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A Covid Baby Bust Is Bad News for These Businesses

Infant product companies are widening their offerings to combat diminishing sales.
(Kseniia Perminova)
(Kseniia Perminova)
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A Covid-19-driven decline in birth rates could “spell trouble for makers of infant products, who have been developing new lines and shifting their focus to other products,” WSJ reports.

U.S. birth rates have been steadily falling, hitting its lowest level in more than three decades last year. Data for 2020 won’t be available until next summer, but new projections estimate between 300,000 to 500,000 fewer births in the U.S. next year, compared to last year’s drop of 44,172.

  • The analysis is based on what happened in the wake of the 2007-09 financial crisis — weaker job prospects result in fewer births.
  • Barclays estimates China’s birth rate will drop by 8% this year, which double’s last year’s decline.

The global baby formula market was valued at $45.12 billion in 2018 and is expected to reach $103.75 billion by 2026, according to Fortune Business Insights. A potential contraction in the industry has businesses considering other revenue streams.

  • Reckitt Benckiser Group, which produces baby milk products Enfamil and Sustagen, has expanded its nutrition category to focus on elderly health to buoy sales.
  • Reckitt, along with Nestlé SA and Danone SA, has created pricier tiers of baby food to help navigate the challenging sales climate.
  • Last year, Nestlé opened a $32 million research center in Ireland to develop products for the first 1,000 days of a baby, including supplements for both mother and baby.

Other Key Points:

  1. Reckitt bet big on baby food with a $16.6 billion acquisition of Mead Johnson Nutrition three years ago. It has since taken a more than $6 billion write-down on the business.
  2. Procter & Gamble has gone the route of developing more sophisticated products, such as diapers, to pump up its decreasing sales figures.
  3. Huggies launched a line of plant-based diapers that costs “roughly five times more than the cheapest diaper on the market.”

The Bottom Line: Although births in China won’t likely recover next year, the following years are “considered auspicious for childbirth,” according to the Chinese zodiac. U.S. birth rates will largely depend on the strength of the labor market.

Justin Oh:

This is a really interesting trend, and may make investors think twice before seeking “stability” in consumer staples giants like Reckitt Benkiser (RB:LN), Nestle (NESN:SW), and Procter & Gamble ($PG). These stocks are all trading at a roughly 2.5% dividend yield and are for capital protection and dividend income, so they’re not our cup of tea here at Cents, as we prefer innovation-oriented, capital-appreciation investments.

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