Can new Tide Pods reinvent the laundry business?

P&G is betting hundreds of millions of dollars that a new version of Tide will reenergize its flagship but challenged laundry business.  Coming this September, Tide Pods is being billed by the Company as the biggest innovation in laundry detergent in over 25 years.  Tide Pods are a new line of highly concentrated liquid-filled tablets with two times the concentration (i.e. less water) than the popular Liquid Tide detergent.  This format leverages the same technology as the successful Cascade Action Pacs automatic dish detergent.    Tide Pods promises better cleaning power, improved convenience and a smaller environmental impact through reduced packaging.  According to the Company, Tide Pods has recorded the highest customer satisfaction scores the company has ever seen with a laundry detergent.   Importantly, executives claim that there will be no price increase on a usage basis, a common tactic used in previous concentrated detergent launches to take hidden price increases. 

P&G has told retailers that the liquid-filled tabs could generate up to $2B in sales which translates into a 30% share of the $6.5B U.S. laundry market.  This is not a grandiose forecast.  In the U.K., currently the most developed market for this type of detergent, all forms of tablets (including powder) make up more than 30% of the market.  Significantly, the Tide Pods introduction will be backed by a large –  even by P&G standards – $150M marketing budget with activity kicking off in the summer.  The launch is a big risk for an American market that has rejected a variety of laundry tablet products dating back to the 1960s.

Tide Pods can not come soon enough.  P&G laundry margins are stuck between a rock – increasing raw material costs – and a hard place – on-shelf price deflation.  If you think the former is not a concern for the company, then consider that the phrase “higher commodity costs” occurs eight times in its most recent earnings release. At the same time, P&G is trying to cope with market pricing pressures. While P&G’s products are consumer staples, they are still positioned as premium brands in most of its categories.  In an environment where most consumers are looking to economize in their household purchases, this puts significant pressure on premium, leadership brands like Tide who must simultaneously support pricing levels and build market share.

In a previous blog post, I was highly critical of Tide Basic, P&G’s most recent laundry detergent launch.  This time, I am more optimistic.  Assuming their research is valid, Tide Pods looks like it will deliver compelling consumer value.  Furthermore, P&G stands to gain in many other ways including increased product consumption (which increases market size) and reduced packaging & logistics costs though these will be partially offset by higher manufacturing costs.   Moreover, the Company will bring some real sizzle to a flagging American laundry market.  According to research firm SymphonyIRI as reported in Advertising Age magazine,  retail sales of liquid detergent (excluding Walmart) for the 52 weeks ending March 20, 2011, fell 3% to $3B, while sales of powder detergent fell 10% to $506M.  Market softness may be even worse at the largest American retailer Walmart, where Deutsche Bank has reported sales down 10% in liquid detergent and 20% in powder in the last quarter.

P&G’s survival does not depend on the fortunes of Tide Pods.  Even though P&G has diversified heavily into developing markets, beauty and other household categories, the U.S. laundry business remains vital to the firm’s long term prospects. With more than a 40% market share and high margins, the Tide franchise is crucial to overall company health and long term success.  Time and an embattled consumer will tell.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.


No comments yet

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: