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Ecolab Inc (NYSE:ECL)
Q2 2020 Earnings Call
Jul 28, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Ecolab Second Quarter 2020 Earnings Release Conference Call. [Operator Instructions]

At this time, I'd like to introduce your host, Mike Monahan, Senior Vice President, External Relations. Mr. Monahan, you may now begin.

Michael J. Monahan -- Senior Vice President, External Relations.

Thank you. Hello, everyone, and welcome to Ecolab's second quarter conference call. With me today is Doug Baker, Ecolab's Chairman and CEO; Christophe Beck, our Chief Operating Officer; and Dan Schmechel, our Chief Financial Officer.

A discussion of our results, along with our earnings release and the slides referencing the quarter's results and our outlook are available on Ecolab's website at ecolab.com/investor. Please take a moment to read the cautionary statements in these materials stating that this teleconference and the associated supplemental materials include estimates of future performance. These are forward-looking statements, and actual results could differ materially from those projected. Factors that could cause actual results to differ are described under the Risk Factors section in our most recent Form 10-K and in our posted materials. We also refer you to the supplemental diluted earnings per share information in the release. Starting with a brief overview. Second quarter results reflected the impact from COVID-19 on our businesses and were generally consistent with our expectations. Sales and earnings were strong for our Life Sciences, Healthcare and Specialty businesses as they benefited from favorable fundamental trends and our increased cleaning and sanitizing demand.

Our Industrial segment saw a modest sales decline but strong earnings growth, while our Institutional and Pest Elimination businesses experienced significant sales and profit declines due to the substantial negative impact on restaurants, hotels and entertainment facilities as they felt the brunt of the March, April global shutdown in travel and dining.

Second quarter adjusted earnings per share from continuing operations were $0.65 compared with $1.27 a year ago. Results reflected the COVID-related volume declines and negative operating leverage as well as certain COVID-related impacts, including second quarter equipment lease billing suspensions of approximately $0.10 per share to support customers, a[$0.06 per share reduction in institutional distributor inventories and increased bad debt expense of $0.07 per share. Looking ahead, we believe we are in a strong position to manage through COVID-19 and are confident we will emerge from 2020 in a stronger competitive position with a more robust offering. Our focus remains squarely on maximizing our post-COVID traction to drive growth.

While we have near-term challenges that we are addressing within our Institutional business, we continue to have substantial opportunities in all of our businesses and the right strategies to achieve them. Clearly, Ecolab's leading capabilities in food safety, clean water and healthy environments is more important than ever, and they have positioned us well as an important and effective partner in this world crisis and beyond. As a significant part of this, we have continued to work aggressively to partner with our customers to solve their problems, and in doing so, further improve our customer penetration and new business wins by providing the critical product service and consulting support our customers need to ensure their operations are safe and functioning effectively as COVID restrictions evolve and their operations adapt to the new sanitation requirements. As a result of these actions and our new sales initiatives, we have won new business. And along with gradually improving markets, we have seen sales across our business, including Institutional, improved since their lows early in the quarter.

While COVID-19 creates a short-term challenge, it also creates long-term opportunities. In a world challenged by COVID, our food safety, clean water and healthy environments positioning has become even more important. We believe that our long-term growth opportunities remain robust driven by our huge remaining market opportunity, our leading global market positions, our focus on providing our strong customer base with improved results while lowering their water, energy and other operating costs and our strong financial position with resilient free cash flow. We believe looking beyond the near-term uncertainty and focusing on these sustainable long-term business drivers will yield superior long-term performance for Ecolab and our investors.

And now here's Doug Baker with some comments.

Douglas M. Baker -- Chairman and Chief Executive Officer

Thanks, Mike, and hello, everyone. So just a couple of overview comments on Q2. We'll turn it back to Mike and then to Q&A. So our Q2 results were obviously significantly impacted by COVID-19. They were though in line with our expectations going in, which is probably a minor miracle because it's a very difficult environment to predict. The impacts were most acutely felt in our Institutional business as the balance of our businesses collectively grew both sales and income during the period. Healthcare and Life Sciences had record growth. Our Industrial businesses had extremely strong margin performance, driving strong income gains. And our specialty portion of our Institutional reporting segment also realized strong growth. Our Institutional division, though, was directly impacted by the COVID-19 shutdown of travel and dining early in the quarter. This was a one-off event in the history.

Now this event was further exacerbated by the resultant distributor inventory reductions and the decision we made to suspend Q2 dish machine lease payments as a means of supporting the foodservice industry during this incredibly traumatic period. In total, these two items hit sales by $82 million in Q2 and OI by roughly $60 million. Importantly, we spent no time or effort postponing pain or managing Q2 for optics. Trade inventories fell, and we left them. The dish machine market needed support, and we gave it. Reserves and inventory, we took our full dose. Team size, we maintained and investments, we actually increased through the quarter. This is what we said we would do, and we feel it's a smart play. We will manage through the near-term pain in a way that maximizes our potential long term. While the pain will continue, we believe Q2 was the low point. So while the short-term pain from COVID-19 is obvious, the long-term impact is becoming clear. Hygiene standards will increase in every market we serve, they have: Industrial, Healthcare, Life Sciences, Institutional and Specialty. New opportunities are presenting themselves every day in large space disinfecting and hand care, in water safety in clean rooms and data centers, etc.

We chased a $130 billion market at the end of 2019, and it will be bigger going forward. And we're even better advantaged to get after it. We've been out-investing our competition for years and are -- clearly this year, our digital and antimicrobial investments in innovation give us significant advantages. Customers' water, food safety, safe environment and operating efficiency needs are only growing in importance, and our cleaner, safer, healthier positioning is spot on. Probably most importantly, our team has never so clearly felt the power of our mission and is doing a great job, supporting customers, jumping on opportunities and rebuilding momentum.

So with that, I'll turn it to Mike, who will open up Q&A.

Michael J. Monahan -- Senior Vice President, External Relations.

Thanks, Doug. That concludes our formal remarks. Operator, would you please begin the question-and-answer period?

Questions and Answers:

Operator

[Operator Instructions] And our first question is from the line of Tim Mulrooney with William Blair.

Tim Mulrooney -- William Blair -- Analyst

Good morning, Doug. Good morning, Mike.

Douglas M. Baker -- Chairman and Chief Executive Officer

Hey, good afternoon.

Tim Mulrooney -- William Blair -- Analyst

So the Institutional division was down, I think, about 50% organically in the second quarter. Can -- and this is my only question today. But can you just walk us through how the monthly performance trended through the second quarter, Doug? And how that compares to what you've seen in July so far?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. Let me -- I'll give you a perspective on Institutional, and we'll address your specific question while doing it because I know there are going to be questions, obviously. I mean, Institutional was where COVID impact was most acutely felt. It's obvious when you look at the results. And as I mentioned in my opening, the rest of the business collectively did quite well. Now there are ups and downs within that group, but that's normal. In Institutional, though, being down 50%, is quite notable. So the sales for that reporting sector were down 35%, and it was really driven by the decline in Institutional. Specialty was pretty strong. It was really driven by FRS sales of plus 31%, and QSR was flat for the quarter.

The Institutional decline really was driven by a couple of things. The most notable was that huge decline or the huge shutdown in April of literally global travel and dining. And we've never seen anything like this. Transactions fell in April, 80%. Now transactions have climbed back. They were 80 down in April, 50 down in May and down 30 in June. We've also seen our business move back from this 80% type decline up through the quarter, and we've seen it continue in July, to your question. But we had other issues here, the distributor inventory rebalance, which is always a natural outcome, particularly when you have a severe shock like this. So we mentioned it's $50 million. And the dish machine lease suspension, which we took on because we felt it was a smart thing to do for an industry which has supported us for many years. And we need to be in there with our customers who've been decade-long partners with us to let them know that we understand the pain they're going through. That was a $37 million decision at both sales and OI because it's a complete pass-through. Now we asked for a trade there when we gave relief for the quarter, and it was just a Q2 relief program. It ends or has ended. What we also went and traded for was an extension of existing contracts and new agreement for the dish machine lease program. We believe it's going to be a great deal for both our customers and for us long term. Now the inventory is largely behind us. I think it's behind us.

If you start taking the 40 -- actually the inventory rebalance is $45 million. If we take the $45 million and think is it a 30-day inventory or 20-day inventory, it's a significant expectation of reduction in sales. That's larger than we think you need to do, but that's always the way this thing goes. And we also know for sure that the lease suspension is behind us for sure. As a result, we're pretty confident that the worst is behind us, particularly in Institutional, which really, as I just said, is a driver for the main challenge in Q2 for the overall company. Now I don't think we're going to see Institutional back in growth until you have a vaccine. People are not dining out for several reasons. In some states and some countries, they're not allowed to. But even when they're allowed to, we've seen them slowly return because there still exists significant fear of becoming contaminated or catching COVID-19. And until that fear dissipates, I don't think you're going to see a huge change or growth in the Institutional business. With that said, it's come back significantly from its low point. May was better than April. June was better than May, and we've seen continued progress in July as well. So we aren't going to be hanging up the same levels that we saw in Q2, but don't expect growth in the next couple of quarters. We don't think that's realistic.

Now with that said, our team is all over a number of things, which we think, long term, are going to position us terrifically in this market. We're already helping customers accelerate successful and safe reopening. If you've seen, there have been over 50 large chains that have mentioned us in either their public statements or releases. We're also reengineering or engineering a plan to what I'll call overrecover. So the goals here are to increase our penetration in existing customers by 20%. And we also want to do that while continuing to drive increases in the number of units. We had, interestingly enough, very strong new business performance in Q2. In all of our businesses, but including in Institutional, we picked up a number of pieces of business that we've been chasing literally for decades because they understand our expertise, our coverage and how vital it is when you are moving through a pandemic situation like COVID and into recovery and into a world where everyone expects hygiene to be a much more heightened piece of the puzzle for all of these operators. So we're also introducing what we're calling the Ecolab science certified program. It's really designed to drive heightened hygiene standards and outcomes within our customers but also to create comfort for our customers and their guests and meanwhile, drive increased penetration of Ecolab programs in these customers to get these better outcomes.

So this is going to be a big campaign and a big program that we believe will position us for even more significant share gain and, frankly, help our customers recover quicker. Now we also have accelerated the new technology in the field for Institutional. This will help the team's efficiency and effectiveness via routing, remote service, online ordering and opportunity identification programs embedded in this technology. We're clarifying the roles in our field organization to create the focus needed. And frankly, we can do it now because we can leverage this new field technology that we've invested in. So our Institutional team is all over this. They clearly went through shock when he had to live through April and start seeing sales declines they've never experienced. I'll remind everybody the last Great Recession was in 2009. Our Institutional business globally was down 2%. This is not because there's an economic slowdown. This is completely pandemic-related, shutdown-related, very unique steps that need to be taken in a pandemic. It's got nothing to do with consumer spend or some minor economic recession for them. That has never fazed us and wouldn't fazed us now.

What does faze us is when you're not allowed to go into restaurants. It hurts sales, no doubt about it. Now we do know this. Our goal is not to recover. It's to create a step function change in growth while we're moving through COVID and then obviously setting ourselves up post-COVID. And I've to say this, the opportunity is huge. So if you just look at the U.S. and you look at our penetration opportunity within our existing customers, there is a $1 billion opportunity in existing customers alone. So it's not like we are short of opportunity. Globally, this market will still be near a $20 billion market post-COVID. So the opportunity exists. What we have today is called necessity, necessity to make change, to drive change and to get on the recovery path, and the team is all over this. The new technology we're launching, we got new antimicrobials that have been worked on for years coming out here shortly. Timing is perfect. We've got this new field technology, the right products. I think we have the enablement and the teams all over this.

Tim Mulrooney -- William Blair -- Analyst

Okay, that's it from me. Thanks. Thanks for all the color. Doug.

Operator

Our next question is from the line of Manav Patnaik with Barclays..

Manav Patnaik -- Barclays -- Analyst

Yeah. Thank you, Doug. just to kind of follow-up on that. You talked about the Ecolab science certified program. You talked about the 50 or so, I guess, hotel chains, etc, using the program. We've also seen, obviously, in a lot of airlines and companies using the Clorox, Lysols of the world as branding, like does that consumer brand so forth matter in order to make the consumers, I guess, comfortable going in there? Or do you need to pick up kind of the PR or marketing around the Ecolab brand for that? Just curious there.

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. I'd offer a couple of things, and I'm going to give it to Christophe for some comments, too. Number one, yes, I think there's always an opportunity to build. Ecolab is a great brand. It's really well-known in the industries that we serve, but it's not very well-known in consumer land, simply because we're a B2B business. So there's certainly opportunity if you do it smartly to, I think, increase our awareness and help increase and drive Ecolab penetration. The other fact that we know is we've done a lot of consumer research. We've done them over the years, and we've reconfirmed it recently. So really, when you ask consumers what makes them more comfortable, establishments using hospital-grade disinfectant, which is what we sell, or consumer-type products. They are overwhelmingly in favor of hospital-grade disinfectants. It's not close. And I would say our customers understood -- understand this intuitively. And the consumers are right. I mean, disinfectants in a hospital-grade level kill more, and they do it much quicker.

In many instances, we're doing things in 30 and 45 seconds, which the products in consumer doing in three and four minutes. And so that just doesn't work as well in the business-to-business environment. And so I mean, I think this is well understood. So efficacy is not equivalent, and customers understand this. Consumers do, so do our customers. And so building programs around these advantages, communicating these program advantages we think is an important part of the program. And I'll throw it to Christophe to give a little more color on Ecolab science certified.

Christophe Beck -- President and Chief Operating Officer

Thank you, Doug. And we've also understood that especially in the U.S., 2/3 of the people have voted number one, so cleanliness as the main reason to go or not to go in our restaurants during this COVID-19 times as well. And beyond what Doug just said, that hospital-grade disinfectant have a much better perception so with guests versus retail products. We've also understood that people need to see safe in a restaurant or in a hotel in order to feel safe. And it's bringing those three things together. I need cleanliness to go in a restaurant, I need to see clean when I go in a restaurant, and I need to make sure that the right products have been used over there have led to that idea of the Ecolab science certified, which is not saying that the restaurant is doing 100% right, but is using ultimately our standards, our protocols that we've developed with them, our programs as well. Doug mentioned as well as some innovation.

We've launched it a few weeks ago as well. So smart power disinfectant, which is killing viruses within 30 seconds, which is a world record, by the way, out there as well. And then we can audit those restaurants. And when they pass everything, they get the seal as well, which is this Ecolab Science Certified that guests when they come in, can feel in a better place than in a restaurant that would not have that.

Manav Patnaik -- Barclays -- Analyst

Got it. That's helpful. And maybe just my second question. Obviously, here in the U.S., you read about all the hotspots and so forth. But you guys are clearly a much more global business. So I was just hoping for some perspective on like in terms of the trends you're seeing to guide the improvements, like, I guess, I'm not sure maybe how notable or sizable are these hotspot areas that we're reading about versus the rest of the world for you guys?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. Well, we've certainly seen because you had, say, the pandemic started, obviously, in Asia and China specifically earliest. And so they're further along. And we've seen improvement -- continued improvement in our Chinese -- in our sales in the China market. In fact, in June, they were positive in total, and we expect that to continue in July moving forward. But that's been a climb back from fairly significant decline as well, but they're months ahead. And I would also say they have a different mix. It's more industrial than institutional than the balance of the world. So you're going to see some of that mix play out favorably as you go forward. But if you look at Institutional specifically within China, we've also seen significant improvement over the period of time as well as COVID has abated there somewhat, restaurants have reopened and travel is reopened. With that said, it's not been a stampede back onto airplanes, into hotels nor into restaurants. People are still waiting for, I think, finality for this thing, which I think is in the form of a vaccine, ultimately. And we don't believe until then that you're going to see complete market recovery in industries most hard hit by COVID. Now it will improve, but we don't think improved completely.

Manav Patnaik -- Barclays -- Analyst

Thank you.

Operator

Our next question is from the line of John Roberts with UBS.

John Roberts -- UBS -- Analyst

Thank you, Any way to gauge how much of Institutional is being supported by outdoor dining right now? Because as we move into the fall, we're going to lose that outdoor dining kind of leg to the Institutional market.

Douglas M. Baker -- Chairman and Chief Executive Officer

John, it's hard for us to have exact -- I would say, I think what's going to happen in the Institutional, I agree. Outdoor -- we live in Minnesota, outdoor dining maybe over the next week or so. Winter comes quickly here. But I would say, I think you see a transition, which is assuming we start getting after masks and start doing things, and if you get this thing back under control, you'll probably see fairly steady dining results. But you're going to see a transition to what I will call modest in-dining going forward. But that's why I'm trying to be a little circumspect about how far this recovery will go. We do not believe you're going to see a repeat of Q2 in Institutional sales by any means, but you're not going to see a 5% growth rate in Institutional until COVID's gone for any number of reasons.

John Roberts -- UBS -- Analyst

And then institutional customers have had to train their employees on new cleaning protocols. Did your lobster.com acquisition help with providing customers with additional training support?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. It's starting to. I would say, what we're learning is how to utilize that technology most effectively. There's obviously been a lot of work done on food safety programming. When we bought Lobster, they had a fairly good breadth of portfolio around hospitality -- excuse me, around lodging specifically, the food safety program that's coming on, and we're utilizing that, yes.

Operator

Thank you. Next question is from the line of David Begleiter with Deutsche Bank.

David Begleiter -- Deutsche Bank -- Analyst

Thank you, Doug, just on the margins in Industrial and Healthcare and Life Sciences, they were clearly exceptional in Q2. How should we think about them in Q3 and the back half of the year?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. I'll hand it to Christophe. I mean, Industrial was up about 450 basis points. I would say half of it -- well, 200 of it was really T&E and bonus, right, take back as a consequence of slow sales in that segment even though it's got outstanding. I would have said, if you didn't have COVID, you would have the same level of earnings, they would have just come a different way. But with that, let me give it to Christophe. I mean he knows the Industrial business cold, and Healthcare, Life Sciences is also performing quite well.

Christophe Beck -- President and Chief Operating Officer

Good. Thank you, Doug. So David, if you comment on the very good progression on margin, which is, by the way, a continuation of what we've seen as well prior to Q2, not at the same level. It's true that almost half of the improvements has been driven by variable cost, so travel and entertainment and commission bonus. Those traditional things, obviously, that happened when people travel less and sell less as well at the same time. But the true formula, so for the margin improvement in Industrial, is the outcome of many years as well of work. If you've seen the pricing, it's close to 2%. We were at 3% a year or two ago and leading toward probably more to the one or in the future, which is our steady course. But having 2% in an environment like that is quite remarkable. And how do we get there? It's ultimately out of two main drivers, David. The first one is the type of innovation that we can provide, obviously, to customers. They pay more and always more for product and programs that keep improving, and we invest a lot for that.

And second is the fact that we commit as well to our customers for operational improvements or total cost of operation reduction. Basically saying if you work with us, your total cost is going to go down. And we take part of that improvement as well into our pricing. And the second driver is the fact that raw materials have been reasonably benign over the past quarter. So if you bring it all together, that's driving some good margins for Industrial. And the story is very similar in a different environment, especially so in Life Science, which is kind of an Industrial business as well. So a similar approach in Healthcare as well with pricing that's a bit lower than in Industrial. It's closer to than the two in Industrial, but the formula is quite similar.

David Begleiter -- Deutsche Bank -- Analyst

The new business wins, you mentioned that were a result of COVID-19. Can you give a couple of examples of exactly what those accounts were and how they progressed during this crisis?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. We don't give names and haven't in the past, and I'm probably not going to set a new precedent today. I'll give you some examples or what drove it. I mean, one is a very large operator in the lodging environment. And this is a piece of business that we hadn't been able to secure for honestly 15 years. And it was several things. But most notably, it was just this understanding of the capabilities that we had and the needs that they had and how important it was to partner with somebody who can help you through the most difficult challenges.

And so I think it was this recognition. And I will say, when the team shared with both Christophe and I that they had won this business because both of us had our crack at running the Institutional business individually. We never got it done, but they did, and it was really a quite significant win. It was also a huge blow to a key competitor in a number of ways. There have been then many other instances of businesses that we haven't really been in that suddenly, we have fairly large stakes going because of their need for disinfection at a different scale in a different way. And so when I mentioned earlier in my comments, large space disinfection. There is this need and clearly in many of our customers, think hotels and others, and we've got technology to do that. But we also have a technology in Bioquell, which is an acquisition we made in the last 18 months, that enables us to do very unique things from a disinfecting standpoint very safely. And so that technology is now moving and expanding fairly aggressively out of its home environment, which was historically Life Sciences, into new markets who understand and see the need and are learning how this technology can help them disinfect when they have a contaminated site, do so quite safely without any people involvement. So there's a number of these things that are occurring. It's not just occurring in our sphere.

But that's why I say this market, so we're going to have some market changes. And I think our $130 billion may turn into $140 billion. It's not like every market's going to go up equally X percent. You'll have some markets that are a little impaired. But in total, in hand care alone, you've got a market that's going to probably triple and then settle down to doubling on a long-term basis. We're going to see hand sanitizer everywhere for a long period of time. In hand sanitizer sales, if you can make it, you can sell it at this point in time. And so we know there are big changes, and these changes are going to have lasting -- they're going to have legs going forward, maybe not an exact peak, but there is certainly going to be more sanitization, more concern, more awareness going forward. And we recognize that, and we're making sure we're positioned to capitalize on it.

David Begleiter -- Deutsche Bank -- Analyst

Thank you very much.

Operator

The next question is from the line of Gary Bisbee with Bank of America.

Gary Bisbee -- Bank of America -- Analyst

Hi, thanks guys. Interesting that you're targeting 20% increase in penetration. I think that was related to Institutional clients. So maybe it was more broadly on the other side of this. And I guess, can you help us understand what the components would be to deliver that? And really, what I'm trying to think through is like how much larger can unit level sales be on the other side of this when customers are following a higher hygiene standards.

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. The 20% I referred to with the goal of increasing unit penetration was Institutional. I mean, everybody has the goal of increased penetration. I get asked the question a lot or have over the years, what percent of our growth do we want to come from new units or from penetration. Right now, in Institutional, we want a disproportionate coming from penetration. It's something we can control. It's stuff we can get after. You know that if you end up with a larger penetration, you automatically start overwhelming all kinds of economics if you improve the shop per drop. I mean, how much you're selling per service call, per delivery, per everything else, all the economics improve. It's sitting there.

And I would say the team has got very clear view of what needs to get done. So certainly, Ecolab Science Certified is the umbrella idea under which it's going to help drive penetration. But the field technology also ultimately enables us for each call to identify every time one of our people pulls up to an account what the opportunities are in that account because it's tied to our ERP system. And so just being able to manage differently. How do we think about structuring our deals at the chains? How do we end up structuring our agreements at distribution? And how do we end up structuring our deal at the end unit in terms of encouraging more of our product in our sale? Now this deal doesn't work if it doesn't work for the customer. So this has to translate into customer benefit. You can't trick them. You've got to have a deal that when they buy more from us, they're going to have cleaner outcomes and better operating income as a consequence of this, which is what Christophe described in Industrial. It's the promise we've been delivering in Institutional for years, but it's reengineering that program specifically around a greater array of products and programs to deliver that outcome in foodservice and lodging.

Gary Bisbee -- Bank of America -- Analyst

Okay. Then a follow-up, if I could just follow-up on the earlier question on margins at Health and Life Sciences and Industrial. I understand the drivers of the discretionary costs being a portion, but as we think to the next few quarters, does some of those costs come back in? Or anything to help us understand how those could trend? I mean, Health and Life Sciences is up 800, 900 basis points. It's just a massive move, right? Should we think that spending comes back in? Any color would be helpful.

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. I mean, Life Sciences. I mean, it's a little bit of the magic. You saw the other side of it. When you're up 50%, good things happen. A lot of money flows through, right? I mean just drops through. When you're down 50%, I guess we proved this quarter, bad things happen, right, in the opposite. So I think Life Sciences has been a profitable business, will remain a quite profitable business. We would not say that, that's our terminal run rate, the 50 top line or the 800 basis point at the below. But what we do know in Life Sciences is they got very momentum, a lot of very smart new business programs that they're driving. They've have a few one-offs here as a consequence of some of the Bioquell sales that we've had, that we don't believe repeat long term. But with that said, they're going to have very healthy growth. On the Industrial side, I'll give it to Christophe to answer.

Christophe Beck -- President and Chief Operating Officer

Yes. Thanks, Doug. So Gary, what's important is to look at a little bit pre-COVID as well, so the evolution that we've had. This is the type of underlying margin improvement that we're going to continue to see here. You're right. That discretionary spend is going to go up as people start to travel again, not as much as before, but it's going to be variable. So it's going to go up. But at the same time, the leverage as well, the volume leverage in our operations is going to improve because that was a negative obviously during that time. And ultimately, it's important to keep in mind, so this pricing momentum that we have between this 1% and 2%, which has been so positive for a very long time, and we have no intention to see drop below 0 for sure not. So to keep it between one and two. So as long as we can get that and that raw materials remain as they are now, the leverage and the discretionary will compensate for itself, which will lead to similar type of improvement we had pre-COVID.

Gary Bisbee -- Bank of America -- Analyst

Great, thank you.

Operator

Our next question is coming from the line of Ryan Connors with Boenning and Scattergood. Please proceed with your question.

Ryan Connors -- Boenning and Scattergood -- Analyst

Great, thanks for taking my question. It's a big picture question, and I really wonder whether you can kind of talk about kind of the big picture of the federal response to COVID. I mean, obviously, the shock and awe that we saw from the Fed and from Congress was really key to stabilizing things, in particular, for many of your Institutional customers. But there seems to be an emerging debate about the unintended consequences of that and how that kind of subverts the natural creative destruction and the culling of the herd, so to speak. So what are your thoughts on that in terms of how that impacts your industry and your business, both in terms of competitors who may have been price-based competitors who would have been vulnerable, but now they can hang around through PPP money or whatever, and they don't become acquisition opportunities or they don't maybe go away? And then also in terms of customers, are there small mom and pops that compete with your strategic accounts that maybe would have gone away that now will hang around and prevent your strategic accounts from gaining share.

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. That is a big question. I would say this. I think even when you -- look, I think a lot of the early federal response was, frankly, much more right than wrong. i.e., fund the businesses, and they get to keep the funds as long as they keep employing folks. I mean, if all you do is fund people, the problem is there's no employers left to reemploy them post event. And so I think they took a page, frankly, out of Germany when they went through the crisis back in the 2000s, and I think it was a smart way to go. Hopefully, there's more of that in tranche 3. In terms of does it keep the walking wounded alive? I don't know. I think you're seeing a lot of people opening and really just opening to ultimately go bankrupt into walk down. So I think you're going to see enough creative destruction as is as a consequence of COVID in many industries, not just in foodservice and lodging, but retail and others as you go through. And so I think the third tranche needs to go consider this.

But the biggest driver, I believe, is really fear. And if you start looking at what's really going on, and I alluded to this in China. So China has this under control in many respects, I mean, all the reported respects. And you still don't have the same level of activity in retail or in dining or in travel, and that's not driven by government programs or anything else. It's really driven by people's fear that they could contract COVID again and their reluctance to do so. So the big thing that needs to happen, I mean, the government's got to do smart policy to figure out how you keep the economy moving and on life support at minimum, I agree with that. But we need a vaccine. And we need better treatment, which is calm, but ultimately, until I think communities feel confident that they can start gathering again, you're not going to see a normalization or a renormalization of the economy period. You'll see recovery, but it's going to get stalled at X point. Now that's what I believe. So I think that's the big piece. So if the government can do anything, work and make sure the vaccination development is moving and that we are prepared to make billions of doses once it's available. So there you go.

Ryan Connors -- Boenning and Scattergood -- Analyst

That's really helpful perspective. Thanks for your time.

Operator

Our next question is from the line of Chris Parkinson with Credit Suisse.

Chris Parkinson -- Credit Suisse -- Analyst

Great, thank you. So Doug, you mentioned your $130 billion market at the end of '19, which will likely be bigger in the years to come. Can you speak to your own assessment of your positioning for that growth? Is the focus still on a few key initiatives, just broad initiatives such as enterprise selling and digitization and customer stickiness? Just trying to get a sense of how you're rethinking or how you're further evaluating customer contract growth and the opportunity to expand there with them?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. Well, certainly, the ones you mentioned are remaining as top initiatives. We know -- I mean, the digital work that we've done, think how we invested in digital the way we did, and any company that did has been really prospering as a consequence of this. And I mean when Christophe just walked through what's going on in Industrial, a lot of this stage has been set over the last several years where they've worked very hard to better wire customers remotely and also equip the field with technology that enables them to provide service they couldn't before. Same is true in Institutional. We are doing amazing things remotely that we couldn't have done just two and three years ago. And the ability to do this has given us great advantage.

I'd also say it's given us great insight is where we need to continue to drive digital innovation. Innovation in antimicrobials, which has been a prime focus of ours for 15 years, where we identified we had a major hole, to be quite honest, that's proven to be invaluable. We have the best portfolio. We have new technology. Christophe just alluded to one, and we've got another launch coming up here in weeks that really is -- couldn't be better timed in terms of ease of use, simplification, kill and kill time. And so all these things matter terrifically as we go through. But value capture, making sure that we are able to articulate the benefits of buying from us, not only environmentally, operationally, but economically. And the big advantage we have, the way we go to market, is while we create huge environmental sustainability benefits, we do it while simultaneously delivering huge economic benefits. So when you get into rough economies, it's the reason we've historically continued to sell successfully.

We may start talking about economic benefits in advance of environmental benefits, but they're the same. They're of the same DNA in the way we go to market. And so we believe, ultimately, that is a pretty resilient way and operating model to execute no matter what the environment is.

Christophe Beck -- President and Chief Operating Officer

Got it. And there's been a lot of focus, obviously, on some of the big areas In institutional, full-service restaurants and lodging, etc. Based on how the strategies you just articulated to me, can you sit on there are some other areas like facilities, long-term care, food safety you have thrown in there, test and Healthcare, I think you already spoke about it a little bit. How are those trending in the back half of the year? Because obviously, there's an argument that those will actually gain momentum versus some other businesses, which obviously will be more subjective to the actual macro rebounds pre vaccines. So just what are your thoughts on that as well?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. No, our appetite and interest in the Institutional markets, including some of the segments you talked about, catering as well as lodging as well as foodservice as well as long-term care had anticipatedoneiota. So they're going to be and remain huge opportunities. We have outsized advantage in those markets. We believe clearly that we will be setting record sales in OI in those markets in the years to come. So they believe and we believe those are terrific opportunities for us. They are going through like a legendary impact as a consequence of the pandemic. And we'll see this through. They'll see it through. But I don't know this imagination that somehow, nobody is going to be dining out any longer long term where it's literally a tradition that's thousands of years old and only built over time, I just don't buy.

Do I think that lodging may take a while to recover? Yes. It's 7% of our portfolio as a company, right? We can overcome some dense in some parts of our portfolio. We have to deal with it all the time through these things. But we are -- absolutely every intention is staying absolutely laser-focused in the Institutional market. We think our advantages here are going to grow, not shrink.

Operator

Thank you. Our next question is from the line of John McNulty with BMO.

John McNulty -- BMO -- Analyst

Thanks for taking my question. You spoke in the beginning and in the release around kind of the lever that you're pulling in terms of the equipment leasing and how that's going to -- that should be a positive for you as we kind of look to 3Q. Are there other cost levers that you're actually looking at in terms of tailwinds that we might be able to think about as we go into 3Q? Or are you really just more focused about the service side and at least for now, kind of the costs maybe aren't as big of a focus?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. I think, as I mentioned, I would say this. I think there's 2, if you're just looking at sequential, I mean, certainly, there's a $37 million lease suspension costs that will not repeat in Q3. I mean, the other is inventories have been largely taken down in the Institutional business. We certainly wouldn't expect to see a repeat of a $45 million takedown in distributor inventories in Institutional. And you've got the tailwind in Institutional of coming off the April lows, right, which progressively increased and improved through the quarter. So even if you just stalled at June 30, you'll have significantly better outcomes in Institutional as a consequence of that. So I mean, those are three factors. And then the other businesses, we think there are similar tailwinds, headwinds as you go through that quarter. New business has been productive in all of them. We would expect once we can get into an install to continue to see the benefits from that as the year progresses as well.

John McNulty -- BMO -- Analyst

Got it. And then and maybe just a question. In the deck, you had highlighted on the full-service restaurant side, about 80% are open, but they're operating at 50% dining capacity. I know your products aren't necessarily a 1-for-1, but I guess, how should -- if there's a restaurant -- a typical full-service restaurant that you're servicing, and it's now running at 50% capacity, what does that mean for Ecolab products? Again, barring you selling more to them or what have you in terms of targeting them for different avenues? Like how should we think about how much of a step down that would actually be?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes, it'd be less than 50%, call it, 65%, 70% of sales, if you had 50% less business or like a 30% hit in sales roughly. You've got -- just turning on the dish machine and running it all day consumes chemical. You got to clean the kitchen at the end of the day, whether you serve one meal or 1,000 meals, right? So there's a number of fixed pieces, but a big piece is obviously variable. If you're not dirtying tables, you don't have to clean them. If you're not dirtying tablecloths, you don't have to clean them. If you don't have many dishes, you don't run the dish machine sheet at the same rate, but it's not a one-to-one on the way down.

Vincent Andrews -- Morgan Stanley -- Analyst

Got it. Thanks for the color.

Operator

Next question comes from the line of Vincent Andrews with Morgan Stanley.

Vincent Andrews -- Morgan Stanley -- Analyst

Thanks, and hi everyone, A couple of quick ones for me. Just to close the loop on Institutional. If I add back suggested the inventory dish leasing and presumably a good portion of the bad debt expense, that theoretically gets me to a base level of earnings in the second quarter. And then if I think about adding volume back in the third quarter, just trying to understand whether the incremental margin should be on the volume that comes back sequentially?

Douglas M. Baker -- Chairman and Chief Executive Officer

Why don't you just send, Mike, your spreadsheet. Exactly. Look, I can't -- put it this way. It's more than OI that falls down. I don't know, giving you a specific percent because I don't know everything that you've moved in there. I mean, you got components of it. It would be part of the total. So I don't -- I think it's not safe for me to go give you like a specific percentage on that type of question. I apologize.

Vincent Andrews -- Morgan Stanley -- Analyst

No worries. I'll beat Mike up on it later. And then just as a follow-up, just on the working capital. Obviously, you talked about what happened in inventory, but receivables and payables, you didn't make much progress on in the second quarter. I'm just wondering if there's a plan for that in the back half? Or we should just sort of assume current percentage rates?

Douglas M. Baker -- Chairman and Chief Executive Officer

I'll have Dan answer this.

Daniel J. Schmechel -- Chief Financial Officer

Yes, sure. Thank you. So let's talk about it maybe in part. So on the accounts receivable, yes, the total number didn't change dramatically, but there was a lot of dynamism, I guess, if you look at what drove it. So unquestionably, we saw increased aging of the accounts receivable portfolio as customers paid more slowly. Some of that, likewise, was behind the increased calculation of accrued bad debt expense, which we've noted. We got a big benefit, though. I mean, if sales start to come down, you get a significant volume favorability in accounts receivable. So although it didn't look on a net basis like it was a very exciting space, it was when you looked into the details of it. And let's just say, we've talked at length about expectations of volume and where we think we are in the recovery. From a rate perspective and our collection efforts, I will say again what I said on the first quarter call, which is I think we're all over it.

Look, we've made -- think about this lease billing decision that we made. We have made concessions to customers where we think that they were smart and necessary. They were predicated on customers who agreed to be current, right, and which is important point to be made. Similarly, just to be very blunt, we expect to be paid for the value that we provide. And so what you will see going forward in the third quarter, for example, my expectation is, is that as volume ramps, that will consume cash in the receivable base. And that will be partly offset by our continuing effort to collect and to improve the performance of that portfolio from a rate basis. On the payable side, look, it's a much smaller cash flow to begin with. I think that we did the right thing, similarly, to stretch the payments as we had the opportunity to do it. We want to be good customers for essential providers at the same time. So the net of it all is, I think, that we've been responsible, prudent, fair minded and fair to our customers and to our vendors at the same time.

Vincent Andrews -- Morgan Stanley -- Analyst

Very clear. And I agree. Very thank you for your response.

Operator

Our next question is from the line of Shlomo Rosenbaum with Stifel.

Shlomo Rosenbaum -- Stifel -- Analyst

Hi, thank you for taking my questions. Hi. Doug, are you seeing any difference in the appetite for hospitals to do more program buying? That was always like an issue in terms of the Healthcare growth, but that was just a change for the way that they were always looking for the lowest cost. And you guys sell on the best value overall. With what you're selling and your ability to service some of the stuff and just the increased interest in hygiene and sanitation, is that changing the mentality over there? Or is it too early to tell?

Douglas M. Baker -- Chairman and Chief Executive Officer

Well, I think it's too early to tell, like as COVID changed, and I will say this. Pre-COVID, we're having more success driving programs. They continue to grow faster than the business, underlying business rate even now, but a lot of that is because of programs that we put in place, right, as we went in pre-COVID. I guess what we believe in the Healthcare, the acute care space, in particular, is, certainly, their sensitivity to hygiene is at an all-time high, and we do not believe it falls to pre-COVID levels post-COVID that it, too, with heightened hygiene awareness standards and frankly, we'll be spending more on outcomes. We think all of that as a positive for us going forward. I would also say, I mean, our team, as you recall, we had a recall that was in December of last year in our European business, our Anios business. And that team did a great job working through that recall, getting back to, and frankly, accelerating production levels beyond what they had prerecall and getting through all the government expectations and moving forward.

And what we've seen is, I would say, great appreciation from our Healthcare customers because we're able to meet their needs, I think a larger appetite for better technology as you move forward. And if you really are spending more in hygiene, you're going to even be more concerned about doing it wisely, which benefits program selling.

Shlomo Rosenbaum -- Stifel -- Analyst

Okay. Great. Just for my follow-up, can you talk about how broad-based the pricing was? Just 2% pricing in this environment seems really good. And if you could talk about what the different puts and takes around that?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. I mean, we had 2% in our Institutional segment, reporting segment, 2% in our Industrial segment. Healthcare was, as I think already mentioned, around half that rate as we went forward. Life Sciences was around 2%. So it's pretty widespread. As we've talked, we expect this if raw materials remain benign, which is probably more likely than not, given just Industrial situation globally. This probably moves down to 1% over a period of time, but we don't like 0% or negative.

Operator

Thank you. Next question is from the line of Scott Schneeberger with Oppenheimer.

Scott Schneeberger -- Oppenheimer -- Analyst

Thanks, good afternoon. First one for me. With regard to capex, you mentioned a quarter ago, you cut that by about 50% this year. Just curious how you're trending, and so I think it was one of the supplementary pieces that you anticipate cash flow to net negative this year. So just wondering how you're thinking about that in that context and how you're progressing on that new plan?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. Well, I would say two things. We ended up in the quarter to be down about, I don't know, 35% versus last year and more like 40% to 45% of plan. So what happened was, honestly, there's a number of good ideas, and we learn things. And we wanted to invest in them, and our cash flow in the quarter was proving to be better than, let me just say, some of our most severe models, for sure. And we're quite confident we will be successful with positive cash flow through the balance of the year each quarter. So we're through what we believe is likely going to be the biggest stress test on cash flow being this quarter given the dramatic decline in Institutional sales, particularly in April and then the ramp back that we've talked about. Going forward on capital, capital is going to be down year-on-year. Let's just assume it's in the same level because we've already approved a number of what I would call, we think, smart investments.

And what we don't want to do is underinvest in this business, given our optimism for what post-COVID world looks like. And we don't want to be sitting there flat-footed when it occurs. One of the huge advantages we have versus competition, we've been out-investing them. I think we've been out-innovating them, and we want to continue that plan because this type of stress makes people pull back. Some don't have any choice because they will have negative cash flow, given their, if you will, customer portfolio much different than ours. And as a consequence, we want to take full advantage of being in a position to meet customer needs going forward with the innovation they need post-COVID.

Scott Schneeberger -- Oppenheimer -- Analyst

Great. Appreciate that. And then a quick follow-up. To pick up on something you had mentioned earlier, Doug, and you kind of left off. You talked about Bioquell as obviously mentioned as a lead driver in the quarter in Life Sciences, and you said that it's transferable to a lot of other end markets and uses. And I was just curious if you could take that a little bit further, anecdotally have heard that people have stayed in hotels and had something that they perceived is similar to what I perceive it to be. And they said, oh, that made them feel very comfortable in the COVID environment. So I'm just curious how broad or what type of potential TAM that could be relative to the pre-COVID world?

Douglas M. Baker -- Chairman and Chief Executive Officer

Well, I'll answer it broadly. I mean, will it be exactly Bioquell technology or other technology that we offer space disinfection? I'd say, time will tell. We're doing a lot of work on both. But certainly, the Bioquell-specific technology has applicability outside of its typical or legacy home market of Life Sciences. We've already seen it used broadly in Healthcare. We've seen it used, and we've got inquiries in a number of Institutional markets and other places. And so I don't want to get into specifics and customers and everything else. But it's fairly broad. But we also have other technologies that we think may play a role in some of these markets, too. They would be potentially less expensive, right, to use in smaller spaces than Bioquell. And so we know it's not going to be a singular answer, but it's going to be a broader answer, and I think the team has been very smart. We have a lot of individual initiatives, and we're working to tie it together to make sure that we have a collective view of what's available around the company to go meet these needs. But to us, it spells real and significant opportunity going forward.

Scott Schneeberger -- Oppenheimer -- Analyst

Thanks very much.

Operator

Thank you. Next question is from the line of Laurence Alexander with Jefferies.

Laurence Alexander -- Jefferies -- Analyst

Hello, Two quick questions. So first, on the Institutional margins, can you get back to the 2019 levels [Indecipherable] below sales? Or do you need to get back to [Indecipherable]?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. I would say, I don't think we've seen our peak margin in Institutional, right? I mean, we're not going to get back there this year, that's for sure. And it's going to take a while to go march back there. But there's nothing I know that says that Institutional don't have the ability to set record sales, record margin, record income levels going forward.

Laurence Alexander -- Jefferies -- Analyst

Right. But I guess what I'm trying to get at is, can you get to the same margin as last year at a lower sale run rated last year? Or do you need to get back to within 5% or so to get the same margin?

Douglas M. Baker -- Chairman and Chief Executive Officer

No. I would say some of this, look, I'll answer a theoretical question with a theoretical answer or answer it. And I don't mean to be cute on this. It's -- some of this in what we've been doing is making sure we understand sort of what the situation is going to look like in our markets before we take real action. Now we're doing a bunch of things to equip our businesses to be much more agile in the field, and I talked about field technology, the acceleration that we're doing in Institutional as we've done in Industrial and other places. This gives us the ability to do a number of things. But if you wanted a theoretical and you told me that I was going to live in a world with less units, OK, if I sell more per unit, I will make more money, period. And I don't need to get exactly to the same level of sales simply because everything I do becomes more efficient.

So there's always ways to engineer the business, if you will, to overcome whatever it is that the world is going to throw at you. What we need to make sure we understand is, what is it that the world is throwing at us. What is the market change? We have a lot of guesses out there, but what we want to watch and make sure we understand it, and we will design to win in that market. So we could do it with less volume and make the same amount of money, which would be a higher margin. You can't do it at half the volume, but you can certainly do it in any normal expected potential pain you might realize post-COVID for a short period of time or even a couple of years.

Laurence Alexander -- Jefferies -- Analyst

And then I guess in that context, can you talk a little bit about what you've seen in the Chinese recovery? What you've learned? And so is that where you've started to sort of narrow down the guesswork, so to speak?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. The reason is -- I'll say what we've seen. I mean, we've seen recovery. We haven't seen exactly the same volume per unit. So we're adding units. I mean, the big difference between the Chinese market and the U.S. market for us is just share. And so we're solving a lot of the problems there because we do know the lay of land. We got really small share, and we need to grow it. So we're adding new customers. And I would say the environment lends itself to that because of our what I would say, our reputation, capabilities, etc, are lending themselves and playing well in that given environment. So -- but that's going to be a little different situation than you would have, say, in North America, where you may have higher share in a more fully developed market. And there, we may have to call a different play depending on where we think the market settles, right?

We have a better idea today than we did three months ago, but we will know a lot more in three months than we do today. And what we want to make sure we do is the right move. And we are doing the right steps to enable the few moves we think are going to be possible and probable. But being premature on this thing, we think, would be a mistake.

Laurence Alexander -- Jefferies -- Analyst

Okay, great, thanks.

Operator

The next question comes from the line of Rosemarie Morbelli with G Research.

Rosemarie Morbelli -- G Research -- Analyst

Thank you. Good afternoon, everyone. While we are looking at the Institutional business not growing at 5%, obviously, anytime soon, at least I don't think so, how much of an improvement on do you require in terms of hotel occupancy in order to actually be flattish, return to being flattish? And if they operate at 40% capacity utilization or occupancy rather, can you -- do they concentrate all of the rooms in one particular corner. And therefore, they only clean, 40% of that facility?

Douglas M. Baker -- Chairman and Chief Executive Officer

Well, there's not a complete -- there's not an easy answer like 59%. I would say -- I think two things are going on. Certainly, there's been temporarily demand destruction in the lodging and dining markets. I mean, it's indisputable. And now part of that has also been overcome by increased spend within these places on hygiene. So if you walk into a hotel today, you are going to see, and Christophe alluded to this when he talked about the Ecolab Science Certified program. Part of what people want to do is they want to see clean. So interestingly, where before people would hide cleaning public areas from the public and not do it until off hours, they're now doing it 24 hours. They want the public to see this happening, and they're increasing cleanliness frequency in virtually every part of the establishment. So that's going to, if you will, mean you can get back to same sales at lower occupancy.

What that exact math is, I mean, we're all learning. I mean, we're literally weeks into this thing as we go through there. With that said, we saw, I would say, better recovery in U.S. lodging in the second quarter than I would have guessed going in. And it was quicker in some regards than other markets, which is an interesting outcome. And so we'll all watch this, but we don't need to get back to the same exact level that have the same, if you will, spin per location.

Rosemarie Morbelli -- G Research -- Analyst

Okay. And then looking -- you are emphasizing hospital-grade disinfections. But as we all know and that you know about hospitals, your hospital experience, if they are not choose properly, it really doesn't matter what they use. So are you training them? Is there some kind of a certification? And would you be held responsible if you certify that what they are doing is going to end up with a clean area?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes, absolutely. And I'll have Christophe give some color. Yes. When -- yes, a key component of the Science Certified program is in unit training of employees. And some of this is going to be done through Lobster-type technology, and much of it like it's done historically is also in-person training and development. But you're absolutely right. I mean, if you don't take a disinfectant out of the bottle, it doesn't kill any germs. So you need to do it properly. What the advantage we have with our accelerated kill time is it's much less sensitive to procedure. If you have 4-minute requirement for dwell time, that is a huge training obstacle because it's not natural. It's not what we do. People don't spray things and leave them on there for four minutes, right, to kill. That's just not what we all believe is necessary, even though it is actually the requirement, and I'm going to ask Christophe to give more color if he wants to around some of the training and certification efforts around Science Certified.

Christophe Beck -- President and Chief Operating Officer

Yes. Thank you, Doug. So the idea of Science Certified is really that you can audit it at the end. And we know that it's a point in time. We should be going every day in order to make sure that everything is right. But what we want to make sure, it's like in a company, if the accounting standards have been defined, well, you expect the people to follow them and then to audit them. That's a little bit of the same approach in a more volatile world, obviously, so in a kitchen and in a restaurant. But it's really defining with them what are the standards? What are the protocols? How do we train the people? What are the programs? And as Doug mentioned, so we're trying to have programs as simple to use as we can with the maximum impact in terms of kill time and in terms of efficacy as well and at the end of the day, so to have this audit. And at the same time as well, having our territory managers who is coming as well regularly in that restaurant to make sure that things are being done the right way.

So it's really sort of protecting the unit with the right procedures. And at the same time with Ecolab Science Certified seal that you will see on the door that the guests coming in get some level of comfort as well with this see clean versus just a feel clean.

Operator

Next question is from the line of Andrew Wittmann with Baird.

Andrew Wittmann -- Baird -- Analyst

Thanks. My questions have been asked and answered.

Douglas M. Baker -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of P.J. Juvekar with Citi.

Eric Petrie -- Citi -- Analyst

Doug, it's Eric Petrie on for P.J. How often do contracts come up for renewal in the Institutional market? And in terms of your new business wins, are customers more willing to source incremental product from Ecolab? Or is there still a mentality to diversify supply?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. I would say there hasn't been one then the short answer is, I mean, they're anywhere from three to five years on average, right, our contracts. I always say this. I don't ask investors to take a lot of comfort in that. We don't. I mean, if a customer wants to leave us because we're poor performing then we do not sue. I mean, there's a few exceptions if we give capital upfront and do some other things, and we have spilled out requirement. But we operate like every one of these contracts is renewed every day. It's the only way that you continue to grow share in these industries.

I would say customers typically -- I mean, we have very good penetration in a number of our chains, wide and deep. And so there is not, I would say, a built-in reluctance in the industry to do this. I think what we need to do is continue to sharpen the way we articulate the benefit of doing it, of having the product portfolio ours because in every chain, there's always a gap or 2. So every place we go, we know we can sell more as we do it. But it's not a simple thing of they have this purchasing mandate of having two suppliers. That's not the situation we see. We address security supply, which is a very real and valid concern, by making sure that we manufacture in multiple sites, that we have multiple avenues to supply customers even when we're in sole supply so they can't be victimized by a bad event, say, an unfortunate hurricane or tornado or some other natural disaster that knocks them out and us.

Eric Petrie -- Citi -- Analyst

Okay. For my follow-up question, how many customers in the Institutional business currently use the hospital-grade disinfectant? And where do you see the market opportunity to grow that to? And related, would you see a mix benefit?

Douglas M. Baker -- Chairman and Chief Executive Officer

Yes. I would say the roots of the disinfectants we use in those businesses are hospital, right? I mean, one of the real advantages we've had being in the Healthcare market is you see the emerging pathogens first there. And so you learn how to treat them and deal with them and then it helps you as they start migrating in other institutions around the world. So the base is there. But as Christophe alluded to in a recent launch and I talked about earlier, we have several new, very important developments in that space that is just in the process of rolling out, which enables us, I think, to help customers have more resilient programs because the kill time is faster. So it's less procedure sensitive. So those things are just starting to roll out literally now.

Operator

At this time, we've come to the end of our question-and-answer session. And now I'll turn the floor back to Mike Monahan for closing comments.

Michael J. Monahan -- Senior Vice President, External Relations.

Thank you. That wraps up our second quarter conference call. This conference call and the associated discussion and slides will be available for replay on our website. Thanks for your time and participation, and best wishes for the rest of the day.

Operator

[Operator Closing Comments]

Duration: 76 minutes

Call participants:

Michael J. Monahan -- Senior Vice President, External Relations.

Douglas M. Baker -- Chairman and Chief Executive Officer

Christophe Beck -- President and Chief Operating Officer

Daniel J. Schmechel -- Chief Financial Officer

Tim Mulrooney -- William Blair -- Analyst

Manav Patnaik -- Barclays -- Analyst

John Roberts -- UBS -- Analyst

David Begleiter -- Deutsche Bank -- Analyst

Gary Bisbee -- Bank of America -- Analyst

Ryan Connors -- Boenning and Scattergood -- Analyst

Chris Parkinson -- Credit Suisse -- Analyst

John McNulty -- BMO -- Analyst

Vincent Andrews -- Morgan Stanley -- Analyst

Shlomo Rosenbaum -- Stifel -- Analyst

Scott Schneeberger -- Oppenheimer -- Analyst

Laurence Alexander -- Jefferies -- Analyst

Rosemarie Morbelli -- G Research -- Analyst

Andrew Wittmann -- Baird -- Analyst

Eric Petrie -- Citi -- Analyst

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