Look, Ma - No 'Brands!'

January 8, 2009
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Category Review: Private label diapers and underpants present a positive solution for retailers in troubled economic times.

The baby business just ain’t what it used to be, at least when it comes to disposable diapers and training pants. According to an October 2008 report published by Global Industry Analysts Inc., San Jose, Calif., the market for disposable baby diapers is saturated and mature in developed regions such as North America. The publication, “Disposable Baby Diapers: A Global Strategic Business Report,” notes that high penetration, along with lower birth rates in developed nations, has led to marginal growth in the western world.

Data from Chicago-based Information Resources Inc. (IRI) mesh with the report’s findings, showing only a 1.2 percent gain in dollar sales and a 3.8 percent drop in unit sales for the total diaper category (including disposable diapers and disposable training pants) for the 52 weeks ending Nov. 2, 2008. Private label fared even worse, realizing 3.6 percent and 4.0 percent declines in dollar and unit sales. IRI’s data include supermarkets, mass merchandisers and drugstores, but exclude Wal-Mart, c-stores and club stores.

Although the picture might seem bleak overall, private label has a prime opportunity to realize growth in this flat category by stealing market share from the national brands during these shaky economic times. Chris Ferdock, director of marketing for Associated Hygienic Products LLC (AHP), Duluth, Ga., notes that national brand per-pack prices are approximately $1 to $2 more than they were a year ago, and that both Procter & Gamble and Kimberly-Clark are struggling for market share.

“This results in dynamic brand market shares that make the traditional ‘national brand equivalency’ approach to product design very difficult for store brand suppliers,” he maintains. “The growth within the premium diaper tier has appeared to level off, and the economy has forced consumers to make more frequent in-store decisions based on price/value as they attempt to manage the family budget.”

Rising commodity prices have resulted in cost pressures for diaper manufacturers and their material suppliers, says Scott Traister, director of marketing for Arquest Inc., Cranbury, N.J. Once the price increases are passed on to the trade and then the consumer, retailers could see an impact on purchase behavior.

“Consumers may change retailers, pack sizes or shift their purchases to store brands,” he says. “Retailers may have to spend a little to help the consumer through this transition into a new pricing structure, but it can be more profitable for the retailer at the end. In fact, training pants are already seeing a shift toward store brands.”

Building a Better Diaper

Despite the leveling off of growth in the premium tier, products with a premium stretch fit (as well as good leak protection) remain strong sellers in the overall diaper category, Traister notes, and represent one way to help sway folks away from national brands and toward private label.

“Premium stretch side panels were once a feature found only in the branded super-premium tier,” he says. “Recently, however, Procter & Gamble has taken notice of consumer preference for this feature and extended it throughout their Pampers and Luvs product lines.”

Because many consumers are not willing or able to pay the price for this “luxury” within the national brand, store brands have an opportunity to offer the same feature at a better price/value proposition, Traister stresses.

“The wider availability of premium stretch side panels has made it more important for retailers to offer consumers a similar diaper in their store brand tier,” he says.

For example, Traister says Arquest introduced a super-premium diaper with designer stretch panels several years ago, offering moms and babies national brand features such as stretch sides, advanced leakage protection and colorful “best-in-class” design graphics at a significant savings over the national brands. Printed backsheets, stretch sides and soft materials are going to be important for store brand diapers going forward, Traister says. And in the training pants segment, wetness indicators and a focus on potty training in conjunction with absorbency will remain strong selling points.

“Also, you may find a resurgence in sales of more moderately priced [national] branded diapers as the features that started out in the super-premium tier make their way down to the regular ultra-thin segment of the category,” he says. “This includes growth in private label as store brand manufacturers are quickly offering products that can compete with the national brands at the upper level.”

But Ferdock adds that it is critical for retailers and manufacturers to base diaper and training pants design decisions on extensive consumer research. Such research must result in an understanding of the purchasing habits of national brand and store brand users.

“A recent study has helped us clearly define the key product feature drivers in an effort to help retailers successfully position their labels within the different product tiers,” Ferdock says. “In fact, much of our strategic positioning to the retailer is based on research and touches everything from brand positioning and techniques [to] package design and message development [to] assortment and product design features. Of course, the supplier partner also will play an important role in building a retailer’s store brand diaper and training pants sales.

Retailers should seek out a supplier that offers top-quality products at a price that still delivers a value proposition to the consumer and a “reasonable gross profit” to the retailer, Traister says. Just as important, he adds, is choosing a profitable supplier that makes regular capital investments in product and technology improvements.

“Retailers should also look for a diaper supplier that does more than simply supply diapers,” Traister says. “For example, Arquest engages retailers in a consultative partnership. This approach means helping the retailer reach its consumer through category management, providing a well-funded and planned marketing program, and offering a leading service package such as VMI.”

As for AHP, Ferdock says the company’s focus and expertise revolve around a single direction: understanding today’s consumers and their shopping habits. By doing so, AHP is well prepared to deliver new products that will attract new users and build share.

“A comprehensive research plan allows us to provide consumer and category insights to our retailers in an effort to successfully manage the marketing mix elements,” Ferdock says.

But store brand suppliers must also remain the low-cost producers, he adds.

“This means developing ‘home-grown’ product design ideas that rival key national brand features and benefits [while] also controlling rising material costs.”

Communication, Please

Once a retailer is confident that its store brand mix of diapers and training pants meshes well with the needs and wants of today’s moms, it’s time to get the message out to would-be buyers. Here, packaging presents one opportunity to convey a positive message about the product’s performance and quality. Such packaging might even tout a guarantee related to product satisfaction - a factor that could sway some moms who’ve had less-than-positive experiences with store brand diapers and training pants in years past.

“Store brand items don’t have the advantage of national advertising to communicate the benefits of their products to the consumer,” Traister notes. “Therefore, packaging plays a very important role in commun-icating with the consumer.”

The package also should be clean and easy to read, he adds, yet stand out on the shelf. The print quality should be equal to or better than that of the comparable national brand’s.

Traister notes that Arquest offers unique packaging opportunities to retailers through a proprietary “database of babies” to be used on packaging. The database helps reduce setup costs and provides a retailer with images that will not appear elsewhere.

Loyalty programs aimed at the baby aisle also work well, Traister notes, enticing consumers with special deals and shopping rewards. But he says many retailers that run such programs do not provide their store brand diapers and training pants with their fair share of in-store promotions and ad space.

“Running regular promotions at significant discounts to the consumer is the best way to gain market share and consumer loyalty,” he stresses. PLB

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