After less than stellar North American sales in the fourth quarter for its personal care business, Huggies maker Kimberly-Clark announced it will be focusing on marketing and innovation this year, which will compete with major rival Procter & Gamble, parent company of Pampers and Luvs.
 
Chairman and CEO Thomas Falk made the announcement during K-C’s January 23 fourth quarter 2014 earnings call.
 
“One of our businesses had a soft year in North America, and that was mainline Huggies diapers,” Falk said during the call. “To improve our performance in 2015, we will be making investments in innovation, marketing and relative value to key competition.”
 
K-C’s North American sales in the personal care segment dropped 2%. Volumes were down 2% in this area, and currency was unfavorable 1%, while net selling prices rose slightly. Huggies diaper volumes were off 10%, according to the company, which it attributes to “marketshare declines and competitive promotional activity.” K-C also saw lower volumes for its Pull-Ups training pants.
 
Falk says K-C will focus on both North America and emerging markets to drive growth. North American plans include improvements in Huggies diapers and baby wipes and adult care products, with new product launches and a few mainline improvements being announced later this quarter. Abroad, K-C will introduce new products or make upgrades to existing items across many categories. “To support our innovations and growth initiatives, our advertising spending should be up somewhat as a percent of sales,” he said.
 
Falk pointed out that P&G’s Luvs diapers may have gained 2 share points in 2014, and that the value-oriented brand has had weekly promotions with a key retailer that K-C has been trying to focus on. “In the meantime, we’re working to drive the business across the country with better product performance, making sure we’re competitive on shelf with the right display activity and the right offer,” he said. “So it’s really the basics of execution on that business. We didn’t do as good of a job as we needed to in 2014 and we will do a better job in 2015.”
 
When questioned about optimism regarding the U.S. consumer, and whether shoppers are willing to trade up for premium products, Falk indicated that they are seeing that, and that the company’s Huggies super premium diapers probably picked up half a share point in 2014.
 
“So mom will trade up for real innovation,” he said. “We’ve got more innovation coming behind that segment of our lineup as well. So it is also focusing on that trade up consumer. I wouldn’t say we’ve seen an uptick in the numbers of consumers heading in that direction at this stage. But it’s pretty early days in this oil price cycle as well.”
 
Mark Buthman, K-C’s senior vice president and CFO, confirmed that the company is seeing consumers trade up across all categories. “Incontinence is largely being driven by the super-premium end of the category,” Buthman said. “Even through a tougher economic time, the categories are growing not only in the value tier but the super-premium segment as well.”
 
While K-C indicates that moms will trade up for premium products, diaper consultant Carlos Richer disagrees.
 
“In my opinion, if they improve the premium diaper with the idea that they will make moms trade up and pay more, they better launch a really nice improvement, maybe one that I am not aware, or they could end up making the same mistake Amazon just did,” Richer explains.
 
While it appears that U.S. employment is improving, Richer says “we may also agree that the purchasing power parity in the U.S. is going down because the jobs pay less—especially for the younger couples with babies. I insist, unless they launch some magic new diaper feature that is currently hidden in their sleeve, I think it is much better to create a product to compete head to head with Luvs.”