SCUP Report

Table of Contents

Abstract

This report is an overview of the industrial, institutional and commercial (I&I) cleaners business. Once seen as a necessary evil, industrial cleaning has become a crucial element of the value chain within many industrial manufacturing processes.

Industrial and institutional cleaners market growth, in both developing and developed markets, will continue to be driven by factors such as increasing safety and environmental regulations and the growing public awareness of health and hygiene, fueled by the incidence of global health threats such as the H1N1 (swine flu) virus. The global market is expected to grow at an average annual rate of about 3% on a volume basis.

The market is highly diversified across geographic regions, products and services, end markets and customers. The broad end-market diversification of the I&I industry, the consumable and recurring nature of the products and services, and the governmental and regulatory requirements for hygiene and cleanliness have been the basis for stable growth trends over time for this industry.

Janitorial products constitute the largest segment of the I&I market (about 35% of the total market), based on the market segmentation for North America, Western Europe, Japan and China; the share of the other market segments varies considerably within the regions discussed. Kitchen/warewashing products are the second-largest segment in North America, Western Europe and China. Similarly, North America owns more vehicles (especially cars, carriers and airplanes) per capita than other countries, so the vehicle wash segment in that region is also much larger than in other regions. In contrast, the laundry detergents market segment accounts for a larger share in Western Europe (10%) and China (15%) than in North America (8%) or Japan (7.5%), as Europeans more often live in apartments and use commercial laundries, and China has a very large textile industry and a significant market for washing of workplace uniforms. North Americans more often own homes and use their own laundry facilities.

The following pie chart shows world consumption of I&I cleaners:

Ecolab and Diversey continue to dominate this highly fragmented market. Both of these companies are major players, together contributing to about 24% of the worldwide market for I&I cleaners. The balance of the market in each region is accounted for by hundreds or even thousands of small local or national companies having less (and in most cases, far less) than $50 million in annual I&I cleaner sales. Many of these national, regional and local companies have increased in strength as a result of recent consolidations in the industry. Low barriers to entry (e.g., formulations business, limited economies of scale, low capital requirements) have led to many small suppliers competing for business. Thus, over two-thirds of the market remains very fragmented.

The market is served by a diverse number of products (often dilute liquid products) sold in many different-size containers. Thus, almost all formulating and marketing must be done within a specific region. Product differentiation through chemistry is limited. However, service (i.e., proactively responding to customer needs and providing product-related value-added services) has become an important factor for success and competitiveness.

Except for extremely niche specialized products, the chemistry of most I&I cleaner products is relatively straightforward and manufacturing equipment is also relatively simple and low cost. Thus, capital investment and R&D are relatively low compared with that for chemical manufacturing. Even in the largest and most successful I&I cleaner companies, product R&D focuses on applications rather than on novel products. Most medium-sized companies rely on personnel with good formulations knowledge and the ability to substitute ingredients to achieve the most cost-effective formulation. Smaller companies often rely entirely on suggested formulations from suppliers.

A characteristic feature of the I&I cleaners industry is its relatively high selling, general, and administrative (SG&A) costs. Profitability varies depending on the market segment. Market sectors such as janitorial, in which products can be offered together with associated service or related products at a higher price, are more profitable.

As in many other businesses, there has been increasing consolidation at both the supplier and customer level. The two largest North American suppliers have increased their international presence via acquisitions or joint ventures. For example, Ecolab has acquired many companies including detergent manufacturers, pest elimination businesses and vehicle care products, which can be seen as an attempt to create a larger barrier of entry into the industry. At the customer level, acquisitions or joint ventures have led to more large national accounts that the major I&I cleaning companies compete for.