Yves here. One the one hand, one great virtue of the invention described below that allows small scale manufacturers (as in garage level) to undercut the disposable diaper price-gougers succeeds precisely because it doesn’t rely on scale economies to achieve a substantial cost advantage. On the other, the lack of scale, barriers to entry, patent protection, and sex appeal is why it’s unlikely to get traction in the US, unless frustrated parents band together to buy and operate the machinery on a hobbyist/minimal profit basis. By Michael Olenick, a research fellow at INSEAD whose recent articles can be found at innowiki.org and Blue Ocean Thinking. Originally published at Blue Ocean Thinking Bloomberg reports diaper costs were up 14% year-over-yearsince last January and show no sign of
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Yves here. One the one hand, one great virtue of the invention described below that allows small scale manufacturers (as in garage level) to undercut the disposable diaper price-gougers succeeds precisely because it doesn’t rely on scale economies to achieve a substantial cost advantage. On the other, the lack of scale, barriers to entry, patent protection, and sex appeal is why it’s unlikely to get traction in the US, unless frustrated parents band together to buy and operate the machinery on a hobbyist/minimal profit basis.
Bloomberg reports diaper costs were up 14% year-over-yearsince last January and show no sign of slowing down. That same story article details a man spending $300 per month keeping the tuchases of his twin 3-year-old grandkids dry. The New York Timesreports about a man who walked out with diapers and without paying after his bank card was declined. When his photo was circulated by the store, they were criticized and he was heralded as a folk hero.
The reason for diaper inflation is arguably more greed than global supply chain woes. Specifically, a duopoly by Kimberly-Clark and Procter & Gamble controls about 70% of all diapers. It doesn’t matter if people buy Huggies, Pampers, Luvs, or Pull-Ups; the funds all flow to the same two businesses.
A formerly illiterate Indian weaver developed a business model to break the diaper duopoly keeping baby tushies clean and their parent’s pocketbooks solvent.
First, some explaining. There are two types of diapers; cloth and disposable. Cloth diapers are usually handled by a diaper service that takes away the stinkies and delivers clean, bleached cotton at a cost typically slightly more than disposables.
However, many people prefer disposables both for convenience and that they’re less likely to leak. It’s easy to criticize but, having raised two tykes and used cloth for awhile, the disposable crowd has a point. For example, imagine changing a cloth diaper at a shopping mall — assuming anybody goes to those anymore — and carrying the used one home for the diaper service. Yuck. Besides, due to the environmental impact of cleaning cloth diapers it’s not entirely clear if they’re overall environmentally better.
Naturally, the disposable diaper businesses blame the price increase on increasing material costs (never mind their stock buybacks) but, just as naturally, a quick glance at those material costs makes those claims iffy. It’s not that costs haven’t gone up but, rather, material costs are like when you change a diaper and find there isn’t much there. The core ingredient in diapers is a product called fluffy pulp, which is essentially fluffed up tree fibers, plus a small amount of plastic that goes around it and, sometimes, a “super absorbent layer” which is more marketing gimmick than anything.
Fluffy pulp is widely available on Alibaba from China for $850 per ton which Google tells me yields 907,185 grams of pulp. At 13-25 grams per diaper, the cost of the active ingredient per diaper ranges from $.012 – $.023 at today’s presumably inflated prices.
Hold on, you say: there’s also shipping and the whole supply chain fiasco. Correct … at rates long ago negotiated. Besides, because the pulp is a paper byproduct, it’s widely available from Canada and the US. Even if the pulp prices are higher, and they’re paying those prices (rather than long-term prenegotiated rates), we’ll see it doesn’t matter because the impact of an increase on overall costs of goods sold is negligible.
Amazon says Size 2 Pampers are a bestseller. They charge $53.44 for 234 diapers, labeled a one-month supply (a higher estimate than others; diaper banks typically give families 50 diapers per month). At the prices listed above, the material cost for pulp would range from $2.85 to $5.48 plus the plastic to wrap it, ship it, and profit margin. That is, material costs may drive down profit margins slightly but they aren’t what’s driving up diaper prices. Obviously, those companies could absorb the material price fluctuations rather than causing them to leak into people’s food budgets.
At this point, I could and probably should harangue about monopolies but there’s no point; they’re not going away anytime soon. Even if Congress were to call the CEOs of those businesses in and yell at them nothing would happen. We could make demands to break up the diaper duopoly but, even in the unlikely even Congress would go along, by the time the lawsuits ended the tyke in diapers would be a geezer. Sue them? Sure – something may happen in many years but that something is likely a friendlier administration takes over and uses the suits to enter a consent decree protecting the monopolies.
A more sustainable answer might be to leverage an innovation created by Arunachalam Murugananthamis, India’s Pad Man. You can see his invention in the Academy Award winning Netflix documentary Period. End of Sentence.(available free on YouTube) or the Bollywood blockbuster Pad Man. I also wrote a case about himand we spent time talking.
Realizing Indian women would never purchase menstrual pads even if they could afford them, which they couldn’t, Murugananthamis invented a business model and the machinery to encourage the use of pads around India and other developing nations. He sells women-owned businesses micro-factory equipment they use to create pads they then sell or barter to local women. The pads allow girls to remain in school after their menses — when, not long ago, they would’ve been relegated to menstrual huts or fields — and women to own a small business gaining independence from men.
Murugananthamis purposefully uses a capitalist model because he says it best aligns incentives. Although the Netflix documentary talks about raising funds to buy the machinery for a collective, donations are usually used for microloans which are paid back from profits of the pad manufacturing collective to fund more businesses.
“If you depend on money from others, then indirectly you are a beggar. Your hand is always out,” he told me. “I give them dignity and make them into women entrepreneurs. It is amazing to see the transformation that happens. This is the way to help this universe have a new day, not repeat the old days.”
Despite being famous worldwide, Murugananthamis himself lives in a one-room apartment with his wife and children and still hauls manufacturing equipment to rural Indian villages.
Getting back to diapers, the factor that enables Murugananthamis’s business is low-cost fluffy pulp. Indian women buy the raw material, which is even cheaper than the processed prices above, and transform it into pads with his machines. But even bleached and ready to be made into pads or diapers, fluffy pulp isn’t pricey.
There’s no reason small groups of parents couldn’t get together and form a collective to create diapers for their children, assembling the diapers either by hand or with low-tech manufacturing equipment. I’d imagine there are regulations around diaper manufacturing but I’d also imagine they wouldn’t apply if parents were making diapers for their own children.
Besides costing less, parents could choose from the various pulps that work best for their baby butts, balancing ecological concerns with diaper rash. They’d see how much material goes into each diaper and learn about business, like the Indian women and their menstrual pad machines. Plus, it’d be fun. Once a month, somebody could watch the kids while everybody else cranks out a supply of diapers. Call it a playgroup with purpose.
None of this would be especially difficult to get going; a group of parents would need to round up others, find a spare garage, buy some material, and get out the scissors. Once they get a basic design down, somebody can engineer machinery to make the diapers faster though that isn’t necessary to get started.
This post was inspired by a tweet from Matt Stoller. I haven’t written in a while and have been reading about the countless startups getting rich inventing not much of anything. I was finally shocked back to the keyboard by Matt’s tweet combined with the following I found deeply disturbing:
Squid Game creator Hwang Dong-hyuk wrote its 1st draft in 2009. After 10yrs of rewrites (+ $21m from Netflix), it has created $900m in value.
Conversely, Dong-hyuk could have created the same value by buying 15k BTC for only $150 ($0.01 in 2009).
LESSON:Showbiz is a money sink. pic.twitter.com/UqKZkarMBz
— Trung Phan 🇨🇦 (@TrungTPhan) October 17, 2021
Say what you will about Squid Game, there is value in art beyond the financial rewards, not to mention the jobs created filming and distributing the series. Yet, the modern beasts of finance have reduced everything into money. If you can’t spend it, their reasoning seems to go, there’s no intrinsic value. This is a cynical, terrible mindset.
When combined with articles about the surging price of diapers, I realized it was time to write again. The world doesn’t need another chatbot, and the real value of crypto is seriously iffy, but we do need art and affordable diapers. It’s time to realign both economic incentives and our personal values to make that happen.
My personal focus lately has been on subtractive theory with the behavioral economists — the economic ideas that less is often more — and both Murugananthamis pad factories and my diaper ideas seem to embody the concept.