Soggy appropriately is the forecast for the baby diaper category as young families search for best buys.
Besides macro factors of low birthrates, economic sluggishness and rising prices affecting diaper sales, channel shifts are occurring with aggressive online retailers — most notably Amazon.com and Diapers.com — putting pressure on brick-and-mortar retailers such as Wal-Mart and Target who have built a presence in their stores and online in the baby category.
Through its “Amazon Mom,” a program launched late last year, combined with “subscribe and save” delivery, Amazon offers families 30% off their diaper and wipe purchases, often with free shipping within two days. These are retails that undercut just about everyone, including Wal-Mart.
“Thirty percent is a huge incentive to steal a trip and loyalty and try to build the mom’s [shopping basket] up,” said Ann Zybowski, director of Retail Insights, Kantar Retail, Boston, Mass.
Amazon acquired Jersey City, N.J.-based Quidsi this year, which operates Diapers.com and several other websites estimated to generate $300 million in sales in 2010. “This acquisition brings together two companies who are committed to providing great prices and fast delivery to parents, making one of the chores of being a parent a little easier and less expensive,” said Jeff Bezos, founder and chief executive officer of Amazon.com in a press statement at the time of the announced acquisition last year.
That commitment is the strategy of using diapers as a loss leader to drive online sales of other merchandise over the longer term. It’s a strategy employed by major retailers who recognize the spending power of moms, who make 80% of the household product purchasing decisions.
“A number of retailers like Wal-Mart, Target, Babies ‘R’ Us are going after moms. They rely on diapers as a traffic driver so if consumers are starting to purchase those items online whether from their own online [retail] sites or from online retailers, that is a lost opportunity to sell other merchandise in the store. All retailers are scrambling to understand online vs. offline purchasing behavior,” said Zybowski.
Such aggressiveness puts even greater pressure on grocery retailers hoping to capture the loyalty of mothers who are considered their best customers.
“Ecommerce is a factor in the decline of diaper sales in the retail channel, but I believe the largest factor is the recession,” said Douglas Pitt, grocery and dairy category manager for Associated Food Stores, Salt Lake City, Utah.
With diaper sales slightly up at United Supermarkets, Lubbock, Texas, Kris Burdis, category manager of baby products, said he sees the greatest pressure on diaper sales from big-box retailers. “They are able to stock larger packs of diapers than we are able to carry due to space limitations in our stores,” he told SN.
Forrester Research in its study “U.S. Online Retail Forecast, 2010-2015” reported online retail sales grew 12.6% in 2010 to reach $176.2 billion. With an expected 10% compound annual growth rate from 2010 to 2015, ecommerce is expected to reach $278.9 billion in 2015 in the U.S.
Consumer products manufacturers have been quick to capitalize on these growth projections through online and social media efforts of their own. However, CPG companies have to tread carefully in their online endeavors at the risk of alienating their customers — the retailers.
Procter & Gamble’s chief executive, Bob McDonald, stated in 2009 that the company wanted to increase its online sales “substantially” over the next few years. Online sales accounted for a fraction of P&G’s sales in 2009 — about $500 million, or 0.6% — out of $79 billion in sales.
Last year, P&G partnered in an eStore venture that sells only P&G brands, including Pampers and Luvs diapers. The ecommerce website offers exclusive savings and discounts on P&G brands with a flat rate $5 shipping fee.
Just prior to the eStore launch, P&G discontinued its online coupon arrangement with Kroger that allowed shoppers to automatically download coupons to a Kroger loyalty card.
P&G said the eStore venture was being used as a testing lab to study online purchasing behavior and that its intention was not to compete with other retailers.
Pampers Village, launched in 2008, is a community-forum website for expectant mothers that offers discounts and rewards. The website provides P&G with information about its customers. A “buy now” link was added that directs visitors to retailers or other online sites that sells Pampers diapers. According to the Nielsen Co., Chicago, the number of unique visitors to pampers.com continues to grow from 1.2 million as of November 2010 to 1.4 million in March 2011.
P&G formed an alliance with Facebook that allows consumers to buy diapers with orders fulfilled through Amazon’s WebStore, launched last year for selected product sellers to conduct business through Amazon services. P&G Facebook shoppers get free shipping on orders of more than $25 and free two-day shipping if they are members of Amazon Prime, the online retailer’s loyalty program. P&G said its Pampers page has 350,000 Facebook fans.
Kimberly-Clark, makers of Huggies and Pull-Ups, has been pursuing mothers online for a numbers of years. It launched “Huggies Enjoy the Ride Rewards” on its diaper website during the height of the recession in 2009. The manufacturer recruits members with a chance to win a year’s worth of diapers free. Members who refer friends, watch videos or provide their opinions or share ideas earn extra reward points.
The company also engaged 3.5 million moms on Circle of Moms, a forum-based website for mothers to discuss the challenges of motherhood. A “Huggies Zone” was created on the website that contained diaper information as well as expert advice and other social media components. The “Huggies Zone” was cross-promoted on the Huggies Facebook page.
Last year, Kimberly-Clark made a cause-related connection to mothers with a “MomInspired” grant program that recognizes mothers for their new product ideas for childcare or ideas that solve an unmet parent need. Total funding for the program was $250,000.
The company also has drawn attention to babies in need of essential diapers through its “Huggies Every Little Bottom” campaign, which is currently being co-sponsored with the NHL Hockey for Huggies donation drive.
“Mom, more than any other demographic, is spending a lot of time online blogging and trying to get other information, so social media is a very effective way to get those mom bloggers,” said Kantar’s Zybowski.
“Today, many CPG companies have embraced online and social marketing and are pushing the envelope further each day. The future will be owned by those companies that harness technology to make the consumer shopping experience easy, efficient and fun,” said Todd Hale, senior vice president, Consumer & Shopper Insights, the Nielsen Co., during the Consumer 360 Conference earlier this year.
Sales of both branded and private-label diapers have fallen across the board in most mass-market channels. Disposable diaper sales in supermarkets were down 7.2% in dollars and 5.6% in units, according to SymphonyIRI Group, a Chicago-based market research firm, for the 52-week period ending March 20, 2011. SymphonyIRI figures exclude Wal-Mart, club stores and gas/convenience stores sales.
The $2.3 billion category, which includes disposables and training pants sold in food, drug and some mass-market channels, was off 3% in dollars and 3.5% in units for the period.
Despite efforts by retailers — Safeway (Mom to Mom), Supervalu (Baby Basics), Kroger (Comforts), ShopRite (Premium) — to revamp their private-label baby offering last year, private-label diaper sales fell 11.5% across all mass retail channels, including Wal-Mart, for the 52 weeks ending Oct. 2, 2010, Nielsen reports.
Marketers point to a fall-off in the nation’s birthrate as a main cause for low diaper demand. This was the consequence of the 2008 recession in which fertility rates dropped 1.6%, according the market research company Mintel International in a 2011 report on Disposable Baby Products in the U.S.
Young couples apparently put a hold on marriage and childbirth until an economic rebound.
Just last week during its first quarter conference call, Kimberly-Clark reported a 5% decline in the total number of annual live births over the cumulative period of 2008-2009. But the company said it expects to see an uptick in demand during the second half of the year and then a leveling off again.
Even though the economy is much improved from 2008 levels, raising material costs and escalating oil and gas prices will squeeze consumer spending on baby diapers.
Last week, the two major diaper suppliers — Kimberly-Clark and P&G, which represent about a 69% share of the diaper category, announced wholesale price hikes of 3% to 7% will go into effect this summer. Retailers are bracing themselves for retail price hikes on diapers.
“Diapers will increase price and also decrease in the quantity of diapers in each retail unit. Retailers will end up passing on the increases to the consumer because of the very small margin in their retail pricing,” said Pitt of Associated Food Stores.
Burdis of United said a 10% increase on national brands is expected. “It’s too early right now to know what the impact will be on us. It depends largely on how our competitors react and what they do with their prices,” Burdis said.
Surveys have shown consumers tend to be loyal to diaper brands except when the economics don’t add up. This was the case during the recession when consumers turned to cheaper store brands to cut their household budgets.
Mintel reported that private label picked up three share points from 2008 to 2009. Similarly, mass merchandisers, Wal-Mart and Target, with their low prices are drawing three out of four mothers to their stores, according to Mintel.
Considering all the factors at play in the baby diaper category, many grocers are reviewing their strategies.
United is testing a loyalty program in select stores. “If that program is successful, it should provide us with more information regarding our guests’ shopping habits and desires, which should, in turn allow us to better meet their shopping needs,” said Burdis.
Associated Food Stores’ retailers are forming baby clubs offering young families incentives to purchase their baby needs at their stores. They also are making sure they are priced right, reported Pitt.
“This category is very competitive, if retailers are priced over their competition, their shopper will change to whoever is selling at the lowest retail,” he said.
Associated Food Stores’ retailers run weekly advertisements on both diapers and wipes to draw customers. They focus on the months that tend to sell more baby products and make sure they advertise heavily February through March and June through August, said Pitt.
Aside from economics and low birthrates, ultimately, the shopper is in control these days, Zybowski points out. “Retailers and manufacturers need to really work together to understand where shopping is going and where the shopper wants to go? Then they can provide the solutions that meet their needs,” she said.