Sales of automatic dishwashing products are heavily concentrated in North America and Western Europe, where growth has been stymied by the meltdown of middle-class spending power. Euromonitor International argues a case for wiser long-term investment in the nascent markets of China, India and Brazil.
Today’s minnow is tomorrow’s big fish
Five countries accounted for 60% of the world’s total dishwasher appliances in 2009, namely the US, Germany, Turkey, France and the UK. What is most striking is that China, Brazil and India, where a new and aspirational urban middle-class has mushroomed over the past 10 years, accounted collectively for less than 1% of units.
By contrast, those same three countries fuelled 31% of the world’s automatic washing machine appliances. It is a remarkable disparity that must surely narrow over the coming decade.
As you might expect, investment in the dishwashing sectors of India, Brazil and China is low on the strategic priority of Reckitt Benckiser, Procter & Gamble, Unilever and Henkel, which collectively dominate the sector at a global level. Unilever’s 80% stake in Brazil in 2009 might look bulky, but translates into a modest US$17 million in actual value, while Reckitt, Procter & Gamble and Henkel are barely visible.
And if you cross over to China, Reckitt is the standout global player, accounting for over three quarters of market value, but generating less than US$1 million in actual sales. With such limited value upside, there is little cause for any of the major companies to raise their dishwasher investment. Or is there?
To shed more light on prospects in all three emerging markets, it is worth taking a closer look at how dishwashing shapes up in its core value bases. The UK, for example, is the world’s third biggest market, generating retail sales of around US$409 million last year, according to data from Euromonitor International.
Roughly, this was equivalent to one quarter of the total value of the laundry detergent sector. This ratio is important because, broadly, it reflects across a range of the sector’s higher value markets. Consider the case of Turkey where the value of dishwashing products was around 30% of laundry detergents last year. Turkey resonates, of course, because of its emerging market profile.
If we use the UK and Turkey as benchmarks, and by collating the 2009 laundry detergent values for China, Brazil and India, we arrive at some interesting statistical conclusions.
First, we see that China has potential to become the biggest dishwashing market in the world, with hypothetical sales climbing to over US$1 billion a year. Secondly, we see that Brazil and India each have potential to break the US$500 million mark, higher than the dishwashing markets of the UK and Germany.
These figures might be hypothetical, but they are not frivolous. It is important to keep in mind that washing machines have only come of age in China in relatively recent times, growing from around four million units in 1999 to over 15 million units last year. Penetration in Brazil also tripled over the past decade.
And in India, total washing machine units increased a whopping 36 times over. It does not take a great leap of faith to believe that dishwashers could follow a similar trajectory and become the next big household appliance in each of these markets. You only need look at the burgeoning and increasingly hi-tech and product hungry middle-classes of São Paulo, Mumbai and Shanghai to appreciate this potential.
Easy to miss the boat
One of the fundamental lessons of emerging market investment for fast moving consumer goods is that those companies with an early foothold tend to be those reaping the biggest windfalls when categories start to boom.
In Brazil and India, for example, Unilever was ahead of the game in laundry detergents at an early stage and is now the dominant player in what are the third and fifth biggest laundry detergent markets in the world. Procter & Gamble heads the rankings globally, but was comparatively slow to get on board in either country and, as a result, remains well off the market share pace.
If you apply the same rationale to the dishwashing sector, you can see that the real upside of dominant positions held by Unilever in Brazil and Reckitt in China is not in retail sales today, but in front-of-mind brand awareness tomorrow.
Following that logic, both companies ought to raise their game in the two other first-tier emerging markets where their dishwashing profile is weak, building positions despite the short-term weakness of value return. Similarly, there seems little excuse for Procter & Gamble not to secure a firmer dishwashing foothold in each of these three markets. Indeed, Procter & Gamble is the dominant multinational home care player in China, so ought to be well able to leverage a stronger dishwashing niche.
Shareholders will often apply pressure on companies to build stronger positions in sectors that present the best short to medium-term opportunities, particularly in a global economic climate that is manifestly unpredictable and unstable. The long-term strategy is, therefore, often discouraged, if not overlooked.
Dishwashing is one of those home care sectors that could easily get left on the backburner. Yet with smart investment it offers potentially some of the most appetising real growth prospects of the entire home care industry. At the very least, emerging market strategy for this sector is worth a second look.