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COVID baby bust is bad news for this business



Manufacturers of formula and diapers are wary of another possible challenge for COVID-19: fewer babies.

Birth rates have been declining for years in the United States and China, and a new coronavirus pandemic estimates could lead to hundreds of thousands fewer births in the coming months. The drop in new arrivals could lead to problems for baby product manufacturers, who are developing new lines and focusing on other products, analysts and executives say.

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“What we saw in the pandemic, especially in the United States, is a drop in birth rates,”

; said Laxman Narasimhan, CEO of Enfamil Reckitt manufacturer Benckiser Group PLC, when an investor was called last month. To market sales, Mr Narasimhan said Reckitt was expanding its food category to include a focus on older people’s health.

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RBGLY RECKITT BENCKISER GROUP PLC 18.51 -0.20 -1.07%

The company, which also makes the Sustagen milk supplement, warned last month that fewer births in China – about half of the global infant formula market – as well as in the United States could appear in its baby feeding business next year. year.

US government data on the birth rate in 2020 will be available until next summer. Mr Narasimhan said in an interview that Reckitt had his own birth rates and also noted data from the Brookings Institution.

The think tank predicts between 300,000 and 500,000 fewer births in the United States next year, down from 44,172 last year. Her analysis, based in part on what happened after the 2007-2009 recession, is that lower job prospects equate to fewer births. “Women will have far fewer babies in the short term, and for some they will have a lower total number of children throughout their lives,” a June report said.

Barclays expects the birth rate in China to fall by 8% this year, doubling last year’s decline.

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“Concerns about infection and the impending economic slowdown are a powerful cocktail that could accelerate China’s birth rate decline,” said Barclays analyst Warren Ackermann. He believes that this trend could lead to further consolidation among the major players in the Chinese infant market.

As birth rates in the United States and China are already at their lowest levels, formula makers, including Reckitt, Nestlé SA and Danone SA, are under pressure. Parents in these countries and some others have fewer children but spend more money on them, forcing companies to create more expensive baby foods. In June, Nestlé launched a high-quality brand of baby milk powder called Belsol for the Chinese market and recently launched a new formula for infants allergic to cow’s milk protein.

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NSRGY NESTLÉ SA 115.23 -1.46 -1.25%
Given DANONE SA 12,965 th most common +0.03 + 0.19%

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, he opened a $ 32 million research center in Ireland focused on the category. Last month, Nestlé CEO Mark Schneider said Gerber’s owner was compensating for the slow growth of formula in areas such as cereals and vitamins.

Reckitt has also expanded its nutrition offerings, using its experience in baby-related products to release supplements for adults as well. “We see a real wind in the elderly and the growth rate there is not really low,” Mr Narasimhan said.

Infant foods are especially important to Reckitt, who bet big on the category three years ago with the acquisition of baby food maker Mead Johnson Nutrition Co. for $ 16.6 billion. the government relaxed its one-child policy. In February, the company took a label worth more than $ 6 billion for the business, citing lower birth rates in China and increased competition.

The owner of Pampers, Procter & Gamble Co. Earlier this year, she said sales of more sophisticated diapers that use tape or fit as pants are growing sharply. A P&G spokesman said it was too early to know what effect Covid-19 would have on birth rates.

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PG PROCTER & HAMBLE COMPANY 141.84 -2.30 -1.60%
KMB KIMBERLY-CLARK 141.68 +1.33 + 0.95%

Others are on the fence.

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“Right now, I don’t have a great view of Covid’s long-term effects at this point,” Kimberly-Clark Corp. CEO Michael Hsu said during a call for investors last month. “There are different types of predictions, including a baby boom, because there is less to do.”

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

Mr Hsu said Kimberly-Clark would seek to continue to grow in emerging markets where the population is growing, citing its acquisition of an Indonesian diaper maker for $ 1.2 billion in September. He said Kimberly-Clark is now following birth rates closely.

Barclays predicts that births in China are unlikely to recover next year, but will accelerate thereafter, as the Chinese zodiac says the following years are considered favorable for childbirth.

Brookings says rates in the United States will depend on the strength of the labor market. However, the think tank believes the decline will continue, saying: “We expect that many of these births will not just be delayed, but will never happen.”

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