EU legislation plays into SDC’s hands
Diapers are a fiercely competitive, still growing $85 billion global business. This has been known at least since the meteoric rise (and fall) of perhaps the most famous diaper start-up of recent decades: www.diapers.com. In the early days of e-commerce, the company focused on direct sales, bypassing intermediaries. We know how the story ended. Amazon undercut the company for so long that the owner of diapers.com finally had to give in and agree to a sale. Ultimately, Amazon discontinued the company entirely ‘due to lack of profitability’. After all, 97% of diaper sales still occur in stores and only 3% online.
The Canadian start-up Soft N Dry Diapers Corp. (“SDC”) is now venturing into the diaper market as a new player, but is deliberately taking a completely different approach. The company aims to revolutionize the diaper from the inside, specifically with a new cellulose-free diaper core, following the principle of ‘intel inside’. The absorbent core of the diaper with the patented ecoLiite core technology is about 25% cheaper to produce than the current cellulose cores that dominate 99% of the global market. Additionally, Soft N’Dry promises 50% better performance, leading to savings for manufacturers and consumers. Matthew Keddy, CEO, simply calls the innovation in the diaper market “the hottest topic in the diaper industry since the invention of the elastic diaper waistband in the 1970s.” In fact, there had been little to no innovation in the past 50 years. Since the introduction of the elastic diaper waistband in the 1980s, there have been no products or solutions that fundamentally changed the industry.
Figure 1: Finally something new after 50 years. Soft N Dry scores with more sustainability, lower costs, and better performance.
Having learned the lesson from diapers.com, Soft N Dry wants to focus exclusively on the B2B business. The new diaper cores will be sold directly to the manufacturers of the world’s largest brands, which already hold 99% of the market share. Another target is large national retail chains that distribute their own diapers under private labels, such as Aldi or Lidl. Therefore, Soft N Dry does not compete with Pampers or Huggies for market share or shelf space. In the end, SDC wants to have two revenue streams: first, the absorbent lining of the diaper, and second, a finished diaper with cover and lining, mainly for private label customers who don’t have their own manufacturing department and rely on third-party providers.
EU Supply Chain Act could massively accelerate the introduction of the Soft N’Dry diaper core
More than 10 million trees are cut down each year to supply the diaper market alone, with about 18 billion diapers ending up in landfills in the US alone every year. Therefore, the European Union is planning new restrictions (EUDR) for Europe on the use of trees for paper products starting January 1, 2025. While it’s still uncertain whether the regulation will come into effect as expected, the pressure on manufacturers is noticeable. In the future, only products that are both ‘deforestation-free and legal’ should be allowed on the EU market or exported from it. Manufacturers will be responsible for the due diligence declaration for supply chains. This would effectively amount to a ban on cellulose from trees in diapers. As a result, the looming European ban has significantly accelerated Soft N’Dry’s timelines recently.
Since the announcement of the upcoming EU regulation, a number of global manufacturers have expressed great interest in Soft N’Dry’s solution. Interested parties include a Fortune 250 company outside Europe and one of the three world-leading diaper manufacturers outside North America.
A simple calculation provides an indication of the magnitude involved. According to Soft N Dry, a typical order of 100 million units (a starter order) corresponds to a gross revenue of 6 million USD, with a gross profit of 3 million USD. One must realize that 400 million diapers, i.e., an initial order and 3 reorders of the same size, can easily be handled in a single production facility. The estimated manufacturing time is only 28 days. A single factory produces billions of diapers per year.
Soft N Dry’s team includes top people from the industry
Soft N Dry CEO Matthew Keddy, himself a serial entrepreneur in various industries, has been working on the diaper issue for four years. He was attracted by the idea of starting something disruptive in the stagnant diaper market while the rest of the world was preoccupied with topics like AI. Particularly in the past six months, Keddy has significantly strengthened his team. Alexander Valle Burkert, Chief Technology Officer (CTO) of Soft N Dry, has three decades of experience in developing baby diaper products and supplying global customers. At PT Softex Indonesia, he launched over 20 new baby diaper products, reduced the time to market from nine to three months, and increased revenue to $480 million per year. Eventually, PT Softex was sold to Kimberly Clark for $1.2 billion. Although Alex only joined the team this summer, he has already improved the company’s proprietary diaper core, which is now ready for commercial sale.
The second notable personnel addition is Robert Sjöström, who recently joined Soft N Dry as a strategic advisor. Sjöström has more than two decades of leadership experience. He most recently held various key roles, including President and CIO at Essity AB, where he was head of all hygiene categories (including baby) and responsible for the group’s M business. Sjöström managed a 7 billion euro budget and was responsible for global procurement, supply chain, and digital transformation at Essity, among other things. Robert is Chairman of the Board of Midsummer and a board member of Greenly.
Soft N’Dry plans to go public on the Canadian CSE and have a dual listing in Frankfurt later this year. Cash flow from the licensing business is expected to begin in the first quarter of 2025. Given the strong free cash flow model, CEO Matthew Keddy is considering the idea of paying an early dividend – ideally in the first year of being listed.
Conclusion: Approximately 6,600 diapers are used per child (2,200 per year for about 3 years) at a price of about $0.25 to $0.55 per diaper. Estimates suggest that the global diaper market currently has a worldwide revenue of $85 billion with a projected growth rate of 6.38% per year. The industry is dominated by the largest players who primarily focus on marketing to differentiate themselves from competitors and gain market share. Major innovations have been virtually non-existent since the introduction of disposable diapers 50 years ago. Soft N’Dry’s pitch is therefore remarkably simple: Fewer diapers per day mean lower costs for families. Fewer diapers also mean fewer diapers in landfills. And last but not least, longer wearing comfort during day and night means better sleep for the baby and parents. Soft N Dry will likely not appear on shelves under its own name, but will provide the inner values for a new generation of diapers in the future. With the world’s first tree-free disposable baby diaper liner, Soft N Dry aims to score points through increased sustainability, lower costs, and better performance. The need to save money, especially for families with many children, could become the main driver for business. After all, 33% of families have to save on basic necessities to afford diapers for their children. We will closely follow Soft N Dry’s journey from now on.
