4 ms·

THIS is good question. If diaper prices are too high, what's stopping a new company from starting up and scooping them? Corporations are not being greedy enough

THIS is good question. If diaper prices are too high, what's stopping a new company from starting up and scooping them? Corporations are not being greedy enough! I suspect that the answer is boring - the profitability of making a diaper right now is overstated. It's not possible to make a profit competing with Kirkland Signature at 18c a diaper. And any analysis about the sudden profitability of diaper making is hyperbolic accounting.

s1artibartfast 3y ago
It could also have to do with opportunity cost in a high interest environment. Why risk $100m in a diaper factory to make 5%/yr when you can buy bonds at 5% with zero risk. Personally, I know I question the value of buying stock when my investment is at risk and I have to pay 40% on any gains.
mrguyorama 3y ago
The actual answer is that if you started a company to make diapers, the current conglomerates in the space would pause stock buybacks with all their free cash flow and just dump product onto the market until you go broke. Go ahead, try to get a diaper on the shelf cheaper than Huggies right now. Keep in mind, those 18c diapers CostCo sells are made in the same factory as the name brand diapers, are required to be made to equal or better standards, and still make a profit for Costco, about a quarter of their total revenue. Kirkland products are the loss leaders and don't even lose! That's how insane the profit margins are for name brand companies. That's why the Lays potato chips are $7 right now, even though the potatoes are only a few cents more expensive, even though my friend from highschool who literally owns the potato farm IS NOT getting significantly more money, and making potato chips should be an insanely automated process, to the point that if they claim labor costs could account for the price increase, they are lying. When Huggies sells those exact same diapers in a different box for 6 extra cents each, what is that other than naked greed? Also brand loyalty is insanely sticky. The vast majority of people cannot afford to buy one box of every brand of diapers to try out which actually is better, cannot trust what the box says because American laws allow you to blatantly lie on the packaging and MAYBE see a small fine. So your average person is going to hold on for dear life to any product that actually "works", meaning you can literally extract the brand value for a couple years with zero repercussions.
- sokoloff 3y ago
  > When Huggies sells those exact same diapers in a different box for 6 extra cents each, what is that other than naked greed? It's paying for marketing/branding. It's paying for placement in grocery stores. It's paying for the profit margin that the additional intermediaries have that Costco doesn't. It's paying for manufacturer's coupons on the product. It's paying for the "free shipping" on a hugely bulky product from an e-commerce seller. I buy a lot of store brand stuff, in part because it represents a good value and in part because I don't like paying for the items listed above.
- s1artibartfast 3y ago
  >Also brand loyalty is insanely sticky. The vast majority of people cannot afford to buy one box of every brand of diapers to try out which actually is better, cannot trust what the box says because American laws allow you to blatantly lie on the packaging and MAYBE see a small fine. So your average person is going to hold on for dear life to any product that actually "works", meaning you can literally extract the brand value for a couple years with zero repercussions. I think this leads to the inverse conclusion. Consumers are willing to pay a huge premium for name brand huggies and lays, not because they are too stupid or scared to try the cheaper one, but because they can afford it and pay a huge premium to avoid the tiny effort of exploration. Potato chips aren't a life critical product where you die or starve if no-name brand sucks. The fact that consumers would rather pay $7 per bag than try another says a lot about how much they value their $7. >When Huggies sells those exact same diapers in a different box for 6 extra cents each, what is that other than naked greed? Of course. That is the reason anyone makes a diapers in the first place. Nobody is running a non-profit diaper factory. They didnt get more greedy in the last year.

s1artibartfast 3y ago

It could also have to do with opportunity cost in a high interest environment. Why risk $100m in a diaper factory to make 5%/yr when you can buy bonds at 5% with zero risk. Personally, I know I question the value of buying stock when my investment is at risk and I have to pay 40% on any gains.

mrguyorama 3y ago

The actual answer is that if you started a company to make diapers, the current conglomerates in the space would pause stock buybacks with all their free cash flow and just dump product onto the market until you go broke. Go ahead, try to get a diaper on the shelf cheaper than Huggies right now. Keep in mind, those 18c diapers CostCo sells are made in the same factory as the name brand diapers, are required to be made to equal or better standards, and still make a profit for Costco, about a quarter of their total revenue. Kirkland products are the loss leaders and don't even lose! That's how insane the profit margins are for name brand companies. That's why the Lays potato chips are $7 right now, even though the potatoes are only a few cents more expensive, even though my friend from highschool who literally owns the potato farm IS NOT getting significantly more money, and making potato chips should be an insanely automated process, to the point that if they claim labor costs could account for the price increase, they are lying. When Huggies sells those exact same diapers in a different box for 6 extra cents each, what is that other than naked greed? Also brand loyalty is insanely sticky. The vast majority of people cannot afford to buy one box of every brand of diapers to try out which actually is better, cannot trust what the box says because American laws allow you to blatantly lie on the packaging and MAYBE see a small fine. So your average person is going to hold on for dear life to any product that actually "works", meaning you can literally extract the brand value for a couple years with zero repercussions.

sokoloff 3y ago
> When Huggies sells those exact same diapers in a different box for 6 extra cents each, what is that other than naked greed? It's paying for marketing/branding. It's paying for placement in grocery stores. It's paying for the profit margin that the additional intermediaries have that Costco doesn't. It's paying for manufacturer's coupons on the product. It's paying for the "free shipping" on a hugely bulky product from an e-commerce seller. I buy a lot of store brand stuff, in part because it represents a good value and in part because I don't like paying for the items listed above.
s1artibartfast 3y ago
>Also brand loyalty is insanely sticky. The vast majority of people cannot afford to buy one box of every brand of diapers to try out which actually is better, cannot trust what the box says because American laws allow you to blatantly lie on the packaging and MAYBE see a small fine. So your average person is going to hold on for dear life to any product that actually "works", meaning you can literally extract the brand value for a couple years with zero repercussions. I think this leads to the inverse conclusion. Consumers are willing to pay a huge premium for name brand huggies and lays, not because they are too stupid or scared to try the cheaper one, but because they can afford it and pay a huge premium to avoid the tiny effort of exploration. Potato chips aren't a life critical product where you die or starve if no-name brand sucks. The fact that consumers would rather pay $7 per bag than try another says a lot about how much they value their $7. >When Huggies sells those exact same diapers in a different box for 6 extra cents each, what is that other than naked greed? Of course. That is the reason anyone makes a diapers in the first place. Nobody is running a non-profit diaper factory. They didnt get more greedy in the last year.