“We are focused on innovation,” says K-C CEO Tom Falk. “As a consumer preferred brand it is our job to focus on category innovation."
Innovation will help the company return sales of its diapers and other products to high levels in upcoming quarters. Earlier this week, K-C reported that lower sales volumes in the infant and childcare business were largely responsible for slight decreases in the company’s personal care division. Sales of Huggies diapers were reportedly down in the mid single digits during the second quarter. Sales of Huggies baby wipes grew in the mid single digits.
Executives blame the softness on two major economic trends—increased compeittion in the category as well as lower category demographics, caused by a declining birth rate in major markets like North America and South Korea.
According to population data released by the Centers of Disease Control and Prevention last month, birth numbers fell 1% this year, bringing the general fertility rate of 62 births per 1000 women ages 15 to 44. The trend is being driven by a decline in birth rates for teens and 20-somethings. The birthrate for women in their 30s and 40s has increased—but not enough to make up for the lower numbers in their younger peers.
Falk says he considers the declining birth rate a temporary situation. “There are lots of reasons for the birth rate decline,” he says. “But, the broad trend is that millenials are having kids later, but as long as they have the same number of kids eventually, it will correct itself.”
As K-C makes efforts to compensate for lower birth rates and steel itself in an intensly compeititve climate in North America, China continues to be a bright spot for the company.
With five times as many babies born as in the U.S., K-C has been successful offering best-in-class innovation, which translates into a tier seven product and premium diaper pants.
China is also on mind of K-C competitor Procter & Gamble who reported softness in its diaper business during the fourth quarter of its fiscal year. Noting that baby care sales decreased in the lower single digits due to competitive activity in the market, P&G cited softness in the Chinese market as a key contributor.
To combat this, earlier this year the company introduced a premium pull-up diaper under its Pampers brand and will expand its range of super premium diapers with a tape-style diaper next month. Both diaper SKU’s, which were made in Japan, come with a tagline describing them as the number one choice of Japanese hospitals.
“China is a critical country and the diaper market is a great opportunity for us,” Falk adds. “All of the growth is coming in the premium market."
In March, P&G executives admitted to analysts they had made mistakes in entering the Chinese market, underestimating the Chinese consumers’ need for ultrasoft, premium products but they are confident that adjusting a strategy will yield more attractive results.
Outside of baby diapers, P&G’s feminine hygiene segment benefitted from innovation in its pads business. Improvements including a cotton topsheet and proprietary absorbent material that can absorb up to 10 times its weight has driven sales up in the mid teens and helped drive growth in the superior premium feminine hygiene market.