Procter & Gamble Co. announced today the introduction of a new, more absorbent version of its Pampers disposable diapers that company officials hope will retain the company's role as the No. 1 maker of disposable diapers.
The giant consumer products company will spend $500 million retooling factories worldwide to make the new diapers, which should be available nationwide in 12 to 18 months. "It's a big move," said Kidder Peabody analyst Jay Freedman.
"The bottom line associated with this is a dryer, happier baby," Richard Nicolosi, manager of the Cincinnati-based conglomerate's U.S. paper products division, told a press conference here at which teams of P & G employes used colored water to demonstrate the absorbency of the new diapers.
Babies' bottoms mean big bucks for Procter & Gamble and its competitors. Analysts estimate the worldwide market for disposable diapers at $5 billion annually, a bit more than half of it in the United States, where 16 billion diapers are used and then thrown away a year.
Many of those diapers are Pampers. P & G, having pioneered the disposable diaper nearly 25 years ago, is the market leader with a share of slightly less than one-third, or one-half if the company's higher-priced brand, Luvs, is included.
In all, analysts estimate that disposable diapers account for 17 percent of the $14 billion annual sales and more than 20 percent of the earnings at Procter & Gamble. That is a major part of a company whose other offerings include such heavyweights as Tide, Cheer and Bold detergents, Ivory Soap, Crest and Gleem toothpaste, Scope mouthwash, Folgers coffee and Duncan Hines cake mixes.
Tough competition from Kimberly-Clark Corp.'s Huggies brand has cut into the market share of Pampers in the past couple of years; partly as a result, analysts have been revising down their estimates of Procter & Gamble's earnings for the year ended June 30.
"What we see when we look at the P & G situation is an excellent situation with one problem embedded in it -- and that's Pampers," said Daniel Meade, who follows the company for First Boston. "Pampers was a very unusual situation for them, and that is in not having the best product on the market."
One of the main troubles, apparently, has been consumer perception that Pampers leak.
"The majority of babies still have leakage under stress conditions, mainly overnight," said Dave Roberts, director of paper product development for P & G. The new Pampers are designed to stop the leakage. Using more absorbent packing material, an outer covering that "breathes" better and other breakthroughs in diaper-making, P & G claims to have come up with a diaper that will soak up just about anything. In addition, a superabsorbent version of the new diaper also will stop "waistband leakage."
The new Pampers will be slightly more expensive than the current version, the company said, with the superabsorbent version going for about the same price as the company's Luvs brand, which also will be upgraded. Analysts said the move to a higher price could hurt the company's sales somewhat at first, but one expert said the upgraded regular-quality diapers will still find a strong market. "The intention is that the cheaper Pampers will soak up the lower end -- no pun intended," said Salomon Brothers analyst Hugh Zurkuhlen.
In addition to strengthening the company's grip on the American diaper market, the new product is expected to further the company's sales in the international market, in which it is already the dominant disposable-diaper maker. The company also hopes the new diapers will help win over those who still diaper their babies in cloth -- about 25 percent of the U.S. market and much more overseas.
The company said it will rebuild its entire diaper-making capacity to handle the new products, installing machines that can make two or three different kinds of diapers, something analysts say will give P & G a major advantage in adjusting to market needs. In addition to spending $500 million over the next few years to modernize its diaper manufacturing, the company will write off its older equipment, further eroding earnings. P & G officials, who are loathe to discuss financial information, would not discuss this expense, but Zurkuhlen estimated the write-off at about $100 million over a period of years.
Not surprisingly, considering the expense involved, P & G's move to a new diaper is not a hasty decision. As is its custom, the company has been test marketing the new diapers in various parts of the country. Filmed interviews with mothers, shown at the press conference, indicate that the company may have a winner. "It has so many nice features," said one mother, dry baby in her arms. "It seems like the Cadillac of disposable diapers."