The fallout from China’s sinking birth rate is rippling from public sector concern into a private market headache.
Despite desperate efforts to boost record-low fertility rates in one of the most populated countries on earth, last year deaths outnumbered births in China for the first time in six years.
Now, the implications of the shift are spreading to business, with Nestlé moving to shut one of its baby formula plants owing to fewer newborns in China.
“External trends have significantly impacted demand for infant nutrition products in the Greater China region. The number of newborn babies in China has declined sharply from some 18 million per year in 2016 to fewer than 9 million projected in 2023,” Nestlé, the world’s largest food company and conglomerate behind brands like KitKat and Nescafé, said in an announcement Wednesday.
Nestlé had a large presence in China’s baby formula market—worth several billions of dollars. But the sector has also been rich with competition as more Chinese players gained ground in recent years.
“The market, which had previously been reliant on imported infant formula products, is also seeing rapid growth in locally produced products,” Nestlé said.
The company plans to close down its factory in Askeaton, Ireland, where it has made infant formula specifically for the Greater China and Asia markets since it acquired the facility in 2012.
It proposes to close down the facility by early 2026, and shift production of its baby formula to its existing locations in Suzhou, China, and Konolfingen, Switzerland.
The Askeaton plant recruits about 542 staffers, with whom Nestlé plans to kick off a “consultation process,” a Nestlé spokesperson told Fortune.
The Smarties-maker has been looking for a buyer for the factory but has yet to find one.
The Irish minister for enterprise, trade, and employment, Simon Coveney, said the news was “very disappointing,” according to the BBC, adding that the government intended to offer full support to affected employees.
Bracing for weight-loss drug impact
Nestlé’s factory closure was announced just as the company released results for the first nine months of the year, which fell short of expectations.
The Swiss giant reported sales of approximately $76.6 billion for the period, which marked 7.8% growth—missing the 8.1% consensus estimate.
Prices at the company rose 8.4% in the first nine months of 2023, owing to “historic input cost inflation,” Nestlé said, which may have hurt sales as consumers slashed spending amid higher retail prices.
“[Sales] growth was driven by pricing as we continued to navigate historic inflation levels. The recovery of our volume and mix is underway,” Nestlé CEO Mark Schneider said Thursday.
The soaring popularity of drugs that aid weight loss by curbing appetite has also put pressure on food and beverage companies as consumers cut back on food.
Nestlé is bracing itself for this impact by making products that provide nutritional aid to users of drugs such as Wegovy and Ozempic, both made by Novo Nordisk.
“When you eat less, you have certain needs of vitamins, minerals, and supplements,” Schneider told Bloomberg. “You want to be sure that the weight loss gets supported. You want to be sure that you limit the loss of lean muscle mass.”
While food and beverage retailers including U.S.-based Walmart have already noted an impact in sales as a result of the rise in weight-loss drugs, Nestlé said it has not seen it hurt its business yet.
