Things are about to shift in the U.S. baby diaper market. According to multiple media outlets, Costco is changing suppliers for its ultra-popular brand of Kirkland baby diapers. Beginning early this year, the big box retailer will end its long-time relationship with Kimberly-Clark—the maker of Huggies diapers—and reportedly will partner with private label specialist First Quality, who will begin manufacturing diapers for the Kirkland brand.

For about 20 years, K-C has supplied the Kirkland baby diaper brand, a winner with parents thanks to its mix of high performance and low cost—some even say they practically mirror K-C’s branded Huggies diapers in design and performance. While Costco does not reveal sales figures for its diapers, the private label diaper market is growing at about 10% per year as consumers try to stretch their dollars further and it’s likely the Kirkland brand is responsible for a decent amount of these gains.

What is interesting about the change in suppliers is not just the fact that K-C won’t be making store brand diapers for Costco—the consumer giant has decided to lessen its role in the private label market in favor of higher margin businesses—but also what it will mean for Pampers and that diaper brand’s relationship with the retailer. Procter & Gamble’s leading diaper has not been sold in Costco stores since at least 2005, around the same time K-C began supplying the Kirkland brand, but will they return to store shelves now that the deal is over?

When Pampers exited Costco, analysts estimated the move cost P&G about $150-200 million a year in diaper sales. That’s more than $300 million when adjusted for inflation. Of course, a number of other P&G brands like Tide, Bounty and Dawn are sold at Costco alongside their Kirkland equivalents, so the consumer goods giant definitely has the motivation—and the mojo—to lobby Pampers’ return to Costco stores.

And, how would First Quality feel about this? The company is in the midst of a large-scale investment at its site in Macon, GA, which includes a new facility, new lines for diapers and training pants and an automated warehousing facility. Whether or not this investment decision was made with the Costco deal in mind remains unclear, but a relationship with such a retail powerhouse can surely go a long way in using up a good chunk of new capacity.

More importantly, how will the First Quality diapers measure up to the current Kirkland brand and what will that mean for Costco’s private label diaper sales? We’ll be finding out in the new year.

Karen McIntyre
Editor
[email protected]