The Baby Diaper Market
In the baby diaper market these days there is a clear trend towards comfort and thinness. Technology advances have allowed diaper manufacturers to solve all sorts of wetness and leakage issues. While a body-hugging fit helps prevent leakage, ultra-thin diapers help contribute to a trim appearance under a baby’s clothing.
In addition to aesthetic appeal, technology improvements in nonwovens and films have enabled diaper producers to reduce the weight of these materials substantially over many years. “Diaper producers aggressively seek to use less material to accomplish the same or better performance,” says diaper industry tracker Pricie Hanna. “The performance and aesthetics standards of the industry, however, are not compromised.”
Moving forwar,d trends in baby diapers, says Hanna, include increasing the use of stretch fabric components with customized elastic performance and soft, cloth-like aesthetics; thinner diapers with superior fluid absorption and retention performance; and diapers with excellent softness, cloth-like aesthetics and brilliant printing for nonwoven, film and laminate components.
The baby diaper market is currently experiencing many changes, not only in core design but also in the use of complex engineered fabrics, according to longtime industry consultant, Carlos Richer. “This is in fact a very dynamic industry. There is no time to rest,” he says. “Innovation and cost optimization by the use of higher manufacturing efficiency will be the key for survival in the next years.”
Diaper chassis will continue to evolve, which will bring new opportunities not only to raw material developers but also to diaper machine vendors, explains Richer. “Contrary to common belief, the diaper is still far away from reaching a point of maturity,” he says. “There will continue to be nonstop innovations for many more years before it is a commodity.”
Fluff Less Future
Drylock is a new entrant into the European diaper market that is creating plenty of noise. It produces premium fluff less baby diapers in all sizes. The launch of the Drylock Toujours diaper has started a new trend—diapers without any wood pulp.
“Fluffless diapers are the products of the future because they offer superior comfort for the wearer and a more intimate feeling for the caretaker, and they present clearly visible ecological advantages as they eliminate the need to cut down trees just to produce a disposable diaper,” says Drylock CEO Bart Van Malderen. “The ecological advantages are at all stages of the value chain: from eliminating the need to cut down trees, consuming less energy and producing less noise or dust during production right down to presenting more compact products with less transportation and waste disposal impact.”
The launch of Drylock Toujours also brings the possibility of using elastic absorbent cores in the near future, according to Richer. “With the removal of the wood pulp there is no more limitations on pad integrity with core elasticity,” he says. “If this launch is successful, supermarkets will add pressure to have other diaper suppliers follow this direction. After all, a supermarket is a real estate business where they all want their aisles to bring more money by the linear meter. This will probably mean one of two potential solutions: the use of pre-made cores with high SAP loadings or the need to make major hardware upgrades on diaper manufacturing equipment, at least in mature markets, which will be more affected by this product change. If pre-made cores are a valid solution, it remains to be seen if they can also offer a pre-made core with the possibility of added core elasticity.”
Consumers respond positively to very thin, flexible, cushioning diapers which provide reliable leakage prevention, according to Hanna. “The outer fabric features also need to be soft and cloth-like and there are a number of diaper constructions that can accomplish the desired very ultra thinness in a snug, body-hugging diaper,” she says. “A high superabsorbent composition combined with a superior fluid acquisition and distribution system is required. A typical consumer may not discern whether a very ultra-thin diaper is achieved through a pulpless-core design or other designs with low pulp/high superabsorbent composition cores.”
Global diaper output took a hit in September, following a chemical tank explosion at Nippon Shokubai’s Himeji plant in western Japan that produces about 20% of the world’s superabsorbent polymer and 10% of the global output of acrylic acid.
The company recently reported its U.S. subsidiary has restarted a resin plant closed earlier in 2012 to make up for the shortage of SAP used in diapers following the explosion.
The Chattanooga, TN-based plant, which can make up to 60,000 tons per year of SAP used in diapers was closed after it was replaced by a new plant with the same capacity in June 2012.
With still no schedule for the restart of the Himeji plant, Nippon Shokubai said it would operate the old SAP plant from last month till December 2013.
Private Labels Gain Prominence
The idea behind private label products is to follow the market leaders as closely as possible, at a lower cost. In the baby diaper market private labelers are continuing to produce ever more sophisticated products and are becoming more of a threat to the big brands like Pampers and Huggies.
Associated Hygenic Products (AHP) is one company doing a good job of this. It manufactures, markets and sells private label/corporate brand baby diapers, training pants, and youth pants for the majority of the largest food, drug, and mass merchandiser retailers. The company says corporate branded products, also known as private label or store brands, offer consumers a better value, with great quality and significant savings over national brands. On average the company says it’s possible to spend up to $2000 or more on disposable diapers and training pants per child and with its products consumers can save over 25% without sacrificing product quality and performance.
AHP’s corporate brand strategy revolves around manufacturing products that rival national brand performance, while utilizing its unique and patented materials. In addition, its global R&D presence and experience allows it also to be a leader in innovation and design. Material advances have enabled AHP to create product features like its Accordion-Stretch Panels and Comfee Stretch Tabs while marketing them under labels sold by premier retailers across the U.S. and Canada.
“The leading private label companies today produce products with excellent performance and consistent quality,” says Hanna. “They have demonstrated the capability to promptly follow the innovations introduced by the brand leaders after the market demand for these innovations is clear to retailers. The lower price positions of private label diapers are a significant threat to the leading brands because consumers are motivated to try private label diapers, especially during periods when consumers’ budgets are squeezed.”
Richer concurs that private labels are becoming an increasing threat. “The exit of Kimberly-Clark (K-C) from the Western Europe market, except Italy, is a clear indication of this threat,” he says. “K-C decided to focus their investment in more profitable markets, rather than face reduced margins and brand new competitors. It was also an opportunity to discontinue product designs that clearly followed the Pampers chassis design, a diaper with a straight cut and two sets of ears, rather than the typical U.S. product design, where Huggies has a trimmed cut and only one set of ears.”
To ward off private labelers the big brands must maintain a rapid pace of successful innovation to sustain the value provided by premium priced leading brands. One tactic they’ve taken has been to launch multi-colored print designs. “These are purely aesthetic features which powerfully build brand equity by making specific, preferred diaper brands easier to recognize and repurchase,” says Hanna.
Limited edition “designer diapers” are another effective, marketing tactic used by the brand leaders to stimulate premium diaper sales without offering deeply discounted prices. “Consumers often are willing to splurge for a cute design, especially when they understand that the design will only be available for a limited time,” says Hanna. “This strategy helps to defend premium branded diaper shares from erosion by private label diapers. Brand leaders can more efficiently launch limited edition diapers than private label diaper producers, which have to use multiple package and product designs to meet the needs of many retail customers for differentiated store brands.”
Based on his data from the U.S., Richer says it is clear consumers are spending more money to have access to such products. “Market shares indicate we will see more of these offerings in the near future,” he says. “For example, for the case of KC, the added cost between the regular Huggies and the Camo designer version of the same brand was an increase from 28 to 31 cents, or approximately 10%, for size 4 at Walmart. What is even more interesting is that products that require personal discretion, such as sanitary napkins and adult diapers, are also being printed with colorful designs.”
China’s Diaper Boom
Growth in the baby diaper market is being driven by two key factors: purchasing power parity and the population pyramids. “Many mature markets are facing a reduction in sales because improvements in product performance translate into less diaper changes per day, and also because there is no real growth on babies,” says Richer. “This is happening not only in Japan and Korea, but also in most of the Western European countries and also in the U.S., who has been experiencing negative growth in baby diaper sales.”
In addition to K-C’s exit from the European diaper biz, Ontex Group closed a diaper production plant in Recklinghausen, Germany in October. The closure of the site was caused by an extremely competitive private label baby diaper market in Western Europe, which made the Recklinghausen site underutilized. While measures to avoid a shutdown were examined, executives could not come up with a better option. Headquartered in Zele, Belgium, Ontex is a key player in the European hygienic disposables market with a wide range of products for baby care, feminine care and adult incontinence.
“There is hardly any significant growth in Western Europe, so increasing turnover can only be achieved by gaining market share,” says Drylock’s Van Malderen. “Innovations are key for that. In more distant markets in Eastern Europe, like Russia, there is still a lot of overall market growth. Within that market, which was until recently almost entirely branded, there is now a complete private label segment popping up.”
When you look at the adult diaper market in the Western world the exact opposite is true. For example, with some of the baby boomers in the U.S. starting to need incontinence products, there will be an accelerated growth in the coming years. The same will happen in many other countries with aging populations. “On the other hand, the lift on the restriction to have only one baby in China when both parents also come from a one child family, will create a new boom for baby diapers, even when not as large as previously anticipated,” says Richer.
It is clear the emerging markets, especially in Asia, with low diaper penetration and rapidly growing consumer income levels are driving future diaper volume growth. “For example, China is likely to account for over 20% of the global diaper volume growth during the next five years,” says Hanna.
This hunger is evident in the rapid rate of foreign investment on the end use side of the business. In 2012, alone, at least four major diaper plants have been established or are in the process of being built.
Japan’s Kao Corporation completed construction of a diaper plant in Hefei City, Anhui Province. The new manufacturing base represents an investment worth more than $100 million, according to reports. The plant, known as Kao Hefei, started making disposable diapers for babies in late 2012. The size of the first stage plant is 70,000 square meters but officials expect the size of the plant to reach 125,000 square meters as Kao continues to invest in growth in Asia and the ASEAN region.
This new manufacturing base and product development center, integrating product manufacturing, quality control, product innovation, engineering project management and logistics management will chase growth in China where sales are increasing rapidly.
In fact, according to the Chinese National Household Paper Industry Association (CNHPIA), total output reached 19.55 billion pieces last year, representing 26% growth. Meanwhile, sales grew 27.7% to reach 18.46 billion yuan or about $3 billion.
Also looking to capitalize on this growth is P&G, the maker of Pampers and Luvs diapers, which has started stage one of a three-stage investment in Luogang, Guangzhou, China, that will ultimately be one of the largest manufacturing sites in Asia. The first stage of the plant will reportedly make a number of consumer goods, including Pampers, and is part of the company’s goal of investing as much as $1 billion in China by 2015. The plant is expected to add as much as $490 million worth of production value to the Cincinnati, OH-based company annually.
Meanwhile, K-C, Dallas, TX, announced in March that construction had started on its new diaper manufacturing base in the Jiangning Development Zone. The company will reportedly invest more than $100 million in this new manufacturing base and product development center, integrating product manufacturing, quality control, product innovation, engineering project management and logistics management.
Also investing in the Chinese diaper market’s future growth is Japan’s Pigeon Corporation. In early March, the company voted to increase investment in its Changzhou-based Chinese operation, which was completed in late 2011. According to company documents, this site currently makes breast pads, baby wipes and other baby items, and the new investment will add baby diaper production to the site. When construction is complete, which is forecasted for 2013, the site will be able to make about 85 million diapers per year. Pigeon also operates a manufacturing site in Shanghai.
Unicharm is establishing a Chinese subsidiary in Yangzhou, Jiangsu Province. The company, named Unicharm Consumer Products (Jiangsu) will manufacture and sell disposable diapers, sanitary products and other disposable consumer goods. The Japan-based company will invest $30 million in the new venture.
Unicharm has invested heavily in its global operations recently with the aim of increasing its global overseas sales to comprise 80% of its sales by 2020. Recent efforts have included new sites in Brazil, South Africa and India as well as an acquisition in the Vietnamese hygiene market.
According to those familiar with the market, growth in the baby diaper market is being driven by increased income, allowing Chinese parents to spend more money on their children. In 2011, market penetration reached 39.1%, which allowed sales for many medium-sized companies to surge.
As foreign companies increase their footprint in the country, local manufacturers like Hengan, Guangdong Baisun, Fujian AAG and Fujian Angel are also increasing their investment in the baby diaper market. In 2011, the Vinda Group launched Babyfit diapers and Dongshun Grup began producing the Habby Baby brand.
Therefore, despite the huge potential of the Chinese baby diaper market, all of this investment has intensified competition as companies like Hangen Group continuously launch upgraded versions of products like Q-MO, a premium product sold nationwide.
China has certainly been in the news a lot in the nonwovens industry with major expansions underway by both local players and international companies looking to capitalize on growth in this quickly growing emerging market. However, a number of companies are looking beyond China into other Asian markets, where similar growth is expected.
Like in China, growth in Pacific Rim countries such as Indonesia, Malaysia or Vietnam will be driven by increases in the gross domestic product (GDP) as consumers gain more disposable income for items like disposable diapers. At the forefront of this investment is consumer goods giant Procter & Gamble, which announced last August it would spend $100 million on a new diaper plant in Indonesia.
“Indonesia is an important market for the baby care industry,” Mohamed Ismael, president director of P&G Indonesia told the Jakarta Globe. The new plant should be complete next year and the company expects to meet diaper demands for about 8 million babies in Indonesia.
Japanese hygiene giant Unicharm is betting on Vietnam, which has the third largest population among the ASEAN countries and 7% annual GDP growth. Last year, Unicharm purchased a 95% stake in Diana, a leader in the hygiene market with a strong portfolio of brands. Executives expect that Diana’s knowledge of the market and Vietnamese-specific behaviors and Unicharm’s product development expertise will add up to growth in the country. For Unicharm, the group has made clear its objective to achieve a dominant position in Asia.
Kao Corporation is building a second plant in Indonesia to help meet demand in the region. According to executives, the 140,000-square-foot plant will make laundry detergent and sanitary napkins initially and will ultimately make disposable baby diapers for the Indonesian region. Construction is set to begin in October and will be complete in late 2013. The total investment for the project has been reported at ¥10 billion ($128 million).
The Japanese producer of a wide range of disposable hygiene products and other consumer goods already has a plant in Cikdarang, Indonesia, which is operating near full capacity. The second plant will be located in Karawang International Industrial City (KIIC), east of Jakarta. The two plants will help Kao expand in the ASEAN rgion, which is being seen as an important growth area by the company. In particular, Indonesia, China and Vietnam are central to the company’s growth strategy in the region, according to executives.
SCA has completed its acquisition of the Asian hygiene products company Everbeauty, strengthening the company’s market and brand positions in one of the group’s prioritized growth regions. The purchase price for the deal amounts to approximately $290 million (SEK 1.9 billion) on a debt-free basis.
Everbeauty produces, markets and distributes baby diapers and incontinence care products under its brand names Sealer and Dr P, respectively, in China, Taiwan and parts of Southeast Asia.
The volatility of raw material prices continues to be a major issue to the diaper industry and their material suppliers.
“Retailers are generally unwilling to pass material cost increases on to end users,” says Hanna. “The impact of material price volatility is typically absorbed by the material supply chain and the diaper producers. When feasible, material fabricators seek alternative raw materials to maintain margins while meeting the specifications of their customers. Diaper manufacturers attempt to define more flexible specifications on raw material alternatives to avoid cost escalation while still meeting their diaper needs The temporary loss of Nippon Shokubai’s superabsorbent and acrylic acid production capacity at their Himeji, Japan is likely to result in increased superabsorbent costs in 2013 for diaper manufacturers seeking increased superabsorbent supplies for growth. The diaper manufacturers in the emerging markets, especially in Asia, are likely to be the most impacted by this shortage.”
Discussing pricing trends, Richer says not all markets react the same way. “In some areas it seems to be easier to pass cost increases to the consumer, while in others the only solution is to decrease margins,” he says. “China is starting to experience this problem. In the past when the market was growing more aggressively it was a different story. Now that the market is losing some of its inertia it is more difficult. It is not only the diaper manufacturer who is suffering, the raw material suppliers are suffering even more.”
Costs of baby diaper manufacturing are to a very large extent linked to polymer pricing, which is directly linked to the cost of crude oil. “The fact that the latter is highly volatile in nature whereas end consumer diaper pricing should be kept relatively stable creates a tension field,” says Van Malderen. “The tension field has to be overcome by raw material suppliers, converters and retailers. This is mainly done by working via raw material indexes, calculated at regular intervals, where price corrections are made once certain index thresholds are being surpassed.”