Kimberly-Clark, the renowned manufacturer of diapers and sanitary pads, is set to announce the imminent shutdown of its Ikorodu production facility, just two years after investing $100 million in the Nigerian market.
This move comes as the company grapples with the harsh economic environment in the country, which has led to production operating below capacity from late 2023 into 2024.
In 2022, Kimberly-Clark inaugurated the $100 million production facility in Ikorodu, Lagos State, marking a significant restart of operations after a previous closure in 2019. The 2019 shutdown followed a strategic review of the business in response to unfavorable economic conditions, leading to the temporary cessation of operations which initially began in 2012. Kimberly-Clark resumed its operations in 2021, aiming to capture a growing market with products such as Huggies diapers and Kotex sanitary pads.
However, according to sources within the company who spoke under the condition of anonymity, Kimberly-Clark has been struggling with high energy costs, expensive raw materials, and reduced customer demand since late 2022. These challenges have forced the company to downsize and reduce production days from seven to four per week, now operating only from Monday to Thursday.
“Our first two years were fantastic in terms of sales growth and market share within the diaper industry. However, late 2022 and 2023 have been particularly challenging due to the economic situation,” said the source. “Our fixed monthly expenditures exceed N500 million, with around N100 million spent solely on power generation. Additionally, last year, our assets were non-operational for about 90 days out of 365.”
The source further revealed that the high production costs are primarily due to the increased cost of raw materials, which are largely imported. Kimberly-Clark had initially set aside operational funds intended to sustain the business for five years, expecting revenue from Nigerian operations to eventually cover these costs.
The planned shutdown of Kimberly-Clark’s operations in Nigeria mirrors the exit of other manufacturers from the country in recent years. High production costs, currency depreciation, and weak purchasing power among the populace have driven these decisions. In a similar vein, U.S.-based Procter & Gamble (P&G) ceased its production in Nigeria last year after investing approximately $300 million in a facility in Ibadan. PZ Cussons is also reevaluating its strategy for its African business, with Nigeria being a significant part of its operations.
The Nigerian baby diaper industry, estimated at $920 million with a compound annual growth rate (CAGR) of about 11% between 2024 and 2028, is highly competitive. Major players include P&G’s Pampers, Molfix, and Kimberly-Clark’s Huggies, among around 15 brands competing for market share.
The closure of Kimberly-Clark’s facility is a significant blow to the Nigerian government’s efforts to attract foreign direct investment and underscores the challenges faced by businesses in the real economy. Furthermore, with two of the three leaders in the diaper and personal care industry (P&G and Kimberly-Clark) ceasing local production within the past year, the market dynamics are set for a considerable shift.
If Kimberly-Clark transitions to an import-based business model similar to P&G and GSK, it could lead to increased costs for diapers and sanitary products due to the depreciating Naira. This shift would also further inflate Nigeria’s import bills at a time when the government is emphasizing local production.
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