In China, the sight of babies held over trash cans, and toddlers squatting down on a sidewalk, train platform, grocery aisle, in a mall, hotel dining room, IKEA and pretty much anywhere but an actual toilet isn’t exactly a shocker.
But as more and more upwardly mobile Chinese parents choose disposable diapers over traditional split pants—”uncivilized” crotchless apparel that allow easy access for quick elimination between parked cars, the mall and in line at the movie theater — there comes opportunity.
“To many, being wealthy enough to use and toss an item is a sign they’ve arrived,” says the Christian Science Monitor.
Perhaps that’s why Jessica Alba’s The Honest Co., a maker of eco-friendly baby products, has raised US$70 million at a valuation just shy of US$1 billion and is beginning partnership talks to expand to China.
Since launching in 2012 with its non-toxic diapers and other natural baby products, the California-based startup has grown quickly by blending its environmentally sensitive products with a social mission, says the Wall Street Journal.
Annual revenue is tracking to hit north of US$150 million in 2014, or three times the revenue of 2013, Honest chief executive and co-founder Brian Lee said.
Roughly 80 percent of Honest revenue is from customers who subscribe to a monthly service delivering diapers and other consumable products on a recurring basis, says WSJ.
Alba, 33, an international movie star best known for her role in Marvel’s Fantastic Four film franchise, is “excited to accelerate our growth, expand product offerings and availability”.
In China, Honest will butt heads with established brands like Procter & Gamble’s Pampers, China’s top diaper, and Huggies, owned by Dallas, Texas-based Kimberly-Clark, as well as homegrown heavy-hitter Hengan and Tokyo-based Unicharm. Cincinnati, Ohio-based P&G owns 41 percent of China’s US$5.8 billion diaper market, according to industry researcher Euromonitor International.
Granted I know jack about disposable diapers (my kids are in college and I’m not yet old enough to need them myself) and even less about diaper market dynamics in China, but Honest’s Lee seems prepared, noting that China is a major focus and a key reason for raising the recent round.
The company has already established a solid manufacturing base in China, where it produces wipes, diaper caddies, baby carriers, strollers and assorted eco-friendly household items. Honest diapers are currently made in Mexico.
(Interestingly, Lee has a history of co-founding successful startups with celebrities. His first startup, Legalzoom.com, was with Robert Shapiro, most recognized for being part of an all-star defense team that successfully defended O.J. Simpson from charges that he murdered his ex-wife. He also co-founded Shoedazzle.com with reality show star and model Kim Kardashian, daughter of Robert Kardashian, another member of the Simpson legal team.)
According to industry experts, China is likely to account for more than 20 percent of global diaper volume growth over the next five years as low diaper penetration and rapidly growing consumer income levels drive the market.
This, as the U.S., Western European countries, Japan and Korea have negative growth in baby diaper sales. The Chinese currently use about one billion disposable diapers every month, with monthly demand expected to top two billion by 2020.
To capitalize on this growth, the big players are increasing their footprints. P&G is investing US$1 billion into a new manufacturing site in Guangzhou; Kimberly-Clark is putting US$100 million into a new product development base in Jiangning; and Unicharm is spending US$30 million in Yangzhou.
The Honest Co., which employs 275, previously raised US$52 million, says WSJ, and is at present preparing for an IPO.
“We believe being a public company is the best path for us going forward and it’s good to get that validation early on,” says Lee.
Jeremy Liew, a partner with early investor Lightspeed Venture Partners, says Alba has leveraged her star power for the benefit of the startup.
“She is an international star. We’re starting to see a lot of demand from her fans around the world,” he says. “This idea for nontoxic, chemical free products has resonated around the world in developed and developing countries.”
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When movie stars become venture capitalists