32561 Soap & Cleaning Compound Manufacturing in the US Industry Report (2)

7/23/2019 32561 Soap & Cleaning Compound Manufacturing in the US Industry Report (2)

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WWW.IBISWORLD.COM Soap & Cleaning Compound Manufacturing in the USSeptember 2011 1

IBISWorld Industry Report 32561Soap & Cleaning CompoundManufacturing in the USSeptember 2011 Sophia Snyder

Cleaning up:Emerging markets and strictregulations will facilitate industry growth

2 About this Industry

2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 Industry at a Glance

4 Industry Performance

4 Executive Summary

4 Key External Drivers

5 Current Performance

8 Industry Outlook

11 Industry Life Cycle

13 Products & Markets

13 Supply Chain

13 Products & Services

15 Demand Determinants

16 Major Markets

18 International Trade

20 Business Locations

22 Competitive Landscape

22 Market Share Concentration

22 Key Success Factors

23 Cost Structure Benchmarks

24 Basis of Competition

25 Barriers to Entry

26 Industry Globalization

28 Major Companies

28 The Procter & Gamble Company

30 S.C. Johnson & Son Inc.

32 Ecolab Inc.

34 Colgate-Palmolive Company

40 Operating Conditions

40 Capital Intensity

41 Technology & Systems

42 Revenue Volatility

43 Regulation & Policy

44 Industry Assistance

45 Key Statistics

45 Industry Data

45 Annual Change

45 Key Ratios

46 Jargon & Glossary

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


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Companies in the Soap and CleaningCompound Manufacturing industryproduce substances that loosen andremove soil from a surface forpurposes including personal hygiene,

sanitization or cleaning clothes, linensand furnishings. The industry doesnot include manufacturers ofsynthetic glycerin, industrial bleachesor shampoos.

The primary activities of this industry are

Cleaning compound preparation, manufacturing and packaging

Soap manufacturing and packaging

32518 Inorganic Chemical Manufacturing in the US

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

32519 Organic Chemical Manufacturing in the USOrganic chemical manufacturers primarily produce basic organic chemicals. This includes the manufactureof synthetic glycerin.

32562 Cosmetic & Beauty Products Manufacturing in the US

This industry is involved in preparing, blending, compounding, and packaging toilet preparations, such asperfumes, shampoo, body care and other cosmetic preparations.

Industry Definition

Main Activities

Similar Industries

Additional Resources

About this Industry

For additional information on this industry

www.soap-wire.comSoap Wire

www.cleaninginstitute.orgThe American Cleaning Institute

www.bls.govUS Bureau of Labor Statistics

www.census.govUS Census Bureau

The major products and services in this industry areCommercial soap and other detergents

Household soap and other detergents

Miscellaneous soap and other detergents

Polish and other sanitation goods

Surface active agents


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$perbarrel

140

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40

60

80

100

120

1703 05 07 09 11 13 15Year

World price of crude oil

SOURCE: WWW.IBISWORLD.COM

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Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2011)

26%Commercial soap

and other detergents

24%Polish and othersanitation goods

23%Surface

active agents

17%Household soap and

other detergents

10%Miscellaneous soap



Key StatisticsSnapshot

Industry at a GlanceSoap & Cleaning Compound Manufacturing in 2011

Industry Structure 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

Annual Growth 11-16

3.3%Annual Growth 06-11

2.7%

Key External DriversPer capita disposableincome


Demand fromaccommodationand food services

Demand fromjanitorial services

Market Share

The Procter &Gamble Company

19.6%S.C. Johnson &Son Inc. 9.8%

Ecolab Inc. 6.4%

Colgate-PalmoliveCompany 5.8%

p. 28

p. 4

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



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Key External Drivers Per capita disposable incomeThe level of disposable income affectshow much and what quality of soappeople can afford. Retailers and

wholesalers adjust their purchases frommanufacturers based on consumerdemand, which is also affected bypopulation growth. Soaps are staplegoods, but consumers will often tradedown to cheaper products whenhousehold disposable income is low.This driver is expected to increase

slowly over 2011, resulting in a potentialopportunity for the industry.

World price of crude oilWith a number of key raw materialinputs ultimately derived frompetrochemical feedstock, volatility inthe price of oil can affect the industryscost structure. As commodity costsincrease, manufacturers may raiseprices, which can decrease the numberof purchases that consumers make.

ExecutiveSummaryThe mature $52.0 billion Soap andCleaning Compound Manufacturingindustry is consolidating, developing newproducts and expanding to emergingmarkets in response to steep competitionand low demand. In 2011, the industry isexpected to grow by 2.4%, representingsome improvement from 2010. For a longtime, soap manufacturers have modiedtheir product formulas to stimulatedemand; however, consumerenvironmental and health concerns haveheightened in recent years. This trend

has caused industry companies toconcentrate on eco-friendly chemicalsand manufacturing processes.

Because the industry is in the maturestage of its life cycle, demand is steadyand will not likely increase signicantly.Competition is also intense, particularly

among the top four players. As a result,raw material costs have been difcult topass on to consumers in the form ofhigher prices. In the ve years to 2011,industry revenue is expected to increase

by 2.7% on average per year. As theeconomy improves in 2011, per capita

disposable income is forecast to rise.This trend will contribute to a slight shiftback to brand name soaps that carryhigher price tags. Additionally, theimproving economy will drive bettertrafc in restaurants and hotels, whichare key markets for the industry. Despitethese positive factors, IBISWorldprojects that industry revenue will growonly slightly faster in the ve years to2016 than it did during the previousve-year period, by 3.3% per year onaverage to $61.1 billion. Projected

growth in 2012 of 5.2% will result fromcontinued improvement in the economy.

The consolidation that has swept theindustry in the ve years to 2011 is

beginning to moderate, as companiesrestructure to reduce costs andconsolidate product lines. As a result, thenumber of companies is estimated todecline by 1.4% in the ve years to 2011to 1,996 rms; this number is expected tocontinue to fall in the coming years.Employment has also been on thedecline, and restructuring efforts are

expected to further reduce employmentduring the ve years to 2016. As theindustry restructures, companies willcontinue expanding in emerging marketsin search of new demand. Changes toproduct formulas that make soaps moreeco- or health-friendly will drive demand.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance

Industry Outlook | Life Cycle Stage

Environmental and health concerns are pushingcompanies toward eco-friendly processes


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Industry Performance

CurrentPerformance

Despite its maturity, the $52.0 billion USSoap and Cleaning CompoundManufacturing industry is expected togrow at an average annual rate of 2.7%during the ve years to 2011. Thispercentage includes an increase of 2.4%in revenue in 2011, which marksimprovement from 2010 but is relatively

weak for the industry based on historicalgrowth trends. Continued improvementin the economy in 2011 is expected to

boost personal disposable income.Consequently, consumers will be more

willing and able to purchase brand nameproducts with special features. Similarly,restaurants and hotels are beginning tosee a return in customer trafc in 2011.

This trend has boosted demand forcleaning products from manufacturers.New product development and companyrestructurings have also buttressed salesand prot, while retailer consolidationand private label products have acted ashead winds to continued revenue growth.

While revenue has generally been onthe rise during the past ve years, growthhas been volatile and operating prot has

been taking a hit. Volatility and increasesin the price of raw materials, includingresin, chlor-alkali, sodium hypochlorite,high-strength bleach, linerboard,soybean oil, solvent, natural oils,corrugate and other chemicals andagricultural commodities have dampened

Key External DriverscontinuedFurthermore, volatility and increases inthe price of raw materials may harmindustry protability. This driver isexpected to increase over 2011, creatinga potential threat for the industry.

Demand from accommodation

and food servicesHotels and restaurants are majorcommercial markets for the industry,

because these companies use cleaningproducts in large quantities to meetregulation requirements and customer

preferences for cleanliness. Whenhotels and restaurants prosper,demand for cleaning productsincreases. This driver is expected toincrease slowly over 2011.

Demand from janitorial servicesJanitorial companies use cleaningproducts to provide their services;therefore, as these companies supplymore services, demand for soapsincreases. This driver is expected toincrease over 2011.

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1.0

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2.0

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1705 07 09 11 13 15Year

Per capita disposable income


$perbarrel

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1703 05 07 09 11 13 15Year



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Current Performancecontinuedoperating gains within the industry. Oiland other commodity prices have risensince 2006, the reasons behind which arenumerous. The rapid industrialization ofChina and India has spurred an increasein demand because their massiveemerging middle-classes are nowdemanding cars. In addition, many of theleading countries in petroleumproduction are third world countries, andthe threat of political instability isconstant. Furthermore, all worldwide oilpurchases are conducted using US

dollars, meaning uctuations in the valueof the dollar versus other currenciesdirectly affects the price of oil around the

world. The value of the dollar hasweakened in the past several years,especially following the global nancial

crisis, causing oil producers to chargemore for their products in order toreceive the same value.

New products renewdemand

Innovation is a strength that has enabledsoap and cleaning compoundmanufacturers to maintain growth. Slowgrowth in the US population, growing

environmental awareness and increasingregulatory pressure have driveninnovation. Product developments mayentail a novel formula or concept, orsimply improvements in existing productsand packaging. Extending a well-known

brand name to a different productcategory has helped companies attractconsumers who already use the core

brand. Procter & Gambles (P&G) TideStain Release and a new line of Dawn dishsoap with Olay moisturizers are examplesof formula improvements, while Cloroxslaunch of Green Works laundry detergentdemonstrates brand extension.

New products also help boost prot,because consumers are enticed to spendon branded goods rather than privatelabels that do not have the same features.Despite these efforts, prot margins inthe industry have trended downwardduring the ve years to 2011. Fallingprot is occurring as more companies are

returning to the basics by offering valueproducts to consumers in response to thepoor economic environment. During theeconomic downturn, personal disposable

income declined and caused consumersto shift to more affordable products. P&Ghas increased its offerings in value-pricedsegments by introducing products likeTide Basic, Charmin Basic, Bounty Basicand Pampers Basic. All of these basicssell at a substantial discount from theoriginal products, but they typically offerfewer features or benets. In addition,P&G repositioned its Cheer laundrydetergent to compete more effectively inthe value segment.

On the opposite end of the spectrum,companies have been able to set higherprices with green products, which areenvironmentally oriented products thatcontinue to expand in popularity. Whilethe industry has long toiled with healthand environmental regulations andconsumer demands, companies haveamplied their green efforts in recent

years. The green movement within theindustry broadly includes actions taken

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New products renewdemandcontinued

to reduce harmful effects on theenvironment. Such actions include theuse of recycled materials and therecyclability of new products; the use ofproducts that can be recovered and arenot harmful to humans, animals and theenvironment; and the use of natural ororganic products.

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

manufacturers, moving into thissegment has involved a combination ofacquisitions and product development.For example, in 2006, Colgate acquiredToms of Maine, a maker of naturalpersonal care products that includetoothpaste, mouthwash and soap.Toms of Maine products are made

without articial sweeteners,preservatives or animal products, andthey are not tested on animals.

Retailers bullyproducts and pricing

Some of the impetus for the industry togo greener has come from Walmart,

which has pushed manufacturers toshrink the size of their packaging. In2008, the company began evaluating itsextensive list of suppliers based on itsability to develop packaging thatconserves natural resources. In 2007,

when Walmart decided to sell onlyconcentrated detergents, detergentmanufacturers immediately reacted withan initiative that completed a nationwide

rollout of new products by summer 2008.The quick reaction to Walmarts

demand illustrates the rising power of ahandful of large low-priced retailers.During the ve years to 2011, the industryhas endured increasing retailerconsolidation. This trend has resulted inthe increased size and inuence of largeconsolidated retailers, which have moreleverage to demand lower pricing orspecial packaging or impose otherrequirements on operators. In addition toencouraging eco-friendly products, manyretailers have pushed their own higher-margin private-label brands incompetition with industry players. Store

brand products often sell at lower pricepoints and earn higher margins becauseretailers can control the cost of theirproduction. Retailers benet frompoint-of-sale data on consumer behavior,and they are in a better position tomarket their products to shoppers.

Despite private label growth, companiescan maintain some degree of pricingpower through brand loyalty and byoffering unique features.

As retailers gain more power in the USmarket, more manufacturers have shiftedtheir sales focus to emerging markets.These areas of the world are less exposedto cleaning products, and productfeatures that are conventional in theUnited States can generate signicantgrowth in these countries. Over the pastve years, household cleaning productshave grown in emerging markets by10.8%, which far outpaced growth indeveloped markets of 2.1%, according todata from Euromonitor, a provider ofinternational market intelligence onindustries, countries and consumers.Colgate Palmolive, one of the industrysmajor players, has the highest exposureto emerging markets, generating about51.0% of its sales from these regions ofthe world. Meanwhile, Clorox has been

behind its peers, with sales fromemerging markets accounting for about8.0% of total revenue.

Manufacturers areshrinking the size of theirpackaging to conservenatural resources


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Pricing will comeunder more pressure

Retailers are expected to progressivelypress manufacturers for further pricerollbacks. While IBISWorld does notexpect extensive price cutting to occurin the ve years to 2016, some strategicprice adjustments are forecast to occurin response to retailer pressure andprivate label products. For example,Procter & Gamble is in the process oflowering prices on about 10.0% of itsproduct portfolio.

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

the shelves of major retailers andcompete with lower-priced private-labelgoods. The resulting benet fromimproved volume will be counteredsomewhat by lower prices per item andhigher oil prices. Most soapmanufacturers have yet to catch up with

IndustryOutlook

The industry is forecast to grow at the

sustained pace of 3.3% per year duringthe ve years to 2016 to reach $61.1

billion. In 2012, revenue is projected toincrease by 5.2% after weakperformance in 2011. The industry willcontend with pressures from retailers,uctuating raw material costs,

restrained demand and environmental

requirements in the next ve years.Many of these variables will continue toconstrain revenue growth. At the sametime, demand for new sustainableproducts, with higher price tags andstronger prot margins, will helpstimulate the industry.

Companies useacquisitions toachieve growth

Given the growth in retailer size and thelow rate of population growth andhousehold formations in the UnitedStates, it has become more difcult forconsumer products manufacturers toachieve signicant organic sales growth.In response, soap and cleaningcompound manufacturers areattempting to stimulate revenue andprot growth by acquiring and divesting

businesses. Companies are alsoundergoing restructuring to cut costsand boost prot margins.

After facing high commodity costsduring the ve years to 2011 and withretail consolidation forcing players tofocus on their best-selling brands,many companies are restructuring tocut costs and reduce product lines.The number of industry rms isexpected to fall by 1.4% per year onaverage to 1,996 in 2011. The benets

of consolidation include savings fromraw material purchasing and reducedstaff needs. Accordingly, employmentis also estimated to fall by 1.8% per

year on average to 44,801. These costsavings are expected to help maintainsome protability, though earnings

before interest and taxes are expectedto decline to 10.7% in 2011 from10.9% in 2007.

During the past decade, the top UScompanies have become global leadersthrough a spree of acquisitions. This

large-scale expansion transformedsome manufacturers into unwieldyorganizations composed ofunmanageable numbers of production,marketing and distribution segmentslocated throughout the world. Whilethis global expansion has helped

bolster sales, protability has beendifcult to maintain.

Lower prices will help

manufacturers competewith private label products


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Pricing will comeunder more pressurecontinued

the three years of above-averagecommodity cost increases, andIBISWorld forecasts that oil prices willcontinue to rise during the next ve

years. The crude oil price is projected totrend upward as the world economycontinues to recover and demandreturns. Recovering world economicconditions are expected to be partly offset

by higher spare capacity, which will limitfears of supply constraints and may resultin some OPEC members increasingoutput beyond ofcial OPEC quotas.

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

Despite the rise in input costs,protability is forecast to be resilientdue to companies reducing wage costs.

Automation processes will help theindustry be more efcient and willcontribute to wages declining slightlyto about 5.1% of industry revenue.Prot margin is forecast to fallmoderately to 10.3% of revenue in2016, versus 10.6% in 2012.

Emerging markets arethe future

Weak sales growth potential in developedmarkets over the next ve years will beone of the key issues facing the industry,causing more companies to look toemerging markets for growth. Pricingpressure from US retailers will add to theissue of a saturated market. Because mosthouseholds and businesses already havesoap, manufacturers rely on restockingpurchases and population growth. During

the next ve years, IBISWorld forecaststhat the US population will grow at anaverage annual rate of 0.9%, which isinsufcient for providing sizeable newdemand. Low growth prospects will causemanufacturers to shift production andsales to emerging markets abroad. Thismove will contribute to falling industryemployment in the United States, whichis forecast to decline by 0.3% per year onaverage through 2016 to 44,089.

While volumes will likely pick up in thenear term as the economy recovers,growth beyond this temporary upturn

will be more difcult to achieve. Theindustry is in the mature stage of its lifecycle: most consumers already own soapand are not signicantly excited by new

products. Also, retailers are expected todecelerate new store openings and

continue consolidating (Walmartsdominance is a tting example), andthere may be a long-lasting structuralchange in consumer frugality. Continuedconsolidation will support top-linegrowth from sales in the United States;the number of rms is projected to drop

by an average of 1.7% annually in the veyears to 2016 to 1,830.

As income rises in developingcountries, consumers in these areaspose an untapped market that willdemand different products andadvertising. Manufacturers may useless-expensive ingredients to offerlower-priced products in developingcountries, and they may also employspecial marketing campaigns.

Firms will look to emergingmarkets for growth dueto weak potential indeveloped markets


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More green lies ahead Environmental concerns amongconsumers and governmentalregulators are expected to continue.Increasing emphasis will be placed onfactors such as biodegradability,aquatic toxicity, renewable feedstockand environmental footprint regardingcarbon dioxide emissions throughoutthe supply chain. Manufacturers thatare not perceived as environmentallyfriendly will come under mountingpressure 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 cut20 million metric tons of greenhouse gasemissions from its supply operations by2015. The project will begin with sevenproduct categories, one of which is soap.

Walmart has a strong inuence over thesoap manufacturing process given itsdominance in the retail sector, somanufacturers will likely respond tothese demands. For example, Unilever

intends to have all of its palm oil certiedsustainable by 2015. As one of the largestsingle buyers of palm oil, Unilever has

been targeted by retailers, governmentalbodies and activist groups.

The introduction of more stringentregulations in the United States thatare similar to those recently introducedin the European Union may further

push manufacturers to reformulatetheir standard formulas.Environmental standards may driveproduct innovation and technologicaldevelopments, but they may also resultin reformulation costs that can affectprot. New product developments will

be a growth opportunity to players inthe mature soap industry. For example,products containing naturalingredients or special biodegradabilityproperties can stimulate sales fromenvironmentally conscious consumers.High-efciency (HE) detergents withlow-sudsing properties will increasingly

be required for the growing number ofHE washing machines.

Standards for natural detergents areexpected to be implemented beginning in2011. As the demand for detergents

made from natural ingredients increases,the Natural Products Association (NPA)has developed standards for what ismeant by natural. In order to earnNPAs seal of approval, detergents must

be made of at least 95.0% naturalingredients (not including water), andthey can only use nonnatural ingredients

when a natural alternative is unavailable.

Environmental standardswill drive innovation andtechnological developments


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Industry PerformanceLife Cycle Stage


30

25

20

15

10

5

0

5

1010 100 205 155 25 30

%

Growthofprofit/GDP

% Growth of establishments

DeclineCrash or Grow?

Potential Hidden GemsFuture Industries

Quality GrowthHigh growth in economicimportance; weaker companiesclose down; developedtechnology and markets

Time WastersHobby Industries

MaturityCompanyconsolidation;level of economicimportance stable

Shake-out

Shake-out

Quantity GrowthMany new companies;minor growth in economicimportance; substantialtechnology change

Key Features of a Mature Industry

Revenue grows at same pace as economy

Company numbers stabilize; M&A stage

Established technology & processes

Total market acceptance of product & brand

Rationalization of low margin products & brands

Inorganic Chemical Manufacturing

Supermarkets& Grocery Stores

Laminated Plastics Manufacturing

Organic Chemical Manufacturing

Beauty, Cosmetics & Fragrance Stores

Soap & CleaningCompound Manufacturing

Revenue growth has slowed and value addedclosely resembles overall GDP growth

Price competition has pressured prot margins

Products have become less distinguishable from competitors

Companies are using acquisitions to grow revenue

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


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Industry Life Cycle The industry is mature and isexperiencing low revenue growth,moderate product innovation andincreasing consolidation. As a matureindustry, little change is expected inthe upcoming years. However,increasing environmental standardsmay result in modications to productcontent and packaging.

Revenue growth is expected to average3.3% annually during the 10 years to2016. The growth in the industryscontribution 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 byapproximately 2.2% on average per year,

which is moderately higher thanprojected US gross domestic productgrowth based on IBISWorld estimates.

While industry players have beenstimulating purchases by developing newproducts with different features,innovation is not radical enough to createsignicant new demand. Soaps andcleaning compounds have been staples of

households and commercial businessesfor a long period of time, so there is a

widespread acceptance of the productsamong the purchases. Regardless ofinventive toothpastes, households onlyrequire a certain amount of this good, sodemand cannot extend far beyondcurrent levels. That being said, theintense level of competition among themajor players has been causing increasedemphasis on innovating products andrepositioning brands.

Since most houses and businessesalready have soaps and cleaningcompounds, industry companies must

earn sales from repeat purchases andgrow through acquisition. As a result,consolidation is increasing, with thenumber of companies expected to decline

by 1.7% per year on average for the veyears through 2011 to 1,196. Thisconsolidation trend is expected tocontinue through 2016. Additionally,more industry companies are expandingtheir presence in undeveloped markets,

where soaps are not as pervasive. Thesemarkets provide companies withopportunities for stronger sales growth

and shift employment and productionfacilities abroad.

This industryis Mature


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Products & Services

Products & MarketsSupply Chain | Products & Services | Demand Determinants

Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES44511 Supermarkets & Grocery Stores in the US

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

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

44619 Health Stores in the USInvolved in the downstream retailing of various soap, dental care and detergent products.

72 Accommodation and Food Services in the USTourism related industries are another source of supply for various soap and detergentproducts supplied by the industry.

81232 Non-Coin-Operated Laundromats & Dry Cleaners in the USLaundries and dry cleaners are a key source of demand for various detergent and cleaningproducts manufactured by the industry.

KEY SELLING INDUSTRIES

32518 Inorganic Chemical Manufacturing in the USThe Soap and Cleaning Compound Manufacturing industry uses a variety of ingredients fromthis industry.

32519 Organic Chemical Manufacturing in the USThe Soap and Cleaning Compound Manufacturing industry uses a variety of ingredients fromthis industry.

32613 Laminated Plastics Manufacturing in the USThe Soap and Cleaning Compound Manufacturing industry uses products from this industry topackage its products.

32616 Plastic Bottle & Container Manufacturing in the US

The Soap and Cleaning Compound Manufacturing industry uses products from this industry topackage its products.

Supply Chain

Products and services segmentation (2011)

Total $52.0bn

26%Commercial soap and

other detergents

24%Polish and othersanitation goods

23%Surface

active agents

17%Household soap and

other detergents

10%Miscellaneous soap




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Products & Markets

Products & ServicescontinuedThere are three main product segmentswithin the Soap and CleaningCompound Manufacturing industry:soaps and detergents; polishes andother sanitation goods; and surfactantsand nishing agents.

Soap and other detergent manufacturingThe soap and other detergents productsegment generates the most revenue

within the industry (around 50.0% oftotal sales in 2011) and includesproducts such as laundry detergents,

dishwashing compounds, toothpaste andpersonal cleansers. Soaps and detergentsthat are designed specically forhousehold use make up about 25.0% oftotal sales versus 17.0% for commercialpurpose soaps. The remainder of thiscategory is not made specically forcommercial or household use.

Household goods generate moreconsistent sales, because populationgrowth drives demand in this market,

while growth in the economy drivesdemand in the commercial market. The

economic recession caused sales to bothhousehold and commercial users todecline during the ve years up to 2011;however, commercial demand was more

volatile. The population continued toexpand in the United States, but severalhouseholds cut back on expenditures,including by shifting soap and cleaningpurchases to lower priced goods. This didnot have as signicant of an effect onsales as the lower commercial demand.Revenue at hotels and restaurants wassignicantly impacted by the pooreconomy; in turn, these businessesrequired less soap. This is in contrast tothe continued growing demand forhousehold soaps.

Household goods can be furthergrouped into four categories: personalcleansing, laundry, dishwashing andhousehold cleaning. Major soap anddetergent products include laundry

cleaners, soap, dishwashing detergent,and toothpaste. Laundry detergentaccounts for nearly 40.0% of industryrevenue, soap for 20.0%, anddishwashing detergent for 15.0%.Laundry detergent comes in powder orliquid form, and may contain bleachadditives or color brighteners.Dishwashing detergent comes in powder,liquid, or gel form. Soap comes in bars orliquids, and may have moisturizing,antibacterial, or deodorant benets.Companies in the commercial sector may

also sell dispensing equipment andprovide related training.

Polish and other sanitation goodsPolishes and other sanitation goods makeup the second major product category,generating about 24.0% of industry salesin 2011. The products include polishesand waxes (for use on furniture, metal,ooring, and glass) and other sanitationpreparations including disinfectants anddeodorizers. This category also includeshousehold bleaches and ammonia,

laundry starches, and fabric softeners. Ifa good in this category is classied as acommodity cleaner, it is usually sold in

bulk at lower prices. Specialty cleanersare typically sold in smaller quantities athigher prices.

About 65% of the products are sold tothe industrial and institutional markets,

which include contract cleaning rms,ofce buildings, restaurants, hospitals,schools, hotels, and nursing homes. Theheightened focus on food safetygenerated valuable opportunities for thesanitizing products segment; however,the economic recession highly impactedthe food service, hospitality, travel,healthcare and food processingindustries, which are sensitive to changesin travel and dining activities. During thedownturn, these end-users reduced theirpurchases of cleaning and sanitizingproducts, which is evidenced in the


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Products & Markets

DemandDeterminants

Above all else, soap consumption in theconsumer market is tied to populationgrowth, particularly among households

with children, and economic growthdrives demand in the commercial market.

Aging population slowspopulation growthOverall demand for cleaning products isclosely linked to population growth. Morepeople means that there will be more

bodies to bathe and more homes to clean.However, as the US population ages, therate of new household formationsdecreases correspondingly. Marketersstudy the age range, size and spendingpatterns of their various target markets.For example, based on US Census data,45- to 64-year-olds made upapproximately 22.0% of the population in

2000. However, the Census Bureauexpects this percentage to grow to 26.0%

by 2015.With the US population expanding at

slowing rate, the domestic market forhousehold and commercial cleaningproducts is mature. The prospect oflimited population growth means thatconsumer goods companies must targetexisting markets with specic designs inorder to continue selling their products.

Additionally, manufacturers are ndingmore opportunities outside of theUnited States, where populations aregrowing rapidly and competition is lessintense. According to the USDepartment of Commerce, the worldsdeveloping countries will continue togrow much more rapidly thandeveloped countries. In 1950, about

Products & Servicescontinueddecline of this segments share of thetotal industry from about 26.0% in 2007to its current level of about 24.0%. Themarket for cleaning and sanitizingproducts is led by Ecolab, followed byother major suppliers like JohnsonDiversey and DeLaval. The industry doesexhibit some segmentation, however,

with niche players and local and regionalsuppliers maintaining a noteworthypresence in the market.

While sanitation products forcommercial users decreased, cleaning

wipes have been working their wayaround American households. Peoplemost commonly use wipes to clean ordisinfect kitchen countertops andappliances, bathroom xtures, hands andchildren, according to the Soap andDetergent Associations (SDA) 2008National Cleaning Survey, conducted byEcho Research. SDAs research showsthat 71.0% of Americans have used acleaning, disinfecting or antibacterial

wipe, which is up from 66.0% in 2007.

Surface active agentsSurface active agents make up thesmallest product category. This categoryincludes raw material ingredients that,

when dissolved in water, help to loosensoil from a surface. The ingredients are inturn sold to soap and detergentmanufacturers. Examples of productsinclude wetting agents, emulsiers andsulfonated oils and fats.

New product development in thesurfactants area is being bolstered by theintroduction of a variety of products

based on renewable raw materials.Pressure to replace less environmentallyfriendly products and the development ofsome of the newer technologies combineto provide niche market opportunities,even in this mature market. This type ofdevelopment requires sufcientresources, not only to provide thetechnical expertise but also to engage

with the end-user to understand theirsurfactant requirements and co-ordinateproduct development.


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Products & Markets

Major Markets The majority of industry participantsmanufacture products for the consumermarket; roughly 57.0% of products aredesigned for household use. This segmentis followed by the commercial market(43.0%). Customers that retail to theconsumer market include supermarketchains, mass merchandisers, drugstores,and warehouse clubs. Customers in the

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

The relative importance of a marketsegment varies with the product and itsuse. For example, the market fordetergents 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 indeveloping countries; by 2025, thegure is projected to approach 84.0%.

Accordingly, US cleaning productsmanufacturers have made rapidexpansions abroad in recent years.

New products on the same shelvesThe major determinants of demand forthe Soap and Cleaning CompoundManufacturing industry are productdevelopment and industry marketing. Inthis industry, new products can include a

completely new formula or concept, orimprovements in existing products and

brand extensions. Extending a well-known brand name to a new productoften lures shoppers who already use thecore brand. Slow growth in the USpopulation means that the developmentof new products and categories remainsimportant to growth in the industry.New products also help to maintainprots, as innovation keeps consumersfrom trading down to less-expensiveprivate label products that do not have

the same features.In a March 2009 report, Information

Resources said that the sustainabilitytrend is likely to have the most signicantimpact on cleaning product developmentover the next several years. Whilecreating more eco-friendly products,companies can create excitement fortheir products by adding or emphasizing

benets, such as healthfulness,convenience, or ease of use. An example

of a new product is the Clorox BathWand,which mounts a pivoting, abrasivesponge at the end of an extendible wand.Clorox cleaning solution is preloadedinside. The product serves as analternative to lling a bucket with cleanerand water and bending over to clean a

bathtub and shower.

Consumers cut backPrice can also play a role in inuencingpurchasing patterns. Althoughconsumers tend to purchase brands of

soaps and detergents they trust, a pooreconomy and signicant price increasescan lead to heightened price sensitivityand falling demand. Although the Soapand Cleaning Compound Manufacturingindustry manufactures products thatrelatively essential items, duringeconomic downturns householdsrationalize the range of products theypurchase, trade down the value chain oruse products more economically. Themajor manufacturers offer products thattarget a range of price points, from low

to high, in order to address morecustomers needs.

Similarly, as households income levelsrise, consumers tend to trade up from

bargain products to premium ones. Inaddition, they tend to add certainproducts to their shopping baskets thatthey might not ordinarily havepurchased, such as a special cleaner forthe bathroom rather than just an all-purpose one.


17/47


Products & Markets

Major Marketscontinued

products are the general householdmarket and the tourism industry (inparticular hotels and otheraccommodation establishments).Households use these products in many

ways, for example, those that want apure soap (for babies), those that wantan anti-bacterial soap (teenagers), thosethat want an anti-deodorant soap, those

that want an inexpensive soap (bargainshoppers), those that want a creamysoap (women who want soft skin) andthose that want an abrasive soap(mechanics). Other markets include drycleaning, wool scouring and thepharmaceutical industry.

Consumers purchase morefrom large retailers

Within the consumer market, there is asweeping demographic change under waythat affects marketing and productdesign. Population growth is fastestamong minority groups, Hispanics inparticular. Consequently, industryproducts must become more relevant

with US Hispanics to remain competitivein the marketplace. For instance, Clorox,one of the industrys major players,recently commissioned an in-depthHispanic consumer segmentation studyfor its Pine-Sol brand, which is the leader

in dilutable cleaners in the generalmarket, but number two with Hispanics.The results are being used to better shapeHispanic-targeted marketingcommunications moving forward.

Soap manufacturers rely heavily onlarge retailers like Walmart, Costco andTarget for a signicant portion of salesto consumers. Walmart can account for

up to 15.0% of total revenue for largecompanies. These large retailers havethe power to demand price concessionsand supply chain management servicesfrom manufacturers. For example,Procter & Gambles sales to Walmartrepresent approximately 15.0% of totalrevenue. Given that the companystop 10 customers account forapproximately 30.0% of total sales,

Walmart can have substantial inuenceon P&Gs performance.

Healthcare facilities representopportunity for expansionHand hygiene is being promoted inhealthcare with clear objectives,strategies and governmental supportthrough policies and resource allocation.For instance, he main objective of theFirst Global Patient Safety Challenge,launched by the World HealthOrganization (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



18/47


Products & Markets

Major Marketscontinuedimprovement in hand hygiene practicesworldwide with the ultimate goal ofpromoting a strong patient safetyculture. Healthcare workers hands arethe most common vehicle for thetransmission of healthcare-associated

pathogens from patient to patient andwithin the healthcare environment.Hand hygiene is the leading measure forpreventing the spread of antimicrobialresistance and reducing healthcare-associated infections.

International Trade The Soap and Cleaning CompoundManufacturing industry predominantlysells to the domestic US market. Exports,

valued at about $7.1 billion based on US

Census Bureau data, represent about13.7% of industry revenue. A sizableproportion of industry exports aresold to US neighbors; exports toCanada and Mexico account for 37.0%and 8.0% of the total, respectively. Otherkey markets include China (6.0%) andJapan (5.0%). Most large companieshave manufacturing facilities abroad,

which reduces the accounted dollarvalue of export products from theUnited States.

Level & Trend

Exports in theindustry areMediumandIncreasing

Imports in theindustry areMediumandIncreasing

$million

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


19/47


Products & Markets

International TradecontinuedImports, valued at $2.6 billion, alsoplay a small role in the industry. Similar

to export trade, a considerable share ofindustry imports is derived fromneighboring countries; imports fromCanada and Mexico account for 26.0%and 24.0%, respectively. Other keyimport markets include China (10.0%),Germany (9.0%) and Japan (6.0%).Export and import levels have tended torise 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 arepursuing growth overseas. For instance,Procter & Gamble generates about 61.0%of its sales outside of the United States.Industry players are investing heavily indeveloping and emerging markets inCentral and Eastern Europe, China andIndia, where recent trends in economicand population growth bode well for soapand cleaning products. In such countries,increases in gross domestic product,disposable income, and population areoutpacing those of the United States and

Western Europe.


20/47


Products & Markets

Business Locations 2011

MO10.4

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

Additional States (as marked on map)

AZ1.7

CA3.6

NV0.0

OR2.7

WA0.3

MT0.0

NE0.0

MN0.2

IA0.9

OH14.1

VA0.2

FL0.9

KS1.0

CO2.6UT1.3

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

5.0PA1.4

WV0.4

SD0.0

NM0.0

AR0.0

MS1.6

AL0.0

SC3.6

LA2.6

HI0.0

IN5.0

NY1.0 5

6

78

321

4

9


Industry revenue (%)

Less than 3%

3% to less than 10%

10% to less than 20%

20% or more


21/47


Products & Markets

Business Locations The US Soap and Cleaning CompoundManufacturing industry is moderatelygeographically concentrated, with keyregions in the Southeast, Southwest,Great Lakes and West. Key statesinclude California (8.3% of allestablishments), Texas (6.4%), NewMexico (4.8%), Illinois (4.7%) and Ohio(4.3%). This geographic pattern reectsin part the general spread of thechemicals industry. For example, Illinoisand Ohio are home to large producers of

various organic and inorganic chemicals,

which are key inputs in the productionof soap and detergents. Chemical

production is Ohios third rankingmanufacturing activity; within this, thestate produces soaps, industrialchemicals and paints and varnishes. Thelargest soap factory in the country islocated in Ohio.

The geographic location ofestablishments and revenue also reectsthe distribution of economic activity andpopulation within the United States,

because manufacturers choose to locatein areas that are well supported byinfrastructure and close to downstream

markets. California and Texas areheavily populated states.

%

40

0

10

20

30

Southwest

West

GreatLakes

Mid-Atlantic

NewEngland

Plains

RockyMountains

Southeast

Revenue

Establishments

Revenue vs. establishments


%

40

0

10

20

30

Southwest

West

GreatLakes

Mid-Atlantic

NewEngland

Plains

RockyMountains

Southeast

Revenue

Population

Revenue vs. population


22/47


Key Success Factors Access to niche marketsIf a company is not a major player,niche positioning is important forsuccess in this industry in orderto gain market share throughsmaller retailers.

Having marketing expertiseIn this highly competitive industry withlittle product differentiation, marketingand brand awareness is necessary to swayconsumers towards purchasing acompanys goods.

Ensuring pricing policy is appropriatePurchase incentives for retailers, suchas bulk discounts, help companies gainshelf space.

Economies of scaleExpanding the size of a companysproduction can help to reduce long runaverage costs and thereby boost protmargin. Additionally, bigger

manufacturers have more power tonegotiate with large retailers.

Generate brand loyaltyManufacturers that produce householdgoods can garner more repeat sales if

consumers are brand loyal. Companiesthat supply the commercial segmentstrive to become preferred vendors byoffering superior customer service.

Development of new productsAlthough major innovation of soaps islimited, companies must continually addfeatures to attract customers away fromprivate label products.

Supply contracts in placefor commodity inputsRaw materials purchased for use inmanufacturing products are generallypurchased on an annual contract

basis to control costs and adjustpricing accordingly.

Market ShareConcentrationThe Soap and Cleaning CompoundManufacturing industry is highlyconcentrated. IBISWorld estimatesthat the top four industry participants

will generate approximately 67.3% oftotal industry revenue in 2011, and thetop players control has been increasingin the ve years up to 2010. This trendis consistent with the maturity of theindustry. Soap manufacturing is along-standing industry, and sales arereliant on replacement purchases

because most households already own

soap. As a result, signicant companygrowth is produced by acquiring otherplayers. Based on US Census Bureaudata, about 79.0% of industry

companies have fewer than 20employees. While there are many smallplayers in the industry that specializein niche products, the major playersmake up a dominant portion ofindustry revenue.

The degree of concentration alsovaries between different productsegments. In the case of the USdetergent product segment, Procter &Gambles three top brands account formore than 55.0% of the market, and

brands produced by Unilever, Church &

Dwight and Dial account for 25.0%. Inthe household products segment,Procter & Gamble is the largest player,followed by SC Johnson & Son.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks

Basis of Competition | Barriers to Entry | Industry Globalization

Level

Concentration in thisindustry is Medium

IBISWorld identifies250 Key SuccessFactors for abusiness. The mostimportant for thisindustry are:


23/47


Competitive Landscape

Cost StructureBenchmarksProfitabilityProt margin in the Soap and CleaningCompound Manufacturing industry isexpected to be 10.7% in 2011. Thisrepresents a decline from 10.9% in2007, mainly due to decreased pricingpower. Retailers are growing larger andenhancing their ability to force pricesdownward at the manufacturing level.

Additionally, during the economicrecession, consumers shifted purchasestowards private-label products withlower price tags and minimal features.

These products carry lower marginsthan most brand name goods.Consequently, although the volume ofsales increased somewhat due to agrowing population, protabilitydecreased. During the upcoming ve

years, prot margin is forecast tocontinue to erode slightly to about 10.5%of revenue, despite an improvingeconomic environment. This will be dueto continued consolidation amongretailers, which will further pressurepricing at the manufacturing level.

Cost of goods soldCost of goods sold (COGS) account for anestimated 55.0% of sales in 2011. Rawmaterials include surfactants, solvents,phosphates, silicates, alkalis, salts, andperfumes. Suppliers include majorchemical manufacturers like ShellChemical (a division of Royal DutchShell) and Dow. Ingredients used in themanufacture of soap and cleaning

compounds are sourced both locally andfrom abroad, and large industry playersare increasingly acquiring their own

business units that manufacture keychemicals. Packaging is about 20.0% ofproduct costs.

Since the cost of goods is a signicantpercentage of revenue, a players abilityto manage its prot can be adverselyaffected by movements in raw materialprices. During the ve years up to 2011,COGS has been increasing as the cost ofraw materials has been on the rise. In

contrast, raw material prices are forecastto begin decreasing in the upcoming

years, which will help the industrymaintain prot margin somewhat.

WagesWages are expected to represent roughly5.2% of sales in 2011. Wages havegradually fallen since the 1990s, in line

with efforts to achieve higher operatingefciencies and moves to furtherautomate the manufacturing process. Incontrast, depreciation, which accounts

for roughly 4.0% of industry revenue, hasbeen increasing during the same timeperiod as companies purchase moreequipment. This is typical of amanufacturing industry that relies onsignicant capital investment forproduction purposes.

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

Industry Costs and Average Sector CostsProfitRent

Utilities

Depreciation

Other

Wages

Purchases

Industry

Costs

(2011)

Average Costs

of all Industries

in sector (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%


24/47



Basis of Competition The Soap and Cleaning CompoundManufacturing industry is intenselycompetitive. There are a wide variety of

well-advertised brands, private labelbrands and generic non-brandedproducts of grocery chains and wholesalecooperatives in certain categories, which

typically are sold at lower prices. Such acompetitive landscape has causedindustry operators to increase spendingon advertising and promotions or reduceprices, which places downward pressureon prots. Competitive risk is ramping upacross the industry as two leadingmanufacturers, Procter & Gamble (P&G)and Unilever, are accelerating marketingspending and adjusting pricing in orderto gain volume market share. Given P&Ghas leading industry share and Unileveris a large multinational consumerproducts company, these companysefforts to increase marketing is a majorcompetitive risk factor for other industryplayers. This is particularly pronouncedfor Colgate given its considerable overlap

with these two companies from a productcategory standpoint.

The type and extent of competitionin the industry varies depending on

whether the industry participant

services the household market or thecommercial market. In the householdmarket, competition is based primarilyon product differentiation and brandloyalty established through extensiveadvertising. The importance of price

varies across sub-markets. On the

other hand, competition in thecommercial market is based onperformance and price.

Key methods of competitionFirms often compete on price withingeneral category products andconsumables such as laundry soap,

bleach and natural glycerin products, asconsumers are more likely to use cheapergeneric items in these categories. The

brand strength and breadth of productlines is another key basis of competition.Existing and established companies thatoffer a wide range of products gaingreater market presence and productacceptance. Advertising and promotionalactivities also help companiesdifferentiate products, as do varyinge-commerce strategies. This isparticularly true with new products.

According to Clorox, a newly introducedproduct faces intense established

Cost StructureBenchmarkscontinued

advertising and restructuring costs.R&D expenses are estimated to bearound 2.0% of industry revenue.

According to the Soap Association, lowresearch and development efforts makeup one of the industrys weaknesses.R&D is particularly important indiscovering brand-name benets thatcan give a company an edge againstprivate label products. For instance,technologically advanced compoundsproduce color-safe oxygen bleachalternatives, and R&D supported the

development of anti-bacterial cleanersand whitening agents in toothpastes.Companies have long been focused on

developing more environmentallyfriendly products.Advertising by industry

manufacturers can also be a signicantexpense. These are included withinselling, general and administrationexpenses. Since the industry is matureand population growth has slowed,companies are spending increasingamounts on advertising and marketingefforts. Product innovation alone is notsufcient to stimulate new demand. Asa result, protability has been

moderately declining in the Soap andCleaning Compound Manufacturingindustry since 2007.

Level & Trend

Competition inthis industry isMediumand thetrend is Increasing


25/47



Barriers to Entry The big stay bigIt is relatively easy to launch a small soapmanufacturing company, because thetechnological skills and nancialresources required are not substantial.

Additionally, industry products areconsidered commodities, and theingredients used to produce them arecommon. As a result, rms are more

willing to risk entering the industrybecause they can easily liquidate theirinventory and assets if the venture fails.

Finally, although costs related tomarketing and distribution arepotentially signicant, they can be keptto a minimum if there are enoughretailers within the area where theproducts can be sold.

However, given the high costs ofmanufacturing, marketing, anddistribution, large corporations dominatethe Soap and Cleaning CompoundManufacturing industry. The existence ofstrong brands and the advantages

Basis of Competitioncontinuedcompetition and, as such, requiressubstantial advertising and promotionalresources. If a new soap successfullygains consumer acceptance, it thenrequires continuous advertising andpromotional support in order to maintainits relative market position.

Intense competition in a mature marketGiven the mature nature of the industry,new product innovation plays asignicant role in maintaining salesgrowth. Consumers have long been

purchasing soaps, so there is littleincentive to actively seek out differentproducts from purchase to purchase.Companies compete on new productdevelopment to be rst in the market

with an innovative idea that canstimulate renewed interest andsometimes benet from patentprotection. The ability to continuouslyintroduce new products or extendproduct lines in an otherwise saturatedmarket has grown in importance inrecent years. At the same time, the ability

to differentiate products by price,labeling, product placement oradvertising remains essential.

The green movement has created anopportunity for companies to developnew products. In recent years, there has

been increased consumer demand forenvironmentally friendly products withnatural ingredients. In response,companies often differentiate theirproducts on the basis of being naturaland eco-friendly. For example, soap

bottles may advertise botanical extractsand safe testing methods.

Product quality and performanceare also important factors. Consumersoften purchase quality soaps and otherdetergents if the products perform

well and the customer perceives value

in its use. In the United States, wheremore and more families have dualincomes, products that reducecleaning time can positively inuenceconsumer acceptance.

External competition is on the riseA number of industry participants mustalso compete against retail grocery chainsand wholesale cooperatives that areinvolved in the manufacture or sale ofprivate label brands or generic non-

branded products. Additionally, in line

with forces favoring globalization, inrecent years, a highly competitive globalmarketplace for various soap andsurfactant products has developed, with anumber of industry participantsproducing and competing globally.

Level & Trend

Barriers to Entryin this industryare MediumandIncreasing


26/47



IndustryGlobalization

The level of globalization within theindustry is high and will continue toincrease during the ve years up to2016. The US Soap and CleaningCompound Manufacturing industry ispart of the global consumer non-durables industry, which is comprised of

various household and personal careitems. The industry is becomingincreasingly globalized in its focus as themajor players look to developingmarkets for growth. A combination of

market saturation and slower populationgrowth in most industrialized marketshas caused companies to focus on thedevelopment of global brands, led bydominant players such as Procter &Gamble and Colgate-Palmolive. In 2010,Procter & Gamble derived 32.0% of netsales from developing markets, up from29.0% two years earlier.

Also, many of the major playerswithin the US industry tend to beFortune 500 global players (with

Barriers to Entrycontinuedassociated with the high volumeproduction facilities prevent the threat ofnew entrants from becoming a signicantfactor. The amount of capital needed to

build manufacturing facilities can beprohibitive. Moreover, because brandloyalty is essential for US consumerproducts companies, national rmsspend signicant amounts on marketing.

Developing new products is essentialThe competitive nature of this industryrequires investment in research and

development (R&D) directed towardseither the development of new,innovative products, the maintenanceand improvement of existing products orthe extension of an existing productrange. Many of the industrys large globalplayers began by making one simpleproduct, and, over the years, evolve intogiant manufacturing powerhouses withhighly developed distribution channels.

Getting in with the big playersThe main distribution channels of soap

products are supermarkets and massmerchants. Thus, the size of the average

buyer is signicant, which enhancestheir negotiating position. Furthermore,the relative concentration of the retailmarket leads to even stronger buyerpower. Large retailers for soaps, such as

Walmart, make it difcult for new

companies to enter the distributionchain. Any particular company does notrepresent a signicant portion of aGoliath retailers business. If thesupplier does not depend on acompanys business, that company hasless power to negotiate pricing and shelfspace. As a new company to theindustry, these selling points could beessential to success.

Cleaning products are usuallydifferentiated (in terms of color, brand,strengths and fragrance) but their overall

function is fairly standardized. Such lackof distinction of products increases thepower of retailers to control pricing anddemand. A form of backward integration

within the market is possible withretailers able to develop their own brandsof private-label cleaning products.

Barriers to Entry checklist Level

Competition Medium

Concentration Medium

Life Cycle Stage Mature

Capital Intensity High

Technology Change Low

Regulation & Policy Medium

Industry Assistance Low


Level & Trend

Globalization inthis industry isHighand the trendis Increasing


27/47



IndustryGlobalizationcontinued

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

countries and territories and, as such,has a geographic balance that limits itsexposure to external events in any onecountry or region.


Trade Globalization Going Global: Soap & Cleaning CompoundManufacturing 1998-2011

Exports/Revenue

Exports/Revenue

200

150

100

50

0

200

150

100

50

0

Imports/Domestic Demand Imports/Domestic Demand

0 040 4080 80120 120160 160

International trade is amajor determinant ofan industrys level ofglobalization.

Exports offer growthopportunities for firms.However there are legal,economic and political risks

associated with dealing inforeign countries.

Import competition canbring a greater risk forcompanies as foreignproducers satisfy domesticdemand that local firmswould otherwise supply.

Export ExportGlobal Global

ImportLocal ImportLocal

Soap & CleaningCompoundManufacturing

19982011


28/47


Player Performance The Procter & Gamble Company (P&G)dates back to 1837. Today, it is theleading manufacturer of household

products in the United States, with 300brands (including 23 that generateannual sales exceeding $1.0 billion and20 that generate at least $500.0 millionin sales) sold in more than 180 countries.Household brands include Tide, Cascade,Charmin, Crest and Oral-B. Thecompanys large scale is important, as itallows P&G to buy raw materials in bulk,manufacture more efciently, leveragemarketing, spend more on research anddevelopment (R&D) and protect some ofits categories from competition.

However, the companys size is one of thereasons that it is somewhat slower to

bring new products to the market than itssmaller, more nimble competitors. In2008 and 2009, P&Gs high-end productportfolio and its slow response to a shiftin consumer demand to value pressuredsales and protability.

The company has created productsspecically for consumers in developingnations. Examples include DownySingle Rinse, low-water volumedetergent, and Naturella, a low-incomefeminine protection product. In light ofthe global economic downturn, P&Gannounced that it will focus its growthstrategy on emerging markets, openingalmost all of its 20 new manufacturingfacilities outside its established markets.

Additionally, like other industry players,P&G is recognizing the maturity of theUS marketplace, which holds limitedpotential for strong growth. Hence,

other companies are also openingmanufacturing plants and sellingproduct abroad.

Product mixThe groups business model relies on thecontinued growth and success of existing

brands and products and the creation ofnew products. Its top 43 brands currentlyaccount for 85.0% of sales and 90.0% ofgroup prots. In 2005, P&G expanded itsportfolio to include razors and blades as

well as batteries with its acquisition ofthe Gillette Company. During the ve

years up to 2011, the company has beendivesting brands or stopping production

of products that do not t its long-termplans for increasing sales and prots. Forinstance, in 2008 the companycompleted the sold Folgers, its coffee

business, to The J.M. Smucker Company.Following a number of reorganizations,the group has three Global BusinessUnits- Beauty; Health and Wellbeing;and Household Care with six reportablesegments in total; Beauty (24.0% ofsales); Grooming (9.0%); Health Care(14.0%); Snacks and Pet Care (4.0%);Fabric and Home Care (30.0%) and BabyCare and Family Care (19.0%).

P&Gs fabric and home care operationsare the companys oldest and largest

businesses. They include its fabric care,air care, dish care and surface careproduct categories. The laundry categoryalone accounts for 17.0% of sales, thesingle highest contribution of any

business. Key brands within this segmentinclude Tide, Ariel, Downy, Dawn, Gain,

Major CompaniesThe Procter & Gamble Company | S.C. Johnson & Son Inc.

Ecolab Inc. | Colgate-Palmolive Company | Other Companies

58.4%Other

The Procter & Gamble Company 19.6%

S.C. Johnson & Son Inc. 9.8%

Ecolab Inc. 6.4%

Colgate-Palmolive Company 5.8%


Major players(Market share)

The Procter &Gamble CompanyMarket share: 19.6%Industry Brand NamesTideCrestOral-B


29/47


Major Companies

Player PerformancecontinuedCascade, Swiffer and Febreze, of whichthe rst ve are members of its billiondollar brand club. Of particular note is itsSwiffer brand, which the company claimshas created a new $1.2 billion (retailsales) surface cleaning systems category

both within North America and WesternEurope. Its Febreze product has also

been accredited with creating a newfabric refresher category.

Financial performanceIn 2011, P&G is generated $30.5 billion

in sales in the United States, of which,the companys industry relevant segmentmade up about $10.2 billion. US salesrepresent roughly 41.0% of worldwidecompany revenue. International revenueis a growing portion of the companys

business; P&G sells at least $1.0 billionworth of product in 12 countries. Thecompanys international expansion,particularly into developing nations, isrepresentative of a larger industry trend.P&Gs sales in developing nations haveincreased steadily from about 25.0% of

total revenue in 2007 to 41.0% in 2011.During the ve years to 2011, P&Gs

US fabric care and home care revenuegrew 0.9% per year on average. Revenueincreased 4.3% in 2011, mainly due tohigher unit volume combined withrenewed pricing ability attributable tothe recovering economy. Volume

increases were driven mainly byinitiative activity, including launches ofGain hand dishwashing liquid andFebreze Set & Refresh in North America,and geographic expansion of dish and aircare product lines.

P&Gs prot has been hurt by weakpricing over the past few years. Goingforward, improved pricing will occur aspromotional spending dissipates. P&Ghas made necessary downward priceadjustments, which may erodeprotability in the short term, but are

necessary sacrices given the companysportfolio became too premium focusedfor the new consumer reality with theeconomic downturn. P&Gs premium-priced portfolio hurt the companyduring the recession, but it could benetthe company going forward in animproving macro environment. P&G hasa strong track record of premium-driveninnovation over the last decade, but thisleft it vulnerable to trade-down duringthe recession.

Also, P&G has been increasing its

marketing spending; however,competitors are also ramping upmarketing spending behind strong newproduct pipelines. Although increasedmarketing as a percentage of sales isnecessary for the company (particularlygiven that the company cut back morethan its peers during the economic

The Procter & Gamble Company (US fabric care and home care segment) financial performance

Year*Revenue

($ million) (% change)Operating Income

($ 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

*Year end JuneSOURCE: ANNUAL REPORT AND IBISWORLD


30/47


Major Companies

Player Performance First established in 1886, SC Johnson &Son Inc. (SC) is a privately ownedmanufacturer of household cleaningproducts and products for home storage,air care, personal care and insect control.The company manufactures well-knowncleaning brands, such as Pledge, Glade,

Windex, Raid and Ziploc. SC hasoperations in more than 70 countries androughly 12,000 employees. Many of SCsproducts have been top sellers; however,after its Edge and Skintimate shavepreparation brands lost market share torival Procter & Gambles Gillette, thecompany sold the two brands toEnergizer in 2009, which alreadycompetes with P&G in the razors

business with its Schick-Wilkinson Sword

unit. On 10 occasions, SC has beenranked as one ofFortune magazines100 Best Companies to Work For, dueto culture, healthcare coverage andcompensation, among other qualities.

While other industry players havebecome more active in manufacturinggoods designed for commercial uses, SChas remained focused on the householdside. The companys commercialproducts division (Johnson WaxProfessional and Johnson Polymer) wasrecently spun off as a private companyowned by the Johnson family.

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

Player Performancecontinueddownturn in 2009), IBISWorld expectsthat P&Gs sales will only moderatelygain from these efforts, given itscompetitors are keeping pace inmarketing spending levels.

On the cost side, the company isalready close to best in class from amanufacturing perspective, with highlyefcient supply chain a clear competitiveadvantage. The company has expandedoperating prot margin (earnings beforeinterest and tax) during the past ve

years. Still, despite industry leading sales

and prot per employee, corporateoverhead costs remain bloated andrepresent the best opportunity for marginexpansion in the years ahead.

P&Gs marketing expenses areparticularly high relative to the industry.To combat higher marketing expenses,the company has been making signicantefforts to reduce other costs. P&Gs sales,general and administrative costs arehigher than the industry average, so thecompany has a lot of low-hanging fruit inits efforts to boost protability. Procter &

Gamble has historically spent a notableamount on R&D and marketing. The

company spends almost twice as muchon research and development spending($2.0 billion in 2009) as Unilever inattempt to maintain its competitiveedge by focusing on product innovation.In 2007, the company was the worldstop advertiser, spending almost $9.4

billion worldwide. The companyoutspent Unilever, the second-highestadvertiser, by almost two-to-one(Unilever spent $5.2 billion).

In 2009, the companys fabric care andhome care division recorded a drop in

sales of 2.0%, with worldwide sales forthe year totaling $23.2 billion. Thisreected lower unit volumes and onlyslightly higher prices that wereimplemented to offset higher commoditycosts. In comparison, the fabric care andhome care division posted sales growth of11.0% in 2008, predominantly due tohigher sales volumes and favorableforeign exchange rates. At the same time,sales growth was marginally suppressed

by disproportionate growth in developingregions and a shift towards larger

product sizes in fabric care, both of whichhave lower selling prices per unit.

S.C. Johnson &Son Inc.Market share: 9.8%Industry Brand Names

OustDranoPledge


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Major Companies

Player Performancecontinuedhas dedicated research teams in productresearch, process development, andpackage development divisions. It hasstrong research expertise in its productcategories such as aerosol technology,insect behavior and control, andfragrance delivery. The company engageshundreds of scientists, engineers,technicians and support staff across theglobe, who are continuously involved inresearch and development activities. Inaddition, SC was named the fourth mostinnovative company in the consumer

products category on Fast Companymagazines annual Most InnovativeCompanies list in 2010. The companysstrong R&D capability provides it with acompetitive advantage and helps it toinnovate and launch new products.Despite a strong brand portfolio andgeographically diversied operations, SClacks the size, in terms of revenue, tocompete with the likes of Procter &Gamble (P&G). P&G, for instance,markets its brands in more than 180countries spanning the Americas,

Europe, the Middle East and Africa(EMEA) and Asia. Size enables largecompetitors such as P&G to reduce theper-unit cost of purchasing, productionand marketing. Lack of size thereforereduces SCs edge.

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

the US Hispanic population. The websitelaunch will help the company reach outto more than 35 million Spanish-speaking US consumers. According to theCenters for Disease Control (CDC),language barriers is one of the leadingfactors that contribute to poor healthoutcomes among the US Hispanics andSC has taken the initiative to reduce thelanguage barrier gap by providinginformation and explanation for most ofits products in Spanish. The websiteoffers easy-to-access and easy-to-

understand information about theingredients in the companys products tothe Spanish speakers in the UnitedStates. SCs initiative to target the USHispanic population through the launchof its Spanish-language website providesa platform to increase its customer base,

which could positively boost its revenuein the years ahead.

SC has made a number of acquisitions,which have helped drive growthparticularly in recent years. Mostrecently, the company went up against

P&G in a bid for Sara Lee Corp.sEuropean air-freshener business. Thedeal would have extended themanufacturers reach abroad and solidifyits presence in the air scents niche.

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

S.C. Johnson & Son Inc. (US segment) financial performance

YearRevenue

($ million) (% change)Operating Income

($ 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


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Major Companies

Player Performance Ecolab Inc. is one of the worlds leadingproviders of cleaning, food safety andhealth protection products and services.The company manufactures and providescleaning and sanitizing products andprograms, pest elimination, andmaintenance and repair. Ecolabprincipally serves the foodservice,hospitality, healthcare, government andeducation, textile care and vehicle washindustries through three segments: UScleaning and sanitizing, US otherservices, and International.

StrategyWith many opportunities across alldivisions, Ecolab continues to stress theimportance of its healthcare business andadditional opportunities for growth in itsclient base, geography and product

offerings to hospitals and pharmaceuticalmanufacturers. Its healthcare businesshas been beneting from increasingdemand for hand sanitizers during thepast ve years due to concerns over theH1N1 virus as well as health providersnew emphasis on minimizing hospitalacquired infections. Ecolab is onlynational supplier to the US healthcareindustry, and ample global growthopportunities remain. According to thecompanys annual report, roughly 25.0%of the market opportunity is insterilization supplies with an additional20.0% coming from surgical drapes, anarea Ecolab has been able to penetrate.

With its acquisition of Microtek in late2007, Ecolab gained access to apartnership with Intuitive Surgical, themaker of a variety of robotic surgery

Player Performancecontinued2.0% from 2010 and about 5.4% per yearon average during the past ve years.During the year, positive momentum onpricing and a growth in consumerspending are expected to grow sales.Prot is also forecast to improve ascommodity costs reduce and thecompany continues its cost containmentefforts. In recent years, SC has pursuedcost-containment strategies designed toimprove its operating prot margins.

Efforts have also been focused onincreased levels of brand support while

ongoing innovation efforts have beengeared toward successful new productintroductions as well as internationalmarket penetration. SCJ has a strongfocus on its research and developmentcapability. The company has dedicatedresearch teams in product research,process development, and packagedevelopment divisions. It has a strongresearch expertise in its productcategories such as aerosol technology,insect behavior and control, andfragrance delivery. The company

engages hundreds of scientists,engineers, technicians and supportstaff across the globe, who arecontinuously involved in research anddevelopment activities. In addition, SC

was named the fourth most innovativecompany in the consumer productscategory onFast Company magazinesannual Most Innovative Companies listin 2010. The companys strong R&Dcapability provides it with acompetitive advantage and helps it toinnovate and launch new products.

SCJs operations are geographicallydiversied. Sales outside of the UnitedStates account for approximately 60.0%of the companys total revenue. Its globalmanufacturing operation includesfaci

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32561 Soap & Cleaning Compound Manufacturing in the US Industry Report (2)

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