Compact Detergent – Our Largest and Riskiest Project

We know that the market does not respond to our wishes and we are aware that end consumers also need to be educated, which takes a lot of time, and that their habits will not change in a month or two. However, having convinced ourselves that we have a quality product, we are no longer afraid of anything.

Interviewed by: Manuela Tašler
[email protected]
Photo: Željko Jelenski

Osijek’s Saponia has invested four million euros in new technologies this year alone, of which approximately one million is in new powdered detergents labeled ‘EuroCompact’. This is a new product, almost unknown in the Croatian market until now, which will completely eliminate standard powdered laundry detergents from the market. The new detergents are proven to be of equal quality to standard ones, if not better, but the risk is high considering that consumers still need to be convinced that they are now getting one-third less detergent packaging for the same price. Saponia is not entering the project alone, but together with all other manufacturers and importers of detergents.

• A few days ago, a national campaign to educate consumers about the consumption of EuroCompact began. What is Saponia’s cost in this campaign?
– An agreement has been reached that each company in the campaign participates according to its market share. From October 1, Saponia will pay that part of the campaign, and then P&G, Labud, and Henkel will continue. There is a key: in all markets of the former Yugoslavia, we are generally in second place according to our shares. In Croatia, P&G is first in the powder segment, and Saponia is second with about 30 percent share.

• It seems to me that you have performed worse in the campaign than P&G and Henkel, who have had EuroCompact in their product program for several years but have not yet launched it in the Croatian market. The impression is that they did not want to spend on advertising and market conquest.
– We did not bear a larger burden. When we decided to embark on this project, the risk was in developing the production of this product. However, when we tested it six months ago and conducted industrial trials, we saw that we could be very satisfied with the quality of the powder. We are no longer afraid of anything.

• Still, it seems to me that foreign companies have performed better than you because they had the product earlier and could launch it sooner and bear the cost and risk of introducing a completely new product to the market themselves.
– In that variant, where they would be the first to start with promotion, it would appear that Saponia is not at an adequate technological level of development, which would not create a good image of us in public.

• So, you have gained in image through the project?
– We are a company that has worked very hard on itself and we believe that we are worth more than is known in public. With this project, we have proven that we are at the level of global competition in all elements of business.

• It is assumed that EuroCompacts will not be accepted quickly and easily in the market and that you will still have to produce standard detergents for a long time. How burdensome is it for the business to manage a dual production line?
– We know that the market does not respond to our wishes. We are also aware that the end consumer needs to be educated, which takes a lot of time. We also know that consumer habits will not change in a month or two. We have agreed with our competitors that from October 1, there will be no more sales of traditional detergents, but that everyone will switch to EuroCompact. We believe that once the consumer buys EuroCompact, they will become its loyal consumer and that we will not have risks due to product change in Croatia. The greater risk is in markets with lower standards and less media power for consumer education. We are ready to have dual production for a while, even though it is not cost-optimal for us.

• Are you not afraid that some consumers will be dissatisfied that they are getting one-third less detergent for the same price?
– There will probably be reservations among consumers at first. However, we have conducted many industrial trials and the results of those tests are positive for us. Therefore, we have quality, which is the first prerequisite for the competitiveness of any company. When a housewife receives impeccably clean laundry, consumer opinion will change.

• How much money have you prepared for the official advertising campaign for your detergents? I assume you will start it soon after the educational campaign.
– We are aware that we will spend significantly on marketing in the next six months, which does not only relate to advertising on television but a large part will also be done through direct contact. We plan many activities at sales points with the help of hostesses and trial samples. We know that the competition will do the same. We will start promotion on November 1. Our marketing expense, or budget allocated for marketing, is usually between five and six percent. In the next six months, we will increase it by 50 percent and then we will see the effects. We have prepared well and I believe we will accelerate consumer adaptation.

• What does the introduction of EuroCompact mean for Saponia from a profitability standpoint?
– Initially, we will produce both traditional detergents and EuroCompact. On October 1, we switched to EuroCompact in the Slovenian and Croatian markets, while the date for other markets has not yet been determined. Therefore, for the markets of Bosnia and Herzegovina and Macedonia, we are waiting for a date to be set on behalf of the association. While production is dual, the effects will likely be similar to the previous ones, but when we fully switch to EuroCompact production, we expect greater profitability because we will have lower transportation, energy, and packaging costs. EuroCompact has so far, at least since I have been in the company, since 1985, been certainly the largest and riskiest project, but we believe it will also be the most profitable in the long run.

• Can someone from outside the signatories of the agreement on the introduction of EuroCompact to the Croatian market appear and bring a new brand of standard detergent to the market?
– Yes. Anyone who has not signed the agreement and does not have the EuroCompact sign or logo can freely import standard detergent to the market. Now it is more a question directed at retailers to assess whether such powder will have the necessary turnover coefficient and whether the consumer will be able to get used to a brand they have not purchased before. I believe this will not threaten us, especially in Croatia, where consumers love brands.

• Saponia already has some experience with compacts, with liquid detergent for washing on the market, represented for three to four years?
– When looking at the market in the broader region, powdered detergents have an advantage. A smaller segment of consumers prefers liquid detergent, and our realization is increasing in that regard. In relation to the total potential of detergents, these are not significant percentages.

• Is it difficult to follow global trends in your industry? How do you do that?
– Our employees from Development and Production attend all global congresses where new raw materials and fragrances are presented, so through that or with the help of suppliers, we establish contacts and invite experts who then come to our company. They work with all our competitors. The suppliers are the same for everyone in the industry.

• But are their conditions the same for everyone?
– Probably not. Just as retailers do not have the same conditions for all manufacturers, but they depend on the volume of business they have with us, so suppliers determine them according to the volume of business we achieve with them.

• Considering that Saponia has tripled its production in nine years, and thus the amount of raw materials it purchases, have your procurement conditions improved?
– The beginning and end of each year are very inconvenient for us precisely because of negotiations with suppliers and retailers. In this, we try to find a measure, the right balance, because retailers press every year to achieve better conditions in relation to their higher margins, which is logical. On the other hand, it is also logical that we press our suppliers for better conditions because the quantities we draw have been increasing every year in recent years.

• Who are your largest suppliers?
– When it comes to packaging, these are domestic companies like Belišće or Pana, and for raw materials, our largest suppliers are companies from the Netherlands, Germany, and Scandinavia. We always try to have at least two, if not three suppliers for each raw material. This ensures procurement security and maneuvering space for negotiating prices.

• Saponia has quite jumped from the category of lower-priced detergents. Is this not risky in a relatively poor market?
– We monitor the competition. In the regional market, we have two brands: Fax Helizim, the first and priced in the upper category of the product group, and Rubel in the lower segment. According to research by AC Nielsen, Fax holds between 22 and 23 percent of the market, while Rubel holds about four percent.

• Does the competition stick to your prices or do you stick to theirs?
– No one deviates; we stick to their prices as much as they do to ours. Namely, if someone from the competition changes prices one month, and the competition does not react, they will have to return to the old prices because consumers will not buy a more expensive product. This is actually an independent, not a coordinated action. Although we do not agree on prices, no one has the courage to suddenly raise prices because they have not changed in the detergent industry in the Croatian market for the last five to six years.

• There probably hasn’t been a need for that. Your profitability has been rising during that time.
– It is rising, but not per unit. If viewed that way, profitability is falling, but considering the tripling of production in nine years, it is rising based on volume. In the first nine months of this year, Saponia has a growth of nine percent. Since few companies in Croatia have such growth at that level of realization, it can be expected that the company operates at a profit.

• Where has Saponia’s growth predominantly occurred in the first nine months of 2007, in domestic or foreign markets, and what is the ratio?
– In export markets, we are growing by 14 percent, and six percent in Croatia. It is important for us that we record growth in all markets where we are represented. The largest growth in export markets is in Serbia, where we have a good distributor, and the index was about 170. The group that has grown the most in the last three years and in which we made a real boom by changing design, fragrance, and quality is the Ornel softeners. This group has shown us that there are no limits in the category. Whether you hold 30 or 50 percent of the market does not mean you cannot hold more.

• How much does the growth of sales follow the growth of tourism, i.e., hospitality?
– The segment of large consumers is growing as Saponia has been growing in recent years. As there are more and more smaller private hotels on our coast, we are trying to capture as much of that part of the hotel market as possible with the help of our travelers-improvers. This approach is our plus in hospitality. Limitations in hospitality are created by foreign hotel chains that privatize larger Croatian hotels, which then apply work standards with our competition at a global level and to the Croatian hotel market without testing us and our products beforehand. In these conditions, it is very difficult for us to get the opportunity to work with such hotel houses. In many cases, this has been the case, although it has not been a rule. If we were given the opportunity, we are confident that we would prove that we know how to do our job.