Getting Personal in Consumer Staples

The two great growth drivers of consumer staples sales, product premiumisation and increasing penetration in emerging markets, have played out to a large extent. Local competition and preferences have hampered the market share and profitability of multinationals in many categories, and investors have penalised their stock prices as a result. However, three broadly related personal categories are bucking this trend: feminine care; adult incontinence; and, for our four-legged friends, pet hygiene. These categories offer some of the most attractive investment opportunities in the consumer space from a profitability and growth perspective. 

While disposable feminine care products have been adopted en masse in the West since the 1970s, for many consumers in emerging markets they remain either an unaffordable luxury or a lower priority for discretionary spending due to longstanding practices. The lack of access to such products can have a significant impact on women’s livelihoods in these markets. Girls can often miss school, and women may miss days of work. Recognising that disposable menstruation products can help address this, UNICEF has been driving the adoption of these products in many developing nations.^[1]

The lack of access to these products results in a much lower level of market penetration than many other categories, such as nappies/diapers or toothpaste (see Fig. 1). As income levels rise and women learn about the convenience, effectiveness, and safety of these products, the category has exhibited strong growth that seems likely to continue when we examine the data. This is further supported by ongoing premiumisation via innovation in developed markets that will likely find its way into these emerging markets.

Fig. 1: Feminine care: average usage volume/month

Source: Euromonitor, Morgan Stanley Research.

When thinking of adult incontinence products, a bulky adult nappy/diaper that one might see in a hospital or high-need elderly care facility might spring to mind for a lot of people. While this is indeed a sizeable chunk of the market, these products tend to be commodities, sold in bulk to care facilities, and broadly mature, with low growth and relatively weak profitability as a result. Where we can observe strong growth, even in highly developed markets, as well as excellent profitability, is in the light incontinence space.

Light incontinence tends to arise with age but can also become a problem after childbirth, and during or after prostate cancer, among other potential causes. This category is growing as a result of the development of light, comfortable solutions, such as liners and underwear, that are serving the increasing elderly population as well as others living with the condition who previously had to make do with sub-optimal solutions. Unsurprisingly, there is significant overlap between companies that make feminine care products and those innovating in the light incontinence category. 

Favourable dynamics exist in these categories to make consumers relatively brand loyal, with the result being that competition and market share shifts tend to be driven by product innovations rather than price. The products are used by the purchaser on the skin and in sensitive areas. The cost of product failure for the user is high. So, once a consumer has found a brand that works, there tends to be resistance to trying a new brand.

This dynamic, however, has not prevented the ongoing premiumisation of the categories, as trusted brands introduce new product sub-categories suited to different circumstances and products with new features to both increase the chance of attracting new consumers and justify raising prices.

For example, in feminine care, along with tampons, panty-liners, ultra-thin pads, regular pads, overnight pads, and pads with wings that may be familiar to readers living in Western countries, many market-specific offerings have found great success throughout Asia. Some interesting examples include cooling-type pads, warming-type pads, and disposable period panties developed by the Japanese company Unicharm.

The latter examples would be described as step-change or disruptive innovations where a new product line is introduced. However, there have also been incremental innovations that have allowed companies to increase prices on existing product lines. These involve continual improvements to the fundamental components that make up a pad. One such component is the core of the pad. Not only has absorbancy been increasing over time through improved material chemistry, but this has been done without making the pad thicker. Minor improvements have also been made by different companies over time to improve fit.

Innovation has also allowed light adult incontinence companies to differentiate themselves and charge more. Nowadays, there is an assortment of light adult incontinence products ranging from the basic type to more premium types with special features. A good example of a more premium product is Procter & Gamble’s Always Discreet Sensitive Line, which is more expensive but offers seemingly better performance for women with sensitive skin.

We see sizeable growth in the light adult incontinence category in developed markets as the work companies are doing to drive awareness and familiarity comes to fruition, and then further growth in emerging markets over time. Many people currently use menstrual pads to manage incontinence issues, despite the major differences between the two products.^[2] 

To get an idea of the addressable market size, we can look at population incontinence statistics. Let’s take Australia as an example. Incontinence impacts one in four adult Australians,^[3] affecting up to 10% of Australian men and up to 38% of Australian women. Women tend to be more susceptible because of postpartum incontinence. Aging populations across the developed world should also lead to further growth in the adult incontinence category. We see Japan as the country where this category is most developed, but even there it is exhibiting very healthy growth. There are now more adult nappies/diapers sold in Japan than baby nappies/diapers.^[4]

When looking at the usage rates across countries, one can see the potential growth opportunity for light adult incontinence products as penetration rises in other countries.
 
Fig. 2: Light adult incontinence: Average no. of items used per person per month in the target consumer population, 2010 vs. 2020

Source: Euromonitor, Morgan Stanley Research.

Lastly, there is the pet hygiene category, which predominantly comprises disposable nappies/diapers, absorbent sheets and wipes. These products are becoming increasingly popular as they provide an extremely convenient solution to incontinence issues more common among our infant and elderly four-legged friends. Taking a step back, one can see that pet-related spending has exhibited attractive growth over time.

Fig. 3: Total pet industry spend (US only, US$ bn)

Source: Bureau of Economic Analysis, Morgan Stanley Research estimates.

From our research, the main drivers of this growth are both the rise in pet ownership, especially during COVID, and the increasing humanisation of pets. We have seen particularly strong growth in pet ownership among millennial households,^[5] who also tend to spend relatively more on their pets. Over time, we have seen pets increasingly being treated as equal to human companions, and as such, our propensity to pay more for premium products has risen. These trends are likely to continue driving the attractive growth and profitability we see in the pet hygiene category.

A leader in the feminine care, light incontinence, and pet hygiene categories, with a large exposure to emerging markets throughout Asia, is Unicharm. The company has been very successful in developing its categories in its home market and abroad via boots-on-the-ground expansion, acquisitions of local players, and product innovation. Platinum holds a position in Unicharm through both our Platinum International Brands Fund and across our Japan strategies.