SMALL LUXURIES MOVE SALES IN PACKAGE GOODS: HIGHER-END PRODUCTS HELP HIKE MARGINS AS U.S. POPULATION GROWTH LULLS

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Premium products have taken hold as the latest path to growth in package-goods marketing.

Gillette Co.'s Mach3 razor, with a third blade and a 35% price increase over SensorExcel (AA, April 20), is the latest and largest in a stream of consumer products aimed at tapping buoyant tastes for small luxuries.

DRIVING CATEGORIES

A mere five years ago, marketers were concentrating on everyday low pricing and private-label products, but during the current period of widespread prosperity, premium products are driving categories ranging from diapers to bleach to food-storage bags.

And, as Gillette's $300 million marketing investment shows, companies are willing to commit generous budgets to their higher-margin products.

"With low population growth, premium-product initiatives are one of the few ways to increase dollar growth dramatically and increase margins," said Burt Flickinger, consultant with Reach Marketing.

FIGHTING STORE BRANDS

Combating store brands is still a priority for package-goods marketers, said Ken Harris, consultant with Cannondale Associates. The marketers are just going about it a different way, providing products with features private-label manufacturers can't easily match.

Brand marketers "are making a very concerted effort to give consumers something that can't be duplicated," Mr. Harris said.

Tenneco Packaging's Hefty OneZip, a food-storage bag with a sliding lock, is one good example, he added, noting that it's taken two years for a competitor to start rolling out a similar product -- S.C. Johnson & Son's Dow Slideloc. Private-label competition has yet to emerge.

Hefty OneZip's sales soared by more than 45% in the 52 weeks ended March 1, according to Information Resources Inc., the second year since its rollout.

TECHNOLOGY MAY SPREAD

OneZip's technology could in turn spawn new generations of premium products in other categories.

Tenneco has begun pitching the closure system to other brands for their packaging, and found the first taker in Huggies Supreme Care, Kimberly-Clark Corp.'s new premium entry in the baby wipes category.

Huggies Supreme Care, which also will be thicker than regular Huggies wipes, will be shipped in July.

UP TO 20% IN DIAPERS

Kimberly-Clark doesn't know how much of the $556 million category the premium wipes can capture, but Dudley Lehman, president-North American childcare sector, said premium diapers have captured 15% to 20% of the $3.7 billion diaper category since the company launched Huggies Supreme diapers in 1995.

Premium products also have helped the diaper category grow in dollar sales even as it shrinks in volume. Category sales were up 2.1% in the 52 weeks ended Feb. 22, according to IRI, while volume slipped 7.3%.

The premium effect has been stronger for Kimberly-Clark rival Procter & Gamble Co., whose Pampers Premium diapers overtook Huggies Supreme for leadership in the premium sector last summer.

Unit volume for the Pampers brand overall was down 13.6% in the 52-week period, but dollar sales were up 6.6% due largely to the effect of stronger sales of higher-price Pampers Premium.

RECESSION FALLOUT

The potential downside of the penchant for premium products is that increasing reliance on them could expose package-goods marketers to a harder than usual downturn when the next recession hits, Mr. Flickinger warned.

But he added that most marketers should at least be able to convert consumers back to their midrange products -- for example, from Pampers Premium to regular Pampers.

"These might be luxury items, but they tend not to be very expensive in the scheme of things," said Michael Grant, analyst with J.P. Morgan Securities. "You could use the new Gillette razor for a full year for $42 by our estimate. So when you get down to it, it's a relatively inexpensive way to pamper yourself."

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