The Market for
Laundry Detergents in Australia

TABLE OF CONTENTS

• EXECUTIVE OVERVIEW
• INTRODUCTION
• GENERAL OVERVIEW
• THE PORTER MODEL FOR INDUSTRY ANALYSIS
  • POTENTIAL ENTRANTS
  • BUYERS
  • SUPPLIERS
  • COMPETITIVE RIVALRY
  • THREATS OF SUBSTITUTES
• CONCLUSIONS
• OTHER CONSIDERATIONS AND MANAGERIAL IMPLICATIONS
  • ORDER OF ENTRY
  • GROWTH OF GENERICS AND HOUSE BRANDS
  • CATEGORY MANAGEMENT AND CONSUMER RESPONSE
  • FUTURE POSSIBILITIES
• REFERENCES AND BIBLIOGRAPHY (Available upon request)

The objective of this paper is to examine the market for Laundry detergents in Australia. In researching this market, it is envisaged that a clearer picture of the main actors, issues and potential will emerge, providing a bird's eye view of the latent opportunities and potential threats.

These products, both liquids and powders, constitute the major portion (76%) of the grocery category termed "Laundry Needs", which makes up 1.93% of the Grocery products market. This sector, in turn, makes up a third of the one hundred billion dollar retail market.

The examination of the industry forces reveals some surprising facts and points to some potential for entrants. It also highlights the possibility of a surprise entrant which could upset the equilibrium of the entire industry. It concludes by delineating a tactical path for potential entrants and discusses some issues that may have some strategic significance to manufacturers.

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INTRODUCTION

The subject of this paper is the laundry detergent segment of the retail grocery category termed "Laundry Needs". This category is comprised of Laundry Detergents, in both powder and liquid forms, fabric softeners, bleaches (both powder and liquid), soakers/stain removers, and pre-wash liquids.

The geographic area of study is Australia, with some additional detail on Queensland, and it is envisaged that the paper will attempt provide projections of the market value for the laundry detergent segment of the category. In addition, the main players in the market will be analysed in terms of their respective product offerings and brand shares.

The results of the research will be summarised and conclusions drawn before some additional issues are identified and discussed. In the course of this portion of the exercise, some possible directions which the industry may take are discussed. Although many of the issues and information discussed appear to relate to the retail industry, the study has been conducted with the objective of providing an overview from the manufacturer's standpoint. The retail level issues are important in that they determine the derived demand for the manufacturer's products.

Research has been conducted by reviewing secondary published data on the industry and current marketing literature as it pertains to the field of study, namely, grocery sales. As such, the various computations and conclusions can only be as accurate as the statistical information and sources upon which they are based.

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GENERAL OVERVIEW

The size of the retail market in Australia is estimated to be 108 billion Australian dollars per annum (AC Nielsen-Retail World, 1995). One third of this figure, 30 billion, is from the sales of grocery products, and of this figure, only 1.93% (A$581.2 million or 0.57% of total retail sales) is made up of the sales from the "Laundry Needs" category. Given the large dollar values however,the apparently minuscule proportion that the segment's sales represent in the overall scheme of retail sales still amounts to A$445.4 million per year. This segment takes the lion's share of sales for the category, approximately 76% (1.48% of total grocery sales).

The framework established by Porter (1980) for the analysis of industries has been used to group and present the data. Where no specific published data are available, deductive reasoning was employed to arrive at possible scenarios or conclusions.

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THE PORTER MODEL FOR INDUSTRY ANALYSIS

According to Porter, the five forces that are present in competitive industries combine to impact its attractiveness and ultimate profit potential. Also as important is the economic structure of the industry and this is examined as well in the section on Competitive Rivalry. It should be noted that none of the forces actually exert their respective influences on the industry in isolation. They each act and interact to create an overall environmental state for industry.

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POTENTIAL ENTRANTS

A far greater obstacle is the fact that the population for the entire Australian Continent stands at under 18 million but is distributed over a land mass that is roughly the size of North America. To even attempt to penetrate this market requires access to an extensive distribution network which may not necessarily be forthcoming as this is largely controlled by a very small number of corporations (this will be examined in greater detail in the section on "Buyers").

In the course of researching the industry, and identifying the main players in Australia, it has emerged that Proctor and Gamble (P&G), one of the World's largest manufacturers in the category, does not have a presence amongst the industry leaders of this category segment. Given the company's enormous resources and experience, it is unlikely that such a situation is due to an inability to challenge the existing market leaders. The only logical conclusion is that P&G has chosen not to compete in this particular segment. The company is present in Australia but has so far chosen to be active in other categories. The implication for the incumbent manufacturers in the arena is that in the event P&G decides to enter the fray, a substantial threat to their individual market shares in inevitable. This is in spite of the entrenched positions enjoyed by the existing market players (For a listing of the industry leaders, see section on Competitive rivalry).

BUYERS

The impact of "Buyers" in relation to Porter's model refers to the collective bargaining strength of the industry members' customers. In the context of the products in this study, the "buyers" are composed of two distinct groups and therefore give rise to the need to examine the the issue of collective bargaining positions on two separate dimensions.

The first group of buyers is made up of the distribution channel members, who for the purpose of this study will be termed "customers". As mentioned earlier, the distribution of grocery products in Queensland and the rest of Australia is controlled by a small number of very large conglomerates. Major chains account for over 70% of branded grocery sales (Retail World, 1995). Table 1 illustrates the dominance of chains in the distribution of grocery products in Australia.

Chains versus Independents
	Independents	Chains
	% Share	% Share
New South Wales	13.9	86.1
Victoria	27.7	72.3
Queensland	22.9	77.1
South Australia	38.5	61.5
Western Australia	53.5	46.5
Tasmania	23.7	76.3

Table 1. State by State analysis of branded Grocery market shares.

As the figures in Table 2 illustrate, Queensland is jointly dominated by Woolworths and Coles Myer (Column A). Column B shows Queensland sales as a proportion of the National volume, and Column C shows the number of outlets operated by each corporate entity. Note that the number of outlets includes independents as in the QIW instance and discount stores such as Kmart in Coles Myer (excluding mass merchandisers like Target). On a National scale, the picture is not very much different with Woolworths and Coles Myer holding 31% and 24% respectively.

Due to the popularity of the outlets operated by the chains, it appears that the industry's customers wield a fairly significant amount of power. The exclusion from any single one of the top three corporate chains spells a substantial, if not disastrous change in sales for any manufacturer. In addition, the general trends taking place in retail sales is generally to the advantage of the larger chains. This is supported by the Australian Bureau of Statistics data which shows a 10% reduction in number of retail stores and 10% increase in size of retail stores in the last year.

The other dimension of buyer power relates to the "consumer" who is responsible for generating the derived demand for the manufacturers' products. This derived demand is channelled through the customers' outlets and adds to their already substantial power base. As mentioned previously, the population of Australia is small and dispersed. The growth rate of the population is also relatively low (see Table 3). This is an important consideration as there is a logical correlation between population and Retail markets.

Population and Retail Sales
State	% Population				% Retail Sales
Year	1992	1993	1994		1992	1993	1994
NSW	35.7	35.7	35.6		37.8	36.8	37.3
VIC	25.4	25.3	25.1		23.9	24.1	22.8
QLD	17.4	17.6	17.9		17.5	17.7	18.4
SA	9.3	9.2	9.2		8.8	8.8	8.6
WA	9.5	9.5	9.5		9.4	10	10.3
TAS	2.7	2.7	2.7		2.6	2.6	2.6

Table 3. Population and Retail Sales (Source: Retail World)

Although a more detailed examination of the retail market, specifically the Grocery sector by state, shows slight variations (Table 4), there is a general observable pattern which supports this conclusion.

Grocery Sales by State
State	%Share	%Change
New South Wales	31.2	-3.4
Victoria	25	-4.6
Queensland	19.7	6.5
South Australia	10.2	9.7
Western Australia	11.1	4.7
Tasmania	2.8	-9.7

Table 4. Grocery Sales by State

Population numbers aside, there are other consumer-related issues which are important to the manufacturer. These include the trends in consumer shopping behaviour which, in any other country, might affect the choice of distribution channels but here in Australia, because of the dominance of chains, are relegated to retail level operations. Examples of these would be the move by stores toward making shopping an "entertaining" experience, or the increased number of working women leading to higher incomes and "convenience" or "Just-In-Time" Shopping (Berrel, 1995).

SUPPLIERS

The power of the chemical industry that supplies the raw materials to the detergent manufacturing industry is relatively low. This is due to the fact that the demand for their products is derived from the demand for detergents. The detergent manufacturers cater to the current and future needs of consumers through the development of new formulations and relate these to their suppliers. A prime example of this is the current trend towards producing higher detergent concentrations and the addition of enzymes into detergent products. Such moves result in new formulations that force chemical suppliers to modify or re-engineer the increasingly complex detergents (Breskin, 1995).

COMPETITIVE RIVALRY

According to Retail world, there is only a handful of detergent manufacturers (27) active in the Australian market. Lever-Rexona and Colgate-Palmolive jointly dominate the industry and together account for over 65% of its sales in dollar terms. The rest of the market is comprised of over two dozen other manufacturers with Cussons leading the pack in terms of dollar value.

Mkt Position	Company	$ Millions	%Share
1	Lever Rexona	162.29	36.44%
2	Colgate-Palmolive	131.52	29.53%
3	Cussons	32.63	7.33%

Table 5. Corporate Share by Value and Percentage (Source: AC Nielsen)

According to AC Nielsen's list of the top 100 grocery brands in Australia, seven are household laundry detergents. Colgate-Palmolive and Lever Rexona each have three brands in the running and the seventh brand is offered by Cussons.

Ranking	Brand	Manufacturer	$ Millions	%Share
35	Omo/Omomatic	Lever Rexona	61	13.76%
50	Cold Power Laundry Detergent	Colgate	49.4	11.14%
51	Surf Laundry Detergent	Lever Rexona	48.9	11.03%
67	Drive Laundry Detergent	Lever Rexona	36.6	8.25%
70	Dynamo Laundry Detergent	Colgate Palmolive	35.5	8.01%
71	FAB Laundry Detergent	Colgate Palmolive	35.3	7.96%
94	Radiant	Cussons	28.1	6.34%
	Total		294.8

Table 6. Source: AC Nielsen's Top 100 Grocery Brands (6/11/95)

Whilst the greater portion of the market is held by established brands, 12.43% does belong to a collection of minor brands. In addition, Housebrands and Generics account for 33.6 million dollars each year in this market, a figure that translates into an 7.55% share (See table 7).

The relatively small share held by Housebrands and generics is most likely a result of the much larger research and development resources of the big companies, as well as the brand equity and promotional budgets. Research has shown that generics tend to lag behind in terms of market share in products categories characterised by high innovation (Lang, 1994).

In terms of Brand equity, there appears to be a fairly high level of brand loyalty in the laundry detergent market with all three major manufacturers reporting strong brand preferences (Retail World, 1995). This is possibly due to the strong supporting advertising and promotional programs each has in place. The market leaders have, for example, a high commitment to manufacturer-driven promotional programmes designed to encourage trial such as targeted sampling programmes through appliance manufacturers.

All things considered, the battle for leadership in this industry rages on between Lever Rexona, a subsidiary of Unilever Australasia, and Colgate-Palmolive, owned by the American parent company of the same name. It is unlikely that any participant, existing or potential (with the one notable exception previously mentioned), has the capability or wherewithal to pose a significant threat to their joint dominance of the market. The oligopolistic nature of the market brings with it all the characteristics, such as conscious parallelism, and tactics such as price deterrents to entry (Douglas, 1992).

The threat of technological substitutes or alternatives does not appear to be overwhelming. Unless technological advances make the washing of laundry unnecessary, the question that faces the consumer really is that of price range, brand and form (that is; liquid, powder, concentrate and pack).

There has been some noticeable movement towards the use of concentrated laundry detergents, both in liquid and powder forms with Concentrates moving up substantially in market share.Whilst the drop in the regular formulations is small, the figures also indicate that ALL the new growth is taking place in the area of concentrated formulas. The advantages perceived by the consumer are largely tangible and take the form of lower cost per wash, easier handling and storage. Concentrates are projected to continue their strong growth and currently already have a third of the powder market and overtaken the conventional liquids in market share (Supermarket, 1995).

Table 8. Market share by detergent concentration. The other trend taking place is that of a growing consumer preference for washing in cold water. According to Colgate-Palmolive, sixty percent of consumers are now washing in cold water.According to reports (Retail World, June 1995), Housebrands and Generics account for a small percentage of this market and the trend seems to indicate this shrinking further as the Australian economy picks up.

From the information collected, it is fairly self-evident that the market for laundry detergents is undergoing some shifts in terms of product offerings by the manufacturers. It can be seen that in the relatively (to powder detergents) new liquids segment, Australian manufacturers occupy third and fourth place with market shares of 7.7% and 3.1% respectively, outperforming (in total) Cussons for share of market value.

The conclusion that can be drawn from this is that there is definitely a possibility for smaller (when compared to the giants) manufacturers to penetrate and hold a slice of the market, provided that the category in which they choose to compete is relatively new, for example, concentrated cold washing liquid detergents.

The other possibility is that the changing preferences of consumers could lead to achange in the industry strategies. The swing away from powders could very well lead to a decision by other giants like Proctor and Gamble to enter the competition, leading to a three-way fight for domination in which the real winner can only be the consumer.

Nevertheless, it seems unlikely that such would be the case since both the current market leaders are of comparable sizes. In addition, the existence of oligopolistic tools of deterrence makes the possibility of mutually assured destruction (of the market profitability, at least) very real and uninviting.

OTHER CONSIDERATIONS AND MANAGERIAL IMPLICATIONS

Academic research has indicated that the speed of new product introduction "can be critical to future profitability and market share" (Peterson, 1993). On the other hand, studies also suggest that later entrants to the market also reach their asymptotic performance as quickly, if not more so, than the earlier entrants (Kalyanaram and Urban, 1992). This may very well be the reason why Proctor and Gamble has not been active in this sectment of the Australian market. Their corporate philosophy may preclude from consideration markets that do not possess the conditions conducive to their entry and domination thereof, or at least contention for.

Realistically, such conditions can not apply to smaller manufacturers who would find it impossible to challenge the industrial giants on their own ground. They can however, enter the market without monopolistic aspirations and carve out a profitable slice of the market for themselves.

GROWTH OF GENERICS AND HOUSE BRAND

At the same time, a possible strategy for manufacturers considering entering the market is the manufacture of retailer's (House) brands and generics. Although Housebrands and generics accounted for only 15.9 per cent of the all category volume in 1994, and is generally declining, this is not the case worldwide (Button, 1993). A possible strategic path is to enter via the generic market, moving to housebrands and finally to establishing its own brand.

One development to note is the trend for retailer's to reposition their house brands to compete with national brands. The best example of this is Coles Myers' "Farmland" line of products. The success of their re-positioning will lead the way for other chains and may lead to even greater pressure on the market leaders. This follows the reported trend in the American supermarket industry of positioning private labels against national labels on a regional scale (Unger, 1995)

Category Management has been defined by Marketing News (1992) as "managing product categories as individual business units and customising each category's product mix, merchandising and promotions according to customer preference on a store-by-store basis."

Whilst Category Management has been readily adopted by Australian supermarket chains, there appears to be some reluctance on the part of manufacturers to abandon the old adversarial relationships (Narayanan, 1994). One of the critical ingredients for successful category management is the quality of the supplier account management - that is, the relationship between supplier and retailer. The supplier should be responsive to the needs of their customers and their customers' customers. It can demonstrate this by actively assisting the retailers' attempts at category management at both operational and strategic levels.

The lack of supplier cooperation that is perceived by the retailers, especially the chains, presents an opportunity for an existing or potential participant. The recognition that "most consumer purchases are made at the point of sale" is important to suppliers in that it affects their marketing and product packaging (Marketing Management, 1993).

It is important to note that Category management is but one part of a series of strategies termed Efficient Consumer Response or ECR (Shoebridge, 1995). In essence, ECR is the crystallisation of the marketing concept (Kotler, 1994) as it applies to retail situations : How does a manufacturer deliver the right product to the right consumer at the right price. The implication of this is that detergent manufacturers cannot simply reply on their product's attributes. They need to consider all the factors that the consumer, as well as the retailer, takes into account when considering a purchase. At the consumer level, these include packaging, brand loyalty, shopping preferences, advertising and even Point-Of-Sale (POS) promotions.

At the retailer level, Direct Product Profitability, space management, logistics and support programmes that contribute towards their growth are important considerations. Essentially, there should be a recognition by manufacturers of the symbiotic nature of the manufacturer-retailer relationship and there should be a move towards pursuing a more collaborative trading partnership. This also entails greater emphasis on the category and less on their individual brands (Progressive Grocer, 1995).

In order to achieve this, manufacturers need to work closely with their distribution channel partners to capitalise on technological advances, such as POS scanning, to obtain the necessary information about the consumer.

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Australia's static population severely limits the potential for organic growth in the industry. Most growth for any single manufacturer must come at the expense of competing brands. As such, a lot of emphasis has been placed on innovation in such areas as product line extensions, and promotional activities. Some areas that have been looked at in some detail are, the impact of general media (Amin and Dave, 1993) advertising on consumer behavior, environmental emphasis in advertising (Schuhwerk and Lefkoff-Hagius, 1995), and Point of Purchase (Shermach, 1995) advertising on consumer choice.

However, one area that has yet to be seriously explored by the detergent industry has been packaging. Apart from the move to ultra-concentrates and refill packs, the industry has focused on packaging largely as a communication tool. A possibility here is the study of the actual usage habits of the consumer. It would not be beyond the imagination, given the trend towards liquid detergents, for example, to devise a self-measuring, refillable dispenser/container. This would not be contrary to the established packaging strategies and might in fact increase sales, given the noticed consumer trend towards under-dosage, by ensuring correct dosage applications.

Environmental issues may also come to the fore especially in the context of Australia, the world's second most environmentally conscious country (Supermarket, 1995). The slated introduction in 1996 of the ISO 14000 Standards For Environmental Management (Kinsella, 1994) will highlight another potential marketing strategy. The future possibilities remain just that - "possibilities". That is, until some organisation takes up the task, and the challenge, of exploring them. The results of these expeditions into new waters will, in themselves, initiate changes in technology, human perceptions, business practices.