Detergent Industry Charts Its Future

Leaders of the global detergent industry descended on Montreux, Switzerland last month for the Seventh World Conference on Detergents. The event, organized by the American Oil Chemists Society (AOCS), attracted nearly 900 industry executives from consumer product companies and their suppliers.

For the first time, the conference featured keynote addresses from the chief executive officers of the three largest detergent manufacturers: Bob McDonald of Procter & Gamble, Paul Polman of Unilever and Kaspar Rorsted of Henkel. While The Big 3 were undoubtedly the stars of the conference, the organizing committee put together a program filled with speakers who provided unique perspectives on a variety of disparate subjects.

“We’ve never had a better program,” insisted conference general chairman Keith Grime of KJG Consulting. “It’s been a tumultuous four year break between Montreux conferences and all of us have been affected by tremendous change and uncertainty.”

With such uncertainty in the global marketplace, Montreux gave attendees the opportunity to stop and assess where the detergent industry has been and where it is going, according to Grime.

There’s no denying that the global household products industry is under pressure, noted Robert McDonald, chairman of P&G. Market growth slowed to 4% in 2009, compared to 5% the previous three years; consumer habits have changed; commodity costs remain volatile; and the regulatory environment is difficult to navigate.

The opening session included remarks by (l-r): Keith Grime, Bill Schmitz, Chris DeSozia and David Duncan.

Still the opportunities for growth are impressive, he told the audience. Today, India spends just $3 per capita on household cleaning products, while China spends only $6. That’s compared to the U.S. and Western European average of $60—clearly plenty of room to grow.

But in their quest for market share, McDonald urged the audience to consider:
• Power of purpose;
• Responsibility to be a force of good; and
• Opportunity to touch and improve the lives of consumers.

According to McDonald, employees want to make a difference in the world through their work—salary alone is no longer inspiring in and of itself. The best and brightest employees today want to work for a company that can help improve the world, he insisted.

Empathy Leads to Insights
“We make a profit by improving lives; that's our business model,” McDonald said.“Empathy leads to insights that become new products.”

For example, P&G employees reinvigorated the Pampers diaper brand when they stopped focusing internally and began listening to mothers around the world to find out more about their lives, their hopes and their aspirations for themselves and their children.

Regarding becoming a force for good, McDonald noted that 51 of the largest economies in the world are corporations—not countries. Therefore, companies have a responsibility to create affordable products that create jobs, pay taxes and improve the lives of consumers. He called on industry to develop transformative innovations that get clothes cleaner and faster, using less time, energy and water.

“When we get it all right, we win, the consumer wins and industry wins,”he said.

McDonald urged the industry to embrace sustainability across the value chain and use life cycle assessment tools to reduce their carbon footprint. He noted that P&G recently rolled out new sustainability goals and that competitors have similar mandates. Working together may help everyone attain the desired outcomes, he added.

Finally, he called for industry to work together to shape regulations so that they are based on sound science and don't increase costs for consumers.

“We need a focused, collaborative effort,” he concluded. “This is our opportunity and our responsibility.”

Deutsche Bank analyst Bill Schmitz agreed with McDonald’s assessment that industry growth has slowed since the start of The Great Recession, and he urged the industry to develop truly disruptive innovation to get back on track.

While noting that industry has been busy rolling out new products during the past decade, Schmitz challenged the audience to name one truly innovative product that has managed to move the sales needle, observing that even Method’s 7X concentrate hasn’t provide a lift. Meanwhile, although Henkel/Dial’s Purex 3in1 was launched with great fanfare last year, the product has failed to live up to repeat purchase projections. In contrast, sales of prewashes and additives have provided a boost to the U.S. market, as sales of these products rose 20.5% in the first quarter of 2010 and increased 8.3% in the second quarter.

He called brand convergence, such as Tide with Febreze, real timesavers and the launch of laundry gels in Europe a big success. At press time, only Church & Dwight had launched a gel in the U.S., but Schmitz expects more to come.

According to Schmitz, the nearly $65 billion laundry care category is made up of detergent ($49 billion), fabric softener ($9 billion) and laundry aids ($6 billion). He noted that promotional activity has intensified in many parts of the world, forcing prices to decline after years of steady increases.

“The gloves are off in the quest for volume, but are we ready for a cease fire?” he asked the audience.

Paul Polman of Unilever

At the same time, as the economic crisis worsened, consumers were no longer willing to trade up to premium products and, in many instances, actually traded down to private label products. With shoppers looking for bargains, Walmart holds a 35% share of the U.S. laundry detergent category, according to Schmitz.

“Private label detergents cost less than bottled water in the U.S.,” he told the audience. “Emerging markets have become the only area of growth.”

In fact, if China’s laundry consumption level were increased to be on par with that of Russia, it would expand the Chinese detergent category from $5 billion to $22 billion, according to Schmitz. At the same time, washing machine usage is gaining traction around the world. While penetration is just 15% in India, as the popularity of machines expands so does demand for sophisticated detergent products.

Unfortunately, competition in emerging markets is heating up to levels previously only found in developed markets, according to Schmitz. For example, when P&G introduced Tide Natural in India last year, it touched off a price war that sent value sales tumbling in the region, although prices had stabilized by early October, according to Schmitz.

“The only lasting solution is real innovation, it’s not enough to have incremental innovation,” he warned the audience. “The industry needs to accelerate growth to justify its relatively high valuations.”

Touching on Textiles
If there have been no true innovations in laundry care during the past decade, truly novel developments have come from the textile field, according to Chris DeSozia of Milliken Research. As manufacturing moved to emerging markets, companies began to add unique features to fabrics such as stain repellency and stain release, easy care, moisture management and, most recently, antimicrobial activity.

What’s the next step for the industry? DeSozia predicted that in the near future, consumers would be able to customize their apparel with at-home printing applications. Full-scan body imaging will enable manufacturers to develop products that perfectly fit the consumer. Smart fabrics will enable the wearer to adapt to their surroundings, while bio-sensing materials will be a boon for elder and infant care. In laundry care, DeSozia predicted the rise of washing machines that detect colors so that pink underwear becomes a thing of the past!

Regarding product chemistry, he noted that BioSmart technology already recognizes and accepts chlorine molecules to ensure quick killing of bacteria on clothes. This lock-and-key approach, DeSozia reasoned, could be transferred to aesthetic applications to enable consumers to personalize clothing fragrances within the same washload. Like other speakers at the conference, DeSozia reviewed the laundry list of problems, such as water usage and energy consumption, that plague the industry.

“There are problems, yes, but they can be overcome with collaboration,” he told the audience, calling for synergy between textile, appliance and chemical manufacturers. “We need to collaborate since innovation is the key to all of our businesses.”

A Compass for Growth
Four distinct trends are shaping the industry and the global economy, insisted Paul Polman, chief executive officer of Unilever. These trends are:
• The rise of emerging countries such as China and India;
• Increasing digitalization;
• New economic order; and
• An urgent need for sustainability.

Polman noted that rising standards of living in emerging markets would deliver several billion new customers to the global household products industry. In fact, by 2030, consumers in emerging urban centers will exceed 3.9 billion.

Today, 42% of internet users are from Asia and the expansion of the digital age continues. Furthermore, there are 400 million mobile phones in India and 500 million Facebook users around the world. To reach these consumers, marketers must look beyond traditional print and television mediums.

A Call for Sustainability Standards Kasper Rorsted of Henkel Henkel’s CEO warns that if others set guidelines on sustainability, the industry will lose. These days, most corporate leaders are eager to trumpet their environmental scorecards: you know, millions of pounds recycled, millions of gallons of water reclaimed, acres of biodiversity saved. All good stuff, but what does it mean in the grand scheme of creating a truly sustainable business model? That’s the question that Kasper Rorsted, chief executive officer of Henkel, asked the audience in his keynote address at the World Conference on Detergents. According to Rorsted, partnering along the entire value chain, aimed at innovative solutions that show an increased efficiency, can lead to true innovative sustainable consumption. Furthermore, he urged suppliers, the appliance industry and detergent manufacturers to create a set of standards—before regulators set them for them. “We’ll lose if we don’t come together or don’t have the courage to set targets,” he warned the audience. So, while cutting emissions, creating compact formulas and boosting standards of living for some are somewhat noble efforts, when attempted on their own, they will never accomplish the long-term goal of true sustainability. In closing, Rorsted shared some words of wisdom he learned from his father as a boy: “It takes a long time to finish something that you’re not really working on.”

But in order to be successful, companies have to regain the consumer’s trust, which was destroyed by the Great Recession and the economic turmoil that created it.

“The subprime crisis took us to the edge and greed had a lot to do with it,”Polman insisted.“Public confidence is low and not getting better.”

Finally, he outlined some of the steps Unilever has made toward sustainability, such as committing to the use of sustainably grown palm oil and developing low-cost business models to solve developing and emerging market problems such as water scarcity.

In fact, Unilever is committed to the goal of doubling its business while reducing its environmental impact.

“We play the most important role in making the world clean, safe and hygienic,” Polman insisted. “We are at a turning point. Let's grab the chance of a lifetime.”

The Chinese Perspective
Every company, it seems, wants to operate in China. But Max von Zedtwitz, a professor at Tongji University in China, urged the audience not to underestimate the sophistication and sheer brainpower of this market.

“When we think of China, we forget about innovation and creativity,” he said. “It’s not just manufacturing.”

In fact, China wants to become the next superpower in science and innovation and is rapidly achieving that goal. von Zedtwitz noted that with its technological edge and its nation-building spirit, he wouldn’t be surprised if the first person to step on Mars is Chinese. Furthermore, China’s R&D expenditures have grown eight times faster than that of the U.S. and is expected to reach 2.5% of GDP by 2020. In 2008, Guangdong province alone filed more patent applications (103,883), than the U.S. (27,656), Japan (38,408) and Germany (10,145), combined.

How did China become such an intellectual powerhouse? Via an education system where more than 10 million students take the college entrance exams every year and institutions of higher learning welcome between 5 and 6 million freshman a year. Once they enter school, more than 50% of students major in engineering, science or medicine.

“That’s why foreign companies are setting up sites in China; there is a lot of brainpower,” noted von Zedtwitz.

With thousands of PhDs at their disposal, the speaker urged the audience to send their most challenging problems to China. And while some may worry about the country’s communistic government, von Zedtwitz explained that“top-down, directed leadership” has its advantages. After all, when the government tells a company to do something, there is no room for negotiation—which creates pressure that is sure to force innovation.

Sustainability
Perhaps no other subject dominated the conference as much as sustainability. While nearly every speaker touched on the subject, only Martin Wolff of Seventh Generation reviewed the concrete definition of the term, which was first proposed by the United Nations:

Richard Seymour of Seymourpowell.

“Sustainability is the practice of meeting today’s needs, without diminishing the ability to meet tomorrow’s needs.”

Unfortunately, he said, modern business paradigms insist that bigger is better, more is better and wealth is value. The result is that resources are dwindling, air and water quality are declining and some parts of the world are already feeling the effects from rampant consumerism.

“Is there a way to slow down this race to the finish line?” he asked. “Let’s find a way to reuse it and start the cycle over.”

Wolff reviewed the elements of a sustainable system and explained how sustainable products are truly effective, priced competitively, safe, considerate of the environment and address real environmental issues.

Seventh Generation is using 90% PCR content HDPE for its hand dish detergents, working throughout the supply chain to source materials sustainably and reducing its carbon footprint. At the same time, it is creating sustainable relationships with consumers, suppliers and governments.

“We are working with the American Cleaning Institute on TSCA reform,” he noted. At the same time, Seventh Generation has created a Sustainability Institute to educate people about the merits of living sustainably.

In the history of the World Conference on Detergents, Richard Seymour of Seymourpowell is the only speakerinvited back to address the audience—and with good reason. More than a design company, Seymourpowell helps a diverse range of clients develop products for now and down the road. Seymour took the conference audience on an entertaining journey into the future that will soon include floating hotels in the sky, trips into outerspace (courtesy of Sir Richard Branson), and personalized medicine and DNA-based cosmeceuticals (thanks to the mapping of the human genome). In fact, the human genome can be purchased for just $300 today and Seymour predicted prices would continue to decline and provide a boon to an array of industries.

“If we know who you are at three cents a pop, it is a fundamental revolution,” he told the audience. That revolution means that the first person to live to 1000 may already be alive and that the new generation of creams and lotions may enable the consumer to look as young as they would like.Unfortunately, most consumer product executives are missing out on the revolution, because they see what they want to see and not how things truly are.

“Consumers want solutions,” he explained. “They don’t want detergents, they want clean clothes.”

Most consumer product companies still conduct research by asking consumers what they want, but consumers don’t know what they want until it is presented to them. “Don’t ask people what they want—they don’t know what’s going to happen,” he explained.

According to Seymour, only a few forward thinkers, such as Steve Jobs, truly understand the consumer. Luckily, for the detergent industry, the Steve Jobses of the world are few and far between.

“You don’t want Apple in your business,” he warned the audience.

However, by watching consumers, listening to them and then observing them when they’re left alone, consumer product companies can make some exciting discoveries that lead to true innovation. For example, a rimless toilet bowl is now available that makes cleaning much easier, since it features a photocatalytic surface and the water is ejected from the toilet seat rather than the bowl.

“For you ladies, that means the seat will always have to be down,” he joked.

''All jokes aside, Seymour wondered if this launch would make toilet bowl cleaners obsolete.

“Do we need you?” he asked the audience.