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Winners and losers: a mixed bag for the disposable diaper industry.

Winners And Losers

A Mixed Bag For The Disposable Diaper Industry

Procter & Gamble seemingly continued to do anything it wanted worldwide in 1990, although its acquisition of Fater has been delayed by European authorities; Kimberly-Clark and the private label competitors in the U.S. and the host of disposables converters around the world kept scrambling to P&G's lead; legal actions dominated much of the activity in the past year

The year 1990 was a mixed bag of events for the nonwovens industry. As in most matters, there are winners and losers and 1990 had its share of both in the sanitary disposable absorbent products field.

As the year ended, Procter & Gamble, Cincinnati, OH, dropped its latest bombshell by announcing that it was lowering its diaper-in-bag count on all sizes by 8%. The Small sizes moved from 60 to 56; Medium from 44 to 40, Large from 32 to 30 and Extra Large from 28 to 26.

Kimberly-Clark, Dallas, TX, immediately made the change and soon private label manufacturers will be following. Usually these smaller companies wait a bit, not only to get rid of current inventory, get a supply of new, printed bags and make the changeover in the production lines, but also to let the market "cool down a bit." After all, the change in count is generally not accompanied by lower prices--the cost per bag remains the same--and thus the change amounts to an 8% price increase to the parents.

The improved qualities of the diaper products being produced meant that babies could wear them longer. Although the average consumption per baby dropped about 10% (from 43 to 39 a week), the annual national consumption of about 16 billion diapers did not materially change in the past year.

An earlier price increase of about 5%, coupled with the reduction in the number of diapers in each bag, means a significant price increase on a unit basis for parents; dollar sales in the U.S. will undoubtedly increase from 1990's retail level of about $4.3 billion (approximately $3.8 billion at the manufacturers' level).

The Good News Is Better Products

The good news is that the struggles in the baby diaper industry have produced improved products that are certainly beneficial to the baby and to the care-provider. The diapers have been made thinner and more cosmetically acceptable, they absorb urine more rapidly and hold it more effectively without the adverse re-wet problem and the baby's skin keeps drier and free of rash. The diapers are packaged more compactly, so they take up less space on the supermarket shelves and are easier to carry home from the store.

The strong competition among the manufacturers has led to a mini "price war." The two major manufacturers, Procter & Gamble and Kimberly-Clark, who still enjoy 80% of the market in the U.S., have been able to provide pricing benefits to the marketers so that the products appear on the shelves at anywhere from $3-4 a bag below customary prices.

This has not been good news for the private label manufacturers who operate on tighter margins. As the two giants offer price advantages to the big chains, the private label producers are forced to reduce prices as well and suffer a tight squeeze between production costs and the ceilings set by branded products.

This activity has also created problems for the retailers because the changes in diaper-count and prices also include changes in diaper design, product effectiveness, colors of the elastic threads for gender specific identification and even the difference between Disney and Sesame Street characters on the frontal landing strips.

Probably the most striking illustration of the pressure on both the competitive manufacturers as well as the retailers was P&G's introduction in September of "Pampers Phases." This involved 13 new SKU's (stock keeping units)--one Newborn, two Infants, one Crawler and three Toddler. The Newborn is only in unisex-white, but each of the other six are in both blue-for-boys and pink-for-girls. As we enter 1991, it is still too early to determine what effect this deluge of new products will have on the market shares, but it is quite clear that no matter what the baby manufacturers do to change the design, shape, color, size and components of the diaper, they will not produce more infants. Thus, there will not be an increase in unit sales of diapers and, with great good fortune, there will not be any increased adverse affect on the environment.

In 1990, there was also the introduction into the U.S. of compact packaging, a development led by P&G some years ago in Germany. This innovation reduces the size of the bag and, though the cubic volume is less, the package is still difficult to arrange on retail shelves to gain maximum exposure of the graphics. The greatest advantage comes from the cost savings resulting from the decrease in the amount of plastic needed to make the bags.

K-C's "Huggies" packages have been slightly compacted (about 15% below an uncompressed stack), Veragon's "Drypers" about 5% more and P&G's "Luvs" and Pampers about an additional 5%. It appears that Weyerhaeuser will have its diapers in compact bags in early 1991, along with several other regional and private label producers such as Pope & Talbot and UltraCare Products.

A report on the status of compact packaging appeared in the August, 1990 issue of Nonwovens Industry.

The Bad News: Product Pitfalls

Probably one of the striking events relating to the technological activities was the decision by Weyerhaeuser to withdraw its "Ultrasofts" ("Giggles") baby diaper from the market. This high-tech product, which has been the subject of many previous articles and international discussions, was just too expensive and difficult to make.

Weyerhaeuser had introduced the product in a manner that many thought would make it more competitive to K-C's Huggies and P&G's Pampers and Luvs, but the product was marketed as a high-end, high quality control label in competition with private label brands. The pressure put on by P&G and Luvs to keep down the prices of Huggies, Luvs and Pampers made it impossible for Weyerhaeuser to manufacture and sell Ultrasofts at any profit. In fact, for a short period, the entire diaper operation of Weyerhaeuser was "on the market."

On the North American continent, there were some winners in the sense that the regional manufacturers, such as UltraCare, VMG, Veragon, Associated Hygienic Products, Hospital Specialty and a few others were able to increase their market shares in the areas in which they chose to concentrate their efforts. The losers included Whitestone, which in its venture with Enviro Products' "Bunnies" in California came into difficulty with the environmental agencies. Toward the end of 1990, they were changing from cellulose to cotton and while the diaper was not yet on the market at the end of 1990, its appearance is anticipated in early 1991.

In Canada, Atlantic Packaging ceased its baby diaper and sanitary napkin operations and sold some of the machinery to UltraCare. The financial troubles of Dofoe & Dafoe increased as plunging sales, high interest rates and a strong Canadian dollar conspired to turn the company into a money loser. At the end of 1990, extensive layoffs led to more uncertainty and it is not known whether Dafoe & Dafoe can survive in such a competitive arena

In the southeastern U.S., the closing of the American Disposables plant in Georgia provided an opportunity for other private label manufacturers, such as Associated Hygienic Products, Norcross, GA, and Hospital Specialty, Cleveland, OH, to acquire some new customers. At the end of the year the impact on the market of some newer companies such as Carolina Royal Disposables in North Carolina and American Hygiene Products, Miami, FL, had yet to materialize.

Patent Litigation Review

During the year the patent litigation on the various diaper designs continued unabated concerning diapers with cuffs was postponed from September, 1990 until April, 1991. In the meantime, both P&G and K-C manufacture their branded products with the upstanding cuffs (leakage control barriers) and several private label and control label manufacturers are introducing such a design into their line of products as well. Veragon, with its Drypers, has already appeared on the market and at least three other private label manufacturers are poised to bring such a version of their diapers into the arena in 1991. The lawsuit of P&G against K-C in Charleston, SC, ended in K-C's favor when the court found that P&G had improperly secured the Weisman Patent No. 4,610,678 and ruled that the patent was unenforceable.

In Dallas, TX, the Anti-Trust suit between P&G and K-C continues.

In Canada, K-C has sued P&G for infringement of the patent licensed to them by Molnlycke, relating to frontal tape.

The suit of K-C against James River in Atlanta, GA involving the patents on the SMS (spunbonded-melt blown-spunbonded) material is still in progress.

The litigation by K-C against Reifenhauser for infringement of K-C patents on spunbonded machines and processes was settled out-of-court by K-C giving Reifenhauser a license.

In Philadelphia, PA, I.C.D. (Confab) filed a complaint in the Federal Court to have P&G's Van Tilburg patent on a sanitary napkin with "wings" declared ivalid. The same day P&G filed a countersuit in the same court claiming that I.C.D. infringed that patent. The lawyers are in the middle of the discovery stage of the suit.

In England, Kao of Japan filed a petition asking the High Court to annul the P&G GB 2,143,439 patent on sanitary napkins with wings.

In Wisconsin, the federal suit of P&G against Johnson & Johnson was dismissed by the judge, without prejudice to either party reinstituting the case, until an Interference proceeding in the U.S. Patent office between P&G's Van Tilburg Patent No. 4,687,478 and J&J's Mattingly Patent No. 4,608,047 is settled. A decision in that proceeding had not been handed down as of the end of the year.

Molnlycke has filed infringement actions against P&G in England, France, Greece and Germany relating to embossed frontal tapes. They also filed an action against Linette in Greece.

In Belgium, P&G brought an action against Kayserberg (Beghin/Jamont) relating to the conulated "DriWeve" coverstock. A similar action was initiated in Italy against Fameccanica before the announcement of the joint venture between P&G and Finaf in Italy. Finaf is the holding company of both Fameccanica and Fater (the diaper maker).

The news in September about the joint venture in Italy caught the industry by surprise, although rumors had been circulating to that effect for some time. The plan is for P&G to have a 45% interest and Finaf a 55% interest in the new company. In December, 1990, the Cartel Commission of the Common Market was investigating the application of Sections 85 and 86 of the Treaty of Rome to such proposal and it appears the venture will be delayed for some time Such a venture, if approved, will have a significant impact on the operations of Swaddlers in England and Arbora in Spain.

The Sanitary Napkin Arena

In the sanitary napkin field, the number of products continues to increase, not only to the consternation of the women, but also to the primary competitors.

Probably the most excitement concerns the sanitary napkin with wings, often identified with the word "Plus."

Although the product had been seen some years earlier in Japan, and although P&G first introduced its "Always" sanitary napkin without wings, the "Always Plus" with wings appeared in the U.S. market in 1985 and has since then been marketed by P&G in Japan under the trademark "Whispers" and in limited areas in Europe under the name "Excel."

For a short time a few years ago, J&J had a similar product on the market in Wisconsin under the trademark "Stayfree Plus," but it was withdrawn when the federal suit was filed.

For the last two years, ICD has marketed its "Fresh Days-Plus" product with wings in the U.S. and continues to sell the product against the P&G Always Plus while the litigation in Philadelphia continues.

K-C has introduced the "Kotex New Freedom" natural curved maxi pad super in Canada, constructed according to the design shown in its U.S. Patent 4,834,739 issued to Paul Linker on May 30, 1989. The product is marketed in a bag that has both the English and French text.

In December, 1990, J&J brought onto the Canadian market its latest version of a wings product under the "Prima" label.

At the end of 1990, neither the K-C or J&J products had appeared in the U.S. market.

J.F.K. of Manitoba, Canada, is also distributing a new napkin called "Today's Lady" (or "First Lady") that it claims is both soluble and biodegradable.

A certain amount of interest was shown by sanitary napkin manufacturers in the introduction of baking soda as a deodorant means, following the use and widespread advertising promotion of such products by J&J.

Diaper Activity Around The Globe

Over the years P&G was the only company to market either baby diapers, sanitary napkins or adult incontinence pads with a three-dimensional (conulated) plastic film. A license arrangement between the Visqueen Div. of Ethyl Corp. and P&G under P&G's many patents relating to this material kept the others out of the market.

However, in the middle of 1990 P&G brought legal action in Belgium against the Beghin Co. of France (now a part of Jamont/Kayserberg operations in Europe) charging that a Beghin's "Fitness" sanitary napkin with a similar coverstock material was an infringement of their patents. This material is supplied to Beghin by a German manufacturer who maintains that its production process does not infringe P&G's patents. Beghin has defended the action in Belgium, further stating that the napkin that it manufactures and sells also is not an infringement of any other P&G patents.

The design of diapers with "cuffs," introduced by Unicharm in Japan and followed by P&G and K-C, leads the field of product additions. Veragon was the first of the regional producers in the U.S. to offer the item, but several others are soon to have the feature on their diapers. It is believed that a carefully designed diaper, with cuffs of totally impervious material, will not infringe either the P&G or the K-C patents. The definitive answers will be made clear after seeing the court's decision in the Seattle lawsuit.

Some of the more interesting construction and designs of both sanitary napkins and baby diapers have appeared in Japan, as is evident from Daio's "Elleair Friend" baby diapers with the expanded netlike coverstock material in only the wide edges of the diaper.

The diaper battle continues in Japan, with P&G gaining market share (24.2%) against Unicharm (28.3%) and Kao (22.1%). Daio (5.9%), Shiseido (4.4%) and Oji (7.4%) continue to grow as well.

The struggle continues to determine the relative rights regarding the frontal tape (landing strip) as a reinforcing member for the front of the baby diaper, as well as a surface upon which the replaceable tape tabs can be fastened.

Molnlycke's lawsuit against P&G in England has not yet been settled, but in a related action in the British Patent Office, P&G's suits to have the Molnlycke landing strip patents revoked resulted in a severe modification of the claims of the patent. Nevertheless, Molnlycke maintains several legal actions against its competitors, such as against P&G and Linette in Greece, P&G in France and Germany and the case against P&G in England.

Financial Difficulties And Factory Closings

The most troublesome of the activities during the year, however, involved the closing or financial problems of several companies in Europe, Canada and the U.S.

Celatose has been in the hands of a receiver and in the middle of the year it was determined that the best interests of the company would be served by the sale of the organization to Messrs. Copi and Picard. Certain of the assets of Celatose in Germany were purchased by Hyga, the largest private label marketer in Germany.

Jean-Marc Brutin, formerly with Celatose and now operating his Prodhygia Company in Hasnon, France, purchased the Codis Company and entered into a joint venture with Hyga.

Mr. Coativy, who purchased the Tendresse facilities from Colgate and operates it at LaRochette, fell on hard times, but has the permission of the French authorities to continue his operations.

The French market is heavily in favor of P&G (43%), with Peaudouce down to 21%, LaRochette at about 8% and all others around 28%.

In Sweden, Molnlycke is revising its operations and reducing its staff. It has closed the Peaudouce facilities in Telford, England and its plant in Norway. It has announced that about 600 people will be terminated, but many of those are related to plant shutdowns and to retirement of employees whose positions will not be continued.

The closing of the Holmens Hygiene operations by the Assort Hygiene of the Activate Company (which had owned it only one year) was not such a surprise in light of the difficulties experienced by MoDo.

The problems with Molnlycke and Holmen reflect the strong pressure in Sweden by P&G, which now has about a 48% market share, as compared to Molnlycke's 30%, Assort's 10% and all others at 12%.

In England, Peter Brenikov has surfaced after his departure from Swaddlers and is now involved in the Hygieia Health Care production of sanitary napkins and tampons. His company is one of the first to market sanitary napkins in paper bags rather than in plastic sacks or cardboard boxes. The product is sold in the Superdrug Stores under the "Green Options" label.

Several of the smaller U.K. diaper companies such as Dulay and Rochdale, as well as Celatose, have ceased operations in England and Nokia has shut down its diaper facilities in Dublin, Ireland. The other diaper makers in England, such as Blue Ridge, Breger-Gibson and Skippingdale are nervously watching the expansion of P&G's facilities near Birmingham, as well as its fantastic rise in market share in that country.

If the P&G/Finaf joint venture is approved, there is no doubt that the Swaddlers facility in New Castle will be rearranged.

As of mid-year, P&G enjoyed more than 50% share of the British market, Togs (Swaddlers) about 11%, Peaudouce about 10% and private label about 29%.

Much curiosity centers on whether K-C will enter the European market with diapers. It has started up two new Zuiko (Japan) diaper machines in Saudi Arabia and has introduced "Depends" adult products into parts of Europe, but as yet has not produced or sold Huggies there.

In South America, P&G has shown interest in the acquisition of Prosam in Chile, which already has a 51% interest in Quimiga-Estrella. P&G also has a strong equity interest in Equimad in Argentina.

In Venezuela, J&J has sold some of its Fameccanica diaper machinery, but in Brazil J&J continues to be the strong factor in the baby diaper market with a 90% share. It is likely that P&G may have its eye on the Tambrands/Arbora operation in Brazil, which has only a small share of the market; nevertheless, P&G has already acquired Tambrands' equity in Arbora/ Agrolimen in Spain and Portugal.

Machinery Manufacturers

As the products change, so must the machines and processes for making them change. This puts greater pressure on the makers of the machines such as Nuova Red, Fameccanica, Cellulose Converting, Tekma, Daipers and Viola Giorgio in Italy, Dresden & Dreesbach and Winkler & Dunnebier in Germany, Zuiko in Japan and Curt Joa and Paper Converting Machine in the U.S.

Nuova Red has increased its strong position internationally, following the demonstration of its latest machine at INDEX '90 in Geneva last April.

Fameccanica has issued a statement, following the news release about the joint venture between its parent Finaf and P&G, that nothing will be changed regarding Fameccanica's method of operations and that it will continue to serve all its present and future customers, will honor all agreements and maintain all relations in confidence and free from any disclosure to its affiliated companies.

Cellulose Converting sanitary napkin machines are well accepted, especially in the Pacific Rim countries, and it continues to feature add-on equipment and specialty machines such as one for making baby bibs.

P.C.M.C. offers the latest machines for the application of cuffs to diapers and Joa continues strong in offering machines for production of sanitary napkins.

Fibre Converting Machinery (formerly MoDo Converting Machine) of Sweden is operating at new facilities near the Arlanda Airport in Sweden after a management buy-out under the leadership of Barry Hogarth.

Where Do We Go From Here?

All of this leads to a conclusion that P&G is becoming a greater and greater factor in the baby diaper business outside the U.S., not only in Japan but now in Europe and also quite likely in South America as well.

This would be consistent with the announcements by Edwin Artzt, Procter & Gamble's new chairman of the board, at the company's annual meeting last year. He stated at the time that the new program at the company would be to introduce on a worldwide basis those products that it has already successfully marketed in the U.S., but modified to fit the needs for domestic consumption in foreign countries.

It took P&G 10 years to learn this lesson in Japan and it was Mr. Artzt who turned that operation around so that, after suffering many years with less than 5% market share, it now shares the baby diaper market almost equally with Unicharm and Kao.

Many of the other producers of sanitary absorbent disposable products are learning the same lesson and we will watch closely their successes in the coming year.

PHOTO : Procter & Gamble introduced its Phases concept this fall as the latest in the diaper trend towards increased niche segmentation. It is still too early to gauge the impact on the rest of the domestic disposables market.

PHOTO : The most unsuccessful diaper news of the past year was the attempt by Weyerhaeuser to market its "Ultrasofts" diapers as a cross between the brands and the private labels. The product has already been pulled.

Francis J. Bouda is well-known to readers of Nonwovens Industry and has been contributing these annual articles on the baby diaper industry for the past decade. Mr. Bouda runs his worldwide legal and consulting service specializing in sanitary disposable absorbent products from his offices in Cleveland, WI.
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Author:Bouda, Francis J.
Publication:Nonwovens Industry
Article Type:Cover Story
Date:Jan 1, 1991
Previous Article:Zeroing in on the technology gap ... or, a road map for continuous improvement.
Next Article:The testing and developing of disposable baby diapers.

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