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Quality does not have to be expensive.

Fifty years after the Battle of the Bulge in Europe, the battle to keep the bulge from babies' bottoms has begun in earnest in the value sector of the baby diaper market.

For many years, manufacturers and retailers of disposable baby diapers have known that there were three distinct sectors of marketing that were important to the industry, but of which the purchaser of the diaper had very little knowledge. These sectors were broadly classified as branded products, control label products and the private label sector.

The branded products were Procter & Gamble's "Pampers" and "Luvs" and Kimberly-Clark's "Huggies," where the trademark is owned by the manufacturer and sold to retailers, wholesalers and mass merchandisers.

The control label is a trademark that is owned by the manufacturer and sold into `all types of retail establishments, but which is supported by very little, if any, advertising and promotional expense.

The private label is a trademark owned by the retailer. The manufacturer uses specially printed bags and sells product with that trademark label only to the owner of the mark.

It is generally considered that a retailer could earn about 7-8% of the sales price on the branded products of Huggies, Pampers and Luvs. If he chose to carry the control label product, such as "Fitti," "Ultra-Care," "Babies Choice" or "Wee Fits" on the shelves, he could earn somewhere between 12-14%. If, however, he chose to sell the private label with his own name on it, he might earn somewhere between 18-20%. Therefore, it was quite logical for the retailer to carry at least two lines of products on the shelves and quite often, at least three. These would include the K-C and P&G products and perhaps at least one control label and his own private label.

The purchasing public would quite often be led by advertising to buy Huggies, Pampers or Luvs, but it was not long before the price-conscious purchaser realized that the quality of the control label and the private label product was as good as that of the branded products and more and more of the public shifted in that direction.

This is evident from the market share over the past few years where the branded products have dropped from 85% of the market (in units) down to 75% and for some periods even lower than that.

This is a significant reduction, because 10% of the $4.3 billion market is $430 million and if a retailer can make an extra 10% (the difference between private label prices and branded prices), he could easily find more shelf space to carry the more profitable items.

During the years when the prices of branded products were $9.95 a bag, control labels were $8.95 and private labels were $7.95, K-C and P&G seemed satisfied to compete against each other for their share of the market with their type of product and their type of advertising.

The non-branded manufacturers touted their products as a "value segment" because the quality was as good as the branded products without the up-charge for advertising and promotion.

But as the percentage of market share of the value segment products continued to rise, P&G and K-C realized that they would have to compete more aggressively and started to reduce the cost of a bag of diapers, which forced the non-branded manufacturers to reduce their prices in order to provide the retailer with at least $1.00 per bag difference in shelf prices.

Unfortunately for the mothers, however, at the time that P&G and K-C reduced prices, they also reduced the number of diapers in the bag and the cost per diaper or per use to the mother remained substantially the same or in some cases even rose slightly.

Then the industry gradually changed to thinner and thinner diapers, with the reduction of cellulose fluff from 28 grams per diaper to 14 grams per diaper and the concurrent increase in the use of superabsorbents from seven grams to 14 grams per diaper. The quality remained equally high, but the thickness of the diaper and the size of the bag continually decreased.

This was good news for the retailer, who didn't require as much shelf space and was also good news for the manufacturer who had lower costs for plastic packaging, cardboard boxes, shipping containers, trucking expenses, etc.

Of course, as the quantity of diapers per bag and the sizes of the bags changed, this created a problem for the nonbranded manufacturers, because it could cost as much as $10,000 to change the artwork and packaging for each customer who has a private label or control label product and if a manufacturer has 400 to 500 accounts at $10,000 each, this is a substantial expense to make the changes.

As we went through 1994, we saw P&G reduce its prices three times, with K-C following suit. The non-branded manufacturers were forced to continue their reduction in selling price in order to keep products on the shelves at a significant difference in price to the consumer.

The problem, of course, was that the cost of raw materials, especially pulp, continued to rise. This meant that the non-branded manufacturer had less and less margin of profit. The manufacturer sells a bag of diapers for somewhere between $5.00 and $5.50 and if the shelf price is $5.99 per bag and the retailers continues to insist on a reasonable profit, the selling price by the manufacturer is almost just a few cents above his manufacturing cost.

P&G Repositions Luvs

Nevertheless, the battle continued and toward the end of the year, we saw an even more significant fight for the value segment of the product when P&G shifted its strategy and positioned Luvs in the value segment.

Practically all of the diapers by this time had made the changes with cellulose fluff and superabsorbent and were relatively thin or "ultra thin." In addition, all of them had leakage barriers or "cuffs," with a replaceable tape-tab and frontal tape combination and with some sort of elastic waist mechanism. P&G and K-C even introduced stretchable side panels in their products, a feature that they found significantly attractive in the manufacture of the most expensive training pants.

But with Luvs it was a different matter. The product had been losing market share and by mid-year was down about 8%. This was a catastrophe for P&G, which had introduced Luvs as its premium product in 1975, but which was soon overshadowed in market share by Pampers and then by K-C's Huggies.

At the beginning of 1994, K-C's market share was 39% and P&G's was 37%, which means that non-branded products had 24% of the market.

When P&G decided to reposition Luvs as its brand in the value segment, it was introduced with a "Leakguards" flag, then an "ultra Leakguards" flag, then with a "Low Price" flag and then with an "Ultra Thin" flag. These diapers were all in the gender-specific versions with separate bags for each sex.

Then came "Luvs Driweave" with a three-dimensional plastic coversheet, the same material that mothers found unacceptable on the original Luvs in 1975. The general conclusion was that it did not perform satisfactorily as a "wiping" coverstock to remove feces from the baby's bottom. The plastic coversheet had not been used on diapers since then, although it has been found on P&G's "Attends" adult incontinence products and its "Always" sanitary napkins. K-C has also introduced its "Kotex Freedom" sanitary napkins in France with apertured film from Pantex in Italy. Confab (I.C.D.) sells high performance napkins in England with film from Guial in France and Ontex (Belgium) switched its film on its sanitary napkins from Poligof (Italy) to Smith Nephew (England) and more recently to the Pantex film.

Will The Plastic Coversheet Work On Diapers?

Luvs Driweave with the three-dimensional coverstock was introduced in a test market in Denver, CO during the last half of 1994, with substantially the same three-dimensional apertured coverstock. In November and December, P&G introduced three additional Luvs products in the Texas area. Those are the Luvs unisex with Leakguards, the Luvs unisex Baby Guards with a "special protective liner" and the new Luvs unisex training pants. Certainly some confusion must arise in the mother's mind with this proliferation of types and varieties (see photos on page 39) and one wonders if the Luvs brand can survive such a barrage of tests. Perhaps P&G is testing a variety of new features on a product that it is willing to sacrifice if the features fail. It will be interesting to see whether the mothers reject this plastic coverstock in the year 1995, just as they did in the year 1975.

Independent tests have shown that the three-dimensional plastic material does, in fact, reduce wet-back from the diaper, but if a diaper is made carefully and the superabsorbent and cellulose are well-placed, the chance of leakage is practically nil and the urine will not be expressed back out of the absorbent pad.

Some of the more recent training pants and baby diapers, particularly as advertised by Uni-Charm in Japan, are deliberately made to feel wet" and thus create an uneasiness that theoretically will urge the baby or youngster to be toilet-trained and get out of diapers quicker.

P&G advertises the fact that its plastic sheet keeps the baby's bottom drier and thus avoids skin rash, but it isn't the volume of fluid that is the problem; it is the fact that any molecule of water or urine that remains on the surface of the plastic sheet is apt to cause skin rash. It is the molecule of the liquid that is in contact with the body that is important--not the volume of liquid that is in the diaper and well-retained by the superabsorbent and cellulose.

The battle still continues for the babies' bottoms and there is no doubt that the non-branded manufacturers will continue to defend their positions very aggressively.

Cloth-Like Backsheets Are `Supremely' Interesting; Unisex Diapers Make A Comeback

Probably the biggest excitement during the year was the success story of Huggies Supremes, which K-C introduced on the West Coast but which is not found yet in most stores across the nation. This is a superior product with a cloth-like backsheet and all the other bells and whistles, but sells at a premium price. Nevertheless, the purchasing public fell in love with it at the Private Label Manufacturers Show in Chicago (see related article on the show on page 51); three other manufacturers, Paragon, Arquest and Pope & Talbot, announced that they were making a similar product available.

Even more excitement was created when K-C announced it was also introducing Huggies with elastic side panels, similar to the side panels it puts into "Pull Ups" training pants. The elastic Huggies appeared in California in December, selling at $8.99 per bag, but there are only 20 diapers in each bag, which means that each diaper costs about 45 cents. Nevertheless, the first reaction from the purchasing public has been extremely satisfactory and it may not be long before P&G introduces a stretch panel in its diapers similar to that which it has introduced in the Pampers training pant.

Another significant trend seems to be the switch back to all-white unisex from the gender-specific products that were highly advertised and caught the public's attention during the last several years. It appears that the gender-specific feature is not particularly significant to mothers and certainly retailers will find great satisfaction in not having to carry both the blue and pink products in each of the sizes and package counts.

It is certain that all of the non-branded manufacturers are watching carefully what the consuming public will think of the plastic topsheets, the cloth-like backsheets and particularly the market prices.

A Corporate Review

Paragon, Federal Way, WA, with $600 million in sales, is still the principal non-branded manufacturer and sells much of its product to mass merchandisers such as Walmart and Toys'R Us.

Drypers, Houston, TX, which combines the activities of Ultra Care, Veragon and VMG, has, after going public, positioned itself as the third largest manufacturer of branded products in the U.S., concentrating on the "Drypers" name.

Associated Hygienic Products, Norcross, GA, Hospital Specialty, Cleveland, OH, and Pope & Talbot, Portland, OR, continue their aggressive marketing, with Pope & Talbot and Hospital Specialty selling generally into the wholesale trade and to mass merchandisers and Associated Hygienic Products concentrating on drug chains such as Walgreen's and other large nationally-oriented retailers.

Toward the end of the year, Arquest, Cranbury, NJ, announced it was buying not only the baby diaper but also the adult incontinence activities of Whitestone Products, Piscataway, NJ.

During the year, we also saw some corporate changes, when Drypers and Inbrand went public, following closely on the heels of the previous year's public offerings of DSG International and Paragon.

Diaper machinery supplier Paper Converting Machine Company, Green Bay, WI bought the assets of German machinery manufacturer Bikoma, Mayen, Germany, which had fallen on hard times.

Hong Kong-based DSG International not only completed its purchases of Swaddler's in England and Loring in Switzerland but also added the Vlesia adult incontinence operations in Switzerland. DSG also announced the start-up of operations in China and Thailand.

Unilever announced it was going to India with a femcare operation and Uni-Charm announced it was going to China with sanitary napkins and to Korea with diapers.

I'll See You In Court

During the year the major players still continued their attempts to solve some competitive problems in the courts of law. The case of Uni-Charm against Drypers in Texas involving the upstanding cuffs may be coming to a conclusion with a mutual settlement agreement.

There has not been much activity in the Molnlycke vs. P&G lawsuit in Wisconsin involving frontal tapes and since P&G and Molnlycke have settled one of their lawsuits in Europe, there may be a tendency to settle the one in the U.S. as well.

The suit of Johnson & Johnson vs. P&G (on multi-strand elastic leg diapers) in New Jersey and the concurrent suit of P&G against J&J (on the sanitary napkin with wings) in Delaware apparently have been settled by the decision of an arbitrator.

Overseas, P&G continues its litigation against Ontex in Belgium regarding the three-dimensional apertured coverstock (which originally came from Poligof).

In Mexico, the case of K-C de Mexico (which has a license under the Molnlycke patent regarding frontal tapes) against Mabesa has been settled by an agreement.

In the case of K-C against Baxter and Fiberweb regarding the SMS patent, a decision was handed down against K-C.

Happy New Year

And finally, as we come to the end of the year, it is interesting to note the success that John Hall, formerly with K-C, has had with the marketing of his "Diaper Genie." This is a tub-like device made of plastic, with a rotating top, which sells for less than $50 and twists soiled diapers into a sausage-like string and can contain as many as 25 or 30 diapers for days in the container without any odor. The string of diapers can easily be removed or discarded. It is not always the manufacturer or the diapers themselves--but the handling of them as well--that create a success.

In another area, Arquest's use of paper packaging is one twist on non-product development that bears watching. Paper packaging has been tried in Europe for sanitary napkins and P&G some years ago substituted paper packaging for the cardboard box, but this is one of the first of the retail diaper products where the diapers themselves are packaged in paper.

It will be interesting to see what happens in this battlefield as we go through the year 1995.

RELATED ARTICLE: The Fastest Growing Sector Of The Sanitary Market

In a related sector of the market, bladder control products that have been seen for some years as J&J's "Serenity" have turned out to be the fastest growing segment of the market, with K-C's introduction of "Poise," a version of "Attends" by P&G and Inbrand's "Presence" brand. In this sector, it appears Serenity has 14.7% of the market, Poise has 14.2%, regular "Depend" has 35.1%, private label products hold 34.2% and Attends has 6%.

The end of the year rumor that ICD (Confab) is negotiating with J&J to take over production of the Serenity product has not yet been confirmed by either party.
COPYRIGHT 1995 Rodman Publications, Inc.
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Copyright 1995 Gale, Cengage Learning. All rights reserved.

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Title Annotation:includes related article; disposable diapers
Author:Bouda, Francis
Publication:Nonwovens Industry
Date:Jan 1, 1995
Previous Article:Superabsorbent polymers in Japan.
Next Article:Home on the PLMA range: private label trade show offers showcase for absorbent product manufacturers.

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