Baby Diapers & Latin America: a closer look at one of the most promising areas growth-wise
With the US and Western Europe’s Baby Diapers market registering stagnant or negative value growth, the interest for emerging markets is on the rise. As a matter of fact, growth potential is inversely correlated with market penetration, and whereas, in the context of Disposable Hygiene, developed regions have reached saturation, opportunities abound in developing countries. In Brazil, Peru, and Mexico, for instance, consumption rates for Baby Diapers, femcare and incontinence products are still low, yet disposable income is increasing. This trend should not come as a surprise, given that, in the previous decade, Latin America has turned into a driving force in the global nonwoven industry[1].
Despite severe economic and logistical challenges, major global players are entering or expanding their position, ready to take advantage of what might well become the most promising area in the Disposable Hygiene market worldwide.
Why Latin America attracts the major global players in Disposable Hygiene
The Disposable Hygiene's landscape in Latin America is complex. On the one hand, a good part of the continent still suffers from weak growth momentum. Real GDP per capita has declined by 0.6 percent per year on average between 2014 and 2019. Policy uncertainty remains high, contributing to the slowdown in foreign investment inflow. Social turmoil is taking a toll on a few countries - Bolivia, Colombia, Chile, Ecuador. Venezuela, for one, is ravaged by a disastrous economic meltdown, resulting in declining oil production, collapsing public services, runaway inflation, and a profound humanitarian crisis.
On top of that, the IMF expects a 9.3% contraction in 2020 - Latin America’s largest recession on record - due to a widely unchecked corona crisis. All in all, corruption, shaky governance, and a dubious fiscal, economic, and monetary policy cast a shadow on the region[2].
On the other hand, though, Latin America is a magnet for Baby Diaper manufacturers. The population is slightly increasing, although at a declining rate[3]. Growth in the region is projected to rebound to 3.7% in 2021[4] thanks to central banks' intervention and unprecedented fiscal measures. Living standards are rising. Regional inflation is expected to ease from current levels going forward. Inflation inched up to 5.9% in June from 5.8% in May, which had marked a two-year low[5] . On top of that, energy prices are recovering. Finally, let's not forget that Latin America is home to major biopolymer supply sources[6], which are forecast to boost the region's importance in the Disposable Hygiene landscape moving forward.
Last but not least, the area has attracted substantial foreign capital injections in recent years. Multinational companies in Europe and Japan are strengthening their position with extensive investments and M&A. According to spokespeople from reputable firms moving in, the hygiene market has shifted from a regional market to a global one. Securing a foothold in Latin America is now key to stay relevant in the future.
Lower spending power but high focus on quality
Latin America is the embodiment of income inequality. According to the World Bank, it is the world's most unequal region, with a quarter of the fiscal income accruing to the richest 1%[7]. That said, the middle class is expanding in a few countries such as Colombia and Chile, going from 40% to 55% of the population between 2012 and 2017. As a result, in spite of low spending power, a massive shift is undergoing - from affordability to quality.
For instance, in high-growth countries such as Brazil, Chile and Colombia, mid- to high-income caregivers, also driven by a strong United States' influence, are seeking innovative and premium products, focusing on features and materials. For this reason among others, premiumization is Latin America’s most distinctive trait.
The demand for high-end diapers is on the rise, especially those offering improved softness, absorbency and eco-friendliness. At the "product technology" level, this is reflected in thinner absorbent cores, permanent channels, and front & rear wing zero waste, that are among the most valued features consumers actually look for in Baby Diapers.
In conclusion, despite economic challenges and a rampant corona crisis, Latin America’s Baby Diapers market is characterized by a trend towards premium products as regards both features and materials. As a result, major European and Japanese global players are entering or expanding in the region, looking to benefit from a high-growth area characterized by low market penetration as well as rising birth rates and living standards.
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