The last couple of weeks have seen plenty of action in the soaps and detergents market. From launching soaps in the premium category to undertaking price hikes, consumer companies are putting in place growth strategies for the future. After growing at a good pace in FY12, fast-moving consumer goods companies are fortifying their respective positions in the home and personal care space to combat any slowdown. For starters, ITC has a collector’s edition of soaps under the Fiama Di Wills brands and Wipro Consumer relaunched the soap brand Aramusk. Hindustan Unilever Ltd (HUL) and Godrej Consumer Products have hiked prices of their detergents and soaps, respectively.
This is a segment that will continue to do well despite higher penetration, analysts believe. Through FY12 and FY13, analysts have been predicting a price war in the detergents market, which would erode margins of key players. However, recent trends suggest that it might not be imminent. The Rs 14,000-crore fabric wash market in India is slated to grow to over Rs 24,000 crore in the next five years, says Enam Direct, despite a high penetration level of 97 per cent. And, over the last five years, the fabric wash market has grown at 14 per cent a year in value. Most of this has been driven by price hikes and volume growth has been in single digits. The last 10 years have seen two major price wars in the detergents category, the recent one in 2010 between Procter & Gamble and HUL. The war resulted in the industry’s margins coming down to eight per cent levels. The four organised players currently control over 80 per cent of the detergents market, as unorganised players could not survive the input cost inflation.
Over the last one year, HUL has managed to improve margins in this business to 14 per cent and select analysts expect this to improve further on the recent price hikes. HUL is also trying to encourage consumers to migrate to the next category in order to push premiumisation. HUL’s margin in soaps and detergents improved to 14 per cent in Q2FY13 from 7.5 per cent in Q4FY11, but this was mainly due to improved profitability in the soap segment. Companies like HUL and Rohit Surfactants (makers of Ghari detergent) are not near their pre-2010 margin levels, despite price hikes. The good news is that analysts don’t expect any irrational price wars, which could help sustain margins.
Going forward, the correction in input prices will bring back competition from unorganised players and companies need to adopt a differential strategy to combat this. HUL has three levers in place, claims Kotak Institutional Equities. The company is trying to increase usage, is encouraging premiumisation and is offering new benefits and new products such as liquid detergents, fabric conditioners and liquid soaps. However, unorganised players could queer the pitch.