Eric Sizemore and Meg Burger
University of Illinois
February 24, 2004
Faultless Starch / Bon
Cleaning Product Industry Overview
Source: Datamonitor (June 2003) D A T AM O N I T O R
A. Threat of New Entrants -
Intense competition in the industry has lead to declining margins. As a result, the barrier to entry is high for companies without established manufacturing infrastructure. The barriers to entry in this industry, in general are high because marginal costs exceed forecasted marginal revenues. Standard and Poor's estimates that average price increases are less than 2.3% rate of inflation. Intense rivalry has lead to severe pricing pressure and deep discounting (Branna, 2003a). For example, on a recent visit to a local retail it was noted that the Spic and Span Company has had to discontinue their powder cleaner (a competitor to Bon Ami's powder cleaner). Spic and Span 's last shelf price was $.70 above Bon Ami and almost a dollar more than the generic store brand on the shelf. Significant new entrants may come from private and generic labels such as those produced by Wal-Mart. (See Substitute Products and Services below). Shelf space reflects the efforts invested in marketing and merchandising. Consequently, retail shelves are dominated by products from the large multinationals and private label products from the retailer, with smaller incumbents, such as Bon Ami, relegated to a small section of the bottom shelf.
B. Bargaining Power of Suppliers
- Rating 2
2) Market growth is directly proportional to population growth, which in the United States is growing at approximately 1% (Standard and Poor's). "The prospect of limited growth in population size means that consumer goods companies must target existing markets very carefully in order to continue selling their products"(Standard and Poor's). As is, those investing the largest percentage of their annual salary are those aged 35-55 with high salaries (New Strategist, 1997). This is even more notable since studies have shown that as household income increases so do the quality of the products those households choose to purchase (Standard and Poor's).
3) Points of purchase have greatly increased, most notably the Internet.
4) Manufacturers compete for buyers primarily "on the basis of brand recognition, product quality and performance and the level of service they provide to the wholesalers and retailers who are their customers" (Standard and Poor's). According to Jill Bauer, Store Operations Coordinator of the Common Ground Food Co-Op in Champaign, Illinois, the most important criteria is the manufacturer's commitment to environmental sustainability and lack of animal testing. Vincent Hernandez, Grocery Buyer and Assistant Store Manager with Strawberry Fields in Urbana reiterates these standards. Both cited service representatives at trade shows and their distributors for conveying product knowledge, and stated brand names and quality were strong criteria for product selection.
"Wal-Mart has set the consumables industry abuzz with the news that it plans to introduce a private label laundry detergent under its Sam's American Choice label. The detergent is being positioned against leading national brand Tide, which is produced by top Wal-mart vendor partner Procter & Gamble. Pricing is expected to run 25% to 30% below the national brand's." (Wal-Mart's, 1999)
Second are the innovative products that reflect consumers' demands for fast and easy cleaning products. Such products include wipes, all-in-one mops, pre-measured powder and gel capsules and non-concentrated gels and creams. "Wet wipe technology has made its way into household cleaning, personal care and beauty care. Private label programs can play a big role in exposing the convenience asset of wet wipes by offering high-quality product lines carrying lower prices than the national brands--basically providing a less risky opportunity to try wet wipe products in somewhat non-traditional wipe categories." (Just Wipe It, 2003) Third, companies are capitalizing on the trend toward "natural, environmental, organic or greener" cleaning products (Why is Orange, 2002). For example, almost all cleaning product lines carried by Strawberry Fields have a citrus-based cleaner, like Citrasol, or the new SC Johnson Pledge spray with orange oil. (Hernandez, 2004)
Innovation in marketing: Products that are "all in one", easy to use, promise fast results and require little preparation time on behalf of the consumer. For example, Reckitt Benckiser are debuting the Lysol Ready Brush which "forces consumers to spend $6.99-$8.99 for a starter kit which includes a storage caddy, a Lysol Ready Brush and a Foaming Aerosol Can" and is offered with a $3.00 coupon (Branna, 2003a). Moreover, "some companies actually cut prices and/or offer more value to consumers by putting more product in the package" (Standard and Poor's). Our visit to the local retailer only confirmed this study. For example, Bon Ami's 14oz cleanser was bracketed by it's direct competitor, 14oz Comet Powder Cleanser ($.69 or $.049/oz) and Comet's 21oz cleanser ($.99 or $.047/oz). We also noted particularly innovative merchandising ploy was Clorox's Soft Scrub products. The basic, non-scented 24oz Soft Scrub with bleach was flanked by 26oz orange and lemon scented versions. All three were the same price, and to the casual shopper, identically sized and packaged, despite the difference in volume. This means Clorox is able to squeeze almost a penny more per ounce out of its non-scented 24oz cream cleaner.
Innovative target marketing to the 35-55 year olds is key: that is marketing to parents, people who have little time, but need outstanding results from their products. "Dual-income and single-parent families have become more common, household non-durables companies have developed products to address consumers lack of free time. (Standard and Poor's) In addition, because the U.S. population over the age of 55 is 20% and projected to grow to 33% by 2030, it is imperative that marketing strategies begin to include this growing population (Standard and Poor's).
Innovation in Mergers and Acquisitions opportunities are essential in order to increase growth, sales, and profits. For example, in the fast paced world that is M&A, Prestige Brands, maker of Comet has proved detrimental for Procter and Gamble who divested in the late 1990's and just recently, valuable to GTCR Golder Rauner LLC. "Prestige Brands was predicated on the strategy of building a portfolio of healthy brands through a series of strategic acquisitions. These brands are in millions of households throughout the country and the current portfolio is very well positioned to succeed"
Innovation in pricing: Despite the high prices in raw materials, the industry is going to have to lower their prices in order to compete with the Wal-Marts and Dollar Stores, those that make their own competitor to the products being sold by Faultless / Bon Ami and those that are selling household cleaners at an extremely low cost already. Already, the Spic and Span Company has had to discontinue their powder cleaner (a competitor to Bon Ami's powder cleaner). Its last shelf price was $.70 above Bon Ami and almost a dollar more than the generic store brand on the shelf.
Based on the research conducted in this paper, one
other suggestion presents itself. The burgeoning market for products
marketed as natural, organic, environmental or in some way "greener"
products is becoming apparent. Organic certified foods are the fastest
growing and most profitable segment of the vegetable market increasing
from $16 billion in 1990 to $50 billion today (Lloyd, 2004). "Natural"
personal care products are the fastest growing segment of their market
(Barstow, 2003), and as noted above, most major cleaning product
manufactures are producing cleaners based on wholesome ingredients, such
as orange oil. The local store managers we spoke to both mentioned that
their customers are buying less cleaning powder and buying more cream type
cleaners and non-chlorine bleaches, normally based on hydrogen peroxide,
are coming into vogue. The recent innovations in cream style cleaners are
the addition of bleach, such as Clorox's Soft Scrub with bleach. Combining
this information with the trends toward addressing consumers' desire for
cleaners that save time mentioned above, the conclusion is Bon Ami should
look into developing a hydrogen peroxide, or other non-chlorine based
bleach, and then develop an environmentally sound cream type cleaner.
Agelong Brands Since 1988 Online Store. (n.d.).
Retrieved February 21, 2004, from
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Branna, Tom (2003b, September). Surfactant market update : for a variety of reasons, it's been another difficult year for most producers. Happi. Retrieved February 18, 2004, from http://www.happi.com
Branna, Tom (2003c, January). Unilever gets a lift from new products : Unilever has rolled out as host of new laundry products that meet a diverse range of consumer needs. Happi. Retireved February 18, 2004. from http://www.happi.com
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Faultless Starch / Bon Ami Company. (n.d.).
Retrieved February 21, 2004, from
Freedonia.Group (2004, February) Freedonia focus on household chemicals. Retrieved February 20, 2004, from OneSource database.
Hernandez, Vincent. (February 20, 2004) Personal interview.
Hwee Sim, Peck and Walsh, Kerri (2004). Raw materials suppliers bank on innovation. Chemical Week, February 11, 2004, p. 23.
"Just wipe it." (December, 2003) Private Label Buyer. Retrieved February 21, 2004, from LexisNexis database.
Lloyd, Graham. (2003, November 8) Organic experience and those who fake it. Retrieved February 21, 2004, from LexisNexis database.
New Strategist Editors (Eds.). (1997) Household spending : who spends how much on what. Ithaca, NY : New Strategist, p. 524.
Standard and Poor's Corporation. (2002). Standard & Poor's industry surveys (Vol. Dec. 2002) New York: Standard & Poor's Corporation, pp. 16, 37, & 65.
Wal-Mart's latest PL opens door to household cleaner category. (Brief Article). Looksmart, August 23, 1999. Retrieved February 12, 2004. from: http://www.findarticles.com
"Why is Orange Glo So Appealing?" (December 2002) Happi. Retrieved February 18, 2004, from: http://www.happi.com