developed to emerging economies
By Ian Bell, Head of home care and tissue and hygiene research, Euromonitor
Demographics are a key driver of the incontinence market which remained robustly healthy in 2011, despite undertain economic conditions. Globally, unit volume sales reached around 25 billion which fell well short of the 125 billion reported by the nappies/diapers category. Importantly for incontinence, growth has remained in double figures for the last decade while even nappies/diapers, the key income generator for nappy/diaper manufacturers, has seen growth rates dip since the recession.
The key to the health of the industry and the interest shown in it as a whole has come from the highly concentrated nature of sales, the lion’s share of which are generated in the developed world. In an otherwise flat and decidedly saturated hygiene market, in these territories incontinence represents the last frontier for growth among suppliers, manufacturers and retailers. It is perhaps a measure of how rapidly society and fast-moving consumer goods (FMCG) priorities have changed in a short time now that the 65+ age group has become a key target market.
In the incontinence market, domestic players have been able to enjoy a period of largely uninhibited growth at home rather than being forced abroad to chase the potential in the world’s emerging markets. That said, incontinence has never been an easy option for manufacturers. Although geographically these markets are familiar, manufacturing quasi-medical products, especially those destined for retail, has for many been as unfamiliar territory as setting up in Kazakhstan—new consumers, new products and new rules apply.
The grey market
The stellar growth reported by the retail market has been driven by changing incomes or at least the changing position of social groups according to income and spending power. The 65+ age group in the developed world is increasingly finding itself in the driver’s seat financially. Against the background of current economic instability, older consumers can be seen, for the most part, as economically solvent, often with savings, pension provisions and properties. However, high levels of debt (arguably the result of attempts to recreate the post-war economic good times experienced by their parents’ generation) have stymied the opportunities provided by younger age groups. In terms of absolute numbers, the “grey tide” has been rising for some time. As far back as 1995, the 65+ population overtook that of babies (0-36 months) when 6.7% of the world population was reported as 65+ compared to 6.3% for the 0-36 month range. The mid-1990s proved something of a watershed, seeing the development of a first wave of modern incontinence products in retail, the beginning of a long process to get these products accepted and normalized within retail and broader society in general. By 2011, the 65+ age group had risen to 8% of the population compared to just 5.4% for babies. This trend is set to continue to 2020 and beyond with the former reaching 10% in 2021.
While in broad demographic and income terms the incontinence market is due for further growth in its core Western markets, its structure is likely to see more radical change. Incontinence is a complex market in terms of distribution; Western Europe is the best example of this where the more straightforward institutional and retail sales are complicated by the existence of prescription (reimbursement) products which fall somewhere between the two categories. While access to subsidized products, especially in Germany for example, curtails the development of the retail market in terms of per capita consumption, the current European crisis looks very much like a catalyst to more rapid change and broader normalization of incontinence products within retail. Where nationalized healthcare markets do exist, the specter of the current “top heavy” demographic structure has always represented issues of who will and pay for universal healthcare (and how) during a period where population aging means tax revenues are dwindling while demand for services is on an upward curve.
For minor ailments self-help has been a key area for legislators to look to make policy changes, encouraging the expansion of the retail incontinence market and the over the counter (OTC) market. There has been a steady stream of previously restricted medicines switched to general sales licence (GSL) meaning that the pharmacy sector has been charged with taking some of the strain from formal healthcare services. The same process has happened in incontinence; in the U.K., for example, qualification for prescription incontinence products has been tightened to the point where degrading and humiliating accounts of means testing and medical assessment have made the national news. The current economic crisis afflicting Europe has acted as an accelerator to this trend of divesting responsibility from the state for more moderate forms of incontinence into the hands of the sufferer. This process has had the unlikely effect of further stimulating the retail incontinence market at a time when other retail categories are suffering from a retrenchment of consumer expenditures. Contrary to the prevailing retail trend this is further evidence of the purchasing power of older age groups as well as a new and more rapid phase of normalization for incontinence products within mainstream retail.
Developing economies emerge
Although growth in the developed world is far from exhausted, there are also some compelling arguments for an industry that has already completed an apprenticeship in the developing world to look overseas for new opportunities. Where the developing world by nature is littered with images of youthful hustle and bustle, the reality is that some of the big economic powerhouses such as Brazil, Russia, India and China are also reaching a level of demographic maturity where incontinence products are now increasingly in demand. While in Brazil aging has been a slow and gradual process, in China national demographic policy (one child) has skewed its age structure and both nations now need to come to terms with how to deal with new social conditions. Where these developing nations do differ from developed countries is that governments in both cases have allocated a larger portion of resources toward developing national healthcare services while often the opposite has been the case in the developed world where per capita expenditure appears to have stalled. Add to this per capita income levels rapidly rising to the $10,000 level requisite for retail incontinence to develop in both Russia and Brazil and the scene looks set for the full internationalization of Western methods of incontinence care.
Global players for an international market
Statistics all point to a boom in demand, and company activity confirms this. Currently, Latin America incontinence sales see Hypermarcas as a key player while TZMO dominates in Eastern Europe. In both cases, announcements of mergers and acquisitions as well as the development of new production facilities in these regions point to larger companies such as Kimberly-Clark, Unicharm and SCA all looking to strengthen their positions in order to supply this imminent boom in demand. Dealing in new markets is certainly challenging in terms of understanding local consumer culture and ultimately gaining distribution contracts so further acquisition activity would appear likely as a prudent entry strategy. SCA’s 2011 acquisitions of Brazilian producer Pro Descart and Georgia Pacific’s European tissue operations both illustrate how larger Western players have the funds for such strategic purchases. That said, Unicharm’s recent successes in developing a foothold in the Indian nappies/diapers market by establishing its own production facilities as well as an India-specific retailer strategy to show that alternatives to “pure acquisition” as an entry methods can be effective even in unfamiliar “overseas” markets.
It will be interesting to see which companies opt for the organic growth option and what tactics they employ to break into markets which are less developed in terms of competition but have a much more challenging environment in terms of gaining distribution. The geographical size alone and the lack of national retail chains in markets such as Brazil, Russia and China will temper the volume potential for incontinence products in these countries against the difficulty in distributing them. To this end the most modern materials and manufacturing processes will keep distribution costs down over long distances and therefore unit prices, which will likely see incontinence producers in the most promising of the developing markets start considering sustainability as a matter of operational necessity.