Demand for Baby Products Is Down
Falling Birth Rates Mean Lower Demand for Diapers and Formula
Recent data shows that the COVID-19 pandemic is causing people to have fewer babies. Analysts predict that this year the US birth rate will fall by 300,000 to 500,000—a much higher decline than the 44,172 drop seen last year. In China, the birth rate is expected to be 8% lower this year, double the decline seen last year. In 2016 China ended its one-child policy after 40 years, but after an initial spike, birthrates in the country have been falling over the past four years.
Fewer new babies means lower demand for diapers, formula, and other baby products. This is impacting companies like Reckitt Benckiser (RBLY), which owns formula brand Enfamil, as well as Nestlé (NSRGY), which makes formula and owns baby food company Gerber. Procter & Gamble, which owns the diaper brand Pampers, Kimberly-Clark (KMB), which owns Huggies, and other diaper makers are looking toward what could be a period of low demand for their products.
Birth rates were already falling before the pandemic, and companies supplying baby products were finding ways to adapt. Now this trend is being accelerated. In countries like China and the US, many families are having fewer children but spending more money per child.
In response to this pattern, companies are selling more upscale formula for babies with specific nutritional needs. Similarly, Pampers and other companies are making specialized, more expensive diapers. Some are made out of sustainable materials, while others offer specific styles and fits. Companies are also expanding their offerings and making supplements for babies as well as their new mothers. Additionally, as the population ages, some companies are pivoting and creating nutritional supplements for elderly people.
Baby-centric brands have dealt with falling birthrates and subsequent drops in demand for their products before. Between 2007 and 2009 families had fewer children because the labor market was suffering. This seems to be the case in 2020 as well.
Looking ahead, some analysts predict the birthrate could stay low in the US for several years, even if the labor market strengthens.
A low birth rate impacts sales of baby products first, but then as a smaller generation of children grows up, sales of toys, educational products, and eventually products for young adults are impacted. A lower birth rate this year could have long-lasting effects on the economy.
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