China’s Billion Dollar Insecticides Category and the Global Challenge Ahead

Global retail sales of home insecticides increased by 7% in 2011 (at fixed US dollar prices), the category’s best performance in more than a decade. China was a key engine of new business, becoming only the second billion dollar insecticides market in the world, after Japan. Looking forward, where else might the category invest to keep the growth curve moving upward?

The Japanese model

Purchasing patterns for insecticides tend to be among the most aberrant and unpredictable in the home care industry. Consumer demand does not correlate in any obvious way with positive and negative shifts in the macro economy, for example.
Japan is a case in point. It is the biggest market in the world for home insecticides, with retail sales last year climbing by 5% to reach US$1.6 billion, even though real GDP contracted by 1%. And in 2009, when Japan’s economy shrank by 5.5% and consumer purchasing power came under heavy downward pressure, sales of insecticides still managed 1% growth.

The apparent insulation of home insecticides from bouts of economic instability in Japan can be explained in part by recession-driven household cocooning. Specifically, if more time is spent at home it follows there will be increased usage of insecticides. At the core of the category’s resilience is something more deep-rooted, however. It has to do with the strength of Japan’s health and hygiene culture.

It is no coincidence, for example, that Japan is the second biggest market in the world for consumer health products (after the US) and the third biggest market in the world for retail hygiene (after China and the US), according to data from Euromonitor International.

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Source: Euromonitor International

Category growth is based on retail values (US dollars at fixed 2011 exchange rates)

Health, hygiene and home insecticides

The lesson from Japan is, perhaps, that insecticide manufacturers ought to be looking at purchasing patterns and growth trends in the consumer health and retail hygiene industries as a way to shed light on the most viable and attractive markets for driving new opportunities in home insecticides.

China was the world’s biggest growth market for home insecticides over the 2007-2011 period, based on incremental retail value. And in 2011 it became only the second market in the world to generate insecticide sales of over US$1 billion.

Crucially, the relationship between consumer health, retail hygiene and home insecticides bears out because China was the second biggest incremental growth market in the world for consumer health over 2007-2011, and the biggest incremental growth market for retail hygiene, according to data from Euromonitor International.

The health and hygiene correlation has traction in other markets too. Indonesia, Venezuela, India and Argentina, for example, were each key growth markets for home insecticides last year, but were also high in the growth rankings for the consumer health and retail hygiene industries.

Mapping the Correlation Between Health, Hygiene and Home Insecticides

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Source: Euromonitor International

Six untapped markets with potential for insecticides development

Given that the home insecticides category remains virtually nascent in vast areas of the world, and leans heavily on a handful of countries, it could make strategic sense for insecticide manufacturers to ramp up investment in markets where there is still a limited insecticide culture but a strong heritage for consumer health and retail hygiene.

Over the next five years the most attractive growth markets for consumer health – based on projected absolute values – will be the US, China, Brazil, Indonesia, Russia, India, Mexico, South Korea, Thailand and Taiwan, according to data from Euromonitor International. And the ranking is comparable in retail hygiene, although one can also add Turkey, South Africa and Saudi Arabia.

Of these 13 markets, there are six – Russia, Mexico, Thailand, Turkey, South Africa and Saudi Arabia – that have what can fairly be described as low-impact home insecticide categories. Per capita spending in Mexico and Russia, for example, was less than US$2 in 2011, compared with US$12.70 in Japan, US$6.20 in Argentina and US$5.90 in Venezuela.

This cluster of first- and second-tier emerging markets presents a natural platform for insecticide product development because of potential synergies with health and hygiene growth profiles.

The challenge – and the difficulty factor – is firstly in raising consumer awareness of insecticides in these markets and, secondly, in lobbying supermarkets to stock insecticides. In the world’s fastest growing emerging markets, leading supermarket chains are notorious for blocking what they identify as slow rotation goods.

Much of the impetus for product development in nascent insecticide markets will need to come from SC Johnson, the world’s biggest home insecticides player with a global market share of 30% in 2011. What is more, SC Johnson already has a footprint in Russia, Mexico, Thailand, Turkey, South Africa and Saudi Arabia, and could leverage its portfolio strength in other categories to win over retailers and improve product visibility.

The home insecticides category put in a bullish performance last year, but there is little room for complacency given its high level of dependence on a relatively small number of markets. It needs to use its newfound upward trajectory, driven by China, as a springboard for long-term sustainable growth. To that end, the development of untapped insecticide markets will be key.

Strong Health and Hygiene Markets with Untapped Insecticides Potential

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Source: Euromonitor International

By way of benchmark, per capita spending in Japan was US$12.70