Year of the Dragon: Kimberly Clark, P&G Ready for a Surge in Demand for Baby Products
The infant product divisions at Procter & Gamble (NYSE:PG), Kimberly-Clark (NYSE:KMB) and Heinz (NYSE:HNZ) may get a boost next year from an expected baby boom during the Chinese Year of the Dragon, which begins on Jan 23. China is already one of the fastest growing markets for the companies where P&G’s Pampers brand diapers compete with Kimberly-Clark’s Huggies.
China’s baby products market has been growing at more than 30% a year, with demand expected to hit 2 trillion Renminbi ($314 billion) by 2015, according to Hong Kong Trade Development Council figures. [1]
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Year of the Dragon Generally Results in Higher Birthrates
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Being born in a dragon year is traditionally considered auspicious in the Chinese community, symbolizing wealth and power. According to figures from Taiwan’s Ministry of the Interior, prior dragon years have coincided with a spike in the birth rate. In 2000, the most recent dragon year, there were 202,000 more babies born than in 1999, whereas in 1988 there were 342,000 more babies than the prior year, it said. [2]
China itself is already in the middle of its fourth baby boom since the founding of the New China, with many parents expected to try to time births for the most auspicious year. Foreign brands are particularly well positioned to benefit from the boom, in part because of safety concerns about local products, including a 2008 scandal involving melamine contaminated milk products. Pampers is currently the leading diaper brand with a 35% share of the global market. Baby and family care was P&G’s best-performing division in terms of sales growth in the fiscal first quarter. [3]
According to Trefis estimates, Pampers, together with the Charmin and Bounty paper tissue brands make up just under 12% of P&G’s share price valuation.
Kimberly Clark More Reliant on Baby Products
Kimberly- Clark may have more at stake. Diapers make up just over 32% of its share price according to Trefis estimates, though its market share lags P&G at about 20.3% at the end of last year. For Heinz, infant nutrition makes up 13% of its market valuation. Growth in the division is already being driven by emerging markets, with infant formula revenues rising 41% in China in 2010. Outside of formula, revenue rose 27% in a trend expected to continue.
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