Dr. Prabhakar Bhat and Mr. B.S. Pancholi
Various new products are hitting the market in the recent past in India and one of the most exciting products catching the attention of investors are hygiene applications. This has a global market size of US$80 billion estimated for the year 2015. Though they originated in developed in countries their spread across the globe is clearly visible and today developing countries have the highest growth rate. In Europe and America the market has matured and growth is near stagnant. Asia Pacific, Middle East and Africa are showing high growth rate mainly because of increase in per capita income and low penetration level so far.
Out of various products under hygiene the major market share is of baby diapers, sanitary napkins and adult incontinence. No doubt wipes are the other category calling attention of investors due to innovation and flushable product development in personal care wipes.
According to UN estimate current world population is above 7 bn and it is likely to touch 9 bn by 3050 and 11 billion by 2100. No doubt the child birth rate is reducing at most of the regions except Africa. The consumption of hygiene products is depending on the population, their per capita income and the education or the awareness. Of the total population 49.6% is of female and 7.6% is of aged above 65 years. The birth rate stands at 1.9% or 133 million children born every year or close to 200 million is the child population at 0 – 2 age group.
Fig. 1. World population 1750 – 2050
Of the total US$80bn market of hygiene products, according to Euromonitor, US$43bn is of baby diaper, followed by sanitary napkins and adult incontinence. Sanitary napkin market is expected to reach US$42.7bn by 2022 of which Asia Pacific having a share of 48.9% owing to increasing awareness and adoption of better hygiene practices at China, Japan and others (as per the report of Allied Market Research). The future growth in hygiene products is obviously in Asia and Africa.
Fig.2. Global Market of Hygiene Products
Indian market for hygiene products is at the verge of pace change especially for baby diapers and sanitary napkins with their penetration level being 2% and 12% (? – this figure quoted at various sources remain unchanged during the last few years though market size estimation speaks higher level) respectively. The estimation of population of babies below 2 years in India is about 70.2 mn. At 2% penetration level the yearly consumption should have been INR15bn at 3pcs/day/baby usage and at INR 10/pc. But the market size data from different sources indicate at INR 30bn in 2015. That means our penetration level has crossed 4% in baby diaper.
Similarly the sanitary napkin market penetration is questionable. India has 355mn female population in the menstruation age group (as per 2011 report). That means at 12% penetration level 42.6mn ladies should use napkins. In 2011 the population was 1.22bn and in 2016 it is 1.33bn if female population is projected in that ratio then number of female in menstruation age is 387mn. According to NPCS report the sanitary napkin market is expected to touch INR45.9bn by 2017. If a lady uses 3pcs/day for 4 days having 13 cycles per year and at INR3.5/pc of sanitary napkin the penetration level works out to 21.56% by 2017 (change in women population from 2016 to 2017 is neglected in approximation). Interestingly the hygiene products in India are maintaining a growth rate well above 20% for the last 5-6 years.
There is no clear data available in terms of percentage use of adult incontinence in India. The population of persons above 70 years in India is increasing year after year; 5.8% of India’s population is above 65 years and their physical mobility falls down from 94% in age group of 60-64 for men to 72% by 80 years. The use of adult diaper is still considered as taboo; however the awareness of its usage is growing. The market of adult diapers in India can best be explained by example of Nobel Hygiene Pvt. Ltd. which started in 2010 and today it has 5 European machines with a turnover of INR 1.25bn. Every year at least one machine is added for making adult diapers. However, major market is still with institutional buyers, limiting to hospitalized patients.
At the outset one can say that India is at the verge of rapid growth in future in the area of hygiene products. Market expansion BOMB is about to explode, it is just a matter of time!
If anyone in India is thinking of starting a new business as a diversification or due to attraction of high profit margin or thinking of entry into the product segment at right time or for using existing market network or as new product into the basket of existing business or planning for new business for the young generation in the family, hygiene products are the right choice. It is because the awareness in use of these products for health and hygiene, convenience, free from embarrassment, comfortness and many more has reached every corner of the society, thanks to media and the Government of India initiative. Fast growth of electronic media and spread of organized retailing to small towns supported by e-marketing are creating excellent platform for easy promotion of new brands; educating the customer is cost effective. The new entrants needn’t be scared of MNC bands. Indian market has resemblance to that of China in terms of size, growth pattern and economic status, may be last two aspects compared to status 2-3 decades back. The middle class of India has high purchase power and passion for modern and comfortable products. Every year 1% of the population adds to the middle class which is equal to 13mn, a huge size for promotion of any new product.
Let the calculation be done the other way. Each of these 3 products under hygiene products is growing at 20-22%; let it be considered as 20% for calculation purpose. Baby diaper market was INR 30 billion in 2015 and addition of 20% for 2016 that means INR 6 billion or scope for additional production of 600 million pieces. A state-of art machine in the market produces 162 million pieces in a year at the rate of 500pcs/min and 22.5 hrs a day. This shows that every year 3-4 new machines can be added in baby diaper segment.
If the same logic is used for sanitary napkins, 20% growth rate for INR 40bn market an addition of INR 8bn every year. When a new entrant invests on machine in all probability the machine speed will not be more than 800 pcs/min which will produce 259mn pcs/yr having sales value (@INR3.5/pc) INR 0.9 bn/yr. Here again scope for adding machines could be 9/yr. In adult diaper the current manufacturers are adding machines regularly.
The scope therefore in this business is very high and no need of any fear for entering; one has to understand the market dynamics before entering. A rough estimate of investment is given in table 1.
|Product||Machine cost in INR (millions)||Project cost in INR (millions) apprx*|
|Sanitary Napkin||10 to 250||20 to 400|
|Baby Diaper||40 to 400||70 to 600|
|Adult Diaper||50 to 400||75 to 600|
|Maternity Pads||10 to 200||18 to 350|
|Hospital Under Pads||17 to 150||25 to 250|
Table 1. Investment Required for Hygiene Products
The figures for project cost in the table 1 are excluding land and building cost, in other words it includes plant and machines and working capital. Cost wise machines are available in wide range of and selection depends on investment capacity, the type of products to be manufactured and business approach. The profitability ranges from 25% to 75% of the MRP, again depending on the business plan of the company. No doubt this is a very technical product; though not very complicated, familiarizing the same before investment is a must.
The current players are continuing in business and for most of the others it can be a new business or new product. These products are used for personal hygiene and the customer will directly experience the comfort or uncomfortness it. The product is used at sensitive area of the body and customer is very cautious about any visible embarrassment or any inconvenience in usage. Any botheration in use may lead to switch over of the product, especially the customers from urban area who understands it. Hence product design is very important. More than 80% of market share is dominated by MNCs. They have many patents on various features of the products. Simple copying of the features will be disastrous. The investor has to decide his product profile carefully. There are different aspects need to be considered while deciding the product profile. Any general guideline in this regard would be misleading; involving experts is the only solution for success in this business.
All the three products under discussion in the article have a common function i.e. absorbing a fluid, blood or urine. Its rate of discharge is different, quantity is different, fit in use is different and hence structure is different. All of them use a top sheet made of nonwoven or aperture film, a core consisting pulp with or without SAP or air laid, and a bottom sheet as barrier for fluid. Many other components are included that are product specific. The absorbency during usage purely depends on design of the product, apart from the type of raw materials used. Design of structure is the most crucial part of the product. Machine is custom built for this purpose and flexibility in changing this later will be limited.
For the same product there are varieties of raw materials available. Selection of them influences aesthetic as well as functional properties, in addition to cost. For example top sheet is mostly nonwoven in 15 to 25 gsm; they are available in S, SS, SSS, air through, ES Air through, carded, etc. and SMS, SSMMSS, and many more combinations for other applications. They are available with treatments for quick absorption and itching free, rashes free or embossed to 3D, embossed but without 3D effect, and many more; the products with different features keep on flowing to the market. Selection of them is critical and thoughtful process. There are at least 5 to 15 different raw materials in a product, their selection, dimension, position, design, synchronization can only make the product successful in the market. Most of the raw materials are available from Indian sources.
There are number of companies in the world who supply the machine, especially in China. They are available in all categories and in all price range, though not a single one in India. Machine costing as low as INR 4mn to 0.3bn are available. Selection of them is not only crucial for product quality and features but also for product cost. Each machine is customized as per the product profile and the requirement of the customer. Since machines are highly automatic and all operations are synchronized a little failure in it can lead to lot of wastages. Hence selection of machine has to be done very carefully. But beauty of these machines is, operations are made simple and maintaining them is not very critical.
Apart from these three there products few more products under hygiene applications have good potential for investment. Wet wipes for various applications, maternity pads, and hospital under pads have made their entry in the market. The breast pads, shoulder pads, under arm pads, cotton swabs, etc. are the products that will be seen in the market near future.
Hygiene products are excellent opportunities for business diversification or for new investment. The profit margin can be very high and need not to worry much for major brands in market. The investor has to plan how to position himself in the market. In Hong Kong the per capita usage of sanitary napkin in 2015 was 182 (Euromonitor) while it is much less in India. China had 1200 brands from 506 companies in baby diaper segment before 2013. It added 200 more brands in 2 years, both domestic and foreign. The market share of 10 brands in China is about 80% and rest is of others, interestingly the top brand is a domestic one. In India there are only three countable brands in baby diaper and sanitary napkins and hence ample scope is available for local brands to occupy the market space.
The growth drivers for these products are not just the spread of awareness but the emergence of social media reaching to rural market, new buzz in the market, e-commerce and organized retailing. E-commerce as well is reaching to rural India; it has caught-up well in urban India, and hygiene products are one of the common products because there is no need to personally observe the product before purchase. India’s e-commerce market is expected to reach US$ 220 billion in terms of gross merchandise value (GMV) and 530 million shoppers by 2025, led by faster speeds on reliable telecom networks, faster adoption of online services and better variety as well as convenience – McKinsey Global Institute. Research firm Nielsen projected that rural India’s FMCG market will surpass the US$ 100 billion mark by 2025.
Market share of the hygiene products in urban is more than rural mass. In 1951, the urban population of India was 62mn, 17% of the total population. By 2011 the urban population was 377 mn or 31%, it is estimated to be 42.5% by 2025. With more literacy and more job creations in cities the migration will boost up in near future. This migration adds to the opportunity for hygiene products market.
India’s female workforce participation is growing at the rate of 5.6% compared to 3% of males in urban or compared to 2% of female in rural areas (2011 data); this might have improved further by now. This will support the growth of feminine hygiene and baby diaper market.
The business of disposable hygiene products in India is a lucrative proposal. The business cycle is fast approaching the threshold point of rapid growth, a right time to enter the market. Anyone planning to diversify into new products or planning for new business or intends to add new products to the existing basket, disposable hygiene products are the right choice. A huge domestic market is available to grab, presence of MNCs is not a worry, and enormous space is available for new players. The investor has to plan properly, select a right product profile, do homework for raw material selection, not to follow herd mentality in machine selection, and be ready for establishing his own marketing network. A huge opportunity is in front of the investor, customer is still looking for right product.
Hence the opportunity for business in hygiene products is plenty, many call it as “Gold Mine”.