A COVID baby bust is bad news for these businesses – Fox Business


Makers of infant formula and diapers are girding for another possible COVID-19 challenge: fewer babies.

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Birthrates have been declining for years in the U.S. and China, and new projections suggest that the coronavirus pandemic could lead to hundreds of thousands of fewer births in the coming months. A drop in new arrivals could spell trouble for makers of infant products, who have been developing new lines and shifting their focus to other products, analysts and executives say.


“What we have seen in the pandemic, particularly in the U.S., is a decline in birthrate,” Laxman Narasimhan, chief executive of Enfamil maker Reckitt Benckiser Group PLC, said on an investor call last month. To buoy sales, Mr. Narasimhan said Reckitt has been expanding its nutrition category to include a focus on elderly people’s health.

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The company, which also makes milk supplement Sustagen, last month warned that fewer births in China—about half the global baby-formula market—as well as the U.S. could hit its baby-feeding business next year.

U.S. government data for 2020 birthrates won’t be available until next summer. Mr. Narasimhan in an interview said Reckitt has its own birthrate projections and has also noted figures from the Brookings Institution.

The think tank has forecast between 300,000 to 500,000 fewer births in the U.S. next year, compared with a drop of 44,172 last year. Its analysis, partly based on what happened following the 2007-2009 recession, is that weaker job prospects equate to fewer births. “Women will have many fewer babies in the short term, and for some of them, a lower total number of children over their lifetimes,” it said in a June report.

Barclays expects China’s birthrate to drop 8% this year, double last year’s decline.


“Concerns around infection and a pending economic slowdown are a powerful cocktail” that could accelerate China’s falling birthrates, said Barclays analyst Warren Ackerman. He thinks the trend could drive further consolidation among big players in China’s infant formula market.

With birthrates in the U.S. and China already at their lowest levels on record, formula makers including Reckitt, Nestlé SA and Danone SA have been under pressure. Parents in these countries and some others are having fewer children but spending more money on them, propelling companies to create pricier baby food. Nestlé in June launched an upscale infant milk powder brand called Belsol for the Chinese market and recently began selling a new formula for infants allergic to cow’s milk protein.

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NSRGY NESTLÉ SA 115.15 -1.54 -1.32%
DANOY DANONE SA 12.98 +0.04 +0.31%

Nestlé is also increasingly creating products for the first 1,000 days of a baby’s life, developing supplements for both mother and baby. Last year it opened a $32 million research center in Ireland focused on the category. Nestlé CEO Mark Schneider last month said the Gerber owner is making up for sluggish baby-formula growth in areas like infant cereals and vitamins.

Reckitt has also expanded its nutrition offerings, using its expertise in baby-related products to launch supplements for adults as well. “We see a real tailwind in seniors, and the growth rate in there is actually not small,” Mr. Narasimhan said.

Infant formula is particularly important for Reckitt, which bet big on the category three years ago with its $16.6 billion acquisition of baby-food maker Mead Johnson Nutrition Co. Growth since then has been slow with China’s birthrates steadily falling since 2016—the year after the government relaxed its one-child policy. The company in February took a write-down equivalent to over $6 billion on the business, citing the lower birthrate in China and increased competition.

Pampers owner Procter & Gamble Co. has also seen sales buffeted by the drop in birthrates and is developing more sophisticated products that can justify high prices. Earlier this year, it said sales of more-elaborate diapers that use tape or fit like pants are growing strongly. A spokeswoman for P&G said it is too early to know what Covid-19’s impact will be on birthrates.

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KMB KIMBERLY-CLARK 142.09 +1.75 +1.25%

Others are on the fence, too.


“I don’t have a great view right now at this point of the long-term effects of Covid,” Kimberly-Clark Corp. CEO Michael Hsu said on an investor call last month. “There’s all different kinds of projections, including baby boom, because there’s less to do.”

The Huggies owner has introduced new diapers, including a line called Special Delivery, which is made from plant-based materials and costs roughly five times more than the cheapest diaper on the market.

Mr. Hsu said Kimberly-Clark would look to keep expanding in emerging markets where populations are growing, highlighting its $1.2 billion acquisition of an Indonesian diaper maker in September as an example. He said Kimberly-Clark is now watching birthrate trends closely.

Barclays predicts births in China are unlikely to recover next year but will pick up after that because, according to the Chinese zodiac, the years that follow are considered auspicious for childbirth.

Brookings says rates in the U.S. will depend on the strength of the labor market. However, the think tank estimates the downturn will be prolonged, stating, “We expect that many of these births will not just be delayed—but will never happen.”


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