Oversupply of infant formulas expected in China during Double 11 shopping festival – Bubs

The firm, which also sells goat dairy products for adults, pointed out the above in its latest financial report for the first quarter of its 2023 financial year. 

Group gross revenue was up 28 per cent as compared to the same period last year to AUD$23.6m (US$15m).

Of which, gross revenue from the its infant formula business was up 109 per cent.

The growth largely came from the domestic Australian and international markets, where gross revenue was up 18 per cent and 145 per cent respectively. Proportion wise, the former contributed 21 per cent of sales, while the latter 46 per cent of sales.

Elsewhere in China, infant formula sales grew at a slower rate – at four per cent. Its adult goat milk powder sales were down 94 per cent. Nonetheless, the market still contributed 33 per cent of sales.

“Across the infant formula category, a significant number of brands have oversupplied the market, including local Chinese brands. This has created a significant decline in margin across all distribution partners. ​

“In addition, the cost of doing business has also increased on cross-border e-commerce, particularly as it related to advertising spend. ​

“The category issue was exacerbated through a subdued result during the 6.18 shopping festival, and the oversupply by other brands is expected to continue through to the upcoming Double 11 festival,” ​the firm said in a statement.

Based on the developments, the firm believes that distributors would search for alternative, quality infant formula brands that can provide stability of margin and supply with international and established reputation.

Earlier, we reported that major infant formula brands in China have seen a decrease in their gross margins in the first six months of 2022.

Part of the reason is due to​ small brands exiting the market due to China’s implementation of the new national requirements – aka Guobiao (GB) standards – for infant formula products.

This has led to the small brands offloading their inventory.

Manufacturer-to-consumer model​

To tackle the challenge of oversupply, Bubs has introduced the ‘Manufacturer-to-Consumer’ (M2C) model to its distribution partners – including partners in Australia, China, and mother-and-baby stores.

Bubs explained that the proprietary system would provide real time product visibility and sell-through data.

In addition, the distribution partners could introduce the products using brand marketing content provided by Bubs.

All products would also be tax cleared in preparation for China’s impending ‘Golden Tax System Phase IV’ due to officially commence from January 1 next year.

“Over the last several weeks, the company has seen a surge in interest from existing and new participants, with its core interest in the distribution of Bubs Supreme A2 Protein products, given its stable pricing and attractive margin structure,” ​the firm said.

New JV​

Bubs is also in the due diligence phase of finalising its joint venture and supply agreements with China-based infant formula manufacturing and supply firms.

They include Zhitong (Hangzhou) Health Technology Co. Ltd, Zhikang (Hangzhou) Health Technology Co. Ltd, and Heilongjiang Anjia Dairy Co. Ltd.

The firm also earlier announced that it aimed to launch a new ultra-premium range that is in compliant with China’s national GB (Guobiao) standards in the second half of FY23.

The new product would be made of​ easy-digest A2 goat milk protein and ingredients such as sn2-palmitate, lactoferrin, and prebiotics.

Australia and the US​

Elsewhere in Australia and the US, the firm continued to expand in major retailers.

In Australia, its market share is at a record high of 4.8 per cent. 

In the US, the number of retail stores selling its products has reached 6,500 and it has also established a relationship with Amazon where the e-commerce firm has become its direct retailer. This means that Amazon will place purchase orders in bulk directly with Bubs.

Amongst the eight international manufacturers that have received FDA exemption​, it ranked second and accounted for 0.4 per cent share of the total US infant formula market.