Can Bubs make the USA infant formula market a lucrative substitute for China?
Food & Agriculture
Food & Agriculture
After a tough several months for Bubs (ASX:BUB), shareholders rejoiced at its plans to enter the USA infant formula market. But is it really on to something?
And would it be wise for Bubs’ peers to look at the market if they’re not there already?
The company, which makes infant formula among other baby foods, is one of over a dozen stocks that sought to capitalise on heavy demand for infant formula in China.
Tensions with China and a shutdown in the daigou trade have made it less lucrative and some companies, Bubs included, hedged their bets by looking to nearby ASEAN countries. While many of these had large populations, they were behind China.
Last week however the company revealed its push into the USA. It will range its goat milk infant formula products on Walmart and Amazon beginning in September.
Bubs executive chairman Dennis Lin said the launch into the USA infant formula market was important. Bubs expects the move to be worth US$5.1 billion ($6.75 billion) annually.
“The launch of Aussie Bubs into the USA market is a key next pillar of our global market diversification and expansion, providing continued momentum for our export sales growth contribution from South East Asia as we build on our existing business in Malaysia, Vietnam, Hong Kong, Macau and Singapore,” he said.
Shares are up nearly 30 per cent since last week’s announcement but are just under half of what they were nearly a year ago.
But is the USA infant formula market one that will pay off for Bubs?
Stockhead caught up with Mary Ledman, a global dairy analyst at Rabobank based in Chicago.
She said the US was a smaller market than China but affluent and one that lacked goat milk infant formula products.
“The simple response is that the US had 3.6 million births in 2020 so it’s much smaller than the China market at 12 million,” Ledman said.
“But it’s an affluent market in the United States and milk cow allergy is the most common food allergy among in children. In the United States about 2 per cent of children under 4 years of age show the absence of digestive enzymes.”
“From a standpoint that Bubs is targeting a niche market and an affluent region of the world, there’s not a lot of goat milk infant formulas (particularly infant formulas) in US market.
“You see some toddler formulas but there’s even more limited offerings in that category.
“And these formulas, goat milk in particular, sell at significant premium to traditional infant formulas.”
Looking at the US dairy sector more broadly, Ledman noted that it had become more export oriented in the past 10 years and most companies were targeting Mexico rather than China.