By Leslie Patton | Bloomberg
Costco Wholesale Corp. is switching manufacturers for its popular Kirkland Signature brand of diapers as its supplier moves away from store brands to increase profitability.
First Quality is replacing Kimberly-Clark Corp. as the maker of Costco’s diapers, with the official change set to happen in January, according to people familiar with the decision who weren’t authorized to speak publicly about the matter.
More on Costco: Not a Costco member? Shoppers have tips to skip new entry scanners
Consumer goods makers have been focused on restoring profit margins to pre-pandemic levels and scrutinizing their business models after years of higher costs. For Kimberly-Clark, which makes the Huggies brand of diapers, that means a shift away from low-margin private label contracts and a stronger focus on selling more higher-priced premium items under their own brand names.
First Quality didn’t respond to requests for comment. Representatives for Costco and Kimberly-Clark declined to comment.
Earlier this month, Kimberly-Clark Chief Financial Officer Nelson Urdaneta said that the company’s exit of private label businesses, “allows us to dedicate our capacity and our investments to our own technologies and brands to differentiate them.”
In October, Chief Executive Officer Mike Hsu said that the company’s percentage of sales from private label will go from about 4% in 2023 to about 2% next year, and that it would decline further “over time.”
Also read: Discount retailer Panda Mart leases former Sears in Orange
First Quality, which also makes Cuties diapers along with paper towels and toilet paper, hasn’t disclosed the arrangement with Costco. In May, the New York-based company said it was increasing capacity for diapers and training pants by 50% at its Macon, Georgia, manufacturing factory.
Costco’s Kirkland Signature diapers have become popular with parents, especially as years of inflation for basic goods crimps spending. The company has said in past years that private label items are a good value versus brand names, thanks to their price point.
Costco says it expects to increase sales of Kirkland-branded items, which generally earn higher margins for the retailer versus national labels.
Kirkland diapers made by Kimberly-Clark have a curved fit that many shoppers perceive to be more ergonomic for their babies, said Natalia Richer, director of business development at consultant Diaper Testing International.
“It will be noticeable to the consumer if they change it,” she said.
Kimberly-Clark also makes Kotex tampons and pads, along with Kleenex tissues and Scott toilet paper. Huggies recently introduced a new type of diaper and wipes, dubbed Skin Essentials, designed to protect against rashes.
Originally Published:
