Rising cost of raising children an opportunity for new business, IBISWorld report reveals

The rising cost of raising children and demand for premium baby food will provide solid opportunities for new businesses in the next few years, a new IBISWorld report has revealed.

A study from the research house released yesterday shows the cost of raising a child in their first four years is now more than $7000 per year, excluding childcare – but parents’ higher disposable income provides greater opportunity for new business.

The release of the study comes just days after one Australian baby food business scored a huge win. Rafferty’s Garden was sold to PZ Cussons, which owns other well-known baby-focused brands such as Morning Fresh, Radiant and St Tropez.

Victorian baby food manufacturer Baby Royale has also achieved recent success, with its premium halal, organic baby food now stocked in 350 Malaysian supermarkets as well as across Australia, Europe and the Middle East.

And while the infant clothing sector is expected to contract by 3.6% over the next five years, toy and game retailing will grow by 2%.

Online retail will be the biggest winner, predicted to increase by 15.19% over the next five years.

Overall, the largest increase in revenue since 2008-09 has come from the ‘other merchandise’ category, which has risen 84.9% to $7.95 million.

Most significant is the jump in the nutrition/food segment, which has increased approximately 44.9% in the past five years and is predicted to generate more than $1 billion this financial year.

Toys and footwear have also increased by smaller margins: 5.8% and 0.2%, respectively.

IBISWorld senior industry analyst Craig Shulman told SmartCompany spending on baby food has jumped as parents are increasingly buying premium foods.

“There has been an increase in spending in supplemental foods and foods which are more premium products, as parents become more conscious about nutrition in general.

“The focus on premium products, when it comes to this category of spending, means businesses have an opportunity to take advantage of that,” he says.

As parents return to work quicker after the birth of their child, mothers are breastfeeding for shorter periods, leading to an increase in sales of organic infant formula as well as milk-free and gluten-free ranges.

Shulman says the sizeable rise in spending on ‘other merchandise’ indicates parents have more disposable income to spend on things such as baby accessories, blankets and ‘baby-proof’ safety items.

“Because of the rising average age of parents there is greater spending on non-essential baby items, as well as those which allow parents to take a more rigorous approach to safety,” he says.

Include the cost of childcare, and the price of raising a child increases substantially. IBISWorld research predicts close to 50% of children aged up to four have used day-care services and the increase in working parents has driven up the cost and demand for these services.

The childcare industry is predicted to generate $6.6 billion in 2013-14, an 18.9% surge from 2008-09.

Shulman says one trend affecting the cost of raising a child, including child care, is the time-poor nature of working parents.

“They are supplementing things they’d usually do themselves by outsourcing products and services.

“Childcare spending has increased significantly, but particularly spending on nannies. More parents are hiring nannies because this gives them more flexible options,” he says.

While the total expenditure on baby products and services has increased by 14.5% over the past five years, the revenue of nappy and clothing businesses has dropped 11.5% and 12.5%, respectively.

“The common factor affecting those segments in decline is falling prices in those categories. As Australians take advantage of lower-cost products from developing nations, those cost savings are being passed onto the Australian consumers and our exchange rate has also been high,” Shulman says.

In the next five years IBISWorld expects similar trends will continue, with parents remaining time-poor, continued low-cost manufacturing from developing nations of products such as clothes, and parents embracing nutrition and safety items.

IBISWorld predicts the infant clothing sector will contract by 3.6%, toy and game retailing is predicted to grow by 2%, and the sale of online baby products will increase by 15.19%.