Low-End Laundry Players Duke It Out for Space at Walmart

Walmart Brings Back Phoenix Brands' Fab and Dynamo and Henkel's Trend

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While Procter & Gamble co. is placing a $150 million bet on the high end of the laundry business with the launch of Tide Pods liquid-detergent tabs this fall, a bruising battle is waging between low-end players.

P&G controls more than 60% of that market, which is estimated at more than $6.5 billion in all channels.

But it doesn't play in the lowest-price tiers, where Walmart has engineered some increasingly stiff competition. As the giant retailer reset shelves in more than 3,800 stores this spring, it brought back such brands as Phoenix Brands' Fab and Dynamo and Henkel's Trend, which hadn't been on Walmart's shelves in some cases for more than five years.

Those brands compete at or near Walmart's "entry price" level, with a price per load at or close to brands the retailer already carried, including Church & Dwight Co.'s Xtra and Sun Products' Sun brand. Both those brands have also seen their shelf space increase in some parts of the country, according to people familiar with the matter.

It's a stark contrast to two years ago, when Walmart drastically pared the number of laundry-detergent brands it carries, particularly at the low end of the market. Then, Church & Dwight's value brand Arm & Hammer, priced above such brands as Xtra or Sun but well below Tide or even cheaper P&G sibling Gain, was removed from shelves in most U.S. Walmart stores, with Henkel's Purex standing alone at that price tier in most stores.

"They acknowledge that they're probably going too far the other way now," said one executive familiar with the matter. But he said Walmart stands to profit either way.

The retailer will give the newly added or expanded brands six months to earn -- or bargain -- their continued place on the shelves before another category reset in the fall, when he expects the retailer to pare back again. That competition will give Walmart leverage to keep prices low and retail margins high, despite price hikes that competitors have announced recently fueled by commodity price increases.

Brands that have won new distribution in Walmart this year have offered the retailer gross margins of as much as 35%, according to people familiar with the matter. That's as much as double what had been the norm for such brands and well beyond what the retailer makes on Tide, which, because it's heavily promoted by other retailers and commands a strong wholesale price, often sells close to or even below cost.

Walmart's laundry strategy is perhaps the most extreme example of U.S. CEO Bill Simon's move to deliver "everyday low prices on the broadest possible assortment." And people familiar with the matter said it's directed squarely at reversing traffic losses to dollar stores. Dynamo, for example, recently has been selling at below $3 for a 22 -load bottle, a level dollar stores rarely reach even on promotional deals on value detergents.

Walmart is looking to reverse a slide in the key category that 's long been a traffic driver and a staple of store promotional circulars for every mass retailer. Last year liquid-detergent sales at Walmart fell 8.9% as category sales at other food, drug and mass retailers fell a more modest 2.8%, according to SymphonyIRI scanner and panel data reported by Deutsche Bank. Results worsened for Walmart last quarter, with sales off 9.9% as the category declined 2.9% in other channels.

That data reflect little of the impact of Walmart adding back in a broader assortment of bargain brands. But it does suggest that a move, which both P&G and Walmart executives said was funded by the retailer to cut the price of Tide last spring, didn't work.

A Walmart spokeswoman declined to comment, and executives of Henkel, Sun, Phoenix Brands and Church & Dwight also declined to comment or didn't return calls for comment. Competitors, particularly Church & Dwight, have pointed to P&G hiking promotion in the category over the past year as a major factor behind declining category sales.

SymphonyIRI scanner data do show P&G's average price per unit down, but only around 1% in liquid detergent for the 52 weeks ended March 20, while category pricing has been flat. Even at that , P&G's average price per unit remains more than 50% higher than the category overall.

P&G hopes to drum up interest in a new laundry formulation with the Tide Pods product and its marketing. Publicis Groupe 's Saatchi & Saatchi, Digitas and Starcom MediaVest Group handle advertising, digital and communications planning, and media buying, respectively. Alex Keith, VP North American laundry, said that P&G research reveals "a lot of deep dissatisfaction with current products or disengagement from the total [laundry] process," driven by the idea that all products are the same and don't necessarily work that well, driven by the shift toward cheaper value detergents.

P&G is banking on Tide Pods to rekindle that growth, regardless of the battles at the low end of the market and, declining U.S. birth rates in the recession and higher gas prices weighing on consumers' wallets. "We have to do that through our innovation," P&G Chairman-CEO Bob McDonald said on a conference call April 28. "I think you're going to see [Tide Pods] will return market growth to the laundry category."

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