Kudos sustainable diapers to launch in Target stores

Throughout modern history, parents have only had one real choice when it comes to disposable diapers: plastic.

Single-use products are typically made from fossil fuels like petroleum and can take hundreds of years to decompose, making them the third-largest consumer item in U.S. landfills, according to the Environmental Protection Agency.

Additionally, they are not as breathable as other materials, which could make incidents like diaper rash more common.

Still, plastic diapers from big brands like Procter & Gamble-Privately owned Pampers and Kimberly ClarkKudos-owned Huggies brands continue to dominate the market. Amrita Saigal, founder and CEO of Kudos, is looking to change that.

The Massachusetts Institute of Technology graduate, mechanical engineer and “Shark Tank” alum developed a sustainable diaper that uses some plastic but is 100 percent cotton-lined and incorporates other degradable materials like sugar cane and trees, she tells CNBC.

Later this month, it will be the first diaper of its kind to hit retail shelves when it launches in approximately 375 Aim Locations nationwide.

““I'm very excited to partner with Target to make history as the first 100% cotton liner disposable diaper to hit retail shelves,” Saigal said in an interview with CNBC. “It's a huge accomplishment for us, especially since Target doesn't carry a lot of brands.”

In the three years since its launch, Kudos has raised over $6 million in funding. Last month, it closed a $3 million round with investments from Precursor Ventures, Xfund and Oversubscribed Ventures.

In the past 12 months, it has sold more than 20 million diapers and increased sales by more than 100%.

Saigal says he has long been fascinated by consumer packaged goods and has spent his career looking for ways to redesign everyday products like sanitary pads and diapers as he seeks to revolutionize an industry long dominated by corporate superpowers.

Their goal? To reduce the world's dependence on fossil fuels by creating new supply chains and developing sustainable products that are just as efficient (or even better) than the competition.

“I'm not going to launch a product that's not on par with or better than Pampers,” Saigal said.

“Are there eco-friendly alternatives? Yes, but they don't work, and when it comes to diapers, we can't have something that doesn't work. If you have a rash, a leak, your parents are already sleep deprived. They need things that work. They're not willing to sacrifice performance for the sake of being eco-friendly.”

After three years of research and development, Saigal developed a diaper that can absorb much more liquid than competitors such as Pampers Pure Protection, Huggies Special Delivery and Honest diapers, according to independent testing conducted by Diaper Testing International.

Pampers did not respond to a request for comment. Honest declined to comment.

A spokesperson for Kimberly-Clark, which owns Huggies, told CNBC it could not comment because it had not seen the study by Diaper Testing International.

Saigal also developed a patented “DoubleDry” technology that provides two layers to the diaper instead of one, allowing it to absorb moisture.

“If you just took out the plastic and replaced it with cotton, the diaper would fail miserably, because what would happen is the baby would pee and all the urine would pool up, and then the baby's bottom would be wet,” Saigal said. “How do you quickly absorb the urine and poop and then get it through the layers of the diaper and then disperse it evenly so that the baby's bottom feels dry? That's really our innovation.”

Kudos is much smaller than its larger competitors, but Saigal said its size has made the business uniquely positioned to build new cotton supply chains and help suppliers grow alongside the company.

“For a company like P&G to do this, it takes hundreds of millions of dollars to reconfigure their equipment to be able to do this. It's really difficult, with their existing supply chains, to allow natural materials to work in their current processes,” said Saigal, who worked for P&G as a design and manufacturing engineer after graduating from MIT.

Even sourcing natural materials to use instead of plastics would be a challenge for larger companies because of their scale, Saigal said. Suppliers, such as cotton farmers, tend to have buyers and partners committed before growing the requested materials, and since there isn't yet mass demand for cotton from diaper manufacturers, those supply chains don't really exist at scale yet, she said.

As more and more small brands work with natural material suppliers to develop new supply chains, Saigal expects big brands to embrace natural materials over plastic more broadly, which could drive down the price of those materials and, in turn, make plastics more expensive.

“When will we really see mass adoption of natural materials? The reality is that natural materials will be cheaper than plastic,” he said.

Kudos faces a daunting outlook in terms of scale.

Fashion brands that start out selling directly to consumers and then make their way into retail can face difficulties due to the high cost of inventory and the onerous payment terms that come with it.

Hello Bello, a hypoallergenic and sustainable diaper brand founded by celebrity couple Kristen Bell and Dax Shepard, filed for bankruptcy in October as it struggled to build out its supply chain after beginning to sell at retailers like Walmart.

In recent years, several other consumer products companies and direct-to-consumer brands faced similar fates after emerging in a financing environment that prioritized growth over profitability.

“In the heyday of DTC, the idea was, ‘Don’t worry about unit economics now, right? ’ Just revenue growth, revenue growth, revenue growth, and once you’re at $100 million, $200 million in revenue, then let’s figure out how to make this profitable,” said Saigal, who founded her company in 2021 and secured funding from “Shark Tank” host Mark Cuban and Shark Tank guest Gwyneth Paltrow in 2023.

“I don't think that model works anymore,” he continued. “It's like growing more slowly, but having the unit economics working from day one. I think the brands that are going to be successful now have to have very tight control of their numbers and their unit economics from the beginning.”

In the coming year, Saigal’s No. 1 priority for her business is to reach profitability, and to do so, she’s keeping her team small and being strategic with the capital she’s using to pay for inventory ahead of its launch at Target. She’s also had to tread carefully when it comes to pricing. Her products are more expensive to make than her competitors’, but if she prices them too high, she risks alienating potential buyers.

Currently, parents can purchase Kudos for between 41 and 70 cents per diaper, depending on the size. By comparison, a box of Pampers Pure Protection costs between 34 and 75 cents per diaper, according to an ad on Target.com.

“We are a little bit more expensive simply because our raw materials are more expensive, but I've tried to keep it as minimal as possible,” Saigal said. “I care a lot about being premium, but accessible. That's exactly what I want to do, so that we are accessible to as many people as possible and the cleanest materials are not out of reach.”

Disclosure: CNBC holds the exclusive off-network cable rights to “Shark Tank,” which features Mark Cuban as a panelist.