High Margin Breakdowns: Laundry Detergent Edition

Source: P&G and Unilever annual reports, 2019

Key Takeaways

• Procter & Gamble and Unilever, 2 heavyweights in the laundry detergent business, consistently make a significant share of their revenue — and, in particular, their profits — from fabric care.
• Consistent innovation around convenient, sustainable, and premium design has created high margins for smaller, newer players.
• Entrepreneurs can participate in this space with relatively little expertise (a bestselling bleach alternative has a single ingredient and a 97% profit margin).

Inside the Margins

Liquid detergent has historically had high profits, thanks to its reliance on water as a main ingredient and consumers’ tendency to over-pour.

As manufacturers began developing unit-dose detergents, some people worried that those high margins would disappear, since unit-dose measurements mitigate over-pouring.

But consumers have proved willing to pay more for convenience. Tide Pods — super concentrated detergent “pacs” — brought in ~$2B for P&G, or 3% of the company’s total sales, in 2018.

Now, detergent makers are seeing another consumer shift, as more people want to clean their clothes with “clean” ingredients. Unilever attributed its strong growth in fabric care to its international expansion of premium brands with renewable, plant-based products. 

Players and Opportunities

Several small players have made a dent in the business, including Dropps — a pioneer in the pod market, which brings in $10m+/year in sales — and Dirty Labs, which just received $1.8m in seed funding.

Beyond pods, the newest trend in both convenience and sustainability is flattening the single unit dose into a strip (an innovation that removes water from the product).

A leading laundry strip innovator is Tru Earth, which was recently named the 2nd-fastest growing company in Canada, with a $30m run rate since its 2018 launch. 

Innovating around detergent ingredients might seem daunting. But entrepreneurs can get into this space with relatively little expertise.

One example is the Laundress (sold to Unilever for $100m in 2019 without raising any VC funds): You can purchase a 32 oz. bottle of its All-Purpose Bleach Alternative for $15 (though it’s currently out of stock). 

On the back of the bottle, you’ll find a single ingredient listed: sodium percarbonate. Wholesale, one metric ton of sodium percarbonate costs $500.

We did the math on that, and 32 oz. costs a mere $0.45. That means that Laundress’ bestselling, single-ingredient product has a 97% profit margin. 

With cleaning as the new self-care (thanks, Marie Kondo), opportunities on top of the laundry detergent space are abundant. You could collaborate with clothing brands, include products with work-from-home perks, or partner with on-demand laundry apps, marking your stamp of sustainability.

Premium fabric care items would also make a wonderful subscription gift box — a gift that you know will be put to use. 

Strategies Worth Copying

The story of laundry detergent shows that innovation, even at the risk of initial loss in margins, is worth pursuing. The first phase of innovation transformed bulky jugs into convenient, unit-dose packaging. The 2nd introduced premium, nontoxic ingredients touted to be safer for you and the environment.

Several products have gone through these 2 phases simultaneously, albeit in different spaces than detergent.

The DTC plastic-free, zero-waste tablet trend is starting to take off, most notably with:

• By Humankind’s mouthwash (total funding: $4m)
• Bite’s toothpaste (featured on Shark Tank with $3m+ in revenue last year)
• Blueland’s bathroom cleaner (sales up 250% this year)

Opportunities to tabletize and de-plasticize products include other cleaning or toiletry items (think dish soap, shaving cream, shampoo, lotion, etc.) as well as consumables (instant coffee, any powdered drink, bouillon cubes).

While traveling has ground to a halt this year, you could integrate convenient tablets with the rewilding movement by creating camping kits for personal care, where the emphasis on natural ingredients and compostable packaging is even more important. 

Laundry detergent is a classic case study of transforming a boring, routine household chore into a meaningful, luxury experience. Fabric care weaves into self-care, community care, and earth care — and the numbers prove that people are willing to pay for it.