Baby Care Shows Dynamism in Face of Aging Demographics, Slowing Economies

Baby and child-specific products outperformed all beauty and personal care categories in 2011, generating global retail growth of 7% at fixed US dollar prices. And despite the dual challenge of aging demographics and acute economic instability, the category’s global growth prospects to 2016 look promising.

The innate desire of parents to do the best for their children is at the core of why baby and child-specific personal care is one of the most insulated FMCG categories when times get tough. In short, ask any parent where they are most likely to cut costs when household budgets are tight and, invariably, anything to do with the health and care of children will likely be at the bottom of their list.

Where we do see contagion from the macroeconomic crisis is in brand and packaging choices, however. In retail hygiene’s nappies/diapers category, for example, there has been significant growth in Internet bulk purchasing over the past year, which substantially reduces average unit prices. This trend also aligns with the burgeoning ‘best deal’ online consumption culture in Western markets.

In the same cash-saving vein, value brands have grown in importance in baby and child-specific personal care as well. In the UK, the fourth biggest market in the world for baby care, the participation of private label jumped from 11% in 2009 to 15% in 2011, according to data from Euromonitor International.

Trade-down Activity in Recession-hit Markets

Trade-down activity is especially visible in baby wipes, which accounted for around a third of the baby care category’s global sales in 2011. P&G's Pampers and Kimberly-Clark's Huggies, the two leading brands, have each lost market share over the past five years as cash-strapped consumers have been tempted by competitively priced alternatives. Pampers, for example, saw its global market share of baby wipes fall from 19% in 2007 to 16% in 2011, according to Euromonitor International.

Baby wipes generated around 12% of the global retail value of nappies/diapers in 2011, but the category’s footprint in terms of the brand equity of leading nappy players is significant. Neither Pampers nor Huggies can afford to lose too much ground in baby wipes because that could harm consumer perception of their flagship products. Both companies have the economies of scale to squeeze margins on baby wipes in austerity-hit developed markets, while also building stronger positions in emerging markets.

Over the next 12 months, weaker purchasing power in Western Europe and North America will increase the participation of two-for-one deals in baby wipes, as well as higher yield single-unit packaging. What seems clear is that discount activity and promotions are set to become a key battleground as brand leaders look to claw back some of the gains made by second-tier brands.

Baby Boom and Bust

Negative demographic pressure tends to have as much—if not more—impact on demand for baby care products as adverse economic pressure. The worldwide baby and toddler population (0–4 years old) grew by some 20.5 million between 2006 and 2011, but the next five-year cycle is projected to grow by a more moderate 7.3 million, with contractions in key emerging markets such as Brazil, China, India, Indonesia, Mexico and Turkey.

Any softening of growth in Brazil and China would have a significant impact on the growth story of baby care. Brazil has been the world’s biggest growth market for baby care products over the past five years, generating over $1 billion of incremental retail value. But, between 2011 and 2016, Brazil’s population aged 0–4 is forecast to decrease by 1.6 million. And China, the second biggest growth market for baby care over 2006–2011, is forecast to see its baby and toddler population contract by 1.5 million to 2016.

Some downside seems inevitable in such pivotal emerging markets, but it will be less than in the aging demographics of the EuroZone, where the baby care markets are more mature and where there also is the double whammy of a deep-rooted debt crisis.

The economies of Brazil and China are slowing (Brazil in particular), but consumer confidence remains relatively upbeat. Crucially, despite the aging demographic, there are growing numbers of families entering the middle-class, above all in the northeast and center west in the case of Brazil and in the interior in China. As such, there will continue to be myriad growth opportunities for baby care products among households that have formerly been on the margins of mainstream retail culture.

There will also be attractive opportunities for new business in Russia, where the baby and toddler population is in the midst of a growth spurt. Johnson’s is the dominant baby care brand in Russia with a market share of around 19% in 2011, according to Euromonitor International. However, Pampers and Huggies are likely to increase their investment in Russia over the next five years to build a wider platform for their wipes.

A Mixed Picture in Developed Markets

Among the developed markets, the main growth opportunities for baby care will be in the US and the UK, where the populations aged 07ndash;4 are growing. Upbeat results in these markets will offset projections of a slowdown in Spain, France, Japan, Italy, Greece and Germany, where baby care is exposed to population contraction as well as economic instability.

Beyond baby wipes (the dominant category), the most attractive areas for new investment in baby personal care have been identified as skin care and hair care, which are projected to generate actual global retail growth over the next five years of $1.1 billion and $869 million, respectively. Nappy/diaper rash treatment and baby-specific sun care are each forecast to generate incremental value of around $385 million over the corresponding period as well.

Overall, the growth prognosis for baby care looks good. The key strategic challenges will be in raising the profile and accessibility of the category in emerging markets, particularly the new growth frontiers within the BRICs, and in navigating tight margins in austerity-hit developed markets where purchasing trends will increasingly be value-for-money driven.

Rob Walker, senior fast-moving consumer goods analyst, Euromonitor International, can be contacted at [email protected].

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