Despite a difficult year economically for consumers, retailers and manufacturers alike, the global nappies/diapers/pants market grew by almost 8% in value terms during 2009 to reach $31 billion. In terms of absolute growth, the category was a standout performer, gaining more than $2 billion in value despite the turbulent conditions, proving that consumers are still willing to spend on their families, particularly on items which offer function, convenience and efficacy.
Emerging Markets Drive Global Growth
However, this strong level of global growth masks a marked difference in the performance of the category at the regional level. While the developed markets of Western Europe, North America and Australasia registered value growth in low single digits, the emerging regions of Asia Pacific, Eastern Europe, Latin America and Africa and the Middle East all registered double-digit growth, with Latin America a star performer, registering 17% value growth in 2009.
This strong growth in emerging markets represents the coming together of many positive factors. Clearly, demographics play a large part; while birth rates are slowing and even in decline in many Western countries, the opposite is true in many emerging markets. Rising birth rates are driving the consumer base ever upwards and, broadly speaking, rising income levels amongst the lower to mid population segments are being seen in line with the development of more modern retail structures, meaning that nappies/diapers are now more readily available and importantly more attainable for a much broader swath of society.
Economic development has also brought with it changing social norms with women now more frequently taking up full- and part-time employment, meaning demand for childcare products that are easy to access and offer increased convenience over standard nappies/diapers is on the up. This means that disposable nappies/diapers have become less of a convenience and more of an essential item for many families struggling to balance work and home life commitments.
Head To Head In The Battle For Share
The global market for nappies/diapers is primarily a battle between Procter & Gamble, which holds roughly one-third of value sales and Kimberly-Clark, which held roughly a quarter share in 2010. While there are other, regional players such as Unicharm and SCA, the market has a tendency towards consolidation not least owing to the costs involved in developing new products which require a huge investment for manufacturers. Largely for these reasons the two leading companies with the largest research and development budgets enjoy a clear advantage seen in no clearer terms than through the worldwide battle between the Pampers and Huggies brands on the international stage.
While the position of the leading players is fairly secure the main source of competition comes from private label, especially in developed markets where retailers have enough muscle to source their own products. Private label diapers accounted for roughly 8.5% of sales in 2010 and continues to offer (on the whole) high quality products at significantly lower prices to major brands and, for this reason, sales saw a significant uplift in those markets worst hit by the recession in 2008 and 2009.
Innovation Returns To Developed Markets
While economic concerns continued to pervade, innovation took a backseat across many fast-moving consumer goods (fmcg) categories in 2009, and nappies/diapers proved no exception. In developed markets, major manufacturers largely focused their attention on promotions and discounting. While there were some new product launches, such as Pampers Simply Dry—a value-priced entry-level Pampers variant—there was little in the way of significant innovation. Indeed, the sight of big name brands looking to offer value-led lines in an attempt to hold private labels at bay was a feature of fmcg as a whole in 2009 as companies dropped prices in something of a knee-jerk reaction to the recession. However, with the slightly healthier economic environment of 2010 and time to react to the new market environment, innovation has now returned to the category.
Disposable Nappies/Diapers Face
The most significant launches of 2010 have all had an environmentally-friendly slant. The environmental implications surrounding the use of disposable nappies/diapers—primarily how they are disposed of — is the major difficulty facing the category in developed markets, outside of shifting demographics. With governments intent on reducing the amount of household waste that goes to landfills and consumers increasingly aware of the effect of their actions on the environment, disposable nappies/diapers have of late attracted a fair amount of bad press. Despite this, the vast majority of consumers remain unwilling to sacrifice the convenience and performance of a disposable nappy/diaper to benefit the environment, and this creates a significant challenge for manufacturers – wanting to be seen to be doing their bit for the environment while not compromising on the efficacy of their particular product.
In November 2010, SCA extended its range of eco-labelled Libero Comfort products in Scandinavia to offer environmentally-friendly nappies/diapers in all sizes. The brand has Svenen accreditation, meaning it has met a series of eco requirements, which start with the production process and run right through to the quality and efficacy of the end product. In North America, Procter & Gamble has launched Pampers Dry Max – also later launched in the U.K. and Europe—billed as the biggest innovation for the Pampers brand in 25 years. The new products are 20% thinner than previous nappies/diapers, allowing more flexibility and improved comfort, while benefiting the environment due to the lower amount of material required for manufacture.
While both Libero Comfort and Pampers Dry Max are a step in the right direction, neither fully answer the question of disposal nor are either totally biodegradable. There is no question that green concerns will drive future innovation, first in developed and later in emerging markets, and the first mainstream manufacturer to launch a truly environmentally-friendly and biodegradable nappy/diaper at a realistic price point will have a huge impact on the industry, gaining first mover advantage and raising the bar in the brand versus private label stakes.
Disposable Pants Attract Investment
Other noticeable innovations during 2010 have focused on disposable pants. Disposable pants remain a relative niche, registering the lowest level of value growth in the wider category, during 2009 to reach $4 billion. Despite this, disposable pants attracted investment in developed markets as its consumer base, albeit small, is largely comprised of higher-income parents who are able to afford more sophisticated, pricier products, offering an opportunity to add value.
In 2010, Procter & Gamble launched Pampers UnderJams in the U.K. and Germany. Pampers UnderJams offers through-the-night protection for 4-12-year-old children who suffer from bed-wetting. In the same year, Kimberly-Clark, invested £1.5 million in the Western Europe relaunch of its Huggies Pull-Ups brand, potty training pants for 18-36-month-old children. In investing in disposable pants, both manufacturers are aiming to expand their consumer bases and counteract some of the negative impact of demographics. In particular, a product targeted at bed-wetting such as Pampers UnderJams is a savvy move in mature markets where birth rates are low, opening the category up to a much larger age group.
Image Matters to Mums
While new environmentally-friendly products and the innovations in disposable pants both bring tangible benefits, one to the environment and one to the consumer, one of the most noticeable disposable nappy/diaper trends in 2010 was unusual in that it brought nothing new in terms of product functionality and instead focused purely on aesthetics.
In the U.S., Kimberly-Clark launched limited edition Huggies Little Movers Jeans Diapers, which have a denim-look design and were available for a limited two month period of two months at a 40% premium on regular Huggies products. Hot on their heels came the launch of Procter & Gamble’s Pampers by fashion designer Cynthia Rowley. The Pampers range is available in pastel colours, with designs including plaid, stripes and ruffles, and retails at around 60% more than a standard Pampers product. SCA’s Libero also got in on the act in 2010 with a limited-edition nappy/diaper marketed around the football World Cup, featuring a Libero football club crest on each nappy/diaper.
While the high premiums may seem a lot to pay for a nappy/diaper that boasts nothing more than the fact that it looks better, if there is one tissue and hygiene category in which consumers can be persuaded to spend more, it is nappies/diapers/pants. Parents want the best for their baby and, in very image-conscious Western societies; a nappy/diaper that looks a cut above the rest can tempt many, with the launches attracting considerable attention. While the success of this type of innovation as a long-term value driver is limited, designer nappies/diapers offer a sound strategy to stimulate consumption and value sales in the short time they are available. Designer nappies/diapers cost little in terms of research and development, yet offer an opportunity to open up a new premium price band; given this, it is likely that summer 2011 will bring more limited-edition fashion launches.
Emerging Markets are the Key to Long-Term growth
The global nappies/diapers market is predicted to continue its strong growth, with a CAGR increase of 4% predicted to 2014 in constant terms between 2009 and 2014. As was the case during 2009 and again in 2010, it will be the emerging regions of Asia Pacific, Eastern Europe, Latin America and the Middle East and Africa that will be behind this growth, with the mature markets of the West languishing in low single-digit growth.
As would be expected, the regional strategy of the major manufacturers reflects the markedly different growth prospects across the globe. In developed markets, manufacturers are focusing on premium products, aiming to add value to a mature market. However, in emerging markets, where disposable nappy/diaper value growth is driven by increased uptake, rather than focusing on product innovation, manufacturers are investing instead on upping their local production facilities, aiming to expand their consumer bases by offering more competitively-priced products.
All of the major players invested in production facilities in emerging markets during 2010. Procter & Gamble announced multi-million dollar investments in nappy/diaper manufacturing plants in South Africa and Egypt. Kimberly-Clark, meanwhile, opened a $170 million production facility in Russia, whilst SCA acquired Mexico's Copamex in a deal worth around $50 million and opened a plant in Malaysia.
While the product innovations seen in mature markets – particularly with regard to environmentally-friendly nappies/diapers – are entirely necessary to ensure manufacturers make the most of what growth potential there is, given the ongoing shift in regional importance, investment in emerging market manufacturing must for now be the primary focus of manufacturers looking to solidify their long-term prospects in the category.
Corinne Gangloff, Freedonia Group||March 11, 2013 The U.S. will remain a large market for various consumer products due to favorable demographics, and manufacturing of these products will likely remain near the point of demand.