By Sharon Terlep
Diapers promising to soften babies' behinds and digitally track
their sleep are hitting the market. Billed as parental aids, the
new products also are helping the biggest diaper makers lift
prices.
Demand for diapers has declined in the U.S. and is set to fall
further as Americans have fewer babies, a dilemma for Procter &
Gamble Co., maker of Pampers and Luvs, and Huggies maker
Kimberly-Clark Corp. The number of babies born in the U.S. last
year fell to a 32-year low, dropping 2% from 2017 to 3.79 million
births.
Both companies have been increasing diaper prices successfully
without losing sales to less expensive brands, and executives say
they can push higher as long as they make improvements.
"We've far from exhausted that lever," Kimberly-Clark Chief
Executive Michael Hsu said in an interview. "There are bigger
problems for the consumer that we can still solve."
Kimberly-Clark in July rolled out a Huggies line called Special
Delivery, which is made from plant-based materials, comes in black
packaging and costs roughly five times the least costly diaper on
the market. P&G, meantime, has teamed with Google's research
division to develop a tech-infused diaper system that includes
monitors and activity sensors that track when babies sleep and go
to the bathroom, sending alerts to parents' phones.
Both companies are introducing new products in China, a massive
market in which parents are willing to pay up for diapers, creating
categories P&G refers to as "super premium" and "super, super
premium."
"Moms and dads dwell appropriately on their babies," P&G CEO
David Taylor said in an interview. "There is evidence that if you
provide a meaningful benefit, consumers are generally willing to
pay."
That diapers rank among the products that generate the most
feedback for P&G is evidence parents see room for improvement,
Mr. Taylor said. Diapers could be softer, less leaky and do more to
prevent skin irritation, he added. P&G's new offerings include
all-natural diapers and ones with extra-sturdy fasteners.
P&G and Kimberly-Clark together dominate the $3.6 billion
U.S. disposable-diaper business, accounting for 80% of sales,
according to Nielsen data provided by Wells Fargo.
After years of trying to stoke demand by cutting prices, P&G
and most of its rivals switched course about a year ago and have
been pushing up prices across a range of consumer products. The
moves have paid off as shoppers have been willing to absorb the
increases, some of which were prompted by higher costs and some of
which have padded profits.
Kimberly-Clark's Mr. Hsu said there is room in the U.S. market
for more expensive diapers. A private-label diaper costs about 11
cents, while the most expensive offering until recently was around
35 cents a diaper, he said. Huggies' new Special Delivery line goes
for 55 cents apiece.
Other consumer-products categories have bigger differences
between the discount and high-end offerings. The least expensive
toothpaste, for instance, goes for 18 cents an ounce, while pricier
options can be more than $1 an ounce, said Mr. Hsu, referring to
the overall U.S. industry.
Natasha Colon, an Appleton, Wis., resident who is the mother of
a 3-month-old daughter, said the eye-catching designs on the
Special Delivery line appealed to her.
"I'm all about cute," said Ms. Colon, who has been switching
between brands. She said the look, combined with the diapers'
softness, make them worth the extra cost.
The high-tech P&G diapers are part of a new baby-monitoring
system called Lumi that includes a separate webcam. The system
includes a sensor that detects moisture and is attached each time a
diaper is changed. P&G hasn't disclosed pricing for the
product, expected to go on sale later this year.
Some analysts question whether price increases could open the
door for private-label and startup competitors, which so far have
struggled to make inroads within the diaper market. P&G has
acknowledged that ever-higher razor prices opened the way for
online shave brands to steal away customers.
"Everybody has been talking about raising prices. That's well
and good to offset the headwinds, but if it's not being matched
with value-added innovation, that's the challenge," Morningstar
analyst Erin Lash said.
The strategy can be successful, she said, if the companies
introduce features that are truly useful and figure out ways --
either through marketing or offering free trials -- to persuade
parents to try their diapers.
The diaper category "is robust and it's competitive, and our
eyes are wide open," Mr. Taylor said.
On Tuesday, P&G reported its highest quarterly sales growth
in more than a decade. P&G said organic sales, which strip out
currency moves, acquisitions and divestitures, rose 7% in the
quarter. About half the gains came from higher prices.
Write to Sharon Terlep at sharon.terlep@wsj.com
(END) Dow Jones Newswires
July 31, 2019 05:44 ET (09:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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