A Two-Prong Attack On The Global Diaper Market

By Adrian Atterby, Euromonitor International | January 3, 2007

Declining birth rates in the developed world are having an adverse affect on diaper manufacturers' ability to expand their businesses. Birth rates among the major industrial nations have declined by almost 20% during the last 30 years and are now only half the global average, according to Euromonitor International.

The global market for diapers was worth $22.2 billion in 2005, an increase of 2.9% compared to 2004. However, the major markets of Western Europe, the U.S. and Japan posted a decline of 0.3%, continuing a trend that goes all the way back to 2002. As a result, Procter & Gamble and Kimberly Clark are quickening the pace of innovation as they attempt to stabilize their own shares. P&G has been more successful in recent years, adding 3.5% to its marketshare since 2001 while Kimberly Clark has lost 1.9%. 

On a positive note, the developing markets are growing, from which 40% of global diaper revenue is derived. Markets such as China and Russia are providing brands with excellent opportunities for longer term growth.

Sophistication in Products Increases As
Companies Fight to Keep Babies and Parents Happy

The pace of innovation has increased substantially during the last two years as manufacturers attempt further segmentation of their product ranges. Top industry players continue to split products by baby stages of development instead of size and still claim to produce diapers that aid in child development.

In 2006, manufacturers focused on providing a more comfortable fit. A great example of this trend was adding Caterpillar Flex to Pampers Baby Dry range. This technology allows the diaper material to stretch with the child when it moves, reducing chafing against the skin. P&G also made improvements to its premium range. Both Swaddlers and Cruisers now feature Mesh Absorb-Away liner, providing the baby with enhanced comfort by drawing wetness away from its skin. P&G has also developed better leakage protection for its Luvs range, the company’s value brand in North America.

According to Euromonitor, the most dynamic area of growth in developed markets since 2002 has been training pants, which have grown nearly 20% and by 3.8% in 2006 alone. The past 12 months have seen the launch of a number of brand extensions, particularly from Kimberly-Clark, who extended its Huggies Pull-Ups range into specific Night Time training pants earlier this year. K-C also introduced an improved version of its Wetness Liner, now called Cool Alert, which creates a sensation of coolness next to the child’s skin to better aid the potty training process. Alongside these developments, however, there is increasing pressure on parents to toilet-train children at an earlier age, as many U.S. pre-schools have a no-diaper policy.

K-C also updated its Little Swimmers product, now featuring Sun Signals, which alerts parents when a child needs to have more sunscreen applied or be taken out of the sun. In Europe, the company introduced Little Walkers, a pull-on style diaper which can be put on as pants and at the same time adjusted on both sides. The product provides children with increased maneuvering and comfort as they are learning to walk.

Lower birth rates and decreasing family sizes give parents the ability to spend more money on premium products. In response to this and as a reaction to the success P&G had with its Baby Stages range, K-C re-launched its premium range, Huggies Supreme in August 2006. Previously available only in a single line, it now comes in two ranges, Gentle Care for newborns featuring cotton weave material for increased softness on the skin and Natural Fit for older children, with an hourglass shape promoting a more comfortable fit.

Emerging Markets Offer Opportunity For Rapid Growth

While developed markets continue to stagnate, emerging markets such as China, Eastern Europe and Latin America offer manufacturers better opportunities for growth. Since 2002, developing markets have contributed a massive increase of $2 billion to global sales.

To combat constraints brought on by lower disposable incomes in these regions, P&G has been developing lower cost options. In 2004, it launched the Pampers Baby Basics brand in China to cater to the lower end of the market and was rewarded with a 100% rise in volume sales. This led to a 2005 announcement that it planned to develop a low cost diaper for the developed world.

Although generally small, premium niches do exist in developing markets. In 2005, Johnson & Johnson released a night-time diaper in Brazil scented with lavender and camomile to help sooth the baby at bedtime. P&G found similar success with its Total Comfort and Total Protection lines.

Manufacturers have used special promotional offers and free samples in post-natal hospital units to increase sales and awareness. In Brazil, P&G introduced larger packs with as many as 60 diapers to entice more prosperous consumers. Smaller packs with two units have also been introduced to target lower income families.

Going Green Could Mean Genetic Modifications

Accounting for only a small part of the market, environmentally friendly diapers are growing in popularity. This trend is driven both by concerns over the effect that disposables have on the environment and the belief that chemicals used in the production process may have an adverse effect on the child’s skin.

The most popular type of eco-friendly product is the traditional washable diaper. The downside is the extra time and effort required to wash and dry it. The cloth market is believed to be worth $200 million per year in the U.S. A number of other, more convenient products have become available in recent years. Moltex, which were re-branded as 7th Generation in the U.S., are disposable diapers untreated with chemicals. This means that aside from being better for the baby’s skin, the diaper biodegrades far more quickly than traditional disposables. Sales of 7th Generation diapers through Whole Foods Market in the U.S. are believed to have reached over $10 million per year.

gDiapers provides (www.gdiapers.com) a further alternative to the environmentally-conscious parent. This two part diaper features a washable cover and a removable liner which can be flushed. The key advantage is that this product is nearly as convenient as a disposable without producing solid waste.

Available in Spanish and Italian markets, Ingeo diapers are manufactured using genetically modified corn. Ingeo diapers absorb moisture better, are lighter than diapers made from traditional materials and biodegrade far more quickly. This is the product that is most likely to succeed as a mass market solution; however, growth will be constrained by price.

A Tough Road Ahead

Competition in developed markets is likely to become fiercer. This will lead to further innovations as producers fight to protect their market share. According to Euromonitor, brands will continue to face an increasing threat from private label products. Retailer brands will continue to gain a foothold as issues traditionally associated with these products, such as poor quality, dissipate. This will further increase the pressure on brands by restricting pricing increases, particularly on standard or value offerings such as Pampers Luvs, Baby Dry or Huggies Super Flex. Brands should commit larger amounts of capital to the premium sector as it is likely to experience the highest levels of growth in the coming years.

Companies will continue to focus on developing better fitting, less bulky products with improved stretchability. Increasing levels of expenditure in maturing markets will create new battle grounds in the coming years as brands fight to increase their marketshares. By 2010, Russia and China are expected to be worth over $1 billion per year in sales, as well as Mexico, Brazil and the Eastern European region. Combined, they are forecast to reach almost $7.5 billion a year in sales, an increase of 60% over 2005.  

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