For the fabric care market players, raising prices risks losing
market share given how price sensitive buyers are. Fabric care
giants Procter & Gamble (
) both announced plans to increase prices to combat rising
commodity prices in China, and so we expect neither to lose market
Fabric Care Business
Fabric care comprises of laundry detergents and large
manufacturers compete on price for the much coveted market share
and so push for higher sales volumes.
While the use of skin cremes, deodorants and shampoos are often
discretionary, almost everyone washes their clothes! This makes
fabric care the most penetrated product segment and lends to its
huge market size. As a result, for a fabric care manufacturer to
grow in excess of population growth rate (~1.2%), the company must
take market share from others players in the market.
Despite big claims in advertising, there isn't much
differentiation between products for the consumer and price becomes
the single most important deciding factor. This drives many
manufacturers to sell acceptable quality at the minimum possible
prices. This also explains why economies of scale from higher
volumes are targeted and why the bigger players manage to survive
in this segment with razor-thin margins.
Why Price Hikes Won't Affect the Big Guys
1) Everyone is Fighting Inflation
Inflationary pressures from higher raw material costs are
prompting the price hikes, which will affect everyone.
2) The 2 Biggest Players are Raising Prices Simultaneously
Given the scale and financial muscle of the leading players,
they are better placed compared to local/regional players to absorb
gross margin pressure over a longer period. Being the first one or
the only one to increase prices would lead to market share losses;
however when major companies like P&G and Unilever raise prices
simultaneously, often the entire market reprices and market share
We currently value
Procter & Gamble with a $75
Unilever with a $35
Trefis price estimate of their stock.