Toilet Soap Market Analysis: Introduction: The toilet soaps market is estimated at 530,000 tpa including small imports.

Hindustan Lever is, of course, the market leader.

The market is littered over with several, leading national and global brands and a large number of small brands, which have limited markets. The popular and premium brands include Lifebuoy, Lux, Cinthol, Liril, Rexona, and Nirma.

Toilet soaps, despite their divergent brands, are not well differentiated by the consumers. It is, therefore, not clear if it is the brand loyalty or experimentation lured by high volume media campaign, which sustain them. A consequence is that the market is fragmented. It is obvious that this must lead to a highly competitive market. Toilet soap, once only an urban phenomenon, has now penetrated practically all areas including remote rural areas. The incremental demand flows from population increase and rise in usage norm impacted as it is by a greater concern for hygiene. Increased sales revenues would also expand from up gradation of quality or per unit value.

As the market is constituted now, it can be divided into four price segments: premium, popular, discount and economy soaps. Premium soaps are estimated to have a market volume of about 80,000 tonnes. This translates into a share of about 14 to 15%. However, by value it is as much as 30%.

Porters 5 Forces Model

SUPPLIER POWER Supplier concentration Importance of volume to supplier Differentiation of inputs Impact of inputs on cost or differentiation Switching costs of firms in the industry Presence of substitute inputs Threat of forward integration Cost relative to total purchases in industry BARRIERS TO ENTRY Absolute cost advantages Proprietary learning curve Access to inputs Government policy Economies of scale Capital requirements Brand identity Switching costs Access to distribution Expected retaliation Proprietary products BUYER POWER Bargaining leverage Buyer volume Buyer information Brand identity Price sensitivity Threat of backward integration Product differentiation Buyer concentration vs. industry Substitutes available Buyers' incentives DEGREE OF RIVALRY -Exit barriers -Industry concentration ratio -Fixed costs/Value added -Industry growth -Intermittent overcapacity -Product differences -Switching costs -Brand identity -Diversity of rivals -Corporate stakes THREAT OF SUBSTITUTES

RIVALRY

-Switching costs -Buyer inclination to substitute -Relative price performance of substitutes

New Entrants

The major raw material required for toilet soap is palm oil which is required to be imported from countries like Malaysia. Palm oil is an expensive ingredient and this gives a low cost advantage to the soap industry of countries like Malaysia, China etc. The exporters of these countries could supply good quality soaps at rates less than the Indian competitors.

There are companies like Marico, Kopran, and Anchor to launch soaps in the premium category. Oriflamme has entered the market recently with premium soap for the niche segment Milk & Honey (40 Rs 100 Gms) and Kopran has titled its new offering Shine & Smile.

The new entrants generally cater to small markets for e.g. there are a large number of soap manufacturers catering the local markets of southern states. Most of these players are a part of the large unorganized sector, which directly purchases fatty acids of palm oil from the Indian manufacturers.

HLL takes complete advantage of the economies of scale by procuring huge quantities of raw material and flushes the market with vast varieties of soaps with minor variations.

Brands like Liril, Lux, Dettol created by existing players proves a hurdle for the new entrants like Doy Care (VVF Ltd.) but there are a large number of players operating at the local level.

The switching cost for the consumers is not very high in the soap category. Premium Category, although compared to other does enjoy a better Brand Loyalty. Even in case of specialty soaps like J&J, Santoor, where Brand Loyalty is generally high.

The capital required for manufacturing process is very high in this sector especially if one needs to manufacture standardized quality soap. Most manufacturers in the organized sector like import the machinery from Italy.

Distribution is the key factor in this sector. Companies having a good distribution network are able to cater to a wider market across the country. Sales are volume driven and not value driven.

The specialty about this sector is that it has a high level of learning curve that improves with experience and therefore soap manufacturing is quite often called an art rather than a science.

The duties applicable to this sector are very high and thus prove to be major barrier for the new entrant.

Substitutes

Generally one can point at two general broad substitute threats in the Premium soap category. One threat is from the use of products like body wash and face wash. Though the use of these products forms a very small part of consumption this is basically due to the high costs associated with such products. One can see in the some developed countries which have already registered a cent percent penetration, the consumption of soap has now decreased due to the customers upgrading to Body wash and Face wash.

The second threat is from downtrading i.e. the consumers from the premium category opting for the popular category soap. Any small change in the price of the Premium soap can cause in the shift of the price conscious consumer to opt for shifting to a soap in the Popular category. Most companies like HLL, Nirma cater to both the categories.

Suppliers

The major input for the soap manufacture is vegetable oil (around 80% of the raw materials). Earlier Animal Fat was used which was even cheaper, but after the Indian government banning animal fat, one had to shift to vegetable oils. They are not available in India and thus have to be imported from countries like Malaysia, Indonesia and China. There are only few players who export palm oil from these countries and as such these exporters have a commanding position.

There are various grades of palm oil available and the manufacturer can switch between these grades to save on the cost of inputs. Besides, soap can be manufactured either from fatty acids or directly from the oil.

The soap manufacturers cater to the current and future needs of consumers through the development of new formulations and relate these to their suppliers. A prime example of this is the current trend towards producing higher quality soaps and the customization of the products for e.g. Soap for different skin types. Such moves result in new formulations that force suppliers to modify quality of inputs.

Companies like Godrej and VVF who previously used to supply soaps to other bigger companies have gone for forward integration and started selling their own brands.

Small players cannot afford to import Oils as the price of Oil keeps on fluctuating and these fluctuations, if on the higher side cannot be incorporated in the price of the product in this age of cut-throat competition. So they directly purchase fatty acids of oils from large-scale Indian manufacturers who import Oil and convert them to fatty acids.

Buyer To a large extent, Premium Soap is a price sensitive market. Off late there has been an increasing trend towards downtrading. And this has forced the manufacturers to lower the prices or offer temporary discounts to woo the consumers who are either downtrading from the popular segment or graduating upwards from carbolic soaps. This sector faces low level of brand loyalty. Switching costs is very low and these results in price war and people are concentrating on value-for-money. This forces a lot of players to go for frequent promotional schemes like 3-on-1, 2-on-1. Earlier the decision for purchasing the soaps was equally balanced between man and woman (50:50). Now the decision ratio is 60:40 in the favor of woman purchaser. This proves the fact that today most soaps are targeted at the Indian woman. The buyers, even in the rural area are subjected to the media invasion and are well informed about the basket of products available in the market and thus take a rational decision. Industrial Rivalry

As India has a low per capita consumption of soaps the growth in this sector has been stagnant. Penetration though on an average is 95%, consumption in our country, as compared to other developed countries is a bare minimal (In the rural market, even though penetration is high the frequency of taking a bath with soap is one out of 5 occasions). Capacity utilization in the industry varies from as low as 50% to 80%. The market is littered over with several, leading national and global brands and a large number of small brands, which have limited markets.

There exist high exit barriers in the industry due to high capital investment.