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Detergent Wars


HJ
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I'm by no means a consumer products expert, but someone recently switched me onto the sector.  And the company that I've spent a little time on is Church & Dwight, CHD, which today came up as potentially on the receiving end of an incipient detergent war to be initiated by Proctor & Gamble's Tide per this WSJ article below:

 

http://online.wsj.com/article/SB10001424127887323932604579053433586299194.html

 

Truth is I hardly ever give it a second thought on picking the detergent, but Church & Dwight CEO has been saying for a while now, quoting Nilsen number, that Arm & Hammer has been gaining shares due to consumers trading down in a tough economic environment.  (Arm & Hammer is a product 50% cheaper).  But not long ago, Adage was proclaiming P&G the winner in launching Tide Pod last year:

 

http://adage.com/article/news/tide-pods-winning-7-billion-detergent-wars-redefining/238779/

 

And also articles like this:

 

http://www.srginsight.com/index.php?option=com_articles&task=detail&id=29

 

Now how is one to figure out what's really going on in the product category, and evaluate a) how likely a price war will develop in this category, and b) what the outcome could potentially look like if such a war were to be initiated.  Would Tide ultimately cannibalize their own premium brands more, or will they actually take share from A&H?  Has there been precedents for price war like this for consumer brands?  The Cola wars was not quite a price war in my mind, but more just a publicity stunt, and a fairly successful one by Pepsi.  Is this the "New Coke" moment for Tide?

 

I just find it fascinating to try to look out several years on a product like this, and any thoughts from the board on the subject is very welcome.

 

In the process of googling this, I found this article interesting, talking about the power of the Tide brand:

 

http://nymag.com/news/features/tide-detergent-drugs-2013-1/

 

But this comment from the article actually exposes a potential weakness:

 

"Despite its popularity, Tide is not a big moneymaker for stores. P&G’s proprietary surfactants and enzymes are relatively expensive to produce, notes Bill Schmitz, a Deutsche Bank analyst, so Tide’s wholesale cost is steep. Only so much of that can be passed on to customers. “It’s so tight,” says Schmitz of the profit margin. In general, a retailer clears just a few percentage points on a Tide purchase. A store that charges $19.99 for a 150-ounce bottle might claim $2 in profit. "

 

Anyway, rambling a bit here, but would love to hear thoughts from the board on this subject.

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If you're interested in detergents read this article on why none of them work as well now as all of them did 30 years ago, along with a cheap hack to fix that yourself at home.

 

Why Everything Is Dirtier

 

I have been using TSP for all my hard cleaning jobs. Leaving a pot soak in water and TSP for a night is the most effective scrub free method I have ever used. Never used it in my clothes tough. I like the idea.

 

Also, find yourself a place that sells industrial cleaners.

 

For 10$ you can clean 100 loads of laundry, no bullshit about high efficiency soap. Dry-cleaners always had high efficiency soap because it's cheaper.

 

Got those mineral stains in the shower? Ask your industrial soap guy and he'll provide you with a base 11 product strong enough to eat trought plastic.

 

BeerBaron

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The more I read and think about the detergent market, the more it makes me feel that among all the consumer product categories, the consumers may exhibit the most price elasticity here.  The brand loyalty in this category is probably more fleeting than other categories.  Compare this to, say toothbrush, tooth paste, or hair care etc., when pinched for money, most people will be quicker to cut on something they apply on their clothes than something they put into /onto their body.  In a tough economy, with large segment of the consumer migrating over to the discount / dollar stores, it's not a surprise that Tide needs to do something to shake up the competitive dynamics in its business.  But I'm very curious to find out if they end up self cannibalize more or take shares away from Henkel or Arm & Hammer. 

 

On a side note, I was at a local Costco today.  Prominently on display, sticking out of the end of the laundry isle, are Arm & Hammer detergents and Kirkland branded fabric softners.  Tide is there as well, but is placed in the middle of the isle, and seem to be under-represented vs. its market share.

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I think the other thing that's impacting it is the changing disribution landscape.  You have Walmart, Costco, Whole Foods and drug stores taking shares away from grocers, and the rapid expansion of the dollar stores.  You have to really adjust your marketing strategy / product offerings to reflect the reality of the market place.

 

 

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If you're interested in detergents read this article on why none of them work as well now as all of them did 30 years ago, along with a cheap hack to fix that yourself at home.

 

Why Everything Is Dirtier

 

The cheap hack can damage the environment, which is why detergents today are less powerful than in the golden age of whiter than white.

 

Absolutely true, if the water drains are not treated before being released into the environment. Most major NA cities now treat used waters to reduce phosphates.

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If you're interested in detergents read this article on why none of them work as well now as all of them did 30 years ago, along with a cheap hack to fix that yourself at home.

 

Why Everything Is Dirtier

 

The cheap hack can damage the environment, which is why detergents today are less powerful than in the golden age of whiter than white.

 

 

Compared to the tons and tons and tons of phosphates that are dumped on lawns and used in farming the amount from home detergent use was negligible and even that negligible amount can be filtered out effectively as beerbaron stated above.  There was no reason for the ban other than over zealous green politics. Making everyone's life worse so some greenies can feel good.  We won't even talk about all of the millions of dishwashers that were thrown out and replaced because they no longer cleaned well and the owners thought it was the machine (not knowing the soap had changed). That probably had more of a negative effect on the environment than the phophate in the detergents ever had.

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  • 6 months later...

So here's Tide

 

http://www.wcpo.com/money/consumer/dont-waste-your-money/pg-raising-prices-of-some-tide-detergents-by-as-much-as-25-percent

 

Here's Arm & Hammer

 

http://stream.wsj.com/story/corporate-intelligence/SS-2-60962/SS-2-492167/

 

"So far, P&G’s effort with a budget Tide, called Tide Simply Clean & Fresh, has had mixed results. Data from retailers in the past month indicated that sales of the new budget detergent may be coming largely at the expense of regular Tide, whose sales have declined, instead of Arm & Hammer, which has so far held its share, according to a report this week from Jefferies analyst Kevin Grundy.

 

One reason may be that some retailers placed Tide Simply on shelves next to the pricier Tide, instead of placing it next to cheaper detergent brands as recommended by P&G. That could change in the coming months as retailers make changes to their shelves and displays, Mr. Grundy said.

 

With $3.2 billion in annual revenue, Church & Dwight is much smaller than P&G, whose yearly revenue tops $84 billion. But it is heavily exposed to the laundry business, which makes up about a third of its sales, and to this point has benefitted as cash-strapped consumers have traded down from pricier detergents to bargain brands.

 

Arm & Hammer liquid detergents on average cost about 60% less than Tide, a premium brand. The growth in recent years has helped Church & Dwight capture roughly a 13.7% share of the North American laundry detergent business, while P&G has a 59% share, according to a report from Mintel Group. Church & Dwight also sells toothpaste, baking soda and cat litter under the Arm & Hammer brand.

"

 

I'm giving Arm & Hammer a slight edge to continue to gain share, mainly due to the broader economic environment.  It's still interesting that Tide has 59% share vs. A&H at only 13.7%.  But any walk down a grocery isle wouldn't indicate disparity of that magnitude at all.  I think on the margin, A&H is winning the distribution war.

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So here's Tide

 

http://www.wcpo.com/money/consumer/dont-waste-your-money/pg-raising-prices-of-some-tide-detergents-by-as-much-as-25-percent

 

Here's Arm & Hammer

 

http://stream.wsj.com/story/corporate-intelligence/SS-2-60962/SS-2-492167/

 

"So far, P&G’s effort with a budget Tide, called Tide Simply Clean & Fresh, has had mixed results. Data from retailers in the past month indicated that sales of the new budget detergent may be coming largely at the expense of regular Tide, whose sales have declined, instead of Arm & Hammer, which has so far held its share, according to a report this week from Jefferies analyst Kevin Grundy.

 

One reason may be that some retailers placed Tide Simply on shelves next to the pricier Tide, instead of placing it next to cheaper detergent brands as recommended by P&G. That could change in the coming months as retailers make changes to their shelves and displays, Mr. Grundy said.

 

With $3.2 billion in annual revenue, Church & Dwight is much smaller than P&G, whose yearly revenue tops $84 billion. But it is heavily exposed to the laundry business, which makes up about a third of its sales, and to this point has benefitted as cash-strapped consumers have traded down from pricier detergents to bargain brands.

 

Arm & Hammer liquid detergents on average cost about 60% less than Tide, a premium brand. The growth in recent years has helped Church & Dwight capture roughly a 13.7% share of the North American laundry detergent business, while P&G has a 59% share, according to a report from Mintel Group. Church & Dwight also sells toothpaste, baking soda and cat litter under the Arm & Hammer brand.

"

 

I'm giving Arm & Hammer a slight edge to continue to gain share, mainly due to the broader economic environment.  It's still interesting that Tide has 59% share vs. A&H at only 13.7%.  But any walk down a grocery isle wouldn't indicate disparity of that magnitude at all.  I think on the margin, A&H is winning the distribution war.

 

A bit of a threadjack, but Jim Craigie is close to qualifying as an Outsider CEO in my opinion. His run at CHD has been truly phenomenal. Here are the slides from their recent CAGNY presentation for those interested:

 

http://media.corporate-ir.net/media_files/IROL/11/110737/cagny.pdf

 

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