Soap and Cleaning Compound Manufacturing industry: soaps and detergents; polishes and other sanitation goods; and surfactants and finishing agents.

Soap and other detergent manufacturingThe soap and other detergents product segment generates the most revenue within the industry (around 50.0% of total sales in 2011) and includes products such as laundry detergents, dishwashing compounds, toothpaste and personal cleansers. Soaps and detergents that are designed specifically for household use make up about 25.0% of total sales versus 17.0% for commercial purpose soaps. The remainder of this category is not made specifically for commercial or household use.

Household goods generate more consistent sales, because population growth drives demand in this market, while growth in the economy drives demand in the commercial market. The economic recession caused sales to both household and commercial users to decline during the five years up to 2011; however, commercial demand was more volatile. The population continued to expand in the United States, but several households cut back on expenditures, including by shifting soap and cleaning purchases to lower priced goods. This did not have as significant of an effect on sales as the lower commercial demand. Revenue at hotels and restaurants was significantly impacted by the poor economy; in turn, these businesses required less soap. This is in contrast to the continued growing demand for household soaps.

Household goods can be further grouped into four categories: personal cleansing, laundry, dishwashing and household cleaning. Major soap and detergent products include laundry

cleaners, soap, dishwashing detergent, and toothpaste. Laundry detergent accounts for nearly 40.0% of industry revenue, soap for 20.0%, and dishwashing detergent for 15.0%. Laundry detergent comes in powder or liquid form, and may contain bleach additives or color brighteners. Dishwashing detergent comes in powder, liquid, or gel form. Soap comes in bars or liquids, and may have moisturizing, antibacterial, or deodorant benefits. Companies in the commercial sector may also sell dispensing equipment and provide related training.

Polish and other sanitation goodsPolishes and other sanitation goods make up the second major product category, generating about 24.0% of industry sales in 2011. The products include polishes and waxes (for use on furniture, metal, flooring, and glass) and other sanitation preparations including disinfectants and deodorizers. This category also includes household bleaches and ammonia, laundry starches, and fabric softeners. If a good in this category is classified as a commodity cleaner, it is usually sold in bulk at lower prices. Specialty cleaners are typically sold in smaller quantities at higher prices.

About 65% of the products are sold to the industrial and institutional markets, which include contract cleaning firms, office buildings, restaurants, hospitals, schools, hotels, and nursing homes. The heightened focus on food safety generated valuable opportunities for the sanitizing products segment; however, the economic recession highly impacted the food service, hospitality, travel, healthcare and food processing industries, which are sensitive to changes in travel and dining activities. During the downturn, these end-users reduced their purchases of cleaning and sanitizing products, which is evidenced in the


Products&Markets

DemandDeterminants

Above all else, soap consumption in the consumer market is tied to population growth, particularly among households with children, and economic growth drives demand in the commercial market.

Aging population slows population growthOverall demand for cleaning products is closely linked to population growth. More people means that there will be more bodies to bathe and more homes to clean. However, as the US population ages, the rate of new household formations decreases correspondingly. Marketers study the age range, size and spending patterns of their various target markets. For example, based on US Census data, 45- to 64-year-olds made up approximately 22.0% of the population in

2000. However, the Census Bureau expects this percentage to grow to 26.0% by 2015.

With the US population expanding at slowing rate, the domestic market for household and commercial cleaning products is mature. The prospect of limited population growth means that consumer goods companies must target existing markets with specific designs in order to continue selling their products. Additionally, manufacturers are finding more opportunities outside of the United States, where populations are growing rapidly and competition is less intense. According to the US Department of Commerce, the worlds developing countries will continue to grow much more rapidly than developed countries. In 1950, about

Products&Servicescontinued

decline of this segments share of the total industry from about 26.0% in 2007 to its current level of about 24.0%. The market for cleaning and sanitizing products is led by Ecolab, followed by other major suppliers like Johnson Diversey and DeLaval. The industry does exhibit some segmentation, however, with niche players and local and regional suppliers maintaining a noteworthy presence in the market.

While sanitation products for commercial users decreased, cleaning wipes have been working their way around American households. People most commonly use wipes to clean or disinfect kitchen countertops and appliances, bathroom fixtures, hands and children, according to the Soap and Detergent Associations (SDA) 2008 National Cleaning Survey, conducted by Echo Research. SDAs research shows that 71.0% of Americans have used a cleaning, disinfecting or antibacterial wipe, which is up from 66.0% in 2007.

Surface active agentsSurface active agents make up the smallest product category. This category includes raw material ingredients that, when dissolved in water, help to loosen soil from a surface. The ingredients are in turn sold to soap and detergent manufacturers. Examples of products include wetting agents, emulsifiers and sulfonated oils and fats.

New product development in the surfactants area is being bolstered by the introduction of a variety of products based on renewable raw materials. Pressure to replace less environmentally friendly products and the development of some of the newer technologies combine to provide niche market opportunities, even in this mature market. This type of development requires sufficient resources, not only to provide the technical expertise but also to engage with the end-user to understand their surfactant requirements and co-ordinate product development.


Products&Markets

MajorMarkets The majority of industry participants manufacture products for the consumer market; roughly 57.0% of products are designed for household use. This segment is followed by the commercial market (43.0%). Customers that retail to the consumer market include supermarket chains, mass merchandisers, drugstores, and warehouse clubs. Customers in the

commercial segment include industrial and commercial laundries, hotels, restaurants, and healthcare providers.

The relative importance of a market segment varies with the product and its use. For example, the market for detergents can be distinguished on the basis of commercial and household use. The major market segments for soap

DemandDeterminantscontinued

67.0% of the worlds population lived in developing countries; by 2025, the figure is projected to approach 84.0%. Accordingly, US cleaning products manufacturers have made rapid expansions abroad in recent years.

New products on the same shelvesThe major determinants of demand for the Soap and Cleaning Compound Manufacturing industry are product development and industry marketing. In this industry, new products can include a completely new formula or concept, or improvements in existing products and brand extensions. Extending a well-known brand name to a new product often lures shoppers who already use the core brand. Slow growth in the US population means that the development of new products and categories remains important to growth in the industry. New products also help to maintain profits, as innovation keeps consumers from trading down to less-expensive private label products that do not have the same features.

In a March 2009 report, Information Resources said that the sustainability trend is likely to have the most significant impact on cleaning product development over the next several years. While creating more eco-friendly products, companies can create excitement for their products by adding or emphasizing benefits, such as healthfulness, convenience, or ease of use. An example

of a new product is the Clorox BathWand, which mounts a pivoting, abrasive sponge at the end of an extendible wand. Clorox cleaning solution is preloaded inside. The product serves as an alternative to filling a bucket with cleaner and water and bending over to clean a bathtub and shower.

Consumers cut backPrice can also play a role in influencing purchasing patterns. Although consumers tend to purchase brands of soaps and detergents they trust, a poor economy and significant price increases can lead to heightened price sensitivity and falling demand. Although the Soap and Cleaning Compound Manufacturing industry manufactures products that relatively essential items, during economic downturns households rationalize the range of products they purchase, trade down the value chain or use products more economically. The major manufacturers offer products that target a range of price points, from low to high, in order to address more customers needs.

Similarly, as households income levels rise, consumers tend to trade up from bargain products to premium ones. In addition, they tend to add certain products to their shopping baskets that they might not ordinarily have purchased, such as a special cleaner for the bathroom rather than just an all-purpose one.


Products&Markets

MajorMarketscontinued

products are the general household market and the tourism industry (in particular hotels and other accommodation establishments). Households use these products in many ways, for example, those that want a pure soap (for babies), those that want an anti-bacterial soap (teenagers), those that want an anti-deodorant soap, those that want an inexpensive soap (bargain shoppers), those that want a creamy soap (women who want soft skin) and those that want an abrasive soap (mechanics). Other markets include dry cleaning, wool scouring and the pharmaceutical industry.

Consumers purchase more from large retailersWithin the consumer market, there is a sweeping demographic change under way that affects marketing and product design. Population growth is fastest among minority groups, Hispanics in particular. Consequently, industry products must become more relevant with US Hispanics to remain competitive in the marketplace. For instance, Clorox, one of the industrys major players, recently commissioned an in-depth Hispanic consumer segmentation study for its Pine-Sol brand, which is the leader

in dilutable cleaners in the general market, but number two with Hispanics. The results are being used to better shape Hispanic-targeted marketing communications moving forward.

Soap manufacturers rely heavily on large retailers like Walmart, Costco and Target for a significant portion of sales to consumers. Walmart can account for up to 15.0% of total revenue for large companies. These large retailers have the power to demand price concessions and supply chain management services from manufacturers. For example, Procter & Gambles sales to Walmart represent approximately 15.0% of total revenue. Given that the companys top 10 customers account for approximately 30.0% of total sales, Walmart can have substantial influence on P&Gs performance.

Healthcare facilities represent opportunity for expansion Hand hygiene is being promoted in healthcare with clear objectives, strategies and governmental support through policies and resource allocation. For instance, he main objective of the First Global Patient Safety Challenge, launched by the World Health Organization (WHO), is to achieve an

Major market segmentation (2011)

Total $52.0bn

34.4%Supermarkets and

mass merchants

1.5%Convenience

stores

20.8%Independent retailers

17.4%Food service

establishments

14.3%Healthcare

providers

11.6%Lodging

establishments



Products&Markets

MajorMarketscontinued

improvement in hand hygiene practices worldwide with the ultimate goal of promoting a strong patient safety culture. Healthcare workers hands are the most common vehicle for the transmission of healthcare-associated

pathogens from patient to patient and within the healthcare environment. Hand hygiene is the leading measure for preventing the spread of antimicrobial resistance and reducing healthcare-associated infections.

InternationalTrade The Soap and Cleaning Compound Manufacturing industry predominantly sells to the domestic US market. Exports, valued at about $7.1 billion based on US Census Bureau data, represent about 13.7% of industry revenue. A sizable proportion of industry exports are sold to US neighbors; exports to Canada and Mexico account for 37.0% and 8.0% of the total, respectively. Other key markets include China (6.0%) and Japan (5.0%). Most large companies have manufacturing facilities abroad, which reduces the accounted dollar value of export products from the United States.

Level&TrendExports in the industry are Medium and Increasing

Imports in the industry are Medium and Increasing

$ m

illio

n

16000

4000

0

4000

8000

12000

1703 05 07 09 11 13 15Year

Exports Imports Balance

Industry trade balance


Imports From...

Total $2.6bn

29%Others

28%Canada

25%Mexico

10%China

8%Germany

Exports To...

Total $7.1bn

44%Others

38%Canada

8%Mexico

5%China

5%Japan

Year: 2009SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: USITC


Products&Markets

InternationalTradecontinued

Imports, valued at $2.6 billion, also play a small role in the industry. Similar to export trade, a considerable share of industry imports is derived from neighboring countries; imports from Canada and Mexico account for 26.0% and 24.0%, respectively. Other key import markets include China (10.0%), Germany (9.0%) and Japan (6.0%). Export and import levels have tended to rise in recent years with exports growing by an average 5.6% annually since 2008, compared with an average growth rate of 1.1% in imports. With mature markets in

the United States, manufacturers are pursuing growth overseas. For instance, Procter & Gamble generates about 61.0% of its sales outside of the United States. Industry players are investing heavily in developing and emerging markets in Central and Eastern Europe, China and India, where recent trends in economic and population growth bode well for soap and cleaning products. In such countries, increases in gross domestic product, disposable income, and population are outpacing those of the United States and Western Europe.


Products&Markets

BusinessLocations2011

MO10.4

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

Great Lakes

VT0.5

MA0.5

RI1.5

NJ3.9

DE1.0

NH0.0

CT0.3

MD1.7

DC0.0

1

5

3

7

2

6

4

8 9

AdditionalStates(as marked on map)

AZ1.7

CA3.6

NV0.0

OR2.7

WA0.3

MT0.0

NE0.0

MN0.2

IA0.9

OH14.1 VA

0.2

FL0.9

KS1.0

CO2.6

UT1.3

ID0.0

TX3.5

OK1.9

NC1.8

AK0.0

WY0.5

TN0.7

KY1.5

GA4.7

IL6.2

ME0.2

ND0.0

WI9.4 MI

5.0 PA1.4

WV0.4

SD0.0

NM0.0

AR0.0

MS1.6

AL0.0

SC3.6

LA2.6

HI0.0

IN5.0

NY1.0 5

67

8

321

4

9


Mid- Atlantic

Industryrevenue(%)

Lessthan3% 3%tolessthan10% 10%tolessthan20% 20%ormore


Products&Markets

BusinessLocations The US Soap and Cleaning Compound Manufacturing industry is moderately geographically concentrated, with key regions in the Southeast, Southwest, Great Lakes and West. Key states include California (8.3% of all establishments), Texas (6.4%), New Mexico (4.8%), Illinois (4.7%) and Ohio (4.3%). This geographic pattern reflects in part the general spread of the chemicals industry. For example, Illinois and Ohio are home to large producers of various organic and inorganic chemicals, which are key inputs in the production of soap and detergents. Chemical

production is Ohios third ranking manufacturing activity; within this, the state produces soaps, industrial chemicals and paints and varnishes. The largest soap factory in the country is located in Ohio.

The geographic location of establishments and revenue also reflects the distribution of economic activity and population within the United States, because manufacturers choose to locate in areas that are well supported by infrastructure and close to downstream markets. California and Texas are heavily populated states.

%

40

0

10

20

30

Sout

hwes

t

Wes

t

Gre

at L

akes

Mid

-Atla

ntic

New

Eng

land

Plai

ns

Rock

y M

ount

ains

Sout

heas

tRevenueEstablishments

Revenue vs. establishments


%

40

0

10

20

30

Sout

hwes

t

Wes

t

Gre

at L

akes

Mid

-Atla

ntic

New

Eng

land

Plai

ns

Rock

y M

ount

ains

Sout

heas

t

RevenuePopulation

Revenue vs. population


KeySuccessFactors Access to niche marketsIf a company is not a major player, niche positioning is important for success in this industry in order to gain market share through smaller retailers.

Having marketing expertiseIn this highly competitive industry with little product differentiation, marketing and brand awareness is necessary to sway consumers towards purchasing a companys goods.

Ensuring pricing policy is appropriatePurchase incentives for retailers, such as bulk discounts, help companies gain shelf space.

Economies of scaleExpanding the size of a companys production can help to reduce long run average costs and thereby boost profit margin. Additionally, bigger

manufacturers have more power to negotiate with large retailers.

Generate brand loyaltyManufacturers that produce household goods can garner more repeat sales if consumers are brand loyal. Companies that supply the commercial segment strive to become preferred vendors by offering superior customer service.

Development of new productsAlthough major innovation of soaps is limited, companies must continually add features to attract customers away from private label products.

Supply contracts in place for commodity inputsRaw materials purchased for use in manufacturing products are generally purchased on an annual contract basis to control costs and adjust pricing accordingly.

MarketShareConcentration

The Soap and Cleaning Compound Manufacturing industry is highly concentrated. IBISWorld estimates that the top four industry participants will generate approximately 67.3% of total industry revenue in 2011, and the top players control has been increasing in the five years up to 2010. This trend is consistent with the maturity of the industry. Soap manufacturing is a long-standing industry, and sales are reliant on replacement purchases because most households already own soap. As a result, significant company growth is produced by acquiring other players. Based on US Census Bureau data, about 79.0% of industry

companies have fewer than 20 employees. While there are many small players in the industry that specialize in niche products, the major players make up a dominant portion of industry revenue.

The degree of concentration also varies between different product segments. In the case of the US detergent product segment, Procter & Gambles three top brands account for more than 55.0% of the market, and brands produced by Unilever, Church & Dwight and Dial account for 25.0%. In the household products segment, Procter & Gamble is the largest player, followed by SC Johnson & Son.

CompetitiveLandscapeMarketShareConcentration | KeySuccessFactors | CostStructureBenchmarksBasisofCompetition | BarrierstoEntry | IndustryGlobalization

LevelConcentration in this industry is Medium

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


CompetitiveLandscape

CostStructureBenchmarks

ProfitabilityProfit margin in the Soap and Cleaning Compound Manufacturing industry is expected to be 10.7% in 2011. This represents a decline from 10.9% in 2007, mainly due to decreased pricing power. Retailers are growing larger and enhancing their ability to force prices downward at the manufacturing level. Additionally, during the economic recession, consumers shifted purchases towards private-label products with lower price tags and minimal features. These products carry lower margins than most brand name goods. Consequently, although the volume of sales increased somewhat due to a growing population, profitability decreased. During the upcoming five years, profit margin is forecast to continue to erode slightly to about 10.5% of revenue, despite an improving economic environment. This will be due to continued consolidation among retailers, which will further pressure pricing at the manufacturing level.

Cost of goods sold Cost of goods sold (COGS) account for an estimated 55.0% of sales in 2011. Raw materials include surfactants, solvents, phosphates, silicates, alkalis, salts, and perfumes. Suppliers include major chemical manufacturers like Shell Chemical (a division of Royal Dutch Shell) and Dow. Ingredients used in the manufacture of soap and cleaning

compounds are sourced both locally and from abroad, and large industry players are increasingly acquiring their own business units that manufacture key chemicals. Packaging is about 20.0% of product costs.

Since the cost of goods is a significant percentage of revenue, a players ability to manage its profit can be adversely affected by movements in raw material prices. During the five years up to 2011, COGS has been increasing as the cost of raw materials has been on the rise. In contrast, raw material prices are forecast to begin decreasing in the upcoming years, which will help the industry maintain profit margin somewhat.

Wages Wages are expected to represent roughly 5.2% of sales in 2011. Wages have gradually fallen since the 1990s, in line with efforts to achieve higher operating efficiencies and moves to further automate the manufacturing process. In contrast, depreciation, which accounts for roughly 4.0% of industry revenue, has been increasing during the same time period as companies purchase more equipment. This is typical of a manufacturing industry that relies on significant capital investment for production purposes.

Other expensesOther expenses are primarily made up of research and development (R&D),

IndustryCostsandAverageSectorCostsProfitRentUtilitiesDepreciationOtherWagesPurchases

IndustryCosts(2011)

AverageCostsofallIndustriesinsector(2011)

10.7Profit

55.05.219.64.0

1.5

4.0

9.2Profit

58.411.214.73.3

2.1

1.2


0 100%



BasisofCompetition The Soap and Cleaning Compound Manufacturing industry is intensely competitive. There are a wide variety of well-advertised brands, private label brands and generic non-branded products of grocery chains and wholesale cooperatives in certain categories, which typically are sold at lower prices. Such a competitive landscape has caused industry operators to increase spending on advertising and promotions or reduce prices, which places downward pressure on profits. Competitive risk is ramping up across the industry as two leading manufacturers, Procter & Gamble (P&G) and Unilever, are accelerating marketing spending and adjusting pricing in order to gain volume market share. Given P&G has leading industry share and Unilever is a large multinational consumer products company, these companys efforts to increase marketing is a major competitive risk factor for other industry players. This is particularly pronounced for Colgate given its considerable overlap with these two companies from a product category standpoint.

The type and extent of competition in the industry varies depending on whether the industry participant

services the household market or the commercial market. In the household market, competition is based primarily on product differentiation and brand loyalty established through extensive advertising. The importance of price varies across sub-markets. On the other hand, competition in the commercial market is based on performance and price.

Key methods of competitionFirms often compete on price within general category products and consumables such as laundry soap, bleach and natural glycerin products, as consumers are more likely to use cheaper generic items in these categories. The brand strength and breadth of product lines is another key basis of competition. Existing and established companies that offer a wide range of products gain greater market presence and product acceptance. Advertising and promotional activities also help companies differentiate products, as do varying e-commerce strategies. This is particularly true with new products. According to Clorox, a newly introduced product faces intense established

CostStructureBenchmarkscontinued

advertising and restructuring costs. R&D expenses are estimated to be around 2.0% of industry revenue. According to the Soap Association, low research and development efforts make up one of the industrys weaknesses. R&D is particularly important in discovering brand-name benefits that can give a company an edge against private label products. For instance, technologically advanced compounds produce color-safe oxygen bleach alternatives, and R&D supported the development of anti-bacterial cleaners and whitening agents in toothpastes. Companies have long been focused on

developing more environmentally friendly products.

Advertising by industry manufacturers can also be a significant expense. These are included within selling, general and administration expenses. Since the industry is mature and population growth has slowed, companies are spending increasing amounts on advertising and marketing efforts. Product innovation alone is not sufficient to stimulate new demand. As a result, profitability has been moderately declining in the Soap and Cleaning Compound Manufacturing industry since 2007.

Level&TrendCompetition in this industry is Medium and the trend is Increasing



BarrierstoEntry The big stay bigIt is relatively easy to launch a small soap manufacturing company, because the technological skills and financial resources required are not substantial. Additionally, industry products are considered commodities, and the ingredients used to produce them are common. As a result, firms are more willing to risk entering the industry because they can easily liquidate their inventory and assets if the venture fails.

Finally, although costs related to marketing and distribution are potentially significant, they can be kept to a minimum if there are enough retailers within the area where the products can be sold.

However, given the high costs of manufacturing, marketing, and distribution, large corporations dominate the Soap and Cleaning Compound Manufacturing industry. The existence of strong brands and the advantages

BasisofCompetitioncontinued

competition and, as such, requires substantial advertising and promotional resources. If a new soap successfully gains consumer acceptance, it then requires continuous advertising and promotional support in order to maintain its relative market position.

Intense competition in a mature marketGiven the mature nature of the industry, new product innovation plays a significant role in maintaining sales growth. Consumers have long been purchasing soaps, so there is little incentive to actively seek out different products from purchase to purchase. Companies compete on new product development to be first in the market with an innovative idea that can stimulate renewed interest and sometimes benefit from patent protection. The ability to continuously introduce new products or extend product lines in an otherwise saturated market has grown in importance in recent years. At the same time, the ability to differentiate products by price, labeling, product placement or advertising remains essential.

The green movement has created an opportunity for companies to develop new products. In recent years, there has

been increased consumer demand for environmentally friendly products with natural ingredients. In response, companies often differentiate their products on the basis of being natural and eco-friendly. For example, soap bottles may advertise botanical extracts and safe testing methods.

Product quality and performance are also important factors. Consumers often purchase quality soaps and other detergents if the products perform well and the customer perceives value in its use. In the United States, where more and more families have dual incomes, products that reduce cleaning time can positively influence consumer acceptance.

External competition is on the riseA number of industry participants must also compete against retail grocery chains and wholesale cooperatives that are involved in the manufacture or sale of private label brands or generic non-branded products. Additionally, in line with forces favoring globalization, in recent years, a highly competitive global marketplace for various soap and surfactant products has developed, with a number of industry participants producing and competing globally.

Level&TrendBarriers to Entry in this industry are Medium and Increasing



IndustryGlobalization

The level of globalization within the industry is high and will continue to increase during the five years up to 2016. The US Soap and Cleaning Compound Manufacturing industry is part of the global consumer non-durables industry, which is comprised of various household and personal care items. The industry is becoming increasingly globalized in its focus as the major players look to developing markets for growth. A combination of

market saturation and slower population growth in most industrialized markets has caused companies to focus on the development of global brands, led by dominant players such as Procter & Gamble and Colgate-Palmolive. In 2010, Procter & Gamble derived 32.0% of net sales from developing markets, up from 29.0% two years earlier.

Also, many of the major players within the US industry tend to be Fortune 500 global players (with

BarrierstoEntrycontinued

associated with the high volume production facilities prevent the threat of new entrants from becoming a significant factor. The amount of capital needed to build manufacturing facilities can be prohibitive. Moreover, because brand loyalty is essential for US consumer products companies, national firms spend significant amounts on marketing.

Developing new products is essentialThe competitive nature of this industry requires investment in research and development (R&D) directed towards either the development of new, innovative products, the maintenance and improvement of existing products or the extension of an existing product range. Many of the industrys large global players began by making one simple product, and, over the years, evolve into giant manufacturing powerhouses with highly developed distribution channels.

Getting in with the big playersThe main distribution channels of soap products are supermarkets and mass merchants. Thus, the size of the average buyer is significant, which enhances their negotiating position. Furthermore, the relative concentration of the retail market leads to even stronger buyer power. Large retailers for soaps, such as

Walmart, make it difficult for new companies to enter the distribution chain. Any particular company does not represent a significant portion of a Goliath retailers business. If the supplier does not depend on a companys business, that company has less power to negotiate pricing and shelf space. As a new company to the industry, these selling points could be essential to success.

Cleaning products are usually differentiated (in terms of color, brand, strengths and fragrance) but their overall function is fairly standardized. Such lack of distinction of products increases the power of retailers to control pricing and demand. A form of backward integration within the market is possible with retailers able to develop their own brands of private-label cleaning products.

BarrierstoEntrychecklist LevelCompetition MediumConcentration MediumLife Cycle Stage MatureCapital Intensity HighTechnology Change LowRegulation & Policy MediumIndustry Assistance Low


Level&TrendGlobalization in this industry is High and the trend is Increasing



IndustryGlobalizationcontinued

overseas subsidiaries spread throughout the world) who dominate the industry on a global scale. For example Colgate-Palmolive competes in 200-plus

countries and territories and, as such, has a geographic balance that limits its exposure to external events in any one country or region.


TradeGlobalization GoingGlobal:Soap&CleaningCompoundManufacturing1998-2011

Expo

rts/

Reve

nue

Expo

rts/

Reve

nue

200

150

100

50

0

200

150

100

50

0

Imports/DomesticDemand Imports/DomesticDemand0 040 4080 80120 120160 160

International trade is a major determinant of an industrys level of globalization.

Exports offer growth opportunities for fi rms. However there are legal, economic and political risks associated with dealing in foreign countries.

Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local fi rms would otherwise supply.

Export ExportGlobal Global

ImportLocal ImportLocal

Soap&CleaningCompoundManufacturing

19982011


PlayerPerformance The Procter & Gamble Company (P&G) dates back to 1837. Today, it is the leading manufacturer of household products in the United States, with 300 brands (including 23 that generate annual sales exceeding $1.0 billion and 20 that generate at least $500.0 million in sales) sold in more than 180 countries. Household brands include Tide, Cascade, Charmin, Crest and Oral-B. The companys large scale is important, as it allows P&G to buy raw materials in bulk, manufacture more efficiently, leverage marketing, spend more on research and development (R&D) and protect some of its categories from competition. However, the companys size is one of the reasons that it is somewhat slower to bring new products to the market than its smaller, more nimble competitors. In 2008 and 2009, P&Gs high-end product portfolio and its slow response to a shift in consumer demand to value pressured sales and profitability.

The company has created products specifically for consumers in developing nations. Examples include Downy Single Rinse, low-water volume detergent, and Naturella, a low-income feminine protection product. In light of the global economic downturn, P&G announced that it will focus its growth strategy on emerging markets, opening almost all of its 20 new manufacturing facilities outside its established markets. Additionally, like other industry players, P&G is recognizing the maturity of the US marketplace, which holds limited potential for strong growth. Hence,

other companies are also opening manufacturing plants and selling product abroad.

Product mixThe groups business model relies on the continued growth and success of existing brands and products and the creation of new products. Its top 43 brands currently account for 85.0% of sales and 90.0% of group profits. In 2005, P&G expanded its portfolio to include razors and blades as well as batteries with its acquisition of the Gillette Company. During the five years up to 2011, the company has been divesting brands or stopping production of products that do not fit its long-term plans for increasing sales and profits. For instance, in 2008 the company completed the sold Folgers, its coffee business, to The J.M. Smucker Company. Following a number of reorganizations, the group has three Global Business Units- Beauty; Health and Wellbeing; and Household Care with six reportable segments in total; Beauty (24.0% of sales); Grooming (9.0%); Health Care (14.0%); Snacks and Pet Care (4.0%); Fabric and Home Care (30.0%) and Baby Care and Family Care (19.0%).

P&Gs fabric and home care operations are the companys oldest and largest businesses. They include its fabric care, air care, dish care and surface care product categories. The laundry category alone accounts for 17.0% of sales, the single highest contribution of any business. Key brands within this segment include Tide, Ariel, Downy, Dawn, Gain,

MajorCompaniesTheProcter&GambleCompany | S.C.Johnson&SonInc.EcolabInc. | Colgate-PalmoliveCompany | OtherCompanies

58.4%Other

TheProcter&GambleCompany19.6%

S.C.Johnson&SonInc.9.8%

EcolabInc.6.4%

Colgate-PalmoliveCompany5.8%


Majorplayers(Market share)

TheProcter&GambleCompanyMarket share: 19.6% IndustryBrandNamesTide Crest Oral-B


MajorCompanies

PlayerPerformancecontinued

Cascade, Swiffer and Febreze, of which the first five are members of its billion dollar brand club. Of particular note is its Swiffer brand, which the company claims has created a new $1.2 billion (retail sales) surface cleaning systems category both within North America and Western Europe. Its Febreze product has also been accredited with creating a new fabric refresher category.

Financial performance In 2011, P&G is generated $30.5 billion in sales in the United States, of which, the companys industry relevant segment made up about $10.2 billion. US sales represent roughly 41.0% of worldwide company revenue. International revenue is a growing portion of the companys business; P&G sells at least $1.0 billion worth of product in 12 countries. The companys international expansion, particularly into developing nations, is representative of a larger industry trend. P&Gs sales in developing nations have increased steadily from about 25.0% of total revenue in 2007 to 41.0% in 2011.

During the five years to 2011, P&Gs US fabric care and home care revenue grew 0.9% per year on average. Revenue increased 4.3% in 2011, mainly due to higher unit volume combined with renewed pricing ability attributable to the recovering economy. Volume

increases were driven mainly by initiative activity, including launches of Gain hand dishwashing liquid and Febreze Set & Refresh in North America, and geographic expansion of dish and air care product lines.

P&Gs profit has been hurt by weak pricing over the past few years. Going forward, improved pricing will occur as promotional spending dissipates. P&G has made necessary downward price adjustments, which may erode profitability in the short term, but are necessary sacrifices given the companys portfolio became too premium focused for the new consumer reality with the economic downturn. P&Gs premium-priced portfolio hurt the company during the recession, but it could benefit the company going forward in an improving macro environment. P&G has a strong track record of premium-driven innovation over the last decade, but this left it vulnerable to trade-down during the recession.

Also, P&G has been increasing its marketing spending; however, competitors are also ramping up marketing spending behind strong new product pipelines. Although increased marketing as a percentage of sales is necessary for the company (particularly given that the company cut back more than its peers during the economic

TheProcter&GambleCompany(USfabriccareandhomecaresegment)financialperformance

Year*Revenue

($ million) (% change)OperatingIncome

($ million) (% change)

2006-07 9,047.2 -7.0 1,945.1 7.1

2007-08 8,846.2 -2.2 1,813.5 -6.8

2008-09 8,793.2 -0.6 1,831.2 1.0

2009-10 9,760.0 11.0 1,901.2 3.8

2010-11 10,183.2 4.3 2,046.8 7.7

*YearendJuneSOURCE: ANNUAL REPORT AND IBISWORLD


MajorCompanies

PlayerPerformance First established in 1886, SC Johnson & Son Inc. (SC) is a privately owned manufacturer of household cleaning products and products for home storage, air care, personal care and insect control. The company manufactures well-known cleaning brands, such as Pledge, Glade, Windex, Raid and Ziploc. SC has operations in more than 70 countries and roughly 12,000 employees. Many of SCs products have been top sellers; however, after its Edge and Skintimate shave preparation brands lost market share to rival Procter & Gambles Gillette, the company sold the two brands to Energizer in 2009, which already competes with P&G in the razors business with its Schick-Wilkinson Sword

unit. On 10 occasions, SC has been ranked as one of Fortune magazines 100 Best Companies to Work For, due to culture, healthcare coverage and compensation, among other qualities.

While other industry players have become more active in manufacturing goods designed for commercial uses, SC has remained focused on the household side. The companys commercial products division (Johnson Wax Professional and Johnson Polymer) was recently spun off as a private company owned by the Johnson family.

StrategySC has a strong focus on its research and development capability. The company


downturn in 2009), IBISWorld expects that P&Gs sales will only moderately gain from these efforts, given its competitors are keeping pace in marketing spending levels.

On the cost side, the company is already close to best in class from a manufacturing perspective, with highly efficient supply chain a clear competitive advantage. The company has expanded operating profit margin (earnings before interest and tax) during the past five years. Still, despite industry leading sales and profit per employee, corporate overhead costs remain bloated and represent the best opportunity for margin expansion in the years ahead.

P&Gs marketing expenses are particularly high relative to the industry. To combat higher marketing expenses, the company has been making significant efforts to reduce other costs. P&Gs sales, general and administrative costs are higher than the industry average, so the company has a lot of low-hanging fruit in its efforts to boost profitability. Procter & Gamble has historically spent a notable amount on R&D and marketing. The

company spends almost twice as much on research and development spending ($2.0 billion in 2009) as Unilever in attempt to maintain its competitive edge by focusing on product innovation. In 2007, the company was the worlds top advertiser, spending almost $9.4 billion worldwide. The company outspent Unilever, the second-highest advertiser, by almost two-to-one (Unilever spent $5.2 billion).

In 2009, the companys fabric care and home care division recorded a drop in sales of 2.0%, with worldwide sales for the year totaling $23.2 billion. This reflected lower unit volumes and only slightly higher prices that were implemented to offset higher commodity costs. In comparison, the fabric care and home care division posted sales growth of 11.0% in 2008, predominantly due to higher sales volumes and favorable foreign exchange rates. At the same time, sales growth was marginally suppressed by disproportionate growth in developing regions and a shift towards larger product sizes in fabric care, both of which have lower selling prices per unit.

S.C.Johnson&SonInc.Market share: 9.8% IndustryBrandNamesOust Drano Pledge


MajorCompanies


has dedicated research teams in product research, process development, and package development divisions. It has strong research expertise in its product categories such as aerosol technology, insect behavior and control, and fragrance delivery. The company engages hundreds of scientists, engineers, technicians and support staff across the globe, who are continuously involved in research and development activities. In addition, SC was named the fourth most innovative company in the consumer products category on Fast Company magazines annual Most Innovative Companies list in 2010. The companys strong R&D capability provides it with a competitive advantage and helps it to innovate and launch new products. Despite a strong brand portfolio and geographically diversified operations, SC lacks the size, in terms of revenue, to compete with the likes of Procter & Gamble (P&G). P&G, for instance, markets its brands in more than 180 countries spanning the Americas, Europe, the Middle East and Africa (EMEA) and Asia. Size enables large competitors such as P&G to reduce the per-unit cost of purchasing, production and marketing. Lack of size therefore reduces SCs edge.

In order to keep up with intense competition, SC launched a new Spanish-language website in March 2010 to target

the US Hispanic population. The website launch will help the company reach out to more than 35 million Spanish-speaking US consumers. According to the Centers for Disease Control (CDC), language barriers is one of the leading factors that contribute to poor health outcomes among the US Hispanics and SC has taken the initiative to reduce the language barrier gap by providing information and explanation for most of its products in Spanish. The website offers easy-to-access and easy-to-understand information about the ingredients in the companys products to the Spanish speakers in the United States. SCs initiative to target the US Hispanic population through the launch of its Spanish-language website provides a platform to increase its customer base, which could positively boost its revenue in the years ahead.

SC has made a number of acquisitions, which have helped drive growth particularly in recent years. Most recently, the company went up against P&G in a bid for Sara Lee Corp.s European air-freshener business. The deal would have extended the manufacturers reach abroad and solidify its presence in the air scents niche.

Financial performanceIn 2011, US sales are estimated to be about $5.1 billion, representing growth of

S.C.Johnson&SonInc.(USsegment)financialperformance

YearRevenue

($ million) (% change)OperatingIncome

($ million) (% change)

2007 4,475 14.7 495.3 24.3

2008 4,860 8.6 536.3 8.3

2009 4,890 0.6 526.9 -1.8

2010 4,974 1.7 549.1 4.2

2011* 5,074 2.0 588.1 7.1

*EstimateSOURCE: IBISWORLD


MajorCompanies

PlayerPerformance Ecolab Inc. is one of the worlds leading providers of cleaning, food safety and health protection products and services. The company manufactures and provides cleaning and sanitizing products and programs, pest elimination, and maintenance and repair. Ecolab principally serves the foodservice, hospitality, healthcare, government and education, textile care and vehicle wash industries through three segments: US cleaning and sanitizing, US other services, and International.

StrategyWith many opportunities across all divisions, Ecolab continues to stress the importance of its healthcare business and additional opportunities for growth in its client base, geography and product

offerings to hospitals and pharmaceutical manufacturers. Its healthcare business has been benefiting from increasing demand for hand sanitizers during the past five years due to concerns over the H1N1 virus as well as health providers new emphasis on minimizing hospital acquired infections. Ecolab is only national supplier to the US healthcare industry, and ample global growth opportunities remain. According to the companys annual report, roughly 25.0% of the market opportunity is in sterilization supplies with an additional 20.0% coming from surgical drapes, an area Ecolab has been able to penetrate. With its acquisition of Microtek in late 2007, Ecolab gained access to a partnership with Intuitive Surgical, the maker of a variety of robotic surgery


2.0% from 2010 and about 5.4% per year on average during the past five years. During the year, positive momentum on pricing and a growth in consumer spending are expected to grow sales. Profit is also forecast to improve as commodity costs reduce and the company continues its cost containment efforts. In recent years, SC has pursued cost-containment strategies designed to improve its operating profit margins.

Efforts have also been focused on increased levels of brand support while ongoing innovation efforts have been geared toward successful new product introductions as well as international market penetration. SCJ has a strong focus on its research and development capability. The company has dedicated research teams in product research, process development, and package development divisions. It has a strong research expertise in its product categories such as aerosol technology, insect behavior and control, and fragrance delivery. The company

engages hundreds of scientists, engineers, technicians and support staff across the globe, who are continuously involved in research and development activities. In addition, SC was named the fourth most innovative company in the consumer products category on Fast Company magazines annual Most Innovative Companies list in 2010. The companys strong R&D capability provides it with a competitive advantage and helps it to innovate and launch new products.

SCJs operations are geographically diversified. Sales outside of the United States account for approximately 60.0% of the companys total revenue. Its global manufacturing operation includes facilities in Argentina, Canada, China, India, Indonesia, the Netherlands, the United Kingdom, the United States, Mexico and other countries. The companys global focus provides exposure to more opportunities and the flexibility to expand operations in fast-growing regions.

EcolabInc.Market share: 6.4%


MajorCompanies


equipment. One of Intuitive Surgicals systems, the da Vinci system, utilizes up to five sterile Ecolab drapes per system to cover the robotic arms.

Ecolab continues to focus on new account growth, primarily through greater independent (i.e. non-chain) penetration, driven by greater sales force focus and additional opportunities to identify new business through Ecolabs collaborative partnership with Sysco. Ecolab has significantly added to its sales force and focused on the many growth opportunities at its disposal. The company began hiring new salespeople in mid-2009 and expects to increase the sales force by 3.0% to 4.0% in 2011, with the bulk of the new hires already being made early in the year. The benefit from this strategy is evident in the companys 2009 results; new accounts contributed roughly 3.5% to revenue growth, offsetting the negative impact from economic pressures and account closures.

Ecolab has been steadily acquiring smaller companies in recent years. In early 2011, it acquired the assets of privately held O.R. Solutions Inc., a Virginia-based company that develops and markets surgical-fluid warming and cooling systems. In mid 2011, the company announced that it will buy Nalco Holding Co., which makes

chemicals used in water treatment, pollution control and energy conservation. Ecolab also has a water, energy and waste division that includes services for wastewater management, process filtration and cooling-water treatment.

Financial performanceEcolabs wide array of markets, despite their relative maturity, present long-term growth opportunities. While the majority of the companys markets performed well in 2009 and 2010, restaurants and lodging were negatively impacted by weak economic conditions and lowered demand for Ecolabs products in 2008 and 2009.

In 2011, Ecolab is forecast to generate $7.2 billion in sales, of which the companys US Cleaning and Sanitizing segment is expected make up 41.2%. During the five years to 2011, sales in the companys US cleaning segment are expected to grow 6.6% per year on average, including 8.9% in 2011. Top line growth in the year will benefit from the acquisition of Nalco, but operating profit is expected to be somewhat stymied. During the year, operating margin is projected to be 18.5%, slightly down from 2010; however, this is expected to recover in 2012 and beyond, when synergies from the deal are realized.

EcolabInc.(USCleaningandSanitizingsegment)financialperformance

Year*Revenue

($ million) (% c

ibisworld industry report 32561 soap & cleaning...

Documents