McBride set to clean up

When it comes to household cleaning products, McBride is the biggest name most shoppers have never heard of. But if you've bought own-label cleaning products from the likes of Tesco, Asda and Marks & Spencer, you've probably used McBride's products. According to research from Verdict, own label accounts for around 40 per cent of European grocery sales, and McBride supplies household products to at least 27 of Europe's top 30 retailers.

The reason why most of us will have picked up these products, instead of branded items from the likes of Procter & Gamble or Reckitt Benckiser, is that usually they're considerably cheaper. Even though most households have escaped the nightmare of unemployment, and have even seen disposable incomes rise as a result of lower interest rates, shoppers are still watching the pennies closely. Consumer confidence remains low and, while there have been recent signs of trading up in food, that doesn't appear to have been the case in the cleaning category, where shoppers are less discerning. Most of us aren't that bothered about what we used to clean the dishes, as long as it works and doesn't cost the earth.

For McBride, that has meant steady sales increases at a time when branded suppliers have seen their revenues come under pressure. Private label continues to make inroads into market share; even growing at twice the market rate in France and Italy. And, as McBride's chief executive, Miles Roberts, points out, shoppers don't tend to switch back to branded products when they're feeling flush once again, having seen that cheaper private-label products work just as well. McBride invests heavily in research and development to make sure this remains the case, and into enzyme-based products to reduce its depency on oil as a major input.

And, while most of its business is currently based in Europe, it's now taking aim at higher-growth emerging markets. McBride has opened a factory in China, where it plans to develop a substantial part of its business in the coming years. Long-standing relationships with European retailers that are expanding aggressively into the region, especially Tesco and the more established Carrefour, increase its own chances of success.

The group is also targeting growth in personal care products as this area, which already accounts for around a fifth of its sales, generates fat profit margins. In cleaning products, too, it's shifting out of lower-margin areas, such as bleach, and into laundry concentrates. This shift was partly behind the 85 per cent jump in first-half operating profits for 2009-10 to £26.5m, as operating margins leapt from 3.6 per cent to 6.4 per cent. Strong cash flow means the group was able to slash its net debt by £13m and propose an 18 per cent dividend hike.

Of course, branded suppliers have been fighting back, turning to deep price cuts to claw back market share. Unilever slashed its prices in western Europe by 3.6 per cent in the final quarter of 2009. That did not stem its own volume declines but was enough to inflict a 4 per cent fall in the value of the UK's private label household product segment. However, Mr Roberts doesn't believe that aggressive price promotion is a sustainable approach for branded suppliers. Besides, he sees such discounting as an admission that branders are losing the product-performance battle with own label.