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Diaper makers do due diligence

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By Bloomberg News
Saturday, March 8, 2014, 9:00 p.m.
 

The cheerful, teal room packed with babies and watchful grownups could be a daycare center anywhere in America — except for the lab-coated researchers sticking plastic tubes into toddlers' diapers.

This is Procter & Gamble Co.'s baby-care research center at the Winton Hill complex north of the company's Cincinnati headquarters, one of five such facilities around the world. Researchers are pushing the boundaries of diaper science and style. In this experiment, they're injecting warm saline at precise “pee points” in the diaper, which differ for boys and girls, and weighing the nappy to determine absorbency.

The research is designed to protect the Pampers brand, P&G's biggest, and maintain a technological edge over generic diaper makers and Kimberly-Clark Corp.'s Huggies. P&G is constantly seeking ways to extend a brand that generated more than $10 billion in sales last fiscal year, or about 12 percent of revenue.

“We're trying to build a diaper that is zero leakage, ultimate dryness, ultimate comfort, with an underwear-like fit,” said Al Maingot, who oversees baby-care research from Singapore.

While U.S. birth rates have slowed, developing markets in Asia and Latin America are generating millions of baby bottoms a year. Only 11 percent of total diaper sales came from America last year, according to researcher Euromonitor International.

Absorbent gel

The disposable diaper has come a long way since 1961, when it was dreamed up by a P&G engineer tired of cleaning his grandson's cloth nappies. The company replaced pins with tape fasteners in the 1970s and added absorbent gel in 1986. In 2010, P&G introduced Dry Max Pampers, dubbed the biggest diaper innovation in 25 years because they were 20 percent thinner and twice as absorbent as before. It's nothing like the bulging packages of yesteryear, more like a pair of padded underwear.

For all of P&G's advances, branded diapers have lost ground to generic brands, often sold at a discount.

Private-label diaper share, which includes brands from Target Corp. and Kroger Co., has marched upward in the past decade, to 18.6 percent last year, according to Euromonitor. Although its share has declined, Huggies has been the leading brand in North America over the past decade, followed by Pampers. P&G has the leading share when sales of Pampers and its Luvs brand are combined.

“It's a very, very competitive category,” said Donny Chi, an analyst with Euromonitor in Chicago.

Finicky customers

Competition from rivals is hardly P&G's only challenge. Parents can be finicky customers, especially if they believe the latest version of Pampers isn't as good as the last or may be hurting their child.

The Pampers brand is critical for P&G because it connects the larger company to moms, the “core consumer,” said Virginia Morris of Daymon Worldwide, a product-development and brand consulting firm based in Stamford, Conn. If moms are happy with their babies' nappies, the halo effect may benefit P&G's other products, Morris said.

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