Consumer Staples Author: Manqing Fang, Linyan Feng Editor: Luke Sheehan Sep 26, 2020 09:41 AM (GMT+8)

Blue Moon, the first and most prominent laundry detergent producer in China, is gradually losing its ground to new players due to series of inefficient decisions and intensified competitions in this market.

Laundry. Image Credit: Dimitri Houtteman/Unsplash

This article is part II of our analysis on Blue Moon – check out part I before you read. 

Sales Channels of Blue Moon 

Acknowledging the historically strong R&D of Blue Moon, it is important to point out the majority of Blue Moon's employees are actually salespeople. This may not be a surprise as the laundry detergent market has already been mature. BM's sales channel includes three major categories: online sales channels, direct sales channels and offline distributors. 

The most famous thing that happened to Blue Moon in recent years was probably the collective removal of BM's products from major supermarkets in China in 2017. As shown on the graph, supermarkets are a major source for laundry detergent products, because consumers usually add this kind of product when they are purchasing other home necessities. However, the supermarket channels usually will eat away 30%~35% of the margin. BM's management team was very unsatisfied, and their contracts suddenly ended between them and all of the major supermarkets in China. 

After switching to rely more on its online channel, BM messed up product distribution on these two channels causing heavy losses to resellers, according to our investigation. Even though they tried to build their direct stores in the community – Moon Houses – these stores were not successful. The primary reason was that laundry detergents are not something that people purchase every day. Eventually, BM gave up, and since 2019 their productsstarted to return to supermarkets. However, its previous wrong move gave its major competitors enough time to take a lot of BM's market share and establish their products on the supermarket shelves.

Also, BM is known for keeping developing its online presence, which ought to help the company in the long term with more sustainable growth. We observed that the retail industry in China is heading towards to omnichannel era, represented by Walmart's new initiatives to engage more with on-demand delivery service providers like Dada Nexus and Alibaba's Hema Fresh that combine online and offline features. We expect traditional channels to have enormous potential that remains to be unlocked in the future, leveraging technology, as 'Internet-native' brands such as Three Squirrels are ramping efforts in expansion in brick and mortar stores. BM should not risk losing its customer mindshare.  

Thus, we can see Blue Moon's potential troubles when it comes to sales ability and regulation, but the sale is vital for the company's success in the competitive market. Better sales strategies can lead BM to further success, while negligence of current problems may hide some headaches for the firm in the long run.

Blue Moon's Next Step

Speaking about Blue Moon, it is impossible not to bring up Hillhouse Capital. Hillhouse's CEO Zhang Lei advised Blue Moon to start producing hand washing fluid when everyone in China was using soap about twenty years ago. He saw the strong R&D ability of Blue Moon and the handwashing habit trending in developed countries – these new products were more comfortable to use and had better ability to kill germs. His decision was right, and it has made Blue Moon still the biggest player in the hand washing fluid field so far. It shows when Blue Moon started developing its laundry detergent liquid to better protect the quality of clothes as well as when it launched its most recent milestone – the condensed laundry detergent liquid. BM mentioned that it had decided to launch this product when it saw the Chinese laundry detergent liquid market start to compete on price and make the products' volume higher and higher to show better price advantage to the customers. As most consumers are female, this trend adds many physical burdens that decrease the utility of their shopping experience. The condensed products offer the same quantity of clothes washable per bottle but with much lower volume, thus much lighter weight. 

However, we acknowledge that this product is still not well accepted by Chinese consumers, as people are still used to lower prices. As condensed laundry detergents are already quite popular in developed countries like the US and Japan, this new trend is inevitable in China, but educating the consumers and building barriers on this relatively niche vertical might require further capital investment from Blue Moon. Overall, the strong R&D and leading position in the market give Blue Moon maintain its reputation for now. However, a good management team that can better utilize the capital wisely and continually find new ways to boost its margin will be important factors for us to make a more bullish standpoint.