Colgate-Palmolive to Exit Laundry Detergents to Boost Oral Care

Opinion
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30 Nov 2012
Oru Mohiuddin Senior Analyst - Home and Personal Care

Colgate's disposal of its laundry detergents businesses in key Latin American markets indicates a major shift in its growth strategy. It first sold its Colombia laundry detergents

business to Unilever in 2011, and then in 2012 it divested its Dominican Republic laundry detergents business to Henkel. Colombia and Dominican Republic accounted for 15% of its global laundry detergents business prior to the sell-offs. The rising competitive challenges in its core operation - oral care - is making it necessary to amass more resources to invest in product development and marketing, contributing to the laundry detergents divestments. Whether or not Colgate continues to divest its laundry detergents in its entirety is something to watch out for, but the move would prove beneficial for the company in the long run. Limited option in laundry detergents It makes strategic sense to shift resources from laundry detergents to oral care. Colgate is a smaller player in laundry detergents, ranking seventh with a global total of approximately US$1bn . It controlled 2% of the laundry detergents market in 2011, compared to 28% for Procter & Gamble and 17% for Unilever. Colgate would require significant investment to be competitive in laundry detergents against such market behemoths. Instead, Colgate stands to benefit more by investing in oral care, its sales equalling over US$10 bn in 2011 - ten times that of laundry detergents. It is the global leader in oral care and its eponymous brand enjoys worldwide recognition. Divesting the remaining part of its laundry detergents would generate more resources for oral care category expansion. Moreover, Pakistan, Venezuela and Australia account for 80% of its remaining laundry detergents business, thus making it highly disparate, limiting scope for economies of scales further diminishing the incentive for retaining the laundry detergents business. In Pakistan, Colgate is the market leader in laundry detergents, with a 45% market share in 2011. This would help fetch a good price for the laundry detergents business in Pakistan. Mounting challenges in oral care Procter & Gamble is investing in product development in oral care, thus raising the competitive bar for Colgate. Although both companies have managed to drive share growth in oral care in 2011, the competitive intensity can be expected to increase going forward. A key disadvantage for Colgate is that its presence in oral care is less diverse than that of Procter & Gamble. Colgate historically lacked presence in electric toothbrushes, while Procter & Gamble has been the leading player in

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the category. In the last quarter of 2012, Colgate launched rechargeable electric toothbrushes - corroborating its interest in category expansion. Colgate's leading position in oral care has emerged from dominating the leading oral care category - toothpastes - which is, however, reaching saturation point. In CAGR terms, growth between 2012 and 2017 is projected to be led by battery and electric toothbrushes and mouthwashes. Procter & Gamble has a stronger presence than Colgate in power toothbrushes, while commanding approximately equal sales in mouthwashes. Colgate needs resources to invest in category expansion, which laundry detergents divestment could be expected to generate.
Colgate vs P&G Oral Care Market Presence 2011 & % CAGR 2011-2016

Source: Euromonitor International

Looking forward Judging from the growth prospects, it makes strategic sense for Colgate to divest its laundry detergents business to strengthen its position in oral care where future growth would be driven by categories in which its presence is weaker than its key competitor - Procter & Gamble. Divesting laundry detergents in Colombia and Dominican Republic is a move in the right direction, which it should follow up by disposing the remaining part of the business.

Euromonitor International 2013

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