The Price War in Cleaning Chemicals

 

Cleaning chemical manufacturers discuss the pricing dynamics in the region.

 

Filed under
Business
 
September 1, 2021
 
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The Price War in Cleaning Chemicals
 

The COVID-19 pandemic has had a lot of implications, especially on cleaning chemicals. The entire period of the pandemic saw a sudden surge in the demand for products that clean and disinfect effectively. This surge in demand was met with increased chemical production and new players entering the market. As more and more products made their way into the market, they began to compete at lesser prices. This has led to cleaning chemicals being sold at cheaper prices. 

Reasons for dip in the prices 

Manoj Kumar, Director, Fayfa Chemicals says that the market is highly price sensitive and highlights several compelling reasons for the pressure on price:

  • Non-differentiated products

There are very little differences in formulation and/or performance between products.

  • Low brand loyalty 

These products don’t give any intangible benefits of branding. If Product “B” can do the job, there is no need to pay a premium for Product “A”

  • Low levels of service requirements
    As a result, companies cannot charge much premium.
  • Proliferation of me-too products, because it is relatively easy to copy products.
  • Proliferation of businesses, because of low barriers to entry.
  • Proliferation of own brands

Most large retail houses are promoting their own brand, often manufactured in contract manufacturing facilities in UAE.

  • Constant promotions in retail outlets
    Retail outlets resort to continuous promotions to increase footfall.
  • Small market 

The market is small and players are numerous. 

“There is very little that a manufacturer can do under these conditions to overcome the negative effects of the price war. The focus is on achieving high volume and better production efficiencies,” he says. 

 Dhanya Rathish, Assistant Manager, Chemicals Division, Intercare Chemicals adds that the unprecedented demand for supply of disinfectants and hand sanitizers   during the first phase of the pandemic caused a ripple effect within the manufacturing/trading industry of these products. This phase saw the emergence of a number   of companies who wanted to tap into the lucrative business potential of supply of such products. With the passage of time, better awareness and large-scale   availability, the market scenario quickly changed and this in turn started exerting pressure on the sales margins. Manufacturers who had stocked raw materials at   inflated costs expecting the demand to increase were soon forced to realign their margins to expedite the sales of finished goods.

Chandan Singh, CEO, Dhofar Global reiterates that the market is going through some hard patches due to a variety of variables. We've seen a rapid drop in   consumption due to changes in location usage. Many organizations continue to work from home, resulting in a reduction in consumption. Lower occupancy has been   observed in hotels and other institutions, which has a direct impact on chemical usage. Restaurants have seen a large reduction in daily chemical usage as a result of   the growth of online commerce.

Because the demand for this product has plummeted, the companies who deal with it will have to stay afloat. In this context, revenue of hotels and other institutions 

  has been impacted, forcing many businesses to readjust their price structures to stay competitive in the market.

 “Because of the pandemic, the firm had to respond quickly to meet the rapid increase in demand, but unfortunately, consumption fell dramatically, and stock piled   up,   forcing the corporation to put a strain on the margin and sell the stock at a lower price. We've noticed that a few businesses have improved their efficiency in   order to  reduce costs,  and new and innovative goods have emerged, all of which have benefited customers. A prime example would be capsules that are used for a   variety of   substances, including glass cleaners and others,” he says.

Impact on manufacturers

The raw materials and logistics prices have increased due to the movement restrictions worldwide which directly impacts the cost/selling price matrix. The inability of non- MNCs to make heavy investments on automation to decrease the cost is also a hindrance. “This is because of the uncertainty of the pandemic and once the virus is under control this equipment with heavy investment could be a dead asset. Eventually the manufacturers’ bottom line is impacted,” says Dhanya.

Chandan Singh highlights that to regulate market sentiments, manufacturing units were moved to the corner to realign their profitability. However, they have taken rapid steps to eliminate their waste in cost and match themselves with current market requirements.  

Impact of this pricing on the overall market

Dhanya believes that although there was a cost-push inflation for cleaning products in 2020, the market still remains at an all-time low. The reasons are low consumption in industries like automotive, aerospace, electronics, educational institutions, commercial buildings and the hospitality sector. These sectors have had to face the brunt of the pandemic. Coupled with this, the excess supply caused by surplus availability has had a heavy impact. Too many product variants also has led to the oversaturation of the cleaning products market thereby forcing the manufacturers to play a survival game. 

“The price dynamics has proved to be incredibly beneficial to buyers because they can obtain high-quality products at a lower cost. However, we foresee a price increase in the market at a later point, as logistics costs have grown, and as a result, the cost of importing raw materials or finished items has also increased, says Chandan Singh. 

Challenges faced by manufacturers 

Talking about challenges, Chandan believes that the price dynamics has worked to his advantage because it helps to penetrate the market, and people are willing to embrace change as a result of market pressure and their lower income. “We've seen a 120 percent increase in this segment, and we estimate the same rise in the coming month. Thanks to all of the customers who have been blindfolded in the name of a global brand, they have understood that there is always an alternative and higher level of goods accessible on the market. And they've noticed a difference since they've started utilizing it. I believe we have also cannibalized someone's market share to some extent,” he says.

“Though there are considerable challenges coupled with the dire need to optimize margins, Intercare has not compromised on the standards of production or quality. With over four decades of experience in both institutional and retail manufacturing and selling, Intercare’ s business ethos has always been focused on delivering high quality at affordable pricing. Our prowess in manufacturing quality products has allowed us the luxury of catering to diverse business segments. This has helped us to maintain/grow our business even with such adverse scenarios. Our commitment to provide environmentally sustainable products is a reflection of our resolute belief that we care for today and tomorrow,” says Dhanya.

The future of cleaning chemical pricing

Chandan believes that prices will undoubtedly rise as a result of market instability. We have seen major changes in logistics costs, which will undoubtedly affect the pricing of goods.

The global cleaning chemicals market is anticipated to grow at a considerable rate by 2024. But how far it benefits the domestic players is a wait and watch scenario.  The raw material and logistics costs will probably take more time to get back to normalcy. This will definitely increase the cost of production till such time. FMCG giants like ‘The Clorox Company’ are looking at prices across its portfolio of products, with the idea of targeted hikes whereby they will improve margins. This may be applicable for brand leaders because of their brand image and promotional strategies, but not for all players as there is a price war prevalent. The Middle East Cleaning Chemicals market with the presence of numerous international and domestic players is likely to face a downturn for a couple of years after which the market by itself will eliminate the surplus supply and return to a predictable pattern of growth. While the market for Hand sanitizers and personal hygiene products might shrink in future due to the glut in the market, the scope for eco-friendly healthcare cleaning chemicals is expected to increase. However the general cleaning chemicals market is expected to mature/stabilize.