Ukrainians are economizing on household chemicals by buying smaller packages, said Tore Birol, president for a local unit of Henkel, the German giant detergent maker with a market capitalization approaching $50 billion. In developed countries, during an economic downturn consumers often resort to buying them in bulk in order to enjoy volume savings
Ukraine will remain for the company a top-eight emerging market, added Birol. Meanwhile, emerging markets contributed as much as 44 percent of Henkel’s 2013 revenue of $22.3 billion.
Birol reported that Henkel’s sales in Ukraine are on the rise since 2011, after the company changed its local strategy to adjust to Ukrainian consumer behavior focused on buying cheap goods that led to the introduction of more “value-for-money” and small versions of the products. Previously, Henkel had a period of decline since the onset of the 2008 Great Recession.
Henkel controls an estimated 15 percent of Ukrainian household chemicals market, while stake of its key rival – America’s Proctor & Gamble – is as big as 55 percent, according to UCM-Inform, a local chemicals portal.
Henkel’s biggest selling brands include the laundry detergents Persil, Losk and Rex, dish-washing soap Pur and the Schwarzkopf line of hair care products.
However, political instability undermines public confidence and inhibits long-term strategic planning. Devaluation of the national currency, hryvnia, by 40 percent since January makes the company particularly vulnerable since the vast majority of its products are imported.
As demand for chemicals is rather inelastic – price growth does not lead automatically to the reduction of demand – Henkel enjoys having an effective shield from economic hardships. People still need something to wash their dishes with, even when it becomes pricier.
Ukrainians are below-average consumers of household chemicals, purchasing just 5 kilograms of soap and detergent per year against the global average of 7 kilograms and the European average of 14 kilograms, according to the UCM-Inform. Meanwhile, Henkel’s Birol noted that 65 percent of his company’s local sales stems from washing powder and liquids.
He believes that Ukraine’s accession to the association agreement with the European Union will benefit the household chemicals market as it should lower retail prices. In addition, European standards should lead to the removal of inferior products from the market, particularly those containing phosphates.
Phosphates reduce the amount of oxygen in water, killing wildlife and poisoning the environment. The anti-phosphate movement has been gaining strength in Ukraine, with active information awareness campaigns by a number of environmental non-governmental organizations.
The annexation of Crimea and war in the Donbas has been a headache for Henkel because of the confused tax situation for company’s local sales units, while staff safety issues and difficulties in getting supplies to distributors in these afflicted regions also arise. “It’s hard to find truckers willing to travel to Crimea or southeastern Ukraine,” Birol said. However, the president added that Henkel had not yet lay off any employees and that its local distributors were “solvent.”
Kyiv Post business journalist Evan Ostryzniuk can be reached at [email protected].
