Interview with Carlos Richer

I see immediate economic recovery for all personal absorbent care products, not very much, but at least some recovery. This is the case almost everywhere all over the world. For the US and Western Europe in particular, it was urgently needed. Maybe not as much for Asia or Latin America, but still I am sure it will be very welcomed. The recent price hikes on consumer prices for disposable diapers are finally helping improve the margins that used to be near the bottom in years. In addition, the recent consolidation between AHP and Arquest in the USA has opened new windows of opportunity to the smaller competitors. It is the exact same situation in Brazil. Thanks to the consolidation of Hypermarcas after the purchase of Sapeka, Pom Pom, and Mabesa, there are several small and medium size diaper producers in Brazil that are growing exponentially. Literally as fast as they are able to find the resources to grow and buy more machines and the time to get the equipment. It is clear Hypermarcas new market share position, a year after the merger, is much less than the shares of the individual companies combined before consolidation. Private label clients do not like consolidations, this has always been a fact. They prefer to have more options open where to buy, that is why the smaller manufacturers are always the winners. Most of LatinAmerica shows the same economic recovery, with just a few exceptions. Venezuela has a very odd situation indeed. On one side there is a huge need for diapers and sanitary napkins, while at the same time factories are stopped because they have problems finding controlled dollars. At the same time diapers and sanitary napkins are imported to Venezuela at record numbers in an effort to keep up with the demand. For an outsider all this makes little sense, unless there is a valid strategy outside of my reasoning. Asia in particular also had some difficult times during last year, but things are also improving. Northern Africa was leading the way and used to be the exception to the rule with extraordinary growth, after the events of last year, this is no longer the case. Middle East is growing faster than most other regions of the world with some expansion and new players already on the way. One challenge for the industry is going to be the trend on the future price of oil due to its lagging effect, the big delay between raw material and final product price hikes. If things remain calm and oil stays under control, this will benefit the industry. If the price start to climb, it will create new trouble to the diaper industry and the raw material suppliers in general. Another issue is the lack of offer of some raw materials, like acrylic acid and super absorbent. More capacity has been announced but maybe not enough or a bit too late for what is really needed.

Probably the most well known was the launch of the pulp-less diaper by P&G last year, it had its bumps and typical issues but now it has proven itself. It may not be a good solution in some regions where a thick diaper is preferred, but I believe it started a trend and almost everyone else is following. The use of high loft GSM acquisition and distribution Layers (ADL) is another continuous development. The use of super soft topsheet and textile backsheets (cloth likes) is also gaining speed all over the world. The trend to use a T shape diaper is no longer as clear as before. In fact in some countries it has not been well accepted and a hybrid diaper (mid range between the full chassis product and the T shape) has been gaining ground, as well as the diaper with two sets of ears.

Regarding new diaper factory projects, I am personally most active in Asia, Eastern Europe, Middle East and Latin America. I am also exploring some mature markets like western Europe, not so much with new diaper plant projects as much as with R&D and benchmarking. I am also expanding my services to include large traders,also providing diaper training to key raw material suppliers.

The problem is not so much the level of awareness from the point of view of the manufacturers as it is the awareness from the point of view of the consumers, specially for they wiliness to pay a bit extra for such products and benefits. The fact is that few consumers will pay more; on the other hand, if the price was the same, it is likely they will favor such products. There are several technologies available with good environmental claims, next step is to make them economical so they can be true options.

After visiting India a few times during the last 6 years, it is clear to me that India is not a single country with the same opportunities. It is in my point of view like having many countries within one big country. Each one of these "countries" has its own unique challenges. Some regions are growing exponentially while others are sleeping the sleep of the princess, at least until someone goes there to awaken them. I believe products have to be adapted to each region and not one single National product like you would expect in mature markets. It is often said that India is just behind China like a wagon in the train and that we will soon see the same super explosion of diaper sales that we have experienced in China today. Well, I respectfully disagree, I really do not think so. In China there are typically 6 adults for every baby. A baby has the two parents (Mom and Dad) and two sets of grandparents, all to himself. The income of the whole Chinese family can be added together (at least partially) to provide diapers to a single baby (the honor and future of the family), no matter how poor this child may be. In India, in comparison, a family has several babies. The ratio from adults to babies is totally different to China. A typical grandparent in India has more babies than he may care to remember. I believe a country like India, with 65 Million babies, for sure has a gigantic untapped market potential (current market share is only around 3 to 3.5%), but we will not see this huge market explosion until there is an improvement in the disposable income of the people. I believe it is coming, maybe slowly but for sure will come. We just need to be a bit more patient than with China, and even more for this very particular market. Remember that diapers are one of the most elastic products in the consumer's basket, meaning that a small increase in Purchasing Power Parity will create a much larger growth in diaper sales. I believe the triggering point for baby diaper sales in India will start when the family income exceeds the $4,500 USD of PPP per year and then continue to growth slowly to maturity until they pass the $20,000 USD PPP. It seems far away, but keep in mind we are talking of a market which size is even larger than the whole American Continent multiplied by two (from Alaska to Chile X2).

Do you think they are few players? If you take into account for P&G, KC, SCA, Unicharm, DSG, Ontex, and the many regional multinational companies (probably another 5 or 6), the story is not very different from all other industries. It is common to have less than 5 super biggies and then the rest. I am not sure why this happens, but probably the same economic laws are in effect, that is why we see similar situations everywhere independently of the industry. For sure there are exceptions, but this is typical.