Baby Diaper Market Update

June 14, 2005

manufacturers continue to provide the best comfort, stretch and flexibility

Parents expect nothing but the best when it comes to their babies diapers. And, manufacturers have responded to these expectations with improvements to their diapers. Not only do diapers need to provide the best protection against leaks to keep babies dry, but they must also offer extra features that can provide comfort, breathability, stretch and convenience.

Laboratorios Indas, S.A. offers its Maybaby brand of baby diapers in various sizes and absorbency levels.
Diapers are achieving improvements, such as more elastic waistbands and leg cuffs and increased absorbency. The result is a marketplace where consumers have many options in choosing which diaper will best suit their babies needs. In addition to fit and comfort, added features include softer and cloth-like outer coverings with colorful prints and cartoon designs and built-in lotions. All of these features can make one diaper stand out from another. The result of all of this innovation is a need among manufacturers to keep place with consumers demands and expectations for baby diapers.

End users today have clear ideas about what a baby diaper should have, explained Margarete Krmer, press officer for Paul Hartmann AG, Heidenheim, Germany. They expect high absorbency, no rewetting, a comfortable fit and skin-friendly and breathable materials. In addition to this, they expect a perfect fit and a diaper that is easy to handle with features such as refastenable tapes.

While this may seem like a never-ending list of demands from consumers, manufacturers have no choice but to follow them, continue to innovate and offer a diaper that will best meet all of these needs. A look at todays diapers reflects this trend, and a disposable diaper produced today bears a little resemblance to one made a decade ago.

Great Expectations
No matter how many extra features a baby diaper has, one fact is clearthe diaper must protect against leaks and provide dryness.

Leakage protection and dryness are the top two priorities, and if a diaper can not do this, it will not stand a chance on the market, said Christian Bona, international marketing manager at SCA Hygiene Products, Stockholm, Sweden. Once a diaper can prove it has these qualities, manufacturers can then focus on the extras, which, ultimately will make the product differentiate itself and stand out against all of the other available products on the market.

SCAs Libero premature diaper does not represent a large market for the company, but executives are optimistic about future growth.
One requirement in the diaper industry is that a diaper offer convenience to parents. Consumers want a diaper that is easy to put on, remove and dispose of in a short amount of time. Manufacturers have responded by adding refastenable tabs and tapes so that parents can check to see if the diaper has been soiled and, if necessary, use the tapes to roll the diaper up and throw it away.

With the push for increased comfort and ease of use comes another trend in diapersan evolution toward looking and feeling like a big kid. Therefore, many manufacturers have added pull-up pants to the baby care lines. Although pull-up pants are more geared toward older children who are undergoing toilet training, they can be pulled up and down to offer parents and children more convenience.

Although pull-up pant diapers are well received and not showing any signs of fading from the market, there are certain fads manufacturers have to remain aware of. For example, many companies are now adding cartoon designs and colorful graphics to a diapers outer cover. While this does not boost the performance of the diaper, these trends could influence customer purchasing decisions.

A diapers extras are big cost drivers, said Mr. Bona. Trends like these are always going to come and go.

Ms. Krmer said she has noticed that the baby diaper market tends to work in alternating cycles in terms of where a manufacturers attention is focused. One year there seems to be a focus on innovations for the absorbent core, and the next year the focus shifts to the outer cover, Ms. Krmer explained. While we expect this shifting back and forth to continue, consumer demands will stay the samebest possible fit, skin friendliness and high absorbency.

The top ten brands of disposable baby diapers for the 52-week period ended Nov. 3, 2002 ranked by Information Resources Inc., Chicago, IL. Sales and figures are for Kimberly-Clark, Dallas, TX; Procter & Gamble, Cincinnati, OH and private label brands. All of the sales figures include total sales for supermarkets, drug stores and mass merchandisers, excluding retail sales from Wal-Mart stores.

To get the best possible fit, Kimberly-Clark, Dallas, TX, has developed its Huggies Supreme diapers, which, according to executives, are designed to provide the ultimate in care. One of the most notable improvements to Huggies Supreme is an all-around stretch design.

Huggies Supreme diapers are designed for a perfectly comfortable fit, whether the baby is lying down, crawling, or running. This design was reportedly made possible through proprietary K-C technology involving stretchable nonwovens, which are found in the outer cover, bodyside liner, waistband and fasteners.

Like K-C, Procter & Gamble, Cincinnati, OH, has added innovation to its Pampers Baby Stages line, which was launched last February. Pampers Baby Stages feature three different diapers that represent the different stages and growth patterns of a babys development. The three stages are Swaddlers, Cruisers and Easy-Ups. Swaddlers, which is used during the babys infant stage, feature a quilted cover, gentle care lotion and a superabsorbent core as well as a soft, quilted backsheet. Cruisers, the second stage represented in the line, are for toddlers and have more stretch materials on the sides for the more active babies. Easy-Ups is a pull-up pant for older children.

SCAs Up And Go diaper design features cartoon characters and other colorful graphics, which are becoming more common in diapers outer covers.
The new lines from industry leaders K-C and P&G reflect a trend toward developing diapers in sync with babies developmentnot just size.

One of the major trends happening right now in the baby diaper market is focusing on how a baby is developing, Mr. Bona said. Creating a diaper that adapts to a babys needs is very important. One innovation this trend has created is additional stretch. Where once stretch was limited to waistbands and leg cuffs, now it is being applied to the overall chassis of the diaper.

Developing Diapers For Developing Regions
While all of these extra features have become important when competing in the baby diaper market, concerns with costs are not going away. Consumers are still looking for the best quality at the best prices, but this varies throughout different regions. Although the diaper market is mature in developed areas such as North America, Western Europe and Japan, penetration in other areas is limited, making these regions more attractive to manufacturers.

Indas, for example, hopes to gain market share in less developed areas such as Africa where diaper penetration is less than 15%. It is improving its manufacturing processes and reducing all of its direct costs. Although Indas is a small player in the diaper industry, the companys sales have been increasing annually by 20%, making executives optimistic for the future.

To gain marketshare in lower income regions, manufacturers must study consumer spending patterns in these regions. Some of their research shows that consumers in Third World nations buy diapers in much smaller quantities than in the U.S. and Europe because they do not have the disposable income and therefore cannot afford bulk packages.

In less developed areas such as Africa, people do not go through that many diapers in one day as they would in the U.S.primarily because they cannot afford it, said SCAs Mr. Bona. They are more likely to go to the store and buy two or three diapers at a time.

In addition to smaller packages, diapers with lower quality and price are more attractive in less developed areas. Because customers are not as sophisticated in these regions, they tend to have lower standards than consumers in western nations.

Competition At Home
Struggling economies in developed regions has also led to smaller packages. Both K-C and P&G recently lowered the amount of diapers in each package to lower their list prices. Heavy competition in the market prevented either company from raising the cost per diaper with the conversion.

Competition struggles between P&G and K-C are recognized worldwide. Currently P&G dominates approximately half of Europes diaper sales with its Pampers and Luvs brands, while K-Cs brands lead the U.S. diaper market. Both P&G and K-C will most likely remain the market leaders in the future.

Also shaping market leaders is the consolidation of mass retailers such as Bentonville, AR-based Wal-Mart. Stores such as these offer a wide variety of brands at competitive prices which leaves competitors fighting for store shelf space. This forces manufacturers to cut costs to adhere to pricing levels activated by these mass retail outlets. As a result, many smaller marketers can not compete with the larger brands and have been forced out.

There is more big brand competition rather than smaller brand, explained Ms. Krmer. Financially strong brands are in a position to dictate prices to retailers. Once they have been able to reduce prices, these reductions can be matched by smaller competitors, if they want to remain on retailers lists.

Smaller Companies Gaining Speed
This does not mean that there is no longer room for smaller and private label brands in the baby diaper market. Instead, it means that these manufacturers may have to be more creative and work harder when marketing their diapers. Additionally, smaller manufacturers are exploring niches in the baby diaper market, such as diapers for premature babies.

Smaller diapers for premature babies is a very important niche for us, said Santiago de Gracia, general manager of Indas. A large portion of Indas business revolves around diapers for babies born prematurely.

In the future, these preemie diapers are expected to make more of a mark in the market as healthcare facilities have more success in saving premature infants. Paul Hartmann launched Fixies New Life, its diaper designed specifically for newborns, in October. The diapers feature a round cut-out front to leave the belly button uncovered. This facilitates better care of the sensitive skin surrounding the navel as the umbilical cord heals, according to Ms. Krmer.

Private label producers also need to stay creative when exploring newer market areas, such as premature diapers. With private label diapers having a price that is approximately 20-30% less than leading retail brands, the outlook for further growth looks promising, Mr. de Gracia said.

If smaller manufacturers can not find a way to stand out among market leaders, they will have a difficult time penetrating the market. And, if smaller brands begin to trail behind consumers will may switch to a K-C or P&G brand.

In addition to constructing a diaper similar to the market leaders products, private label manufacturers should also look for opportunities in growing regions such as Asia and Latin America. With a large populations and number of consumers, Asia has become one of the largest growing markets for baby diapers. Latin America is also an area for diaper growth, despite economic turmoil in Argentina and Venezuela.

Airlaid Talk Dwindling
A few years ago, there was a lot of talk about the possibility of switching to an airlaid core. More recently, however, this conversion does not seem as likely. Although airlaid cores are common in feminine hygiene products baby diaper manufacturers report that it is not a necessity at the moment.

For a large majority of producers, airlaid cores will mean nothing because they already have quality forming equipment in their existing converting lines, said Tomas Gandemo, baby diaper research and development director at SCA. These lines offer a more cost-effective way to make a diaper core compared with newer airlaid materials.

Additionally, Mr. Bona noted that diapers cannot get much thinner than they are right now, and the focus will remain on updating features while continuing to offer a variety of products that follow a babys development pattern.

As for the future, it is anyones guess what baby diaper manufacturers will come out with next, but for now they will continue to focus on developing products that provide the best fit and comfort for babies, while offering a variety of sizes and stretch to follow a babys development. Extra features at a low price will continue to determine which diaper will be chosen.

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