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    Features

    China Leads the Way in Diapers

    Everyone is looking east for sales growth and design inspiration for the next generation of disposable diapers.

    China Leads the Way in Diapers
    China Leads the Way in Diapers
    China Leads the Way in Diapers
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    Karen McIntyre, Editor01.05.18
    The importance of China to global diaper manufacturers cannot be overestimated. Major brands are focusing on growing sales and marketshare in the country and the Chinese consumer preferences—like softness and improved fit—are spreading around the world.

    “The influence of the Chinese middle class can be felt throughout the global diaper market as major manufacturers of baby diapers have incorporated ultra softness and three dimensionality into the nonwovens used in their diaper designs,” says Pricie Hanna, principal of Price Hanna Consultants, and a well-known diaper market expert. “All of the majors are trying to pick up share and hold onto it in the premium diaper  market of China.”

    In fact, the Made in Japan label is an important selling point to Chinese consumers, who still mistrust many things made domestically. Japan’s Unicharm realized this in 2016 when it shifted its Chinese strategy and began exporting diapers there from Japan rather than selling ones manufactured locally. As one of the early entrants into China’s diaper market, Unicharm at that time operated five factories in the country but its business was wavering, according to the company.

    One misstep was underestimating the Chinese preference for premium diapers—the company positioned its affordable MamyPoko diapers as its main brand in China rather than the high-end Moony brand. The company also used large supermarkets and other conventional venues as sales channels. This game plan worked well until consumers seeking higher-quality versions turned to the online market for premium diapers.

    “Signs of a market change started emerging around 2013,” president and CEO Takahisa Takahara recalls. “We should have responded a little sooner.”

    This change in strategy included an expansion to its diaper factory in Fukuoka Prefecture, Japan, which will be complete sometime this year. The plant is expected to drastically increase the company’s capacity to export Moony diapers not only to China but to other Asian markets as well.

    This preference of high quality diapers has influenced diaper trends around the world, and most of the major national brands are earmarking their most sophisticated products for China.

    “Today we see some of the best diaper products in the world in Chinese baby shops and a lot of them are made in Japan,” says Hanna.

    Procter & Gamble is another company that admits to misjudging the Chinese market. Last year, executives admitted that diaper sales had fallen short there after they failed to position a premium style diaper in the country. However, in its most recent earnings call, which was coincidentally broadcast from China, the company reports it is back on track.

    This reversal began this summer thanks to the  launch of  Pampers Ichibon premium tape style diapers and upgrade of  a premium pants-style product on the market, two moves that were met with great success. The pants products have increased sales 200% to capture the number one spot in the category while the new diaper is already available in 10,000 baby shops and 4800 superstores. These wins have allowed  P&G to grow its marketshare in the Chinese diaper market for the first time in a long time.

    Amidst this success, however, Pampers mid-tier tape style diaper, which comprises 75% of the company’s sales in China, continues to struggle, but the company expects inventory adjustments to help fuel growth here in coming quarters.

    “China is important across all of our categories,” says David Taylor, CEO. “It is the second largest profit driver after the U.S. Growth here is very important.”

    According to market tracker Euromonitor, the Chinese baby diaper market grew 9% in 2016, driven largely by volume growth spurred by the relaxation of the one child policy, which increased the birth rate. Additionally, the per capita usage of diapers remains low at 395, meaning there is still significant penetration to be made in the category.

    While this growth is attractive, competition can be fierce in China, particularly among the Japanese manufacturer. Kao was the first company to capitalize in this phenomenon. After noticing how many of its premium diapers Chinese tourists brought home with them, the company began selling its Merries brands locally and soon many of its fellow Japanese manufacturers followed suit.

    In September, Daio Paper was the latest Japanese company to enter the premium disposable diaper market in China with a product that is reportedly more breathable than previous Chinese introductions. Daio has been selling diapers in China since 2013 when it opened a factory in Nantong to produce Goo.n regular disposable diapers. The new introduction called, Goo.n light plume uses a proprietary material that feels softer on the skin. It is 30% more breathable than earlier products and is less likely to become damp, even when worn for a long time, the company says.

    Tuomas Yrjoia, vice president of baby and feminine care at Essity, reports that all of the Asian markets are dynamic thanks to fast category growth, a high rate of innovation and demanding consumers. “Many of the global trends, such as softer and more breathable materials and the emergence of the super premium segment have originated from Asia, and we are very active in the Asian market, both with our Libero and Drypers brands,” he says. “This helps us to stay close to the pulse of this dynamic market and its consumers, allowing us to detect trends quickly and scale them up around the world.”

    In fact, he adds the baby care category in general continues to be dynamic with great potential for consumer preferred innovation. Essity recently entered the premium segment with its Libero  Touch, which improves the level of softness in pants and open diapers. “The consumer acceptance and repeat purchase levels are outstanding,” Yrioia reports. “Up to nine out of 10 parents who have tried it recommend it to others.”

    This innovation has been rolled out across the Nordic region, Russia, Asia and Latin America, as well as in France under the Lotus brand.

    Meanwhile, in pants-style diapers, Essity has introduced its biggest upgrade in more than 25 years, to its market leading pant range “Up & Go” in Nordic markets. These pants deliver superior comfort and protection, thanks to softer and flexible materials. They also have unique dual leakage barriers that provide improved fit around the legs.

    These launches represent a trend in diaper design where products are becoming more underwear-like as well as more comfortable with softer and more breathable materials. “We are seeing a rapid growth in pant diapers across the globe, as consumers tend to convert from open/taped diapers to this more convenient product form. We are meeting these needs by ensuring that we keep innovating consumer noticeable, superior products, both in the open and pant diaper categories,” Yrjoia adds.

    Online Gains
    Over the past decade the internet has played an increasingly important role in diapers sales and marketing, emerging both as a new sales portal, but also as a new way for companies to spread the word about their products. This has allowed smaller companies to enter a market that was once the domain of a few large companies.

    ParasolCo entered the market in April 2016 with a premium diaper sold exclusively online. These products offered unique designs and luxurious softness to target the needs of millennials, according to CEO Jessica Hung.

    “Entering the market with a premium priced product was not without its challenges,” she says. “There were extremely high expectations for the performance.”

    By all accounts, the strategy has a worked. Because ParasolCo diapers are sold on a subscription basis, customers were given the choice of how often they wanted to replenish their orders (anywhere from three to six weeks) and the customers have a high rate of replenishment and very rarely cancel their shipments, Hung reports.

    The subscription model in fact was pioneered by Amazon.com, not just with diapers, but with many types of household and personal care products. This makes repeat purchasing easy and gives the retailer a better idea of purchasing patterns.

    “The ecommerce influence is amazing—it offers customers the benefits of convenience and price transparency. It has given the consumer a whole new behavior pattern. Ecommerce reduces the barrier to entry for new diaper marketers offering specialty small and niche products and also opens up opportunities for contract manufacturers to produce these smaller volume diapers,” Hanna says.

    Surely amazon.com has invested a lot of resources in studying consumers. Already one of the world’s largest diaper retailers, last month the online giant quietly launched its own brand of private label diapers. Not only was this launch without any significant marketing or promotional efforts, it was an invitation-only launch meaning that only a select few of Amazon’s customers could buy the diapers.

    Amazon’s right to be cautious about this launch. The online giant entered the private label diaper market with great fanfare three years ago with its Elements brand of baby diapers. This effort lasted just a few weeks as negative consumer feedback led Amazon to remove the diapers from its website.

    Since then, the diaper industry has been rife with speculation on when, or even if, the online giant would take another stab at disposable diapers. Not only is the company is one of—if not the—largest retailers of disposable diapers in the U.S. and many other countries, it has also been able to consistently rob marketshare by offering lower prices and subscription services. Also, Amazon has been focused on growing its private label business across many other categories in recent years.

    However, Amazon has already learned the hard way how hard the diaper market can be to navigate. After Amazon removed the Elements brand from its site, diaper industry execs were in full-on speculation mode about what happened. Some reports suggested that the products, while good, were not good enough to be positioned in the premium end of the market. Others said the product simply could not live up to the hype.

    This time around, however, things are apt to be different. For one, the supply chain is different. Instead of relying on a small Canadian diaper maker—Irving Personal Care—Amazon has reportedly enlisted the help of one of the best in the business—Kimberly-Clark, whose Huggies diapers are tops in many markets across the globe. Also, instead of trying to build a brand around the launch like it did with Elements, Amazon has folded the diapers into its Mama Bear brand of baby care products.

    For now, it is too soon to tell if Amazon’s second try at diapers will be successful but most industry watchers are optimistic saying Amazon wasn’t that far off the mark with the Elements launch and having K-C as a partner will help bridge any gaps Amazon has in terms of market knowledge.

    “Obviously it’s a rare case when somebody gets a second chance to do something like this,” says Svetlana Uduslivaia, an analyst with Euromonitor International. “Usually in hygiene is you mess up once, that is it and it’s very difficult to have a comeback.”

    However, marketing the diapers under a well-established brand name like Mama Bear is leveraging the launch as a way to offer a complete baby care package.

    Uduslivaia adds that the fact that they are using Kimberly-Clark is interesting because last time it was the quality of the diapers. “They went for the supplier that could produce at a certain price last time, while K-C has been supplying private label before so they are not new to the space,” she says.

    For ParosolCo, bringing a new product into such a well established category was a daunting task. “Many people asked, how can small company compete against these giants?” Hung says. “We have to work hard to do that. People can see it.”

    These efforts are continuing. ParasolCo is set to launch an updated and improved diaper product that will feature the same softness and trendy design of its first generation. Further down the line, the brand expects to expand into adult incontinence and feminine hygiene.

    “The diaper category is huge but what was lacking in the market was selection. For personal products, you have so many choices—packaging, designs, sizes, prices...but for diapers it is extremely limited. We know that millennials deserve more options so we asked, what selection can we provide?”

    Like a similar diaper newcomer, actress Jessica Alba’s The Honest Company, ParasolCo has been successful by catering to the needs of the millennial consumer, not just in design options, but by relying on several third-party certifications like the Programmed of Forest Certification (PEFC), an international non-profit, non-government organization dedicated to promoting Sustainable Forest Management (SFM) through third-party certification. 

    “Millenials enjoy the design aspect in this commodity product. It gives a little bit of excitement to a boring task—changing a dirty diaper,” Hung says.

    The first European-made ParasolCo diapers feature an extremely soft topsheet, which is not currently a common feature in U.S. and European markets, but is a norm in Japan and China.

    Defying the norms is the strategy of European-based private labeler Drylock Technologies, which entered the market in 2012 with an extremely low pulp diaper. Recent developments to the technology behind Drylock diapers is the incorporation of “Magical Tubes”  or channels within the diaper core which allows it to work better, the whole surface is able to absorb liquid, according to CEO Bart Van Malderen. “This gives a better fit,” he says.

    Drylock is currently rolling out this technology across its customer base and it should be comprehensive by the end of next year.

    Meanwhile, Drylock is preparing to begin making baby diapers in the U.S. at its Eau Claire, WI, adult incontinence facility, which was acquired from Presto Products in January 2017. “We have a three pillar strategy for North America—diapers, adult incontinence and feminine hygiene,” he says.

    According to Van Malderen, Drylock has been able to see never-before-seen innovation to the private label market, helping bring store brand products to the same level as their national brand equivalents.

    “Private label has been expanding for a while, for sure, we at Drylock come up with new technologies that we propose to big retailers in the U.S. and they are interested. Companies like Procter & Gamble are also innovating. We are all going in the same direction.”

    The direction of the market seems to be moving on the whims of China and the internet, but where these will take the market in the next few years remains to be seen. In China, the relaxation of the one-child rule is being closely examined. “It’s hard to say how many young Chinese couples will actually have more than one child now that they are permitted,” Hanna says. “Today, an entire generation parents, who were raised as an “only child” and financially supported by their parents and two sets of grandparents, is considering affordability of more than one child.”

    At the same time, whether or not the Chinese consumer will continue to favor high quality premium brands made outside of China will shape the future of the market. Already, Kimberly-Clark, in its second quarter earnings call, reports an uptick in Chinese diaper competition in the mid-tier market, an interesting development in a market that has been so focused on premium styles.

    “We have seen a resurgence of smaller, local players who have challenged international brands in the market,” says president and COO Mike Hsu. “We plan to fight this competition the best way we know how, with innovation.
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