The distinction between napkins and paper towels probably isn't a big one - unless you happen to be a company which is involved in the manufacture of napkins. If you are, you'll have been noticing it's getting harder to sell your stock for a long time now. Because paper towels are more versatile than napkins, young people are more likely to buy them. 86% of households told a recent Mintel survey that they'd purchased paper towels in the last six months, compared to only 56% who'd bought napkins.
This may have something to do with the downturn in casual dining. You tend to be served napkins with a meal at such an establishment, and so with fewer meals being served, fewer napkins are being handed out. Also, paper towels are measurably better at the job of cleaning than napkins are. Millennials don't necessarily have anything against napkins - it's just that they're becoming obsolete.