Domtar Personal Care has won a major contract with a North American retailer to supply private label baby diapers. The new business should start influencing the company’s top and bottom lines starting later this year, CEO John Williams told investors during the company’s earnings call this week.
The contract will also help offset some volume reductions caused by streamlining measures including SKU reductions across multiple product lines and the elimination of highly complex, lower value products, Williams adds. These moves will eliminate time consuming changeovers on manufacturing lines that will lead to productivity gains for the business.
During the first quarter of 2018, Domtar’s personal care sales increased 1% and the business was characterized by increased competition, pricing pressures and higher raw material prices. Sales of baby diaper products grew 4% in volume terms while adult incontinence growth was 2%.
Domtar’s new partner in baby diapers is a national retailer with ambitious plans to grow its private label share dramatically, Williams says.
“It really vindicates our brand strategy,” he adds. “They are really now going to run this category as a major brand within their store portfolio and it will be fascinating to see how that transpires.”
Domtar’s strategy in the private label market has been to run its partners’ brand as if it were their own and this has allowed the maker of baby diapers, adult incontinence items and feminine hygiene products, to gain customers across all of its personal care strategies. Instead of packaging national brand equivalents in different color packaging, these private label products offer innovation and true differentiation in the market.
Domtar has grown its personal care business through a string of acquisitions over the past decade and the segment now comprises about a quarter of its sales. Williams remains bullish about the business.
“If you think about personal care, we still think it’s a good underlying business,” Williams says. “We like the topline growth. We think we are pretty good at it. We have to drive up efficiency. Part of the issue is we have carried some very small SKUs that haven’t really generated much sales or earnings they have caused changeover time on our machinery which means we have lost some core productivity. Our focus is on putting that right.”
Looking forward, executives say lower sales in personal care can be expected in the in the second and third quarters before the major diaper win takes full effect in the fourth quarter of 2018.