The hot topic of conversation in diapers these days is training pants. Kimberly-Clark created the segment in 1989 and has dominated it for years. But, Procter & Gamble’s introduction of Easy Ups in September 2002, is shaking up the category. The launch of Easy Ups has brought P&G’s training pant marketshare from zero to 20%. This success was mainly achieved through heavy promotion and couponing, which influenced customers to try the products, according to industry observers. Of course, the battle between K-C and P&G is nothing new to the diaper market. The two have long dominated the market, ever vying for the number one and two positions. For now, it seems like P& G is the winner. P&G’s Pampers diapers holds a 31.5% share of the $18.8 billion global disposable diaper market, according to Euromonitor, while K-C’s Huggies holds 22.3% of the market. P&G’s recent success in diapers is attributed to the success of its Pampers Baby Stages Line, launched in February 2002. This line responds to the baby’s development stages rather than its size to achieve a perfect fit. Products include Swaddlers for infants, Cruisers, with special stretch material for toddlers and Easy Ups. “There are many players out there,” explained P&G spokeswoman Lisa Jester. “You have to have an edge when driving innovation. Baby Stages made us the only manufacturer with a line geared toward the stages of development.” While this introduction represents a whole new brand for P&G—Baby Stages replaced Pampers Premium—product improvements are nothing new to the diaper market. In order to keep up with technology and give themselves an edge over competition, diaper companies make it a habit to improve their products regularly. K-C, for example, added triple leak barriers and two leak guards to its Huggies Supreme diapers. These new features work with the diapers’ leg elastics to provide triple protection against leaks. K-C also made its GoodNites Disposable Underpants 30% thinner and added popular Disney characters to their design. Pulling Up Sales The maturity of the diaper market, particularly in developed regions, has left manufacturers concerned over future growth prospects. Between 2001 and 2002, diapers sales remained flat. A nearly 4% drop in North America sales, a region that once recorded growth as high as 8.2%, as well as decreases in Latin America caused by political and economic problems, could not offset near double-digit gains in Eastern Europe and Australasia as well as slower growth in Africa and the Middle East and Western Europe. Slow U.S. growth was a main motivator for P&G’s interest in the training pants market, which is valued at an estimated $1 billion. As the fastest growing, highest margin diaper product available on the market, success in this segment is sweeter than in traditional diapers. According to industry estimates, the average price of a mid-tier branded diaper is approximately 30 cents while a premium style diaper retails for about 40 cents. A branded training pant in the U.S. market typically retails for 54 cents. All of these pennies add up especially if you consider how quickly a child goes through diapers. The difference can add up to thousands or even millions of dollars. The opportunity for pure profits is the motivation behind both P&G and K-C’s heavy promotion in the training pants category. This segment continues to grow 15% a year and holds a great deal of potential for sustained growth. Only about half of parents use disposable training pants when toilet training their toddlers, despite claims made by both companies that the use of such products can significantly alleviate the training process. Until, recently K-C was the only major player in the training pants segment, which it created with the launch of its Pull-Ups product more than a dozen years ago. Since the introduction, K-C has made constant improvements to Pull-Ups including increased stretch, thinness and design features. This stream of innovation seems to have worked; the company regularly attributes increased profits to the success of Pull-Ups. As recently as October the company announced that shipments of Pull-Ups training pants in North America had set an all-time record during the third quarter of 2003. Despite this recent optimism, in past quarters, K-C has that severe competition in diapers has contributed to lower-than-expected earnings. In late 2002, K-C’s plans to increase diaper prices were foiled when P&G failed to follow suit. K-C was taking steps to lower its diaper package counts (without lowering package prices) until P&G decided to change its diaper package counts but not its prices. P&G’s newfound success in training pants is also shaking things up. The company tried to penetrate the training pants category in 1994 but design issues, and high production costs worked against them and the company pulled this line off the market in 1996. Researchers went back to the drawing board and the result was Easy Ups. K-C executives have shrugged off the success of Easy Ups, calling it relative, as Pull-Ups still have a 65% marketshare. “I would not call it a success,” said Joe Kuester, product manager for infant care at K-C. “They’ve spent a lot of money to achieve that share.” The introduction of Huggies disposable changing pads and Pampers Bibsters disposable bibs represent a trend among diaper manufacturers of becoming complete baby care providers. In response, this year K-C launched its latest spin on the disposable diaper in mid 2003. Huggies Convertibles diaper-pants. Developed for babies 13-36 months old, this product can be put on like a pant or used like a traditional diaper. Huggies Convertibles give parents the opportunity to change a child laying down or while on the go. This option was made possible through the development of proprietary nonwovens technologies and other materials made by K-C. Some industry observers feel that this introduction reflects a trend whereby the diaper and training pant segments will merge, particularly among larger sized products. While the verdict is still out on whether or not Convertibles will be successful, it does make sense that a parent would buy a product that could function as a diaper and a pant instead of relying on only one product. “This product was based on strong feedback from consumers demanding this type of diaper-pant,” Mr. Kuester added. “It also fits into our general philosophy. We strongly believe that the more convenient you can make a diaper change, the more time the child can spend exploring the world.” A Private Matter Paragon Trade Brand’s White Cloud diapers, made for Wal-Mart, the nation’s largest retailer, established private label as a major force in the U.S. diaper market when it was launched in the 1990s. Despite its success with the Wal-Mart/White Cloud business, patent troubles led Paragon to bankruptcy in the late 1990s and the company was eventually sold to Tyco Healthcare, creating a huge monopoly in the private label diaper market. In fact, some estimate that Tyco’s U.S. marketshare was as high as 95% when it first acquired Paragon in 2001. Procter & Gamble’s new Easy Ups (above), have boosted the company’s share significantly in the training pants market. Although Tyco’s share is still in the nineties, complacency has affected its sales during the past two years, according to insiders. In November 2001, private label brands represented 22% of diapers sales in the U.S.; today that share has dropped to 19%. This decline has been blamed on a slower rate of innovation, caused by a market with too few players. This, however, could be on the brink of changing. As Tyco continues to focus more on streamlining costs than improving products, several smaller players are taking the opportunity to increase their positions in the market. Associated Hygienic Products, which purchased Drypers’ U.S. diaper business in 2001, is focusing on niche areas and retail customers that weren’t satisfied with the Tyco-Paragon marriage. Meanwhile, Mexican producer Arquest honed its customer relations efforts to increase its sales in Wal-Mart and RMED International, Eau Claire, WI, has been promoting a new diaper, Mother Nature, made with a Rayonier-supplied air laid core—the industry’s first known use. Also looking to boost this market is a newcomer to the private label diaper market. Mabesa, a Mexican diaper producer that once partnered with Paragon, has joined forces with private label wipes maker Rockline Industries to form Valor Brands, a private label diaper producer for the North American market. The venture will rely on Mabesa’s knowledge of the private label diaper market and Rockline’s existing retail contacts to bring a new choice to retailers. Valor Brands is already producing diapers on several new lines—both traditional diaper and training pant—in a facility in Tijuana, Mexico. Babying Baby A collaboration between a diaper company and a wipes producer, Valor Brands hopes to link diapers with wipe products to help its retail partners build branding initiatives. The increased importance of auxiliary products, like baby wipes, in the diaper business is due to several factors. Large producers view themselves as complete baby care producers, not just diaper makers and have increased their sales by offering a range of disposable products to consumers to make their jobs as parents easier. Busy parents, concerned about their child’s comfort and safety, are buying this strategy and making these new products successful. K-C has responded to this introduction with the launch of a diaper-pant product (below, right), which can be side-fastened like a diaper or pulled on like a training pant. Baby wipes have been a mainstay in the infant care market for several years and are already considered a mature market. In fact, as wipes proliferate into other markets like household cleaning and personal care, baby wipe sales are decreasing. To slow this, baby care companies are targeting niche areas within the wipes segment. K-C’s wipes offerings, for instance, include newborn, ultra-gentle, supreme and natural, while P&G offers sensitive touch, big wipes, natural aloe and cotton care products. Even store brands have diversified their offerings to include unscented, natural and thick varieties. Wipes are not the only area where diaper manufacturers are looking for brand expansion. P&G achieved success in 2001 when it launched Pampers Bibsters disposable bibs. This product was developed after P&G identified the need for a disposable bibs from parents and has since become a runaway hit on the market. “We are much more interested in the care of the baby than just diapers,” explained Ms. Jester. “This concept comes from our interaction with parents.” P&G operates a Baby Center in Cincinnati, where hundreds of mothers and babies test out baby care products. Similar to a day care center, this facility allows P&G’s product development team to view babies in everyday situations and see how products, diapers and non-diapers, perform in a real world environment. K-C has also moved beyond diapers and wipes in its baby care business in an effort to respond to consumer needs. In July, the company launched Huggies disposable changing pads, designed to meet the challenge of diapering an active baby on the go. With a soft, highly absorbent top layer for comfort and a non-slip bottom layer that keeps the pad in place, the product has a waterproof barrier and is disposable for added convenience and cleanliness. Just last month, K-C brought Huggies into the baby toiletries category with the introduction of disposable washcloths and baby wash. As diaper sales become more competitive and margins become tighter, auxiliary products will continue to become more important to baby companies’ bottom lines. Certainly, those products created with the needs of parents and babies in mind will help boost profits for both branded and private label suppliers.