Saturday 30 September 2006

EDANA Outlook Personal Care Products Conference: Sitges, 20th – 22nd Sept 2006

Key Points

• Western consumers have realised that they can't go on buying more and more so the pattern of spending is changing to “sensible consumption”.
• Health, Wellness, Ethical, Fair-trade, Organic and Sustainable will be the watchwords of future marketing in the West. Nonwovens will be affected.
• Future sustainable products should optimise the use of renewable resources and be designed for multiple uses through recycling.
• The relatively non-cyclical and entrepreneurial nature of the nonwovens industry makes it an attractive target for Private Equity.
• Spraying isotactic PP nanobeads onto a spunbond makes it superhydrophobic (Contact angle <150 degrees)
• Nanoscale coats of copper or silver could make nonwovens permanently antimicrobial.
• Buying eco-friendly goods is becoming fashionable and we could be about to witness a transformation of the fortunes of what to date have been “niche” hygiene products.
• India has 115 million babies in diapers, 0.05% using disposables.

Sustainability Challenges

Dr Alfred Strigl of the Austrian Institute for Sustainable Development listed the challenges of the age of rising temperatures and sea-levels:

• 1 to 3 o C average temperature rise by 2050
• Sea-level to go up by 0.1 to 0.3 metres by 2050.
• More natural catastrophes due to more energetic climate.
• Water shortages due to run-off pattern changes.
• World population to rise from 6.4 billion now to 10 billion in 2050.
• Along with rising population come issues related to food and water, hygiene, energy, information, human rights, terrorism, mass migrations and disease.

The annual increase in population is equivalent to a new country the size of Germany while annual soil degradation means an area the size of Germany becomes unproductive desert. Food production is declining and the rate of loss of species, especially marine species means the natural food chain diminishes. Using a financial analogy, we've managed to live off the Earth's interest until 1975, but since then have been consuming both interest and capital, and the capital reserves are now dangerously low.

The Club of Rome “World 3” model predicts that by 2040, on a “Business as Usual” basis:
• Natural resource availability becomes critical.
• The persistent pollution index reaches 10 times the 2000 level
• Food availability peaks and starts to collapse
• Industrial output peaks and starts to collapse
• World population peaks at about 10 billion and collapses to 3 billion by 2100 .

Our only hope is that humanity is intelligent enough to deal with the problems it has caused by moving rapidly replacing growth targets with sustainability targets. Assuming an immediate “Earth turns around to Sustainability” basis, the same Club of Rome model predicts:

• Natural resource availability does not become critical until 2100.
• Industrial output levels off and stabilises at 2015 levels.
• Food availability declines slightly to 2040 and then increases as…
• Persistent Pollution Index peaks at 4 times the 2000 level and begins to decline from 2040.
• World population stabilises at around 7.5 billion.

Future sustainable products should optimise the use of renewable resources and be designed for multiple uses through recycling while being flexible, adaptable and intended for long-life. Asked if the main solutions to the environmental problems were all technological, Dr Strigl said that on the contrary, changes in lifestyle were the key.

Sustainable Business

Marina Franke, P&G's Manager of Corporate Sustainable Development felt sustainable development meant opportunities to provide new products, services, initiatives and markets. P&G's “Water Health and Hygiene” initiative is contributing to the UN's Millennium Development Goals by introducing a simple water purifier “PuR” which converts 10 litres of contaminated water into drinking water for about 10 US cents. It is a sachet of chemicals which coagulates, flocculates and precipitates any contamination in water and disinfects the remainder. The floc can be removed by filtration through a cotton fabric or even a “Bounty” towel. It has proved effective against bacteria, viruses, parasites, and heavy metals such as arsenic. P&G works with NGO's e.g. Population Services International, in the countries with clean water problems, to educate consumers, especially the women and children who prove keen to spread the word about the new product.

P&G has donated a total of 40 million sachets to disaster relief efforts, 15 million, said to be worth $2m, to Tsunami Relief. (Where major quantities of clean water are needed centrally, PuR is available in bulk for use in water purification plants.) In parallel with this, P&G works to provide laundry facilities in areas where washing clothes in dirty water spreads disease. “Safeguard” anti-bacterial hand-wash soap and “Nutristar” micronutrient health drink for children are part of the package.
P&G has lead the Dow Jones Sustainability Index for the last 7 years for:
• Engagement in developing countries (esp. “PuR” Water Purifier, “Nutristar” Micronutrient Drink)
• Environmental and human safety standards of our plants worldwide
• Ethical business practices (e.g. no child labor, no enforced labor)
• Social responsibility for employees and in local communities (e.g. the Live, Learn & Thrive program to help children in need).

Asked what happens to the sludge filtered out after water purification, Dr Franke said it could be disposed of in normal household waste.

Commonsense Consumerism

Prof. Simonetta Carbonaro of Realise Strategic Consultants felt the days of continuously increasing consumption and growth had ended in the West and started in the East. Western consumers have realised that they can't go on buying more and more so the pattern of spending is changing to “sensible consumption”. Marketing has yet to catch up, failing to deal with this “common sense” consumerism. It continues to promote the vicious circle of new products with little added value, being promoted with new information which consumers don't need and were failing to absorb. There was too much choice. (“Surely the diaper producer that trimmed its range to Large, Medium and Small would now win!”) Health is no longer just not being sick, it's well-being, and the trend is prevention rather than cure. CARE is the new consumer need, with Body Care and Soul Care being the rapidly growing categories. Products would need top-class design combined with an ethical commitment. Care and Excellence would be the watchwords. Consumers would buy fewer excellent products, financial growth coming from premium pricing not volumes sold. Discounters would nevertheless have a place, providing the essentials of life, but would have to deliver excellent value uncluttered with fairytale marketing. The mid-range products and retailers would have a problem as consumers deserted this territory. Maybe “Concept Stores” were the way forward, these offering a sensible mix of merchandise across all categories with food, jewellery and designer clothing etc all under one roof. Maybe the oriental Souk would become the model for Western retailing: a place defined by the people who meet to chat and shop, and not by the merchandise. It's not just value for money; value for sense and value for time are now required also.

Health and Wellness

Ethan Sinick, VP Europe for Management Ventures Inc (UK) argued that the proliferation of wellness food marketing from the major retailers will create a demand for similar offerings in the hygiene sector. The arrival of the US “Whole Foods” store in London is already prompting Tesco and M&S to remodel their stores in the vicinity to promote a healthier, premium look and feel. This Whole Foods effect is expected to spread, but in addition to Health and Wellness, consumers will expect products to be Ethical. Loyalty will be built around high quality fresh food but these stores will have to extend the concept into Fair Trade products including organic clothing, beauty products and hygiene products. So branded products will have to change and Mr Sinick thought that rather than stretch existing brands or create new brands the multinationals would acquire the newly “fashionable” smaller brands. Tesco for example have acquired Nutri-Centre and are creating sections for this brand in their stores. They have also developed the “Naturally” range of cleaning products. These trends will affect nonwovens. Disposables producers may have to stop adding ever-greater functionality and switch emphasis to lifestyle benefits, offering acceptable performance with the right ethical positioning. Biodegradable products could benefit from this although it is unclear whether or not the disposable diaper could tolerate reduced performance. Cotton-based products could also benefit, particularly if the cotton is organic. Sales of the current niche products should be watched for clues of consumer attitudes here.

The Role of Private Equity

Paul Zowett of LEK Consulting ( Germany ) said the relatively non-cyclical and entrepreneurial nature of the nonwovens industry made it an attractive target for Private Equity Houses who were keen to lend money to allow higher cash-flows to be generated. Mentioning the recent Pamplona Capital acquisition of Pegas ( Czech Republic ) as a great deal, he added that there were plenty of other targets in the NWI “Top 40”, especially those in Europe where “certain” growth would be created by the former Eastern Bloc countries moving to Western levels of convenience product consumption. Furthermore P&G and KC would be looking to outsource parts of their production chain as the pressures from Private Label growth drove prices down and affected the balance of the make-or-buy decision. Should nonwovens producers see Private Equity as a threat? Mr Zowett thought not:

• PE replaces many shareholders with one.
• Decisions are easy, especially those requiring capital.
• The whole tempo of the business is speeded up.
• Senior management is highly incentivised as part of the buy-out deal.
• Management time-wasting (e.g on quarterly reporting to allow shareholders regularly to assess the value of their investment) is eliminated.
• PE ploughs back any profit rather than distributing it as dividends.
• Short-termism associated with quarterly reporting is eliminated.
• PE establishes the value of its investment once only: when it sells.

The passive financing of the past was becoming the active financing of the future, and PE was leading this trend to active shareholders. Even pension funds were now getting concerned about their shareholdings and try to become more active in managing them. The fit between management and finance, at its tightest in PE buy-outs would generally increase. A questioner pointed out that PE tended to deconcentrate and industry, going against the trend for mergers and economies of scale. Mr Zowett commented that the rapidly increasing scale of nonwovens production machinery offered by the Reicofils of the world meant that the industry had to restructure regularly, and invest more in the process. PE could help with this. Furthermore he thought mergers creating global mega-producers are less than ideal when the product is hard to ship. Production needs to be from efficient plants close to the market (like Pegas). You don't have to be pan-European to prosper. Was there a clash between PE and Sustainability? No, sustainable products that worked would be a goldmine – and PE could develop these as well as any. And in response to the inevitable “whither oil-price” question: Known reserves are diminishing, exploration costs are increasing, and the oil producing regions are increasingly unstable politically. The only way is up.

Game-Changing Innovation

Gerard Bol, Leader of Shell International Exploration and Production Gamechanger Team ( Holland ) described how Shell abandoned corporate R&D in 1996 and set up the Gamechanger Team to capture and nurture new ideas. Gamechanger is a group-wide innovation initiative now employing 14 people with a budget that allows them to grant individuals $15,000 to $25,000 to try to make a case for commercialising their own ideas. Anyone at Shell can post ideas on the internal website and the Team reviews and screens these ideas regularly, selecting a few to move forward to the feasibility study stage of a stage-gate new product development process. The team can set up proof of concept projects costing up to $1m without reference to line-management. External ideas are also welcomed on an external website ( In 2004 some 71 ideas were being managed by the Team, some examples being:

• A biological process to convert gas into a liquid miscible with and extractable in crude (removes the need for wasteful flaring of the gas at remote sites).
• Stabilising sand dunes by the microbial deposition of calcium carbonate. (easier drilling)
• “Slotting” well-bores to relieve stresses and stabilise the sand allowing more extraction before collapse occurs.
• A submerged floating platform for installing sea-bed equipment: more stable in rough weather than the ships now used.

In response to a question, Mr Bol said the vast Canadian tar-sands can be mined (open cast), the oil extracted and clean sand returned. At current oil price this would be economical. Oil extraction was all about manipulating wettability so maybe Shell could learn from hygiene products. They have learned from P&G and now adopt the “base of the pyramid” approach to improving quality of life in their Niger delta operations, and like 3M, they continually adjust the innovation process to suit the way the world evolves.

Innovation and Growth

Gregg Vandesteeg, VP R&D for 3M's Global Healthcare Division said 3M also have a web-based ideas collection “Hopper” which any employee can add to. They too use the stage-gate approach to screen and manage the development process, and they too can allocate $15K to individuals to allow them to work up their own ideas into a project. Furthermore, their scientists are encouraged to spend 15% of their time working on their own “off-program” ideas. Career development by sticking with and growing with their project is encouraged. $50K “Genesis” grants are available at the next stage, and if successful, $1M “High Growth” grants follow. The submission of 3 business models for any idea, one of these being immediate licensing, is mandatory. Key elements of the 3M innovation process are:

• A vision of Growth
• Part of corporate culture
• Connected to consumers
• Access to multiple technologies, internally and externally
• Market intelligence
• Networking at all levels in all branches of the business
• Intellectual property management
• Respect: for people and the environment.

Failures are inevitable and not penalized. In fact failure must be reported and promoted as thoroughly as success to allow maximum learning to be extracted. One source of innovation at 3M is to take obvious megatrends and to progressively break them down into specific needs and actionable items. Examples quoted were “Active Old-Age”, “Water in Danger”, “Increasing Urbanisation”.

Global Hygiene Trends

Irina Barbalova, Head of Disposable Paper Products Market Research and Euromonitor International (UK) went on to list more key trends:

• People are getting richer (especially in middle/old age)
• They lead more hectic lives
• They are marrying later or not at all
• They want better products to make life easier
• They want to be fitter and healthier for longer.

The willingness to spend more on health is perhaps the biggest single driver for hygiene products, but this is being followed closely by increasingly ethical consumerism and an inclination to support “green” products wherever they appear. In fact buying eco-friendly goods is becoming fashionable and we could be about to witness a transformation of the fortunes of what to date have been “niche” hygiene products.

Euromonitor statistical headlines were as follows:

• Global hygiene market worth US$50billion in 2005
• Europe has 33% share (28% West and 5% East), North America 22%, Asia Pacific 24% and Latin America 13%.
• Highest growth is in Eastern Europe (16% pa) and lowest is in North America and Western Europe (1%)
• Western Europe has the oldest population (60% >30), India the youngest (50% <25), Africa and ME has the highest birth rate. Japan has the most over-65's.
• US spends $35/capita on hygiene products but shows negligible growth. Russia spends $8/capita but grows at 24%pa. China spends $3/capita and grows at 10%pa. Japan leads this table with $39/capita and about 2% growth.
• The $7bn global wipes business grew at 10% in 2005, as did the $3bn incontinence products business.
• Global diapers ($22bn) grew at 3.2% and femcare ($17bn) at 4.2%. Most diaper growth is in China (20%) from a low base (8% penetration) and in Eastern Europe (16% pa).
• Femcare accounts for 80% of Chinese hygiene products and China is now the world's largest market.
• Training pants are the most dynamic diaper segment, Ultra femcare is now the norm, and panty liners are becoming discreet fashion items.
• Personal care wipes continue to grow but household wipes wane after initial high growth. (Consumer interest declines?)
• New ranges for children, new packaging and new fragrances are stimulating PC wipes and Household wipes are evolving into smart cleaning devices.
• At retail, private label continues to move up market and smart shopping is becoming a trend (PRAV = Proud realisation of added value).
• Consumers are cutting their spend on essentials to have more for luxuries.

Overall growth would continue at about 2.8%pa, with incontinence being the star product and the East (including Eastern Europe ) the region to be in. Asked how increases of raw material costs would affect the forecast, Ms Barbalova revealed that this is not tracked by Euromonitor.

The Indian Market

Samir Gupta of the Business Co-ordination House ( India ) claimed India as the World's fastest growing economy (8-10% pa), but with an embryonic hygiene industry ($146m in 2004). India has 115 million babies at the diapering stage but diaper penetration was only 0.05%, maybe because those who could afford them could also afford the servants to deal with the washable varieties. Femcare accounted for 70% of the hygiene market, but penetration was at 2%, the main consumption being in the conurbations. Rural regions lacked distribution channels. Disposable diapers would grow at ~6% to 2009, and femcare at ~5%. Tissue products including toilet paper would show highest growth at ~7%. India has a more distinct class structure than most countries with roughly one third of the ~1 billion population in each of the low, middle and upper classes. However the upwardly mobile middle class is expected to swell the upper class to over 50% of the total by 2016 and this group will drive the demand for convenience products.
Asked what the Indian attitude to sustainability was, Mr Gupta said the government was doing what needs to be done.

Wipes in Europe

Katja Lerner, Director of Product Development, Baby and Adult Skin Care Wipes for J&J Consumer Europe reviewed the evolution of personal care wipes in Europe :

• From “away from home” to must have everyday product.
• From a luxury to a commodity.
• 90% of UK mums now use baby wipes.
• 72% of UK wipes were sold on special deals in 2005, compared with 50% in 2001.
• While volume has increased dramatically, prices have fallen to 85% of their 2002 price.

Despite the trends, innovation is still possible as illustrated by J&J's Extra Protection wipes which use a 2-phase system. The whole wipe is wetted by the aqueous phase and a solid wax is printed ontop in stripes. The wax melts at skin contact temperature and combines with the aqueous phase to form a protective cream. Adult wipes have to compete with many other ways of delivering the same performance but they're more profitable and varieties are proliferating. Many are part of the cosmetic regime and tend to be sold in the cosmetics area of the store where the prices are higher. Basic cleansing (mainly make-up removal) is the prime purchase driver, but it is no longer enough on its own. Pampering, self treatment and well-being are now important, and facial wipes are seen as part of a portfolio of cosmetic products such as moisturisers and toners. While spunlace viscose polyester dominates the substrates, multilayer pads with different outer layers for e.g exfoliating and conditioning are adding to the category.

In response to questions:
• Baby wipe growth will remain low, but many new varieties of adult wipes will be developed.
• Marketing will have to build on the health and wellness aspects of both categories to get better prices.
• Better skin feel is the real perceivable benefit of new developments, and the marketing challenge will be to discover how best to communicate this.
• Eco-friendly, flushable, biodegradable products are demanded by some consumers (especially Nordic), others will see more wiping products as just adding to the garbage problem.
• Consumers will need more education before they could accept more expensive less well performing wipes on the basis of them being better for the environment.

Will the health and wellness trend be sustainable or will it come and go like environmental issues? Dr Lerner felt all these trends were here to stay and while emphasis might change, none could be ignored.

NanoSuperHydrophobicity etc

Thomas Broch-Nielsen, Personal Care R&D Manager at Fibertex A/S ( Denmark ) defined nanoscale as smaller than 200 nm, a region where materials properties begin to deviate from the expected. For instance, maximum hydrophobicity obtained with fluorocarbon finishes was a contact angle of <120 degrees, but in nature (lotus leaves, insect wings) contact angles of >150 degrees were observed. This was due to the nanotopography of the surfaces allowing water droplets to sit on the peaks and ridges of what in normal microscopy appeared to be a perfectly smooth surface. Fibertex had now made such surfaces on the fibres of a nonwoven by depositing a layer of nanobeads of isotactic polypropylene. The resulting product is superhydrophobic:

• Water drops roll off much more easily.
• Dirt doesn't stick to the surface, and tends to be removed with the water.
• Apparent pore size is reduced.
• Hydrohead is increased.
• The nonwoven appears more opaque.

The iPP coating can be applied by dip or spray, the latter being preferred because almost spherical beads can be made. Applications in diaper leg-cuffs and protective clothing were among many foreseen. Antimicrobial properties could be improved at the nanoscale. Copper and silver were well known for being non-toxic yet biocidal. Nanoscale coatings of these metals could be even more active. In fact they may become toxic in the nanoregion, so testing is now underway. Fragrance release and odor control finishes would also benefit from nanobead application, but these could not be discussed for patent reasons. Carbon nanotubes had tenacities three orders of magnitude higher than PP fibres, so Fibertex were also trying to use them as a reinforcing filler. Asked to quantify the hydrohead increase from the iPP coatings, Mr Broch-Nielsen said it was not great but maybe it was the wrong test for superhydrophobicity. Drops of liquid on non-horizontal iPP surfaces (as in the real world) behaved very differently.

PLA Update

Eammonn Tighe of Natureworks LLC provided the latest update on the fibre. Natureworks is a 100% Cargill company employing 200 people. Growth is now driven by :

• High oil prices.
• New corporate social responsibility strategies.
• Increasing consumer demand for environmentally friendly products.
• Resin price is now comparable with PET, PET having risen recently.
• PLA fibre now has a smaller “environmental footprint” than PET, and requires 30% less non-renewable energy*.
• 1000 tonnes PLA fibre is equivalent to 1000 tonnes PET fibre plus 800,000 barrels of oil.
• The main off-take from the 140,000 tonne Blair Nebraska corn-to-PLA chips plant is now for short-life packaging, with still-water bottles being a major market. Both Walmart and Marks and Spencer are introducing it into premium food packs.
• Walmart and M&S have also introduced it as a fibre-fill for their bedding ranges.
• 95%PLA/5% modifier is used to make credit cards.
• Sales into fashion textiles achieved the publicity and recognition for the product (but this is no longer a significant outlet)
• PLA/viscose blends work well in wet-wipes and femcare products.
• Unitika and Toray in Japan make 20-200 gsm PLA spunbonds for geotextiles and headrest covers.
• BBA is developing PLA spunbond for diaper components.
• Needlepunched PLA is good for short-life carpets e.g. for exhibition halls, and for hydroponic plant culture where it is replacing rockwool.
• It is used as the caustic-soluble “sea” in a PLA/nylon sea/island bico.

In response to a question about the wisdom of using food to make plastic, Mr Tighe pointed out that less than 0.01% of the US corn crop was used to make PLA while at least 10% was wasted through over-production. Could non-edible biomass be used instead? Yes, but that would be for the next generation production process and would not be available for about 4 years. What about disposal in landfill where it would not degrade? An EU directive would prevent the disposal of any biodegradable matter in landfill. In the USA , Natureworks LLC were taking back used PLA water bottles for recycling.

Holistic Innovation

Mehmood Khan, Global Leader of Innovation Process Development at Unilever (UK) showed a corporate video promoting his department and suggested that we should read the slides on the CD-ROM if we wanted to know more. There were no questions. The concluding slide summed it up: “ Lots of recent learnings in our Innovation journey have helped in Shaping the vitality Strategy to meet Everyday needs for Nutrition, Hygiene and Personal care with Brands that help people feel good, look good and get more out of life and the new organisation. ” (Capitalization courtesy of Unilever)

Calvin Woodings

29th September 2006

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