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There's a new class of contender in the diaper section.Premium-brand and private-label diapers continue to punch it out in the baby aisle -- but now a third tier of product has climbed into the ring and put up its dukes.This group includes products such as Drypers, Fitti, Bunny Hugs, Cuddles and more, with price points typically falling within the gap between national premium brands and private labels.Are

There's a new class of contender in the diaper section.

Premium-brand and private-label diapers continue to punch it out in the baby aisle -- but now a third tier of product has climbed into the ring and put up its dukes.

This group includes products such as Drypers, Fitti, Bunny Hugs, Cuddles and more, with price points typically falling within the gap between national premium brands and private labels.

Are they capable of delivering a devastating uppercut to the chin of Pampers or the local store brand? Most industry watchers are doubtful of that. However, these third-tier diapers apparently jab and shuffle enough to compete in the ring, much to the delight of some retailers and wholesalers who are betting they'll go the distance.

Others see the group putting on a good show, but eventually being knocked out by the increasingly brutal price competition between private label and premium brands.

Generally, retailers and wholesalers

said the third-tier price points are dollars lower than the premium brands and only slightly higher than private label. However, some retailers said they offer the third tier as their least expensive diaper product.

"It's a growing category for us, absolutely," said Durward Harris, president and general buyer at Harris Supermarkets, Greenville, N.C. "Sometimes our prices fall under private-label pricing. But it's right in the neighborhood, maybe a dollar difference."

An important benefit of carrying a third-tier brand is that its pricing structure stands up more favorably against mass merchandisers' prices than premium brands do in supermarkets, buyers explained.

"I think what's happening in the grocery industry is the Kmarts and Wal-Marts are going out so price-competitive on Huggies and Pampers that we're losing the sales in our grocery stores," said Bernard Larson, head buyer at Northland Associated Grocers, Norway, Mich.

"And I think what the Drypers has done is made us competitive; people are buying Drypers while they are grocery shopping instead of running over to Kmart to save the extra dollar on the Huggies or the Pampers.

"So, for our business, it's been a real good item for us. They are very price competitive and they're selling very well," said Larson, who carries the Drypers product.

On the original purchase earlier this year, Larson said he was worried about overbuying. "In fact, I was too conservative and actually ran out of them," he said. But Larson was so impressed with the way the diapers moved that he immediately rectified his cautious initial order.

"On my last purchase, I doubled it to make sure I covered my retailers' needs. I'm quite happy with them. I plan on continuing to promote them."

Retailers said the third tier works, filling a economic niche created but not filled by the competition between store brands and national brands.

"If the economy gets much worse, these products will continue to thrive, that's for sure," said Harvey Godwin, director of grocery and marketing at Food Folks, Lumberton, S.C.

"People are very particular about what they feed their child -- in particular baby formula, because of the dietary intake. But when it comes to diapers, I don't think customers are that brand-loyal," said Godwin.

"I think if the diaper is comparable -- if it's soft to the skin, if it's snug, if it's extended wear, if it houses wetness well -- I don't think people really care what name is on it, especially when you're talking about a $3 and $4 difference in price [from the premium]." That price difference is a nice enticement for some consumers. For retailers, third-tier diapers provide fatter margins than premium diapers' margins, which continue to be, at best, slim. And they offer another buffer against competition.

"Sometimes you can get a brand like [Bunny Hugs] and your competitors may not carry that exact label, so the customer really doesn't have a price point to compare it to," explained Food Folks' Godwin.

"The [retail] margins for Cuddles, on average, are 10%; whereas on Pampers, in our market, it's 3%," pointed out Charles Fields, a general buyer at Super Food Services' Lexington, Ky., division.

Fields said he carries premium brands such as Pampers and Huggies, a private-label product and a third-tier brand called Cuddles, which he terms "a fairly decent diaper."

The cost difference and extra savings are "what consumers are looking for," he said, reporting that the wholesale cost of Pampers was about $45 dollars for a case of six while his third-tier Cuddles brand cost $29.

Some retail sources said the segment, typically bobbing and weaving between the brand names and store names, probably hurts the brands worse.

"I think our Cuddles will affect the sales of the premium brands more than the private label," said Fields. "There's probably a couple of dollars spread between the [lowest priced] private label and Cuddles."

Third-tier diapers do sell at Winn-Dixie Stores' Texas division, based in Fort Worth, but John Brooks, a grocery buyer for the chain, noted that "the growing category in diapers is still private label, which is strong with us. It continues to gain share in the market."

And regardless of what the third-tier pricing structure is, Brooks said Winn-Dixie tries to keep private label the lowest-priced product on the shelves.

That spread, however, can shift according to retailers and markets, and some sources said they wonder how long private label can keep up the good fight.

Food Folks' Godwin, for example, said, "It affects both premium and private label, because the price of our Bunny Hugs is cheaper than our own private label. And the quality is just as good as our private label. I would compare it to a Huggies; it's that kind of diaper."

Harris said his third-tier product could end up pinching his private label as well.

Indeed, the compression of prices in the category is already weakening private label, as evidenced by store-brand manufacturer Paragon Trade Brands' announcement that its fourth-quarter earnings were "significantly" below expectations.

Paragon named "competitive pricing and promotional pressures from the national brands" as one of the reasons for the earnings decline, and said it expects continued pressure on volume during the first half of 1995 as national brands implement new low pricing and package count reductions.

Indeed, it appears all players in the diaper game are continually struggling to be the best bargain for the baby's bottom. Last month Procter & Gamble said it would lower its Luvs brand price by 11% starting Feb. 13 in an effort to re-establish the brand as its own middle-tier product.

"My thoughts on that," said Winn-Dixie's Brooks, "is that Luvs was losing share in the market and P&G has to lower the price to get it in line with Drypers and private label."

This marks the second time P&G has dropped Luvs prices. Brooks said the tactic helped the first time. "It's their effort to revive Luvs and it's been successful. We move more of them today than we did" prior to the manufacturer's price cut in 1993.

If P&G's move is again successful in reviving Luvs, some buyers questioned whether it could cripple the third-tier brands just as they are making headway in many markets.

George Cobbol, a buyer with Bozzuto's, the wholesaler based in Cheshire, Conn., is one who thinks any success that third-tier brands are experiencing now could be short-lived.

While there has been a quite sizable gap between premium and third-tier pricing, he said, "Now, Luvs are going to cost around $5.65 [a box], which is closer to private label. That'll put those [third-tier] companies at a disadvantage. There's not much of a gap anymore.

"I don't know if they're going to fall by the wayside or what. But P&G started this and I'm assuming Kimberly-Clark will have to follow."

Pampers, said Cobbol, will drop from a $45.44 list to a $40.02 a case, which is a 90-cent decline per box in his market. "So what's happening is they're dropping their price almost a buck a package; they're getting closer and closer to private label. Those other companies [in the middle] are going to get squeezed."

"I think there's a place in the market for them," said Harris. "But obviously, that's going to make P&G do a better job of merchandising theirs'."

"I'm sure Procter & Gamble has seen the third tier and doesn't like the fact that it's deteriorated their business. They're probably going to make the Luvs brand that third-tier brand for the retailer, just to get that business back," said Ray St. Laurent, director of purchasing at Jons Markets, Los Angeles. "We'll see how it all plays out; it'll keep the category competitive, that's for sure."

But until premium brands can successfully deliver such a final blow -- if ever -- retailers and wholesalers said there's definitely a place for the third-tier plebes who are sitting pretty on the shelves right now.

"There's a niche market for them, although the national brands obviously are going to keep the lion's share of the business," said St. Laurent. "But, especially towards the end of the month, when the consumer in the lower-income areas doesn't have as much money to spend, the [third-tier] diaper -- running at a $4.99 or $5.99 retail -- is going to do a good business."

At month's end is when St. Laurent features the third-tier line he carries, called Teddy Bears. "Generally, I'll take the lower priced brand and advertise it toward the tail end of the month," he explained.

Some buyers said aggressive promotion is not necessary for the segment because the products sell themselves on price. Others, however, have incorporated the third-tier diapers into a regular promotion program.

"We've had them as an item in the warehouse for probably six months now," said Northland's Larson. "We have run four ads. We'll run a Dryper, then the following month we'll run a Comfies. We've been flip-flopping them like that. It's a featured price in our corporate ad."

"We use our in-store circular to promote Drypers and Fittis," said Winn-Dixie's Brooks. "We usually run the vendor type, $1 or $2 off on the purchase."

Harris said his stores promote the third-tier products about once a month through brokers' offers of coupon support.