by Farah Master

HONG KONG (Reuters) – For many of China’s manufacturers of babies and children’s products, the painful reverberations from last year’s historic decline in the country’s population are already upon them.

Domestic sales are shrinking and the race is on to develop new streams of revenue, whether by diversifying into products for adults or boosting offerings in overseas markets with young populations such as Southeast Asia and India.

Hong Kong-listed Health & Happiness (H&H), which derives almost half of its revenue from baby products such as baby formula, food and diapers, is one such company.

Its dodgy diaper brand’s revenue in mainland China was down 12% last year, Interim Chief Executive Officer Akash Bedi says, as birth rates hit a record low and prices plummeted.

Bedi said global expansion and diversification are H&H’s priorities this year and beyond. The company managed to offset a decline in demand for diapers with a 12.5% ​​increase in global revenue for its adult nutrition division containing Swiss-branded vitamins and supplements.

“In new markets such as Vietnam, Thailand, India and Malaysia, (Swiss) is moving into both offline and online channels to increase brand share,” he said via email.

According to Euromonitor research, China’s market for baby food and diapers is the world’s largest at $37.9 billion, accounting for nearly a third of annual global sales.

But China’s population decline for the first time in six decades has had a sharp impact and the market is forecast to contract this year for the first time since Euromonitor began tracking it in 2012. will decline by 2% to $37.2 billion by 2025.

The decline in the birth rate is also not expected to end any time soon, with analysts saying young Chinese adults may prefer to have more than one or even none at all due to the exorbitant cost of child-rearing, especially education. not willing to do.

China’s lowest birth rate on record https://www.reuters.com/graphics/CHINA-ECONOMY/DEMOGRAPHICS/zdpxdrarmpx/chart.png

Non-diversified makers of baby products “are going to face declining margins, poor revenue, and their share prices going to fall because it may take them one, two, maybe even three years to come up with and execute a new strategy.” For,” said Sean Rein, managing director of China Market Research Group (CMR).

CMR estimates that China’s market for children’s goods and services (including education) is currently worth about $500 billion annually and will shrink by 15%-20% over the next five years.

Slowing revenue for baby products in China Slowing revenue for baby products in China https://www.reuters.com/graphics/ASIA-POPULATION/CHINA-BABY%20PRODUCTS/egvbyezqxpq/chart.png

adult diaper, adult milk powder

Fujian-based Hengan International Group Co, which makes sanitary napkins, diapers and tissues, saw its overall diaper sales fall 1.4% last year as cheaper products from its baby diaper range lost support. However, adult diaper revenue grew 13% — showing how China’s rapidly aging population is driving a shift in consumer spending.

Noting the “huge room for growth”, Hengan plans to invest more in adult care products such as its Elderjoy diaper brand, with the aim of expanding market share both at home and in Southeast Asia. month said in an earnings statement.

Perhaps most hurt by China’s demographic trends are domestic manufacturers of infant milk formula with less diverse product lines, with many posting sales declines in 2022 after years of growth.

China Fahey, the country’s biggest maker of infant formula, saw revenue fall 6.4%. Yashili International Holdings Ltd’s sales declined by 15.7%, while Ausnutria Dairy Corp Ltd’s sales declined by 9.1%.

Chinese infant formula makers’ revenue declines https://www.reuters.com/graphics/ASIA-POPULATION/CHINA-BABY%20PRODUCTS/lgvdkgqzwpo/chart.png

Shares of the three firms are now trading 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 report said. In particular, milk powder products for adults that are enriched with vitamins and minerals — while mostly a nascent China-only market segment — have been targeted as a promising area for growth.

For example, Yashili said it will focus on making milk powder for children aged 3 to 15 years as well as adults, especially the elderly. It has recently launched products targeting young women including Goji Berry Puree and Fruit Oatmeal.

Children’s clothing manufacturers are also having to become more creative as they pursue growth.

“The impact of the decline in the birth rate is very, very, very real,” said Zhang Yan, founder of Shanghai-based children’s clothing line NatunaKids.

“We now make a lot of parent-child matching outfits. Whereas once an item of clothing was made just for children, I’m now asking my craftspeople to make adult versions,” she said.

($1 = 6.9110 )