Money To Be Made In Dirty Diapers

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Includes: BMXC, KMB, PG
by: Tedra DeSue

Summary

Emerging growth markets offer positive opportunity for disposable diaper manufacturers.

Cultural differences around importance of disposable diapers key to marketing strategies.

Small and large companies all striving to reach China, South African markets.

For most investors, the logic behind their trading and investment strategies is that there is always something that can be bought, sold and traded. There is always a need for some item, even if that item's purpose seems to be a foregone conclusion. This brings me to a market that some couldn't dare to live without, making it a solid choice when it comes to investing.

That market consists of disposable baby diapers. Yes diapers. For parents and childcare givers, this invention after World War II is a blessing. While the attractiveness of disposable diapers has existed for decades in the U.S., that has not been the case in most non-Western countries. The opportunity to tap those markets has led several publicly traded companies to develop products and market them to unpenetrated markets around the world. As an investor or trader, this may present an opportunity to make some money on an early-stage opportunity.

In this piece, I'll delve into some of the background on disposable baby diapers by providing some details about the market's size. I'll also give you some examples of the companies in the industry and the strategies that worked and didn't work in penetrating untapped markets.

The market

In the U.S., it is estimated that almost 470 diapers are used every second. That results in a market penetration of about 95.6%, according to the site Disposablediaper.net. The site notes that only 4.4% of U.S. babies are draped with cloth diapers.

While most U.S. babies will never wear a cloth diaper, that's not the case when it comes to babies around the world. Disposablediaper.net estimates that world consumption of disposable diapers is less than one quarter of the total number of diapers used. This is due to so many people living in other countries who also live in poverty and can't afford disposable diapers. Market penetration for disposable diapers in many areas of the world is less than two percent, according to the website.

Allied Market Research forecasts that the global baby diapers' market could reach almost $60 billion by 2020. This includes cloth diapers. However, it is the disposable diapers' segment that has amassed the largest market share, which is about 66% of the global market, according to Allied Market Research.

Based on geographic regions, the market's segments include North America, Europe and Asia-Pacific. It is the Asia-Pacific market that seems to have experienced the most growth. According to Allied Market Research, that market's compound annual growth rate is a healthy 8.3% compared to other regions, like North America and Europe.

Asian markets, specifically China, make up the largest growing area for disposable diapers. Given how much money stands to be made from the disposable baby diaper market, there are many companies trying to penetrate it.

Marketing is key

From large to small, companies are finding that it is not as east to penetrate emerging markets as it has been to penetrate Western markets. That has resulted in them having to change their marketing strategies.

The following, from Allied Market Research, sums up the market:

Most of the leading market players are focusing on sophisticated marketing programs and aggressive market expansion strategies, thus increasing suppliers' businesses. Geographically, increasing purchasing power, growing awareness and enhanced supply-side infrastructure in rural areas have contributed to the growth of the Asia Pacific regional diapers' market.

What's good for the goose…

You've likely heard the phrase, "what's good for the goose is good for the gander."

When it comes to marketing baby diapers in countries with emerging growth economies, this notion is easier said than done. Due to cultural differences and the costs of disposable diapers, people in poorer, less developed countries have been slower to embrace the diapers like Americans have.

You can see that from companies like Procter & Gamble (NYSE: PG). When it set its sights on marketing disposable diapers, Pampers, in China, it failed. P&G also makes Luvs. Its chief competition is Kimberly-Clark (NYSE: KMB).

Notes AdAge.com:

"Ironically, what's helped each company in one region has hurt it in the other. Pampers is aiming to regain lost ground in China and Eastern Europe by introducing higher-end pull-up pants diapers. At the same time, Huggies is preparing to win back share in the U.S. in part with a sharper focus on pricing"

In fact, P&G recently revamped its efforts to penetrate the market in China. Its silver bullet this time around is proclaiming that a new premium diapers in China will carry the label "Made in Japan."

A company with limited operations

Despite the dominance of big players like P&G and Kimberly-Clark, there are naturally smaller players who want a piece of the pie. One of them is Bemax (OTC: OTCPK:OTCPK:BMXC) and it is one of the small players trying to break into the disposable baby diaper markets in South Africa, London and major cities across the UK.

According to filings with the U.S. Securities and Exchange Commission, Bemax is targeting Africa and Europe. Specifically, it is looking at Africa because of a lack of disposable baby diaper manufacturers there. Bemax found that the prices for disposable baby diapers in Africa was "extremely high" partly because they are imported from other countries.

It plans to negotiate wholesale discounts with North American manufacturers of disposable diapers and then sell the products to clients in Africa, and other countries.

Its ambitions are noteworthy, and perhaps it and other startups can take some clues from the big players who found their marketing strategies had to be altered to penetrate emerging growth markets.

Conclusion

I find it promising that companies in this space are expanding into emerging markets and refusing to give up on them. This has been a hard nut to crack, but it is possible. The key is to hone in on the consumers in these markets, recognizing that they don't always fall in line with Americans.

Consider companies that are tapping emerging markets in this disposable diaper space. I see it as a boon for investors once a delicate marketing balance is struck.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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