Wal-Mart to Sell Premium-Priced German Laundry Soap Persil

U.S. Retailer Will Be the Exclusive U.S. Carrier

by Serena Ng

PERSIL_WASHING_POWDER_FROM_GERMANYA war is bubbling up in the laundry aisles at Wal-Mart.

The world’s largest retailer has struck a deal to be the exclusive carrier of a new, premium-priced laundry-soap brand in the U.S. And it has stacked the brand, Persil, on store shelves right next to the reigning champion of high-end laundry detergent: Tide.

Expanding its premium-priced offerings may seem a puzzler given Wal-Mart Stores Inc.’s ultra-frugal customer base. But it makes more sense in the context of Tide maker Procter & Gamble Co.’s lock on the laundry business.

Driven by Tide, P&G accounts for 60% of all sales in the U.S. laundry-detergent market and 85% of the profits—both record highs for the company, P&G chief A.G. Lafley said recently. That dominant position has helped insulate P&G from pressure to cut prices or take other steps that might give Wal-Mart a bigger edge over rivals when it comes to laundry essentials. Last year, P&G was able to effectively raise prices on some Tide varieties by reducing the amount of detergent and number of loads per container.

“Wal-Mart never wants to have a weak balance of power against a supplier,” said Susan Lee, a former P&G employee who is now a partner at consulting firm Simon-Kucher & Partners, where she works with consumer-products makers and retailers. “If Persil sales do well, Wal-Mart can shift the balance of power.”

Wal-Mart spokeswoman Sarah McKinney said Persil, which is made by Germany’s Henkel AG, gives the retailer’s U.S. customers another laundry-detergent option. She added that Wal-Mart has been selling Persil detergent outside the U.S., in its Mexico stores, for example.

“Competition is good for the category, and it is good for consumers,” P&G spokesman Paul Fox said.

Even as Americans do more shopping online, laundry detergent remains an important driver of trips to retail outlets. Tide’s pull is so great it is even carried by chains likeStaples Inc. and Home Depot Inc., as well as scores of neighborhood stores. That ubiquity makes it hard for Wal-Mart to stand out.

Former P&G employees recall constant pressure from Wal-Mart to cut prices to the retailer or step up Tide promotions, in part because laundry detergent wasn’t very profitable for the retailer.

“If I were still at P&G I would be very disappointed in Wal-Mart’s actions,” said Tom Muccio, a retired P&G executive who oversaw the consumer-product maker’s Wal-Mart relationship for over a decade until 2003. “If there’s a benefit to Wal-Mart, it’s not obvious to me.”

The latest move over detergent is a wrinkle in what has been one of corporate America’s most lucrative relationships. The two companies have worked closely over the years to reduce costs in their supply chains and on joint marketing efforts. Wal-Mart and its affiliates account for 14% of P&G’s $83 billion of annual sales. Meanwhile, Tide and other big P&G brands like Pampers diapers, Crest toothpaste and Dawn dish soap help drive shoppers to Wal-Mart’s stores.

Persil is a popular brand in Europe but is virtually unheard of in the U.S. The Henkel product competes fiercely around the world with P&G’s Ariel, the brand under which Tide is sold in other countries. The German company, which also sells Purex detergent in the U.S., says Persil generates more than €1 billion in yearly sales and is available in around 60 countries.

Wal-Mart rolled out Persil ProClean detergent across the chain’s 4,000-plus U.S. stores last week. Its liquid form resembles Tide’s signature blue liquid and costs $11.97 for a 100-ounce jug, close to the price of a comparable container of Tide. Ms. McKinney, the Wal-Mart spokeswoman, said Persil liquid, powdered and unit-dose detergent is displayed next to Tide because of the similarity in price.

The introduction of a new premium-priced brand at the chain doesn’t automatically mean Tide sales will take a hit. Wal-Mart serves a wide range of shoppers, though many could be too price-conscious to splurge on an unfamiliar premium detergent, Simon-Kucher’s Ms. Lee said. Henkel said it has planned an “extensive” marketing campaign to raise awareness of Persil.

Still, it’s a challenge to a business that has been highly profitable for P&G in recent years. The Cincinnati-based firm expanded Tide’s market share over the past few decades thanks to heavy advertising and the retreat of deep-pocketed rivals such as Unilever PLC, which left the North American laundry business in 2008. P&G’s laundry profits also grew after it rolled out Tide Pods a few years ago, as consumers quickly took to the single-use detergent packs despite their higher cost per dose.

Tide now accounts for roughly 39% of nationwide laundry-detergent sales and brings in around $2.7 billion annually in the U.S., according to market-researcher Mintel Group. Together with other P&G brands such as Gain and Dreft, P&G has slightly more than a 60% share of the U.S. laundry-detergent market, according to the company.

That dominance is a source of grim humor in the industry. What’s America’s most popular laundry detergent, the joke goes: Tide.

What’s No. 2? Whatever is on sale.