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Soaps and detergents story: Far from over

Feb 16, 2002

It is no secret that the FMCG sector has been under tremendous pressure over the last couple of years. Increasing competition and economic downturn have meant a double whammy for the sector. Volume growth has been sluggish and realisations have been under pressure for most companies. Of the total FMCG folio, soaps and detergents account for almost 50% in terms of value (total value Rs 92 bn). It is this segment that has borne the brunt of the slowdown. According to ORG Marg data in December 2001, soaps declined by over 7% YoY and liquid detergents by over 11%. This slowdown has affected topline performances of stalwarts like Hindustan Lever too. Let us take a look at the demographics of this segment.

Soaps: Market size = 31.6 bn
Company Mkt. share Value (Rs bn)
HLL 59.0% 18.6
Nirma 14.8% 4.7
Godrej 5.9% 1.9

The Indian toilet soaps market is valued at Rs 32 bn. Hindustan Lever (HLL) commands a lion’s share of this segment (59%), followed by Nirma (15%) and Godrej at 6%. This segment was initially reserved for the small-scale industry and consequently, bigger companies like HLL were forced to outsource manufacturing to smaller firms. However, with deregulation, more companies have entered this segment and Indian consumers have a big range of brands to choose from. MNC companies like Colgate Palmolive, Henkel, Johnson & Johnson and Reckitt have spruced up offerings in this segment. Domestic companies like Nirma and Godrej have also set sights on consolidating their position in this segment.

As a result, realisations have been under pressure. However, lower oil cake prices (a key raw material) helped companies keep their heads above water in recent times.

Detergents: Market size = Rs 60 bn
Company Mkt. share Value (Rs bn)
HLL 39.0% 23.4
Nirma 13.5% 8.1

On the detergents front, the segment was valued at around 60 bn in 2001. Of this, HLL again has a significant 39% share, followed by Nirma at 19%. P&G is the other major player in this segment. The rest is segregated between a host of players both organised and unorganised.

In view of the difficult market situations each player has evolved its own strategy. Market leader, HLL is focusing of pruning its brands and improving the quality of its earnings. Recently, it has given its key lower end brand ‘Lifebouy’ a face-lift and has re-introduced it with a higher price tag. The Godrej Group, which has hung on to near 6% market share levels in the last decade, has re-jigged its group structure and formed Godrej Consumer Products Limited, which the name implies will be a pure FMCG company. In order to improve its cost efficiencies, Nirma, integrated backwards, to set up its own LAB plant. LAB is a key raw material for detergents.

Also, the downturn forced companies to relook at their promotional strategy. FMCG companies traditionally spend 8% to 14% of their turnover on advertising and sales promotions. The difficult conditions saw these companies taking a closer look at these spends. In the western world, advertising agencies fees is often related to the turnover a particular campaign generates. Though this has not happened in India yet, in the coming years, one is likely to see companies getting more cautious about every rupee spent on advertising.

In these last couple of years, one interesting thing to note was that the depreciation expenditure for most FMCG companies increased, whereas the interest expenses have declined. This suggests two things. One, that the companies have looked at reducing their debt burdens in order to improve earnings. Secondly, a rise in depreciation means these companies are setting up new capacities and assets and look at the Indian FMCG sector in favourable light.

Penetration Urban Rural
Detergents 86% 71%
Personal wash 91% 91%

Though penetration levels for both soaps and detergents are already very high in India (over 75% in both segments), the industry growth is far from over. Though penetration levels are high, India lags far behind in terms of per capita consumption of these items. As per an HLL presentation, India’s per capita consumption of detergents (fabric wash) is 2.6 kgs as compared to 7.2 kgs for Brazil and 13.1 kgs for the US.

Scope for increasing consumption
  India Brazil USA
Personal wash (kgs) 0.5 1.1 2.0
Fabric wash (kgs) 2.6 7.2 13.1
Per capita consumption

Though the concentration of some of the key sector majors has shifted from soaps and detergents to other FMCG categories, the story of this segment is far from over. These products are part of the populace’s basic needs and going forward there is scope for companies to upgrade users to better quality products.

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