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The Baby Diapers market in Southeast Asia and China: an update for 2022

The Disposable Hygiene industry keeps growing. In 2021, the global retail segment was valued at $112 billion, with more than 40% coming from the APAC region. According to forecasts[1] it will hit $129 billion by 2026. The main Disposable Hygiene and Baby Diaper trends driving this expansion are rising consumer awareness and purchasing power, combined with improving hygiene standards, increased product availability and innovation. 

Within the region, the highest-growing area is China, accounting for $28 billion in 2021, followed by Indonesia and Vietnam in Southeast Asia (SEA). As of today, 70% of Asia Pacific region sales take place in China and Southeast Asia.

The shift towards Baby Pants in Southeast Asia's Baby Diapers market

The World Bank has recently downgraded its outlook for SEA[2]. Slowing Chinese growth[3], US quantitative tightening[4] and the Russo-Ukrainian war cast a shadow on the area. The most powerful drivers for growth are digitalization[5] and innovation.

In this landscape, SEA is predicted to increase its share of the Asia-Pacific Disposable Hygiene market over the next five years, reaching volumes that, combined with China, account for 85% of the growth in the entire region — the main reasons being growing disposable income, hygiene awareness and improved affordability[6].

Notwithstanding a contracting user base due to declining birth rates, there's no stopping the rise of Baby Pants. Consumers favor Baby Pants despite the higher prices because of how much they help support toilet training while also being more long-lasting[7] and convenient in terms of usability. To satisfy this trend, manufacturers are coming up with new product developments that enhance freedom of baby movement. Once again, innovation takes the center stage. Pricing strategies will be critical, though, in determining whether this market push towards baby pants will translate into wider adoption.

China and Baby Diapers: a slowing, fragmented, very polarized market 

Compared to other APAC countries, the baby diapers market in China is unique. For one, it is not growing as much as it was, mainly due to a low birth rate. 

Another important factor to consider is how fragmented the Chinese market is. The traditional Chinese style has hit the mainstream, polarizing the market in two factions: on the one hand, high-end, "natural", fashionable, skin-friendly products for Millennial caregivers; on the other, cost-effective solutions for young, middle-class consumers and high intellectual mothers. In addition, product appearance is more important here than elsewhere and consumption trends are deeply diversified, even among the same age group[8].

The new marketing era of Baby Diapers

With more and more Millennials having children, the identity of the average baby diaper consumer is changing and brands are taking notice. Similar to buyers in the US, Chinese shoppers are increasingly price-sensitive, tech-savvy, information-hungry impulse buyers. They tend to be influenced by short, straight-to-the-point videos on social media and live streaming platforms. 

Many Chinese customers are flocking to online communities. In light of this, brands are switching to a content-driven, digital-first strategy, using large discounts as bait to attract young consumers looking for entertainment. In this landscape, conversions and repurchases in specific consumer groups are ever more important, together with brand exposure and reputation — two key factors for retargeting.

Will declining birth rates hinder the baby diaper market in China and SEA?

Birth rates are crashing in China and Southeast Asia. The total fertility rate of ASEAN countries has dropped from 5.5 in 1970 to 2.11 in 2017[9] and is now below the replacement level[10]. Half of the region has insufficient children to maintain its size[11]. This, combined with a rapidly aging population[12], does not bode well for SEA.

In China, the situation is no different: the population growth in the past decade was the slowest since the 1950s[13]. China's birth rate is now eight births per 1000, down from 13 in 2017 — an over 11 million drop in the number of children aged zero to four. By 2026, China's diaper user base will shrink to two-thirds of what it was just in 2016[14]. Recently, the Chinese Government announced a major change in policy, allowing three children per couple[15], up from two in 2016 and one in 1980[16]. This tectonic shift represents a strong reaction to China's birth rate dropping to record low in 2021[17], as child-bearing willingness keeps falling, especially in the context of the COVID-19 pandemic[18]

If we look at the bigger picture, however, these figures tell a different story. According to the World Economic Forum, in the past, an expanding population was the main fuel for the economy, but today, income is the greatest driver of growth. In SEA, it is estimated that two-thirds of the consumption growth up until 2030 will come from increased per capita spending, while one third will come from population growth[19]. If average disposable income continues to rise, that should compensate for the lack of demographic pressure, driving innovation. From 2018 to 2021, in fact, while national baby diaper brands increased their market share in China, OEMs (i.e. Private Labels) have been focusing on technological innovation and new products, positioning themselves to escape competition. 

Last but not least, once inflation in commodities dries up[20], the global supply chain, largely dependent on China and SEA, will take advantage, improving margins for the entire sector. There's mounting evidence that inflation has peaked[21]. China is taking action, exempting key factories from the COVID-19 lockdown to prevent the ongoing supply chain crisis from getting worse[22]. With lockdowns under control[23] and the inflation scare soon to be behind us, the medium- to long-term outlook is positive. 

An outlook of the Femcare and Adult Inco market in China and SEA

Innovation is critically important in the Chinese and Southeast Asian Femcare market, in particular when it comes to high-end, value-added features. New products have been launched, such as sanitary towels in pant format in Indonesia, or similar hybrid solutions in China, combining proprietary Japanese technology and body-warming functionality.

At the same time, sustainability is a mounting concern, most notably among Gen-Zers and Millennials. According to Euromonitor International Voice of the Consumer: Health and Nutrition Survey released in 2021, 21% of respondents across China, Indonesia and Thailand are switching to reusable underwear and 8% to reusable pads[24]. Interestingly, a high percentage of respondents use feminine menstrual products for adult incontinence, which shows the vast, unmet potential for disposable Adult Inco diapers in the region.

Speaking about the Adult Incontinence segment, the main barriers remain the same: consumer awareness, social stigma and price-sensitivity. Nonetheless, the outlook is very positive — even more so when we factor in the existing demographic shift taking place in China and Southeast Asia. As a result, Inco products are expected to grow at a CAGR 21-26 of 15%. 

In summary, the Baby Diaper sector in China and Southeast Asia is not having its best time, due to a low birth rate, tightening competition and slowing demand. Nevertheless, innovation is a force to be reckoned with, as it might take advantage of the increasing diversification to tap into unexplored market opportunities.

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[1] Source:Euromonitor
[2] Source:World Bank
[3] Source:The Wall Street Journal
[4] Source:The Wall Street Journal
[5] Source:World Economic Forum
[6] Source:Nonwovens Industry
[7] Source:Euromonitor
[8] Source:Nonwovens Industry
[9] Source:The Asean Post
[10] Source:Nature
[11] Source:The Asean Post
[12] Source:World Health Organization
[13] Source:Bloomberg
[14] Source:Nonwoves Industry
[15] Source:BBC
[16] Source:South China Morning Post
[17] Source:The Asahi Shimbun
[18] Source:Nonwoves Industry
[19] Source:World Economic Forum
[20] Source:The Wall Street Journal
[21] Source:Fox Business
[22] Source:Light Reading
[23] Source:Bloomberg
[24] Source:Nonwoves Industry
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