Soaps market showing resilience in economic gloom

Soaps sector can clean up

05 January 2009 17:26  [Source: ICB]

The financial bubble may have burst but the soap and detergents market refuses to work itself into a lather

CONSTRUCTION MARKETS have all but collapsed and the automotive sector has stalled, but the current financial gloom has only partly dampened the spirits of soap and detergent manufacturers.

The chemical industry has suffered a damaging year of feedstock volatility, undulating energy prices and production cutbacks.

Clearly, soap producers have seen a dip in consumption - particularly for the commercial use of detergents - and funds are stretched, leaving few resources available for research and development. However, producers of cleaning products remain surprisingly upbeat.

"I believe we will have a long cold winter but I share the outlook of many others that in late 2009 we'll begin to see the light again," says Hans-Willi Schroiff, corporate vice president Global Market Research at Germany's Henkel. "I do not see the reason why detergents, cleaners and cosmetics should be too affected. My general outlook is quite positive."

Despite the doldrums, their wares remain a staple of consumers' shopping lists and have, so far, proven relatively immune to the collapse in demand seen across most other businesses.

Only industrial and institutional consumption has really seen any signs of decline, with the key domestic market still performing well.

"We're being told by our customers - particularly in the institutional sector - that they will eventually see a slowdown," says Carlos Silva Lopes, global marketing director of US-based Dow Fabric & Surface Care.

"People are travelling less, and are not using planes and hotels as much we're also seeing factories and offices closing, so all of that cleaning that was going on is reduced," he says. "But it's different in households where business is holding up well - people are maybe buying less of the premium labels, but we haven't really seen a slowdown in overall demand."

CHANGING TIDE

David DelGuercio, vice president and general manager consumer specialties, Household Care at Germany's Evonik Goldschmidt, suggests that attitudes are changing.

"Consumers are pushing for affordability now that their circumstances have changed," he says. "When things are good, and they have that freedom and flexibility, people are willing to pay a little bit more.

"People are finding ways to economize - it's not that they've stopped using detergents but whereas in the past consumers may have used a little more detergent then the recommended amount, they now may be using less, which means up to the line on the cap. I think we're seeing around a 10% drop in volume demand."

Nevertheless, despite consumers' money worries, the trend towards smaller pack sizes and concentrated formulations continues with aplomb as producers focus on economic savings and reducing their carbon footprints.

The sustainability message championed by manufacturers and retailers over the past few years now also appears to be ingrained in consumers' minds and in their buying habits.

Customers appear to have largely stayed loyal to their preferred brands but are placing even more demands on the products that line the supermarket shelves.

"Manufacturers have to work really hard to deliver a compromise," says Schroiff, "on the one hand, they must reassure consumers that they will get top performance in the various cleaning and washing products, while at the same time prove that they are doing everything to ensure this is sustainable."

ECO ISSUES

Rita Koester, global marketing director Home Care Chemicals for Germany's Cognis, says that the discerning public continue to demand green products. Furthermore, she remains confident that green targets will not fall by the wayside, despite the global economic downturn.

"We're convinced that the green message is not fading away," she says. "It's been a key driver for Cognis from the beginning, and we're still concentrating on this. The demand for green products will not disappear."

This is underlined by the commitment from the industry to reduce greenhouse gas emissions, says Koester. To meet such stringent targets, soap producers must continue to focus on minimising packaging, reducing transport costs, optimizing raw material use and looking to natural-based oleochemicals.

Even in the current financial climate, investing in a robust pipeline of products remains paramount. Rather than rest on their laurels, producers are still ploughing funds into research to enhance both performance and their green credentials.

"I don't think you can ever afford to stand still because markets don't stand still," says DelGuercio. "We continue to innovate but we've faced extenuating circumstances in 2008 and haven't been able to commit the same resources that we have in previous years.

"For example, we've had to deal with Reach in Europe, which has diverted some of our resources," he says. "Due to the raw material cost increases in 2007 and 2008, it has driven substitution and reformulation, which diverted R&D resources from innovation as well."

Evonik's new Carspray 800 formulation hit the marketplace four months ago the vegetable-based product not only successfully combining performance, efficiency and sustainability but also proving that there is still strong interest despite the slight price premium.

Cognis has also received a strong response after introducing Euperlan Green three months ago - its first green, vegetable-based pearlizing wax dispersion, which is free from ethylene oxide and amine feedstock.

Dow, meanwhile, is preparing to launch a new formulation in early 2009.

Henkel's Schroiff says he has been also buoyed by positive feedback following the expansion of its laundry and home care portfolio. The October 2008 launch of its range of Terra Activ products included a manual dishwashing liquid, all-purpose cleaner, and a toilet, glass and bathroom cleaner.

Around 85% of the ingredients in the new range are derived from renewable feedstocks such as palm kernel oil or sugar beet - exceeding the market average of 50%.

After two years in development, sales indicate that even in the current financial climate, consumers and retailers still want to go green.

WARWICK FORGES ON

Will Beacham/London

With a private equity-backed management buyout completed just weeks before the economic downturn put a brake on such deals, UK-based detergent additive producer Warwick International has ambitious plans for future growth.

With a 45% market share and projected sales of £175m ($262m/E187m) for 2008 , Warwick is the world's biggest manufacturer of tetra acetyl ethylene diamine (TAED), an oxygen-based bleaching agent for detergents and biocides. Its site in Mostyn, Wales, has more than 40,000 tonnes/year production capacity, a figure that is slated to increase by 10-15% over the next two years as the company pumps in £3m-5m for debottlenecking projects.

The £129m September buyout from its parent, US industrial group Sequa, was organised and funded to the tune of £55m by UK midmarket group Close Brothers Private Equity, with debt funding coming from a consortium of banks comprising Royal Bank of Scotland, HSBC, Barclays and Lloyds TSB.

Free of the constraints of a large corporation, the management team, headed by managing director Bob Ellis, now wants to raise the group's profile and forge ahead with a growth strategy to deliver over 20% organic sales growth over three years.

There is also potential for new products plus merger and acquisition activity.

Finance director Steve Williams told ICIS that Warwick will know in 2009 whether it can develop on a commercial scale a new technology that would allow TAED to be used in liquid detergents. "At present, it can't be stabilised in a liquid," he said.

Warwick also owns a chemicals distribution business that it intends to boost with bolt-on acquisitions ahead of a possible sale of the group by private equity owners in three-to-five years time.

Williams said the company was looking for £10m-£30m turnover distribution businesses, particularly in Asian countries, such as Thailand, Singapore and Indonesia, where there is faster demand growth.

"We would like to build up a group of distribution businesses in Asia. We want to move up a league and add value before a sale," Williams said.

To prepare for a sale, management and accounting structures have already been separated from the manufacturing business, he said.

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By: Andy Brice
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