BUSINESS
PROCTER & GAMBLE EMBRACES CHEMICALS Unlike some of its competitors, chemicals is a key business for the household products giant
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NILEVER SOLD IT TO ICI; COL-
gate-Palmolive shut some of it down and turned to outsiders for supply; Henkel renamed it Cognis and late last year sold it to an investment group. "It" is chemicals, and these moves, over the past few years, mark an exodus from the field by three of the world's biggest soap and detergent makers. But while these soapers headed for the doors, the biggest one of all, Procter & Gamble, stuck with chemicals and, in fact, expanded its presence. Today P&G Chemicals is a $900 million-a-year business, roughly twice the size it was just five years ago. And a spate of plant expansion and collaboration announcements over the past 12 months indicate that P&G managers plan to continue growing their chemicals business. According to Norman Ellard, director of global sales for P&G Chemicals, chemicals have been a part of P&G since its beginning. Although Tide, Pampers, and Crest are the P&G brands people recognize today, its oldest branded product is Star glycerine, first made more than 100 years ago through the saponification of vegetable oils and tallow into soap. Ellard says P&G ventured further into chemistry when "the capabilities we needed did not exist." For example, it entered fatty alcohols in the 1950s when it switched the basic ingredient in its laundry washing products from soap to surfactants. The company became strong in alkyl dimethyl tertiary amines when it shifted to amine oxide surfactants as a key ingredient in hand dishwashing liquids. P&G Chemicals stays relevant to its corporate parent, Ellard adds, by striving to be a low-cost producer and sticking with chemistry that the company needs for its consumer products business. At the same time, P&G Chemicals doesn't exist only to supply its parent, which accounts for 40 to 50% of its sales, Ellard notes. 'Are they our largest customer? Ifes," he says, "but they aren't obliged to buy from us, and we aren't obliged to sell to them." P&G's major chemical assets are fatty alcohol plants in Kuantan, Malaysia, and HTTP://PUBS.ACS.ORG/CEN
Sacramento, Calif; glycerine facilities in Cincinnati, Mexico City, and London; and a tertiary amines plant—the world's largest—in Kansas City, Kan. The sales growth of the business has been fueled partly through expansion of these facilities. For example, early in 2001 the company completed a doubling of tertiary amines capacity in Kansas City to 50,000 metric tons per year. P&G is also pursuing a major expansion of its glycerine refining capacity In other products, internal expansion has been complemented by a widening of marketing arrangements with other firms. In 2000, for example, P&G added 30,000 metric tons to its fatty alcohol capacity through expansions in Kuantan and Sacram e n t o coupled with an increase in the amount of product it markets from plants in Germany and Belgium owned by Sasol and Oleon, respectively In yet another oleochemicalsfield,fatty acids, P&G has Ellard departed even further from its historical do-it-ourselves strategy to become a major force without being a producer at all. In 1998, the company closed its last fatty acid plant and entered supply agreements with Twin Rivers Technologies— which operates a former P&G plant in Quincy, Mass.—and with companies in Europe. The following year, working with Twin Rivers, P&G started supplying separated fatty acids such as oleic and stearic for the first time in its history "THE IRONY," Ellard says, "is that P&G once operated 13 fatty acid plants. Now we have none, and our business is bigger than ever. It's a different vision of what P&G wants to be." Late last month, P&G broadened its ties to Twin Rivers with the announcement that it will sell the smaller firm its plant in Cincinnati that makes the fat replacer olestra, which is derived from fatty acids. P&G launched olestra in 1996 with high hopes,
but consumer demand didn't take off as expected, and the plant is underutilized. Twin Rivers will continue to supply olestra to snack-food makers while it looks for other business to add to the plant. One possibility is an olestra precursor that P&G Chemicals has been developing known as sucrose esters of fatty acids, or SEFA. According to Ellard, the oillike SEFA has potential use in fields such as industrial lubricants and skin care. P&G Chemicals' collaborations with outside firms extend beyond product supply to encompass R&D and technology Last year, for example, it formed a "technology council" with Archer Daniels Midland to develop new natural-based products that draw on ADM's raw materials and P&G's marketing strengths. It's also working with the U.S. Department of Agriculture National Center for Agricultural Utilization Research to develop a process for obtaining lauric oil from cuphea, an oilseed crop that grows in the U.S. As Ellard notes, lauric oil, P&G's main fatty alcohol feedstock, comes from tropical oils that are subject to wide fluctuations in availability and price. In addition, the chemicals unit is collaborating with its parent to market technology that is no longer crucial to P&G products but still of interest to other firms. Successes under this program include a pyridine-based dye transfer inhibitor licensed to Reilly Industries and an acrylate thickening agent that International Specialty Products picked up last year. According to Ellard, P&G Chemicals' ability to provide chemistry assistance to its parent helps reinforce its continued relevance in the face of the well-publicized exits from chemicals by P&G competitors. Unlike the former chemical units of Unilever and Henkel, Ellard's business isn't reticent about its ties to its parent. "We've embraced the Procter & Gamble name," he says, even though the connection has at times cost it sales to wary P&G competitors in the household products business. Ellard claims the admiration is mutual—that top P&G executives see the value in continuing to support a chemicals arm. "We have our strategic place in the P&G structure," he says. "We know what we need to do and, provided we continue to meet those objectives, Procter & Gamble is happy with our existence."—MIC H AEL MCCOY
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