Focus: Chinese baby product firms seek to age up, sell more abroad as population falls

Goodbaby International Holdings

11/05/2023 24:00

By Farah Master
       HONG KONG, May 11 (Reuters) - For many of China's
manufacturers of baby and children's products, painful
reverberations from last year's historic decline in the
country's population are already upon them.
    Domestic sales are shrinking and the scramble is on to
develop new streams of revenue, whether that be diversifying
into products for adults or boosting offerings in overseas
markets with younger populations like Southeast Asia and India.
    Hong Kong-listed Health and Happiness (H&H)  1112.HK , which
gains nearly half of its revenue from baby products such as
infant formula, food and diapers, is one such company.
    Revenue for its Dodie diaper brand slid 12% in mainland
China last year as a fresh decline in the birth rate to a record
low exacerbated oversupply and caused prices to drop, says
interim Chief Executive Akash Bedi. 
    Global expansion and diversification are H&H's priorities
this year and beyond, Bedi added. The company managed to offset
the fall in diaper demand with a 12.5% jump in global revenue
for the adult nutrition division housing its Swisse-branded
vitamins and supplements. 
    "In newer markets such as Vietnam, Thailand, India, and
Malaysia, the (Swisse) brand has been growing both offline and
online channels to grow share," he said via email.
    China's market for baby food and diapers is the world's
largest at $37.9 billion, accounting for around a third of
global sales annually, according to research from Euromonitor. 
    But the knock-on effects from China's first population drop
in six decades have been swift and the market is forecast to
contract this year for the first time since Euromonitor began
keeping track in 2012. Including this year's fall to $37.6
billion, it is expected to shrink 2% to $37.2 billion by 2025.
    Birth rate declines are also not expected to end any time
soon, with analysts noting young Chinese adults are not keen to
have more than one or even any kids due to the sky-high costs of
child-rearing, especially education.
    Non-diversified makers of baby products are "going to face
declining margins, bad revenues, and their stock prices are
going to collapse because it's going to take them one, two,
maybe even three years to come up with a new strategy and
execute," said Shaun Rein, managing director of China Market
Research Group (CMR).
    CMR estimates the China market for children's goods and
services (including education) to currently be worth some $500
billion annually and predicts it will shrink 15%-20% over the
next five years.   
   
    ADULT DIAPERS, ADULT MILK POWDER 
    Fujian-based Hengan International Group Company  1044.HK , a
maker of sanitary napkins, diapers and tissues, saw its overall
diaper sales fall 1.4% last year as products at the cheaper end
of its baby diaper range lost favour. Adult diaper revenue,
however, shot up 13% - highlighting how China's rapidly ageing
population is prompting shifts in consumer spending. 
    Noting "huge room for development", Hengan plans to invest
more in adult care products such as its ElderJoy diaper brand,
aiming to expand market share both at home and in Southeast
Asia, it said in an earnings statement last month.
    Perhaps the most hurt by China's demographic trends have
been domestic manufacturers of infant milk formula with less
diversified product lines, with many posting steep sales drops
in 2022 after years of growth.
    China Feihe  6186.HK , the country's biggest maker of infant
formula, saw revenues slide 6.4%. Sales for Yashili
International Holdings Ltd  1230.HK  plunged 15.7% while those
for Ausnutria Dairy Corp Ltd  1717.HK  tumbled 9.1%.
    Shares for the three firms now trade between a third and a
fifth of their all-time highs. None responded to requests for
comment.
    All are expanding into products for older people, their
earnings reports said. In particular, milk powder products for
adults that are fortified with vitamins and minerals - while
mostly a nascent China-only market segment - have been targeted
as a promising area for development.
    Yashili, for example, said it will focus on making milk
powder for 3-to-15-year-olds as well as adults, particularly the
elderly. It has also recently launched products targeting young
women, including a goji berry puree and fruit oatmeal.
    Makers of children's clothing are also having to become more
creative as they pursue growth.
        "The impact of declining birth rates is very, very, very
real," said Zhang Yan, founder of Shanghai-based children's
clothing line natunakids.
    "We now make a lot of matching parent-child outfits. Whereas
once an item of clothing would have only been made for kids, I 
am now asking my craftspeople to also make adult versions," she
said.
($1 = 6.9110 Chinese yuan)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
China's lowest birth rate on record    https://tmsnrt.rs/3w6L0FU
Falling revenues for Chinese infant formula  makers     https://tmsnrt.rs/42ioEjs
Slowing revenue for baby products in China Slowing revenue for
baby products in China    https://tmsnrt.rs/3pqLwi2
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Additional reporting by Nicoco Chan and the Beijing newsroom;
Editing by Marius Zaharia and Edwina Gibbs)
 ((farah.master@thomsonreuters.com; +852 3462 7709;))