Health: Bubs gets national deal with Chemist Warehouse, extra China route, share spike
Health & Biotech
Health & Biotech
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Infant formula maker Bubs (ASX: BUB) has stitched up a deal with Chemist Warehouse, Australia’s largest pharmacy retailer.
The binding heads of agreement will see Bubs products stocked and distributed in all Chemist Warehouse outlets nationally.
It follows a provisional deal where Chemist Warehouse measured the sales performance on a limited number of Bubs items.
Evidently, the sales performance was good; now, the chemist chain will sign up for an expanded rollout including “strong promotional activity with heavy marketing support and expenditure”.
Shares in Bubs were up more than eight per cent at 85 cents in morning trade.
While the deal will help Bubs establish its footprint in the domestic market, it will also improve distribution channels into China — which remains the core narrative that investors are interested in.
The company’s half-year numbers to the end of December showed Chinese sales rose by 2,281 per cent compared with Q2 2018, and were up 121 per cent on the September quarter.
Bubs said that in addition to its dominant market position in Australia, Chemist Warehouse also acts as a “gateway to China for Australian brands, in response to the increasing number of Chinese residents and tourists seeking Australian health and infant nutrition products to take back to China”.
Chemist Warehouse’s online store at Tmall Global — the Alibaba-owned platform which lets international companies sell into China with setting up a company there — is the “largest in the world by gross merchandise volume”, Bubs said.
In return for its marketing support, Chemist Warehouse will charge a share-based fee to Bubs.
The deal will see Bubs issue a total of 12,356,627 shares to Chemist Warehouse in two tranches, the second of which will have to be approved by Bubs shareholders at this year’s AGM.
Subject to Bubs hitting its sales targets, Chemist Warehouse will then purchase an additional 37,069,881 Bubs shares, in annual instalments over a three-year period.
Shares in Bubs have now more than doubled from their mid-December low of 37 cents.
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