The Diaper Industry in the Next 25 years

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The Diaper Industry in the Next 25 years

• By Carlos Richer
• Richer Investment SA de CV
• Diaper Consulting Services

Insight 2005 Minneapolis
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Index of Topics

• How can you anticipate the future?
• A quick review of the past and the history of the
  diaper
• Why so many companies are loosing money with
  diapers today?
• What is the size of the diaper market today? How
  is it divided?
• Where is the future growth for baby and adult
  diapers?
• What will be the new features of the future
  diaper?
• What to expect in the next 20 years, who will
  survive?
• Conclusions and time for questions.

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Risks predicting the future

• No one knows the future but we can have an
  educated guess.
• Sales people need to anticipate the future. (Due
  to ever increasing SKUs it is starting to be
  impossible to operate without a good sales
  forecast)
• Industry leaders need a future vision to steer
  the company in the right direction.
• Regarding sales forecasts. The use of electronic
  data transfers with clients and suppliers will be
  mandatory in order to reduce manufacturing and
  working capital costs.
• Predicting the short term is not hard, predicting
  the long term future requires similar tools and
  maybe a bit more of intuition.

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A quick review to diaper History before 1960
Maria Allen
1870 First Mass Production Of cloth diapers
1949 First pin free diaper
Marion Donovan 1946
George Shroder 1949
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A quick review at modern diaper history
Inventors of SAP
Billy Gene Harper Carlyle Harmon 1966
Vic Mills 1961
Leg Cuffs 1986
Fluff replaced Tissue 1972
Modern Diaper 2005
1978 Hourglass Shape
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Summary of events in modern diaper history

• Launch of modern disposable diaper by PG, 1961
• Invention of Superabsorbent Polymer, 1966
• First use of tapes integrated to a diaper, 1971
• Introduction of fluff instead of creped tissue,
  1972
• First use of Superabsorbent in diapers, 1987
• Frontal Tape and Hook and Loop systems, 1987
• Use of leg cuffs for leak prevention, 1989
• Introduction of training pant diapers, 1994
• Use of cloth like back sheets and breathables,
  1994

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Diaper wars 101

• What is happening today with the diaper industry?
• What is a purging cycle? A globalized price
  war!
• Who starts a new purging cycle?
• We may like to think purging cycles start as a
  result of coordinated collaboration. No! I
  believe they are truly random events.
• How do they get started? . They start when there
  is a weak link in the supply chain!

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The supply Chain
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Diaper Wars 101 (Continued)

• An important disruption in the supply chain
  starts a new price war cycle!
• An extended fixed price supply contract
• What past experience do we have regarding these
  cycles? (1994-1996 was the last one when pulp
  peaked close to 1,000 USD/Ton)
• Purging cycles will continue every 7 to 11 years.
• How can you get ready for the next purging cycle?
  You need to be very well informed.

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The name of the game is Information

• Who can provide us with the right information?
• The enemy of my enemy is my friend information
  can be free! Look for partners! Unfortunately
  this seldom happens.
• Industry References Nonwovens World, Nonwovens
  Industry, Nonwovens Markets, web page
  subscriptions, etc.
• Prediction One magazine will evolve to
  Absorbents World, Absorbents Industry or
  Absorbents Markets.

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Size of the baby diaper market today and year 2025

• If you count all of the babies of the world from
  the age of newborn to 30 months old, there are
  321 million babies.
• If every baby in the world used a disposable
  diaper we would need 15,600 diapers/sec (490
  billion per year).
• Today, only one in every 5 babies uses a
  disposable diaper.
• In year 2025 the world will have 328 million
  babies
• If diapers changes are reduced 5 due to better
  design
• Total diaper requirement in 2025 will be reduced
  2.9
• For year 2025 I expect that more than one third
  of the babies in the world will use a disposable
  diaper, almost doubling current volume sales of
  2005.

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What can we learn from the Table

• There are twice as many babies in India today as
  all of the babies in the Americas (from Alaska
  to Argentina).
• India has 45 more babies and 3 times more
  density of babies per unit area than China.
• USA is the only country that shows significant
  baby growth in the next 20 years (due to
  immigration).
• There are 4 African countries in the list of the
  10 largest in regards to population of babies
  with PPP below 600 they were not considered in
  previous table.

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Size of the adult diaper today and year 2025

• There are 316 million adults over 70 years old in
  the world today (1 in every 3 requires
  protection).
• By the tear 2025 there will be 563 million, this
  is a 78 increase (compare this against the 2.1
  increase for babies)
• For year 2025 I expect adult incontinence sales
  will grow at least 3 times the current volume
  sales of today.

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What can we learn from the table

• China has the largest population of senior
  citizens and also the biggest growth in the next
  20 years.
• India and the USA will also have significant
  growth.
• European countries have marginal growth, Europe
  is not the old continent only because of its
  buildingstoday it is also old because of its
  people.
• Indonesia and Brazil will move from positions 9
  and 10th to position 5th and 6th in year 2025.

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Diapers required by country (market share)

• Market share data per country is not available
  (not free).
• I believe it is possible to estimate market share
  using only macroeconomic indicators from each
  country.
• With a mathematical model that uses
  pre-segmented Purchasing Power Parity (PPP),
  Unemployment data and a minimal threshold PPP
  that triggers diaper sales.
• The only information we do not have are the
  cultural barriers that generate market
  resistancebut we can have an educated guess.

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Market Share for Baby Diapers from my model
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What kind of cultural and social barriers?
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Social and economic Barriers

• In many countries the cost of diapers are very
  high in relation to the cost of labor. In India,
  it is still possible to hire a maid with 100
  dollars per month (but not for long).
• It takes a lot of money to reeducate people
  regarding what are acceptable social practices
  (such as babies peeing on the street).
• Note The playboy maid photo was to make sure
  you were not sleepy ?

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Baby diaper market predictions

• China will have the largest baby market grow in
  the next 5 years or so. Explain Compare with
  Japan
• India will be the largest consumer of diapers
  within the next 15 years, explodes in about 3 to
  5 more years when PPP reaches required Threshold
  (get ready!)
• Brazil (waiting for higher PPP), 10 of the
  people in Brazil have 50 of the wealth.
  Indonesia
• North African Countries (exceptional growth!)
• Latin America (Colombia, Argentina, Chile) OK.
  Mexico and Caribbean countries limited because of
  current poverty levels (Mexicos poverty is 40
  and market share is close to 60, only growth in
  this region are exports)

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Let us talk about the new diaper features.
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How do you imagine the diaper of the future?

• People like to fantasize about the use of
  electronic gadgets.

I do not believe these gadgets will be mass
produced

• The need moves the market and not only the
  technology

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The diaper of the future

• Landfill volume reduction, use microcapsules.
• Skin protection, microcapsules to control pH !!

Grows when wet
After salt is released
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Diaper of the future

• Special nonwoven fabrics (breathable when dry)
• New nonwovens (breathable only when its hot)
• Backsheet without the need of laminated film will
  bring a new generation of extra soft diapers.
• High compression packaging will continue.
• Air laid or pulp? What about synthetics? When?
• Better elastic components to improve diaper fit.
• Much better pad integrity with new generation hot
  melts.
• How much more performance in a diaper?

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Predictions regarding industry diversification

• Successful paper companies have a good chance of
  becoming successful diaper producers.
• Successful diaper producers have a slim chance of
  also becoming successful tissue producers,
  examples are everywhere.
• Be careful when you diversify!!

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Conclusions
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Thank you!

• Questions?

By Carlos Richer Richer Investment SA de
CV Diaper Consulting Services www.richernet.com