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Business trends

Chinese parents willing to pay more for Japan diaper brands

As Kao gains, P&G shifts to Japanese production in hopes of comeback

Merries brand diapers lien the shelves at a supermarket in Shanghai. (Photo by Motokazu Matsui)

TOKYO -- Eager to spend on their children, Chinese parents have moved upmarket in diapers, a trend that has been helped by the rise of online shopping and has benefited pricier Japanese brands.

Tokyo-based Kao has grown quickly in the world's biggest market for disposable diapers, largely at the expense of global consumer products giant Procter & Gamble, which took the middle road in pricing.

P&G's market share fell to 22.1% in 2017 from 31.8% just five years earlier, data from Euromonitor shows. By contrast, Kao's share nearly tripled to 11.1% 

Three Japanese names -- Kao, China market veteran Unicharm and latecomer Daio Paper -- held nearly a quarter of the market last year, the data shows. 

Now that the generations that grew up under China's one-child policy are becoming parents themselves, their willingness to provide the best for their children has been a boon for premium diaper brands.

At the world's biggest baby products expo, held in Shanghai last month, Daio Paper drew big crowds to its booth showcasing new pull-up diapers sold exclusively in the Chinese market. Made of a breathable proprietary material, the diapers sell for 7 yuan ($1) apiece -- far higher than the 20 to 30 yen (18 cents to 27 cents) price tag for mainstream diapers in Japan.

"We can't sell diapers at this price in Japan," said Takahisa Kashiwabara of Daio's Chinese unit. "This product is only possible in China," he said, citing the growing ranks of consumers seeking ultra-premium products.

Daio entered the Chinese diaper market only in 2012. Its strategy of focusing on high-end products proved a success, propelling the company to No. 6 in market share last year in a field crowded with more than 1,000 competitors. The momentum continued the first half of this year, with sales of mainstay products doubling on the year.

Kao, known for its Merries brand, attributes its growth in China to "Chinese tourists to Japan who bought our diapers in bulk and spread the word about the quality," said Minoru Nakanishi, who runs the Tokyo-based company's Chinese business.

China's diaper market was worth $14.9 billion in 2017, a gain of 50% from four years earlier that was driven mainly by the rise of premium diapers. Diapers priced at 3 yuan or more made up 40% of the market -- up from 20% three years earlier.

Driving this trend is the balinghou generation born in the 1980s -- after Beijing implemented its one-child policy in 1979. As only children, they never had to fight with siblings for parents' attention or family resources at a time when China was developing into a strong economy. Naturally, they have a tendency to be picky when it comes to product quality.

Breathability, comfort and absorbency are what Chinese parents look for most in choosing diapers, a 2017 survey by UBM, the U.K. trade show organizer behind the CBME expo, found. Price was only the seventh-most important factor out of 12.

This explains the slowdown of P&G. After entering China in the late 1990s, the U.S. consumer goods giant started producing affordable diapers locally. This propelled its early gains in market share.

But after its fortunes waned, P&G hit on the idea of turning its Pampers diapers "Japanese" by making them at a factory near Kobe and shipping them to China. These Japanese-made Ichiban diapers, which debuted last summer, feature Japanese writing on the package. The American company picked a product name that symbolizes the high quality that made in Japan is associated with, the vice president of P&G's Chinese unit said.

Unicharm, which sold mostly products made in China, saw its share fall to 8.3% in 2017 from 10.9% in 2012. But after shifting its focus to premium diapers shipped from its home market, the Japanese company posted year-on-year growth of more than 10% in Chinese sales for the first six months of 2018.

Another sales driver for premium diapers is e-commerce. Young Chinese parents can now easily compare baby products on their smartphones. More than half of all diaper sales in the country are now done online, with the figure reaching 80% in urban areas.

Seeing this as an opportunity, Kao tied up with e-commerce giant Alibaba Group Holding in 2015 and began offering cross-border shopping for consumers in China. At one point, Kao held half of the online market for premium diapers.

Last year, Unicharm started streaming one-minute videos providing baby care tips tips on topics like feeding on more than 40 social media sites in China. With some 8 million members, the service has become the biggest of its kind.

After maintaining the one-child policy for more than three decades, China started allowing couples to have two children in January 2016. That led to an 8% increase in births over 2015, but the number fell to 17.23 million in 2017 -- failing to achieve the growth anticipated at the end of the strict family planning restriction.

The reason comes down to cost. "We do want a daughter, but we're not sure if we're going to have another child," said a 32-year-old man who works at a Shanghai travel agency and lives with his wife and four-month-old son. Living expenses and education costs are soaring in cities like Shanghai. One study found the average family spends half its income on raising kids.

Not having multiple children may mean parents are willing to spend more on their only offspring. This is why "upscale products have a bright future," says an official at a baby goods manufacturer. The baby goods market is seen growing 16.6% on the year to 3 trillion yuan in 2018, more than double the 2013 figure. Sustained double-digit growth is projected for 2019 and beyond as well.

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