After a decades-long climb, Procter & Gamble Co. regained share leadership over rival Kimberly-Clark Corp. in U.S. diapers in late 2013 and has been growing it since. But it's a different story in developing markets, particularly China and Eastern Europe, where K-C's Huggies has grown rapidly and taken share from P&G's Pampers in recent years.
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, K-C Chairman-CEO Tom Falk said in a January conference call.
Both are trying to capitalize on data about growth sectors in each market, and it boils down in part to who wears the pants -- or doesn't. Parents in the U.S. have been staying away from more expensive training-pants-style diapers to save money. Middle-class parents in China and Eastern Europe, who drive those markets, prefer those products.
As Bernstein Research analyst Ali Dibadj sees it, P&G has benefited in recent years from a strong value play -- Luvs -- in a value-conscious U.S. market while K-C's Huggies has been hurt here by its relatively premium positioning. In China and Eastern Europe, however, Huggies' relatively upscale product mix has been just right for markets driven by a growing middle class, as its sales there were up 25% or more last quarter. Though overall economic growth has slowed in China, the rising Chinese middle class in particular has still helped fuel Huggies, Mr. Dibadj said. (In fact, Euromonitor estimates that dollar sales of diapers and training pants in China actually surpassed those in the U.S. for the first time last year.)
Yuri Hermida, P&G VP-North American baby, feminine and adult care, who's seen both the U.S. and China markets up close in recent years, agrees with that analysis -- up to a point.
Mr. Hermida spent eight years working on the baby-care business in Asia before coming to the U.S. in 2013; his own infant daughter was in diapers while he was in China. Now that P&G has introduced a pants-style diaper in China, he believes things will shift fast in a market that favors change.
Most Chinese families still only have one child, meaning most parents are new to the market. But they don't stay long. "In developed markets like the U.S., babies stay in the category an average of three years," Mr. Hermida said. In China, "potty training starts very quickly, so they stay an average of 14 months." So, every 14 months, it's largely a new generation for diaper marketers.
Mr. Hermida acknowledges some of P&G's U.S. success came from value-priced Luvs, aimed at "experienced moms" (a group that, despite loosening of the one-child policy, barely exists in China). But Pampers has been growing faster than Luvs lately even in the U.S., he said, leading all brands in sales and share growth the past six months.
Pampers' growth has come heavily from a strong "point of entry" marketing program that includes sampling in 90% of U.S. hospitals, Mr. Hermida said. Then, Pampers keeps them in the P&G fold with a mid-tier Baby Dry lineup priced ahead of Luvs or more premium Swaddlers for newborns and Cruisers for toddlers.
Finding that some moms preferred to stick with Swaddlers, Pampers modified its old strategy in recent years and expanded the line up to size 6, and it alone is now a $750 million brand in the U.S., Mr. Hermida said.
"In an environment where birth rates have been declining, we've been able to grow the category" and gain share for five straight years, he said. U.S. diaper volume and dollar sales are both up the past year, and Mr. Hermida said P&G accounted for all that growth.
"Now we expect birth rates to start inching up," he said. "At the end of 2014, we started to see improvement. Not to what we saw pre-recession, but it's beginning to get better."