In fact, a second type of private label diaper is emerging—the specialty diaper—like the products being sold by The Honest Company or Parasol. These products are made by contract manufacturers to very specific needs of the brand and the customer it wants to attract and are finding success in a new selling format, the subscription model.
“Technically speaking, subscription models like Honest or Parasol, are not private label brands but in essence they are because they are not a part of the large multinational companies and they still strip away the costs to provide the best product at the lowest possible cost,” says Diana Meehan, vice president, retain and shopper insights, Kantar Consulting.
These smaller brands often use subscription services, a direct-to-consumer model that cuts out the middle man in reaching the consumer and gets products to customers in a new way. All the consumer has to do is sign up for the service and a set amount of diapers, wipes or feminine hygiene items show up at their homes over a set period of time.
“Subscriptions really play to cyclical nature of the hygiene business,” Sheehan says. “They cannot only forecast how often you need products but also how many items. This model generally works with products that consumers don’t think too much about until they need them and that they are deeply loyal too.”
Amazon.com has probably one of the most sophisticated and effective subscription models in the retail world with its “Subscribe & Save” program where consumers receive discounts for the number of subscriptions they hold onto. While this model covers both national brands and private labelers, Amazon has been stepping up its private label offerings across a number of retail categories.
On the diaper front, in November 2017 Amazon re-entered the category with its Mama Bear products, reportedly made by Kimberly-Clark, a brand name that had already been used to sell other baby care products like diaper pail refills, baby food and laundry detergent. While sales data are not available for the brand, the foray was successful enough to warrant Amazon’s launch of a second diaper brand Earth + Eden later last year. These premium, natural diapers appeared on the retailer’s site in September and have been described as cruelty-free, no testing on animals and made with certified sustainably sourced fluff. Similar to products sold by the Honest Company, Earth + Eden are being produced by First Quality at sites in Pennsylvania and Georgia.
The Earth + Eden diapers range in price from 21 cents for a size one to 51 cents for a size seven, slightly higher than the Mama Bear diapers, which retail for 17 to 36 cents, depending on the size, signifying that Amazon is not just going after value to attract customers to its brands.
Sheehan says Amazon’s increased focus on private label across many consumer categories is a way for the company to gain even more allegiance to its customers.
“Amazon can make more of a profit selling its own products than other brands,” she says. “Also they can essentially create an ecosystem in which their shoppers would never have to leave them for anything.
New Players Popping Up
Wal-Mart has been one of the many retailers stepping up their private label diaper offerings. The mega-retailer relaunched its Parent’s Choice brand—including everything from diapers to blankets to wipes to baby foods—while keeping price points affordable.
“As parents ourselves, we know what products are needed most, and we’ve raised the bar on quality for these Parent’s Choice items and more,” says Diana Marshall, vice president of baby for Wal-Mart U.S. “On top of this, we’ve added even more items we know our customers are looking for, such as premium diapers and a line of ultra-cute, ultra-soft bedding.”
Included in this launch is the brand’s first-ever premium diaper, featuring a number of high-quality features, especially for babies with sensitive skin. The diaper, which is reportedly made by Essity, features a lining made with highly absorbent materials including pulp harvested from sustainably managed forests and delivers up to 12 hours of dryness.
Whether or not Wal-Mart is abandoning the ultra-discounted diaper space remains to be seen but there are plenty of other contenders that can take its place. Two German retailers, Aldi and Lidl, have their sights set on big U.S. expansion plans hoping to replicate the strength of the German private label market stateside.
In 2017, Aldi announced a $1.6 billion program to remodel 1300 stores by 2020 with an additional $3.4 billion capital investment to expand to 2500 stores nationwide by the end of 2022. If successful, the Germany retailer would be the third largest grocery store by count and serve 100 million retailers per month. The company’s Little Journey baby products, which includes wipes and diapers, can save parents up to 50% on these products.
Meanwhile, Lidl’s U.S. expansion has stagnated since it opened its U.S. headquarters in Arlington, VA, last year with a promise of opening up 100 stores by mid-2018. Lidl currently has a little over 50 stores and has not made any significant threat to major U.S. grocery retailers but its impact could increase in the coming months thanks to its recent acquisition of Best Market supermarkets, a 27-store grocery chain with most of its stores on Long Island. The acquired stores will be converted to Lidl outlets after the deal closes in the next several months.
The acquisition also extends Lidl U.S.’s regional presence solidly into the Northeast — where it currently has three stores in New Jersey — from the South and Mid-Atlantic, where the chain’s store base is concentrated. Currently, Lidl operates 59 stores in Virginia, North Carolina, South Carolina, Georgia, Maryland, Delaware and New Jersey. The retailer’s latest opening was a new store in Union, N.J. in November.
Lidl didn’t disclose a timetable for the conversion of the Best Market stores but said it plans to begin the remodeling, reinvestment and rebannering process next year.
Diaper market expert Pricie Hanna says that Lidl still has a chance to make an impact on the private label diaper market.
“Lidl is way behind their initial program in the U.S. but they can still have an impact. They are going for a very aggressive low price position but that is what both Aldi and Lidl were successful with in Europe. It’s kind of interesting to step back and see two deep discounters, especially Lidl, trying to get a foothold in the U.S.,” she says.
Hanna adds that Wal-Mart’s focus on premium private label products opens up opportunities for Lidl, which was particularly successful with its Toujours diaper brand, developed by Drylock Technologies.
With private label’s collective share of the disposable baby diaper market hovering at around 10% right now, companies are just working hard to hold onto share. “If you look at the private label makers, they are holding their own but if you look ahead five years and everyone has better access to a Lidl selling 50% discount diapers, it could definitely add private label share,” Hanna says.
The other variable, of course, will be Amazon. It’s too soon to tell what the retailer’s power might be when it comes to disposable diapers and private label in general.”
Sheehan says markets beyond diapers into other hygiene categories will be where the major action is going forward.
“Diapers is a place where private label has thrived for over a decade but when you get into feminine hygiene and incontinence, there is probably some room for retailers to prove that private label products are just as good, have the same quality and the same security.”