New data from Euromonitor International puts first and second-tier emerging markets at the frontline of growth and opportunity for the global home care industry, offsetting weaker offensives in saturated consumption bases.
Beacons of growth and opportunity
In 2009, global retail sales of home care increased by 4.1% on 2008, according to newly released data from Euromonitor International. Crucially, for the third year in succession, emerging economies accounted for the industry’s top 30 growth markets.
It is a remarkable and largely unrivalled growth story, given the participation of so many second-tier markets, some of which lie well off the beaten path of international investment. Even in terms of absolute value growth, first and second-tier emerging markets still accounted for nine of the top 10 growth stories, spearheaded by Venezuela, China, Argentina, Russia and India.
Conversely, the developed and largely saturated markets fill the lower reaches of the growth axis, representing 12 of the world’s 15 poorest home care performers. Among them is the US, the biggest consumer of home care products in the world, where retail sales dropped 1% last year, the industry’s poorest performance in more than a decade. Concurrent with trends across the industrialised markets, the slowdown in the US was a direct result of acute financial crisis.
The US down, but not out
2010 is set to be another tough year for home care in the US. On the upside, forecast data for the medium term shows a gradual return to growth.
Specifically, around US$2.6 billion of new business is projected to come on stream over the next five years, with the lion’s share in the period 2012 to 2014. The highly competitive laundry care sector is identified as the main source of revenue growth, while the surface care, dishwashing and air care sectors are also expected to pull clear of troubled waters.
The prognosis is less promising in Japan and some of the big Western European markets, such as Germany and France, which are each projected to stay in the doldrums for some time, despite tentative green shoots in their macro economies. The problem is that consumer confidence in these markets remains at an all-time low.
Across the developed markets, value for money is driving the household shopping agenda in 2010, which means we are seeing widespread trading down as well as strong discounting and promotional activity in the supermarkets. By implication, margins could become even tighter in underperforming markets as pressure to price aggressively intensifies.
UK is the best of a bad industrialised bunch
There is some cause for cheer in the UK, the world’s fifth biggest home care market, where sales were up a comparatively robust 2.2% in 2009, driven by strong performances in the laundry care sector. Bleach was also a standout performer, growing 10% by value over 2008. For the next five years, Euromonitor International is forecasting over US$1 billion (£671 million) of absolute sales growth in the UK, with sales getting stronger year-on-year as recessionary pressure eases.
China to become the second biggest market in the world
While there is some light at the end of a dark tunnel in the developed markets, neither the UK nor the US will come even close to the anticipated growth curve of China, the standout emerging market, which is tipped to generate annually close to US$1 billion of new home care business over the next five years. Based on current projections, the growth spurt from China would see it dethrone Japan as the home care industry’s second biggest market in the world by 2011.
But, growth is not all about the big hitting emerging markets. It is about the second-tier emerging markets too. For example, countries as diverse in character as Venezuela, Iran, Turkey, Argentina, Thailand and Nigeria are each identified as significant growth opportunities into the medium term, albeit with varying levels of risk.
For multinationals, the clear message is that positions need to be strengthened across a diverse array of emerging markets if growth opportunities are to be maximised going forward. This is nothing surprising, given trends over the past five years, but companies do need to be savvy about how they tailor their emerging market investment.
There is no such thing as a safe bet. Equally, companies will need to think outside the box in the world’s more saturated markets where growth in market share is going to be key.
Air care needs to dilute over-dependency
Dishwashing products generated the strongest sector performance globally in 2009, with total retail sales up 5.7% on 2008, fuelled by double-digit growth (12.1%) in Latin America. Laundry care posted a bullish 4.4% upturn, despite contractions in a cluster of key developed markets, notably Spain, France, Germany, the US and Switzerland. The weakest sector performance came from air care, which grew by only 1%.
This was the air care sector’s poorest result since Euromonitor International’s home care tracking began. The problem and by implication the challenge for the air care sector is its over-dependence on the developed markets.
For example, the US, Japan and the UK accounted collectively for over 50% of global sales in 2009. Of the emerging markets, only Russia generated a market value in excess of US$100 million.
Procter & Gamble rules the roost, but Unilever makes gains
Globally, Procter & Gamble remained the singularly biggest home care company in the world, with retail sales reaching close to US$23 billion in 2009, some 84% higher than second-ranked Unilever. But, Unilever outgunned Procter & Gamble in terms of growth, generating a 6.3% hike versus Procter & Gamble’s 4%. Unilever put up a particularly strong performance in the Asia-Pacific region, with growth of 10% compared to Procter & Gamble’s 5%. In the emerging regions of Latin America and Eastern Europe, Procter & Gamble outperformed Unilever.
The best corporate growth rate in the world for 2009 was recorded by China’s Guangzhou Blue Moon, which saw retail sales grow by a whopping 75%. Venezuela’s Empresas Polar also put in a strong double-digit performance, with growth of 51%. Both these companies will be regional players to watch closely over the rest of this year.
Asia and Latin America keep laundry care buoyant
Laundry care held firm in 2009 as the dominant home care sector, accounting for some 53% of total industry sales. China and Venezuela were important drivers, each fuelling over US$450 million of absolute growth. Russia, Ukraine, India, Argentina and Colombia also put in robust performances, each generating over US$100 million of new business. On the flipside, there were value contractions in Spain, France, Germany and the US.
The ubiquitous Tide and Ariel, both from Procter & Gamble, continue to head the global laundry care brand rankings, with collective retail sales of some US$9.5 billion. China’s Blue Moon (Guangzhou Blue Moon) was the fastest growing brand in the world last year, with retail sales up by a massive 176%. Venezuela’s Las Llaves (Polar) also stands out, with growth of 53%. Of the big multinationals, significant performances came from Unilever’s Puro, up 49%, and Procter & Gamble’s Gala, up 36%. Conversely, high-profile brands that slipped up in 2009 included Procter & Gamble’s Downy and Unilever’s Skip.
Supermarkets rally in Asia but falter in Latin America
Growth in one-stop shopping continues to fuel opportunity for the home care industry, especially in the emerging economies where retail modernisation has been intensive. In 2009, supermarkets and hypermarkets accounted collectively for 57.1% of worldwide home care sales, up from 56.7% a year earlier. Growth was strong in Asia-Pacific where participation has climbed two percentage points in two years. It is noteworthy, however, that supermarkets lost some ground in Latin America where the recession encouraged a new lease of life for the traditional sector of small neighbourhood stores.
Consumer financing is one of the unlikely advantages of the traditional sector in Latin America, with store owners often making credit available to trustworthy but cash-strapped households in their local neighbourhood. They do so informally and normally on a low interest rate basis. For both store owner and consumer, this type of financing can offer an economic lifeline during periods of weak spending power.
A new world order for home care
Western Europe accounted for 28% of global home care sales in 2009, down from a 30% share in 2008. Critically, Asia-Pacific is making up ground and is forecast to overtake Western Europe as the dominant region in the world for home care by 2012. Latin America is also hot on the heels of North America.
The home care industry, quite simply, is at the tipping point of a new world order and rarely has there been a more important time for bold investment in a broad range of emerging markets. This is identified as the crux of opportunity over the next five years.
The right type of strategic investment in the developed markets is also a huge challenge. The big difference is that saturation in a number of key sectors, together with a burgeoning consumer awareness of environmental issues, puts market share top of the agenda. Innovation, segmentation, advertising and competitive positioning will be evermore important as these developed markets begin a slow and nervous recovery from the worst financial crisis in living memory.
Globally, there is everything to play for as we move through a new decade of big potential changes.
More Home Care Industry Research from Euromonitor International