“Home is where the heart is, but may not be where the money is anymore as we’re seeing household products and brands are not immune from the big reset of consumer-spending priorities taking place throughout today’s sluggish, uncertain economy,” said David Garfield, a managing director at AlixPartners and head of the firm’s Consumer Products Practice. “The consumer survey tells us there’s going to be a lot of price and volume pressure on household-products companies of all sizes in the year ahead, but especially those companies that lack the economies of scale and balance sheets of the very largest firms.”
By individual category, 72% of Americans said price is the now their most important consideration when buying home cleaning products; for paper products, it was 70%; and for kitchenware, 65%. When asked how they would change their spending behavior in the year ahead, 51% said they will spend less on home cleaning products; 50% said they’ll spend less on paper products; and 44% said less on kitchenware. Fifty percent of Americans polled said they see no quality difference between private-label and national brands today in home cleaning products; 47% see no difference in paper products; and 46% see none in kitchenware.
“Our survey found that two out of three American consumers underestimate the premium that national household-products brands charge over private-labels, and approximately half of consumers do not see a quality gap when buying private-label,” said Zeeshan Mirza, a director at AlixPartners and a member of its Consumer Products Practice. “This creates the opportunity for private-label to gain share and ‘generic-ificate’ the household-products category, which can be very difficult to reverse.”
The second part of the AlixPartners 2010 North American Household-Products Industry Review, a comprehensive industry study, found that while North American-based HHP companies have maintained relatively high revenues and profit margins in the past year, they have not been as successful in managing down their working capital in the face of the ongoing economic downturn. In terms of days of inventory, for instance, North American HHP companies on average ballooned past the levels of their foreign competitors in the past year, and now suffer a significant 30-day inventory disadvantage vis-à-vis other North American consumer-products companies.
The industry study also unveiled particular challenges for small and mid-size North American HHP companies. It shows that such companies have cash-conversion cycles 60% to 100% longer, and inventory turns more than 60% lower, than other consumer-products companies in North America. On the other side of the coin, the study found that large domestic HHP companies enjoy up to an average 1,500-basis-point gross profit-margin advantage over their smaller rivals and an 800-basis-point lead in EBITDA. The study also finds that rising commodity prices will likely put pressure on all HHP companies, but especially on small and medium-sized ones, adding to their already-intense cash concerns.
“All household-products companies face the vagaries of this sluggish economy and the possible watering-down of their brands,” said John Fuller, also a director at AlixPartners and a member of its Consumer Products Practice, “but small and medium-sized companies face the biggest challenges. Smaller companies should be doing two things: First, investing in operational-improvement programs to at least minimize competitive gaps in manufacturing, supply chain, SG&A, etc. And second, building a bottom-up growth strategy for each of its brands and for each market in which it operates. Smaller companies have one thing going for them – they’re usually more nimble than larger companies. If they can use this to at least get ‘close’ on costs while building a strong growth strategy, they have a chance against larger competitors.”
