Across most countries shaking hands is a way of greeting each other, especially in the case of businesses. But when the paranoia of such contact leading to deadly diseases grips the world, then most people resort to curative measures, instead of taking up strict preventive ones. In this instance, I am talking about hand sanitizers.
We saw this craze during the times of Ebola in West Africa; for me personally, in Nigeria. When contact was the biggest cause of the spread of this disease, there was a rush for hand sanitizers, however ineffective it was. People were shaking hands and sharing sanitizers with each other to rub right after that. Literally, everyone was carrying a bottle of that solution in their pockets. Opportunist traders doubled their prices in most instances, and yet manufacturers and importers got stocked out in no time. This was in 2014.
Going by that trend, a few eager business persons might have expected windfall gains from being in this business and invested into it. If they had, then it would be safe for me to say that the trends didn’t last permanently. Soon, the use of sanitizers went back to normal and most people resorted to their older habits.
Fast forward to today, in 2020, we are experiencing the same phenomenon globally of sanitizing our hands every now and then due to COVID19. Washing hands frequently is being advocated by WHO; but that being inconvenient and inaccessible at times during work, sanitizers are the preferred tools of disease prevention.
The trends caught on early this time in Nigeria, with pharmacies and shops running out of their supplies almost as soon as the news of the first few COVID19 cases hit the headlines. I am sure, this would have been a similar occurrence in other similar geographies like India. Ever since the disease went out of control in many countries, following Italy and China, manufacturers are thronging to get their hands in to get a share of the growing pie of sanitizer market.
No doubt, many would have a greater cause in mind, to assuage the pain of the masses that has been caused by the scarcity of the alcohol based cleaning solution. For instance, LMVH, in France, followed the call of the French govt for the industry to help them in the manufacturing of sanitizers for hospitals and the medical fraternity, and converted their fragrance manufacturing infrastructure within 72 hours.
Closer home, a news report 3 days ago stated that Bacardi India also plans to support the govt in producing around 70,000 liters of hand sanitizers. These are great initiatives amidst the scarcity that is being propelled by higher demand and logistics and supply chain issues caused by the lock-downs.
But there are those who probably entered this market with hopes of a growth in their business. The most evident cases of new launches that I have seen in the news are that of Nycil, Dabur, CavinKare and the latest, Nivea, although its not clear if Nivea intends to extend the product commercially.
Given that the hand sanitizer market was estimated in 2019 to be of 20+ million USD (150 Crores) and possibly growing at around 10-12% or more (Source: ETBrandEquity), this has been said to be a market with potential for decent business, even before COVID19 crisis arrived. Or at least this is how the new entrants would probably justify their business decisions, apart from the other humanitarian reasons to support the cause against the pandemic.
I am not here to doubt the intent of the companies while trying to help out by making this much sought after product. That is the need of the hour and I feel nothing but appreciation for all these companies. But what I am here to post about is an analysis of how the market would probably look like for these hand sanitizer brands after we overcome the Corona Virus crisis and what it would take for these businesses to break the clutter and stand out among the sea of hand sanitizer brands that have flooded the market.
Alright, lets start the analysis!
Theoretically speaking, the sanitizer market in India could be huge
Anyone who starts studying the possibilities of entering a new market starts off the with the question of how big the existing market is. As mentioned earlier, the hand sanitizer market in India annually stood at about Rs. 150 crore or 20 million USD as of pre-COVID19 times. $20 million is, in no way, a big category. For a country the size of India, that’s peanuts, figuratively speaking.
So, whats the catch? Were so many brands really rushing towards launching their products in this category even before COVID19 had struck? Did everyone here see any potential, more than the current size?
For the sake of this post, lets assume there is a potential, and here’s how I justify it.
Even if you ignore the growth rate, India has a huge population of over 1.38 Billion people. Around 35% of this population is between the age of 15-35 years and around 40% population belongs to the middle class (Source: Wikipedia 1, Wikipedia 2). If you work with these numbers, you’d be looking at a potential low hanging fruit of over 190,000,000 people of the right age group, and capability to have the disposable income to purchase things like hand sanitizers. If you make a country of these people, then it would be the 8th largest country in the world by population.
So, although the current category size is too small, there is a potential for this market to get huge. Imagine if each of these 190m people buy just 1 bottle of sanitizer in the whole year, the category would become a $120+ million category, which is a sizable industry, even under the considerably conservative estimates.
Meanwhile, there is no denying that there is a latent need for this product. There is a certain value it offers to consumers. Especially, those who are often out in the field and do not have access to water and soap, and those people who would rather rub their hands with alcohol than look for the nearest sink to wash their hands. The 100 million dollar question would be: how to get these 190m people to start adopting the habit of using this water-less hygiene tool. I have a fair amount of ideas, but lets leave that for the individual brand managers to figure out their original ones for now.
So, so far, we have established that the hand sanitizer category has some potential indeed to grow beyond what exists now. But now the question on my mind is: does that justify more and more players entering this category? It is not exactly the blue ocean for new businesses to enter and thrive. There are already a lot of strong players in this market. In order to understand this better, we’d have to look at it within a better framework. In my mind, the Porter’s 5 forces gives a perfect well rounded view of whether or not this industry is lucrative enough. So, lets break it down for a better comprehension.
Porter’s 5 forces analysis for the sanitizer market
Low barrier to entry
In business, a low barrier to entry can guarantee you a much higher number of competitors. Every Tom, Dick, Harry, and their cousins and their nephews, whoever has some amount of money, will rush in to compete with you, if the market is deemed potentially profitable. Well, taking a lesson from my past experience, I would suggest to stay away from categories with low entry barriers, unless you have the financial muscle to wrestle it out in the ring.
This category seems to be exactly that. Have you wondered so far in this article, how is this Sanitizer made? If you are curious, then you can go check out the Wikipedia article on how to make sanitizers as recommended by WHO. They have even specified the options of compositions for people to start producing on their own.
If the wikipedia post sounds too scientific to understand, here are some video versions from YouTube (although I can’t guarantee the veracity of these videos because I am not technically qualified for this):
Well, it seems there is nothing proprietary about making this product as seen in these videos above. Besides, the process seems extremely simple, with just some amount of mixing. It sends the alarm bells ringing immediately. If this is so easy to make, then my next question is: for a large scale production, is the capital expenditure (Capex) going to be high, like sky high for people, to not be able to afford?
I did some basic searches on the internet and found that you could practically start manufacturing locally for as low as 5,000 dollars. As you scale up to build for more capacity, of course you’d have to pay more, but even if it costs a couple of million dollars, the process is just so simple, that anybody could come up with a local brand with 5,000+ dollars to spare.
That’s about capex, but what about the COGS? Is it going to require a huge working capital? To get those answers, I did some rough back of the envelope calculations with the available information on the internet for the ingredients.
A 50ml hand sanitizer solution would cost me Rs 2.28. I have not included the packaging costs and other overheads of production, but the essence is that it is so simple to make and costs are pretty low. If each of these bottles retail at the regular price of around Rs. 70 per 50ml, there is a handsome margin to be made. At this point in time, I have every reason to believe that there is no stopping small time players to rush to this glaring opportunity due to the low barriers to entry.
Could you differentiate in the product and gain an edge? Once again, the answer seems no. There is little you can do here to ensure you have an edge, in terms of the product itself. It is a cheap, and easily produced product.
The only places you could possibly differentiate are in terms of cost leadership, and maybe brand building.
To be able to have cost leadership, you’d need to be more cost efficient than others by sourcing the cheapest, eliminating more wastage, basically be kick-ass in manufacturing. Thus, be able to provide the products at more affordable rates.
Other than that, you’d need to invest heavily on advertising and brand building to be able to get more top of mind awareness. That, probably, is the only barrier to entry you could have in this category: your ability to dig in deep into you pockets.
Strong threat of competitors
The list is long and the players are strong. Companies like Reckitt Benckiser and HUL have been at this game for long and likely carry majority share. For the lack of any reliable data online, my guess is that Reckitt and HUL share the majority of the market with their brands Dettol and Lifebuoy. One such source quotes these numbers as a reported behavior of Dettol being the most preferred with 62% preference, while Lifebuoy comes in at second place with 21% and Himalaya gets the third position with 17% preferring this brand.
Apart from them, there are other FMCG giants who also have some presence across retail outlets in the country as listed below. The list includes even the new entrants, whose prices are still a bit unclear to me due to the govt decided prices currently.
This is a cluttered market with too many strong players, Dettol and Lifebuoy being the most prominent. But there might be hope yet for the other guys because the category is in a nascent stage and most regions are under-developed. If they could find a niche market to bombard their ads and use their resources well, they could as well become the dominant player in that geography. It is something similar to what Santoor did, as I had posted earlier in another article.
If any of these guys want to go nationally and take the established competitors head on, then I believe Reckitt Benckiser and HUL have enough marketing muscle to drown out anyone else. Therefore, it would be advisable that the weaker players attack from the flanks and try to work as per their strengths. Otherwise, it just seems a bad idea to be playing in this segment.
Strong power of substitutes
WHO recommends that that best way to clean your hands is to wash your hands with soap for at least 20 seconds. This method is much better than using any sanitizer. This fact poses the greatest threat to the success of the sanitizer industry: the threat of more effective substitutes – Soap.
Personally, I prefer soap and water to any alcohol based solution, just because it not only feels cleaner, but I know in my mind that it is, in fact, cleaner to wash. This kind of awareness and orientation would possibly kill the sanitizer usage on many occasions.
That aside, difference in prices is tremendous. Look the comparisons below.
Both in terms of effectiveness and prices, soap bars triumph over sanitizers. The cost per occasion of sanitizer usage turns out to be over 6 times that of soaps usage per occasion. In a country like India where the masses are mostly price sensitive, or widely aware, soaps would be preferred any day on most occasions. That leaves us with only one opportunity, i.e., occasions when water isn’t available easily. This could be while commuting, or in between meetings in offices. Honestly, it leaves with us little choices of occasions. It would take a genius idea to get sanitizers to beat soaps.
Medium to strong consumers’ power
Going by the pre-COVID19 era, consumers really didn’t have much choices but to pay the heavy premium that brands were charging. But the COVID crisis and the government’s directive to limit the prices will set a new precedent for the pricing strategy for the players.
If consumer usage increases, there will be pressure on the companies to not go back to their old prices and maintain a more affordable lower price than before. This would, in turn, have an adverse impact on the gross profit margins.
It would not be incorrect to say that the power of consumers has increased due the scenario now. The circumstances are good, in a way, since people have now started viewing this as an essential item. But for the brands, you win some, and lose others. Apparently, brands will lose on the price front and margins front.
Threat from suppliers is weak
We saw in the COGS that the main ingredients are Isopropyl Alcohol and distilled water. Isopropyl alcohol is a pretty commonly used ingredient in the preparation of solvents and the medical fraternity has been using it for long. There seem to be quite a few manufacturers within India who would probably be equipped to cater to the rise of demand for this product. So, I don’t see an issue with the bargaining power of the suppliers here. It would probably be a smooth sail for Sanitizer makers. Among the five forces, this is the most favourable one for the industry.
Conclusion: Although there seems to be a market, playing here will not be for the weak
Everyone would like to enter a market that seems lucrative and easy to enter. But sustaining business profitably in the long run is no child’s play. With all the insights seen so far, the sanitizer market seems to be a game of:
- Low differentiation
- Low margins (in future due to consumer pressure)
- High marketing investment
Every point here suggests that it would not be wise to enter the segment, unless one has a very short term, opportunistic view of making profits while the crisis period is on. Even then, it would be extremely short-lived as the market will be flooded with local branded products, generic unbranded products and well known names. It might soon become hard to even get rid of the limited inventory that smaller players might accumulate; eventually leading to distress sales and heavy discounts to deplete the finished goods.
For bigger FMCG firms, they should have bigger fish to fry, because the segment itself is too small for the turnover to make any dent to their already gigantic revenues. But given that some of these firms would look to develop the category and dominate the market in the future, it would make sense for those with deep pockets and a clear cut strategy to enter this business and strengthen their portfolio. For these firms, if they have made their mind to enter this category, they’d better:
- Find the right patch of land to stand on. Carve out a clearly differentiated marketing communication strategy
- Dig their heels firmly on the ground. Play according to their strengths, play where their equity and distribution are strongest
- And prepare to push with all their marketing and distribution might to be able to gain an upper hand in the game and eventually overcome all other weaker opponents
In the end, I believe the winner could end up winning big. Despite all the negatives that I illustrated above, the truth is: some games have too many players, some games are played by few. Irrespective of that, all games are won by those who understand the rules of the game, and set out to create a new set of rules of their own and control the game as per their new rules. Lets see how this game unfolds.
Meanwhile, hope the COVID19 pandemic is overcome soon. Remember to wash your hands, or use sanitizers often, whichever you prefer. Stay safe, stay inquisitive and I will see you with something new in the next post!