Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Diaper Industry
Transcript
- Lucas: So the U.S. birth rate hit another record low in 2025 — about 3.5 million births, down from 3.6 million the year before. And that's not just a statistic for demographers. It's a concrete problem for a multibillion-dollar industry that depends entirely on babies. Luna: You're talking about diapers. Lucas: Exactly. The diaper industry is maybe the most direct line you can draw between falling birth rates and corporate earnings. Procter & Gamble's Pampers brand and Kimberly-Clark's Huggies are the two biggest players in the U.S., and both have seen volume shrink for years. Luna: I remember reading that P&G's baby care volume was down something like 5 percent in their last fiscal year. But their revenue didn't drop nearly as much. Lucas: Right. That's the key tension. The U.S. diaper market has contracted roughly 8 percent in volume since 2020, but total revenue has held pretty steady — around $5.5 billion. How? Two words: pricing power and premiumization. Luna: So parents are buying fewer diapers, but they're paying more per diaper. Lucas: Exactly. P&G has been pushing parents toward their premium lines — Pampers Swaddlers, Baby Dry, Cruisers — which have higher margins. They've also reduced discounts and couponing. And they've introduced sizes and features that encourage trading up, like wetness indicators and hypoallergenic materials. Luna: It feels a bit like the razor business model. Give away the handle, charge for the blades. Here, the baby is the handle. Lucas: That's a good analogy. And it works until the number of handles shrinks. But here's the thing — P&G and Kimberly-Clark aren't just standing still. They're following the demographic curve to the other end of life. Luna: Adult incontinence. Depend and Poise. Lucas: Exactly. Kimberly-Clark's Depend brand has been growing at over 6 percent annually. P&G has its own adult incontinence line, Always Discreet. And the market is much bigger than diapers — the U.S. adult incontinence market is already about $4 billion and growing as Boomers age. Luna: So the same companies, the same absorbent technology, just a different customer. And the demographic tailwind is way stronger — 10,000 Americans turn 65 every day. Lucas: Right. And the margin structure is actually better for adult products. Less price sensitivity, more repeat purchasing, and less competition from private labels. It's a textbook pivot. Luna: But let's talk about the startups. There's a whole wave of diaper subscription companies — Honest Company, Coterie, Dyper — that tried to disrupt P&G with eco-friendly materials and convenience. Lucas: And they've had mixed results. Honest Company went public in 2021 at a valuation over a billion dollars, and it's now worth about a third of that. The problem is that diapers are a scale business. P&G can produce a diaper for maybe 10 cents — a startup might pay 25 cents. And when the market is shrinking, the incumbents can defend their shelf space aggressively. Luna: So the startups are fighting for a smaller pie, against players with massive cost advantages. That's a tough pitch for venture capital. Lucas: It is. But some of them are pivoting too. Dyper, for example, has been marketing its compostable diapers to parents who care about landfill waste. That's a niche, but a growing one. And Coterie is going ultra-premium — their diapers are like $1.20 each, compared to Pampers at about 30 cents. Luna: At that price, you're really selling to high-income families in cities. That's a small slice of the market. Lucas: Right. But that slice is less affected by birth rate declines, because wealthy parents tend to have fewer kids but spend more per kid. So the premium strategy hedges against volume loss. Luna: There's also a global angle. The U.S. birth rate is falling, but places like sub-Saharan Africa and parts of South Asia are still growing. Lucas: Absolutely. P&G and Kimberly-Clark are investing heavily in Africa and India. P&G has a big diaper plant in Egypt, for example. But the per-diaper revenue is much lower there — maybe 10 cents versus 30 cents in the U.S. So you need massive volume to make it work. Luna: And the logistics are harder. Poorer infrastructure, less reliable electricity, different retail channels. Lucas: Exactly. It's not a simple swap. You can't just replace a lost U.S. customer with a customer in Nigeria and call it even. The economics are completely different. Luna: So what does this mean for investors? If you own P&G or Kimberly-Clark, is this a risk or an opportunity? Lucas: I'd say it's a manageable risk. Diapers are only about 10 percent of P&G's total revenue. And they have so many other categories — laundry, grooming, feminine care, oral care — that the diaper decline is a minor headwind, not a crisis. Luna: But for a pure-play diaper company? Or a startup? It's existential. Lucas: For sure. And that's why we're seeing consolidation. In 2024, P&G acquired a majority stake in a premium diaper brand in South Korea. They're buying growth where they can find it. Luna: Speaking of finding what works — you know, this kind of analysis is exactly why I love doing this show. A couple of dollars a month from listeners genuinely keeps these episodes ad-free and independent. If you've gotten something out of walking through the economy with us, you can support the show at buy me a coffee dot com slash fexingo. Lucas: Yeah, it really does make a difference. Every little bit helps us keep digging into stories like this. And we're grateful for it. Luna: So back to diapers — one more thing I find interesting: the environmental angle. Disposable diapers are a huge waste problem. About 20 billion end up in U.S. landfills each year. Could that become a regulatory risk for the industry? Lucas: It could. Some states have considered diaper taxes or disposal bans. But the industry has fought back hard. And the alternative — cloth diapers — has its own environmental costs: water, energy, detergent. The carbon footprint is actually comparable when you account for washing. Luna: So it's not a clear win for cloth. But there is a growing market for compostable diapers, even if it's tiny. Lucas: Tiny but fast-growing. Dyper says its revenue grew 40 percent in 2025. From a very small base. But if consumer preferences shift, the incumbents could adapt — they have the R&D budgets and the manufacturing muscle. Luna: I also wonder about the impact of immigration. The U.S. birth rate decline is partly driven by lower fertility among native-born women. But immigrant women still have higher fertility rates. Could that offset some of the decline? Lucas: Partially. The foreign-born population has a fertility rate around 2.2 births per woman, compared to 1.6 for native-born. But immigration flows are volatile and subject to policy. It's not a reliable long-term fix for the diaper industry. Luna: So the real story here is adaptability. Diaper companies can't reverse demographics, but they can follow the money — to older customers, to premium products, to new markets. Lucas: Exactly. And that's a lesson that applies far beyond diapers. Every consumer goods company is facing some version of this. The question is: are you prepared to pivot before the shrinkage hits your bottom line? Luna: And the ones that are — like P&G and Kimberly-Clark — they'll probably be fine. The ones that aren't... well, they might end up in the landfill with their own products. Lucas: That's a grim image. But probably accurate.