The disposable diaper market is a tough one to look at globally. While penetration levels soar above 90% in the western world—where it’s unusual to find a baby’s bum without one—they average below 20% on a global level and are even below 15% in many developing regions.
These disparities make it difficult for a global diaper manufacturer to have a truly comprehensive strategy when it comes to growing its diaper business. In established markets like the U.S. or Europe, creating a new product that might cost a little more but fulfills a specific need can help propel sales despite the fierce competition and price sensitivity that has come to define these markets. At the same time, simply getting diapers into the hands of consumers in emerging markets in Latin America, North Africa, Asia or Central Europe is a challenge. Here, disposable incomes are too low and retail infrastructures too immature but this is expected to change.
“Demand in baby diapers has been most active in the Middle East, closely followed by Asia, especially China and Vietnam, followed by Latin America, Brazil and also Mexico, much less in the U.S. and the least in Europe,” says longtime industry consultant Carlos Richer.
In markets like Central Europe, Latin America, China and India, diapers are still considered an expensive luxury with no reusable value among some and are completely unaffordable by many. These conditions are expected to change, however, as socioeconomic and cultural patterns shift, opening up new opportunities for global diaper manufacturers seeking growth.
Therefore, it will be the developed regions that will help boost the market from its current $25 billion level to an estimated $33 billion in 2017, according to a report recently compiled by Global Industry Analysts. This study found that the most vital issue affecting the market in these regions is price and consumers, when they buy diapers, buy them in much smaller quantities. This will change moving forward thanks to a rising disposable income and a growing urban population. Adding to the attractiveness of these regions are their higher birthrates. This has led companies like P&G to actively promote campaigns in markets like Nigeria and Kenya, persuading customers that their brand of diapers are best for their babies. These campaigns are like an insurance policy for the future, creating brand loyalty so that when these consumers can afford diaper products, they’ll have already developed brand loyalty.
In coming years, these markets will develop a better retail infrastructure and emerge as strong growth drivers for the baby disposable market, Richer predicts.
“Several projects are already on their way in many emerging new markets, one concern will be the need for the Indian government to raise the differential between imported duties for the raw materials and the finished products, of course many raw materials are currently expanding or starting to be installed such as with many nonwoven factories and a new SAP project,” he explains. “If India decides to provide a small incentive to protect local manufacturers, this will really help this industry to grow.”
Borrowing from the world of fashion and relying on advances in nonwoven printing technologies, major diaper manufacturers have been expanding their product lines with printed products. K-C first entered this realm about 18 months ago when it introduced Huggies Denim diapers to its Little Movers line. A limited edition launch, the diapers, fashioned to resemble a pair of jeans, were available for the summer seasons of 2010 and 2011 to give parents an alternative to keeping their babies in a plain white diaper during the hot summer months. Other efforts in this category are Huggies camouflage and Santa diapers which were available for a limited time in 2011.
“The strategy is to position these designer diapers as limited edition launches,” says Huggies associate brand manager Ayana Green-Olive. “In doing this, we are borrowing some of the key queues from the fashion industry and hopefully we are achieving incremental sales gains and attracting new buyers to the category.”
In addition to driving excitement and maybe a little impulse shopping, Huggies has found that these launches are a great way to attract new customers to its products. “At the end of the day, we are well aware that even though these designs are exciting, what drives us forward are Huggies’ ability to address every day concerns like leakage protection and fit and these products expose more parents to these great features,” Green-Olive says.
According to diaper industry tracker Pricie Hanna, product innovations like designer diapers and limited edition launches have helped branded players like K-C and Procter & Gamble get an edge over the private label competition. “In a sense, it’s a different kind of promotion or sampling technique. It might encourage consumers to try a brand or a diaper that they haven’t tried before,” she says.
While it has been difficult to see how much these products are driving share growth, they are certainly attracting interest to the brands, Hanna adds. P&G has also taken the limited edition route approach to this promotion, partnering with different designers in 2010 and again in 2011 to create printed diapers.
In 2011, it was maternity designer Rosie Pope’s turn to create the line—Cynthia Rowely designed the 2010 diapers.
In marketing the printed diapers, P&G said the summer diaper offerings“combine utility and aesthetics so little ones can feel just as fashionable as they are comfortable in their biggest wardrobe staple, their diaper.”
“Pampers prides itself on being at the forefront of not only comfort and performance, but also style,” says Fama Francisco, general manager of P&G Baby Care, North America. “A diaper is the foundation for your baby’s wardrobe so naturally we want it to be special. While performance always comes first, we know that design is also important. Pampers Limited Edition Prints combine form and function with stylish designs suitable for this summer season.”
Pampers Limited Edition designs ranged from floral and polka dot print designs for girls and argyle and toy car prints for boys and were available in sizes one through four.
Amidst these designer dreams, major diaper manufacturers continue to upgrade their standard product ranges as new technologies become available. In 2011, Pampers announced two upgrades to is Cruisers line of premium diapers. In July, P&G upgraded its Cruisers line to feature improved softness, a 20% longer absorbent patch and new Sesame Street designs, and in September the company added three-way fit to the line.
“Pampers prides itself on being at the forefront of comfort and performance which is why we’re excited to introduce newly improved Pampers Cruisers with three-way fit diapers,” says John Brase, Pampers’ marketing director. “Giving babies the freedom to play their way is not only important to their growth and development but it’s also important to us. That’s why we continuously strive to make improvements to our products that parents (and babies) not only need but ask for and delight in.”
All of these upgrades were the result of customer feedback and follow P&G’s launch of DryMax technology in 2010. This launch, billed as one of the most significant upgrades for Pampers in history, created a 20% thinner and much dryer diaper thanks to the reported removal of nearly all fluff pulp for the product’s design. In addition to providing benefits for babies and their parents, this diaper redesign was billed as a significant accomplishment in P&G’s efforts toward sustainability because it lessened the impact of its diapers in landfills while also reducing transportation costs.
Kimberly-Clark is also constantly improving its diapers to stay ahead of the competition. Recent upgrades to its Little Movers line include an upgrade to make the diapers more absorbent and more flexible and sources say the company is gearing up to unveil a major improvement next year.
In the meantime, K-C continues to focus on providing a full portfolio of products designed to meet the varying needs of today’s moms. Huggies’ most recent solution is North America’s first slip-on disposable diaper. Huggies Little Movers Slip-On diapers, launched in August 2011, feature an innovative design with stretchy sides to deliver quick changing and a close, comfy fit, while offering the trusted leakage protection moms have come to know and expect from the Huggies brand. The easy-open sides and finger tabs also allow for simple removal and disposal.
According to a consumer study conducted by the Huggies brand in advance of this launch, more than 60% of moms say their baby is very active and struggles to get away during a diaper change and these slip-on diapers aim to ease this burden.
“One of the things we have been able to bring to the table with this product are the stretchable sides and the really key thing is the easy-open side technology to allow for ease of removal as well as finger tabs for ease of disposal,” says the Huggies associate brand manager Gina Bates. “We offer the same great leak lock and absorbency as our regular diapers. When you pull those together, you have a winning product.”
Aware that this product is not necessary for the whole development cycle of a child in diapers, it is positioned to present a benefit to moms whose children are in a specific stage.
Cost is king
While designer prints and other innovations have helped diaper makers drive up prices in some key areas, for the most part pricing in the diaper market has remained pretty tight, thanks to a savvy consumer who has been spoiled by couponing, larger value packs, sales and other promotions. The major brands all announced broad-based diaper pricing increases this summer, but it is difficult to assess just how much pricing really increased. “Customers are astute about buying diapers with coupons so it’s difficult to judge pricing levels without very in depth SKU information,” Hanna says. “It’s hard to really tell where the peak pricing is.”
And, the major brands really don’t have the luxury of being too aggressive when it comes to pricing with private label competition constantly pressuring them. Last year’s merger of Associated Hygienic Products and Arquest, in fact, created one more ultrastrong competitor in the private label market.
“I am extremely pleased to acquire the assets of Arquest because we are able to combine the two most experienced and committed private label manufacturers within the disposable baby diaper and training pant category in North America,” CEO and president of AHP George Jackson III said at the time of the acquisition. “I believe we are truly focused on providing our customer partners with the best-in-class disposable baby products and category strategies; versus producing private label diapers and training pants as a side business within a larger industrial products footprint. We share tremendous similarities in terms of superior product knowledge, technical expertise, category analytics and most importantly a focus on serving our customers. I envision a very quick and effective combination of the two companies.”
Privately held Arquest was founded in 1991 as part of a spin-off from Johnson & Johnson. Before the acquisition the company was based in Cranbury, NJ-and was a major supplier of private label disposable baby diapers and training pants with manufacturing assets in Camden, AK.
In announcing the acquisition, executives used buzzwords likeindustry longevity, category commitment and expertise, strong product innovation, technically strong and well experienced associates, supply chain superiority, manufacturing synergies and solid retail partnerships to describe the newly merged company’s strengths. In fact, the acquisition has expanded AHP’s customer list, clearly positioning it as one of the largest suppliers of private label baby diapers in North America. The two companies share a strong cultural commitment to their products, customers, and the consumer and in the broader scope now have the purchasing power needed to compete against long-standing national brand programs.
With the acquisition only six months old, most industry watchdogs have yet to see any noticeable ripples in the private label diaper market but so far most experts have applauded the deal, which had been rumored for several months.
The deal has the potential to create the world’s largest manufacturer of private label baby diapers. According to sources, AHP, a unit of Disposable Soft Goods International makes diapers sold at Wal-Mart and other major retailers, while Arquest makes the Especially for Babies diapers sold by Babies R Us and Toys R Us, among other things.
“They seem to be going about the integration in a very non disruptive measure,” Hanna says. “They are gradually consolidating their product line and so far I don’t think they have lost any major chunks of business. In fact, it is making them a very strong competitor so there are now two very strong competitors in the private label diaper market in North America.”
The other competitor, of course, is First Quality who entered the diaper market with a bang four years ago when it bought a huge diaper business from Tyco Healthcare/Covidien for $335 million. Also a maker of nonwovens as well as a number of other private label hygiene items, First Quality has continued to aggressively grow its business, never hesitating to add or upgrade its assets when necessary. Most recently, the New York-based company said it would modernize its Macon, GA plant. Additionally, the company is currently establishing its first non-U.S. nonwovens manufacturing facility in China, although no plans to make diapers there have been announced to date.
One bottom at a time
With penetration rates low and birth rates high in many emerging markets, it’s no wonder why so many companies are putting their investment dollars in places like Egypt, Vietnam, Turkey, China and Brazil.
“The majority of children under the age of two still do no enjoy the practical and effective hygiene provided by disposable diapers, which means that there is significant future potential,” says Stefanie Christman, vice president communication for SCA. “We focus on strengthening our existing position and to advance positions in emerging markets.”
In June, SCA purchased 50% of Komili, the fourth largest maker of baby diapers and feminine hygiene products in Turkey. The acquisition includes local production and access to a strong distribution network in the country. Komili’s annual sales are approximately $77 million.
“The acquisition will enable us to establish powerful hygiene products operations in Turkey in the fields of baby diapers and feminine care products. The business will also provide us with a platform for our incontinence care products in a key growth market with 70 million inhabitants and a fast-growing population,” says Jan Johansson, president and CEO of SCA.
Also in Turkey, SCA purchased a majority stake in San Saglik, a maker of incontinence products. The company said the two deals would benefit off of synergies between the companies.
Other recent areas of interest for SCA have included Brazil and China.
North Africa and the Middle East has been on P&G’s radar for diaper growth. Making headlines recently has been the company’s large-scale diaper plant being built in Egypt, despite the political unrest being seen in that region. In fact, P&G is so bullish about this investment it has encouraged investment by a number of its suppliers including nonwovens suppliers Gulsan and Pegas and films maker RKW to also build plants there.
These suppliers are making global expansion necessary as the developing regions are not satisfied with subpar products. They are instead following the latest technology and designs at a fast pace and diapers found in South America and China are incorporating state-of-the-art design components like elastics and higher performance acquisition and distribution layers.
“At every level, the entire industry is spending a lot more time in the developing markets,” Hanna says. “That’s where the growth is and everybody knows it.”
So, multinational companies will continue to target these emerging markets, hoping that as disposable incomes rise and more mothers enter the workforce, diapers will become as all encompassing in places like China or Turkey as they are in the U.S. and Western Europe.
“We can see the continuation of healthy growth, particularly in emerging markets,” Christman says.“Growth is driven by the global population increases, higher market penetration and increased disposable incomes. We will continue to gain in-depth insight into consumer and customer needs, increase awareness of the importance of hygiene conditions for growing populations in less penetrated markets and apply this knowledge to product development and increase the launch rate of innovative product designs.”