By Saabira Chaudhuri
Makers of infant formula and diapers are girding for another
possible Covid-19 challenge: fewer babies.
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.
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.
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.
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."
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
November 16, 2020 05:44 ET (10:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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