US infant formula market

Stock outs and recalls offer rare opportunity in tightly regulated infant formula market

As a former Nestlé executive, I’ve experienced first hand the sensitivities of the infant formula conundrum. Breast feeding is better for infants, however some mothers can’t breastfeed, moreover many Mums either choose, or have to go back to work, requiring them to feed an alternative. In America only 25% of infants are breast fed after the age of 6 months.

No surprise infant formula is big business. 

One has an image of America being a vast, free and open market, bursting with start-ups and disruptive business models. The infant formula market is anything but. In fact it’s an example of duopoly created by Government regulations!

Two companies, Abbott and Reckitt (Mead Johnson brand) dominate with over 75% share. It’s heavily regulated by the FDA (Federal Drug Administration) with near pharmaceutical requirements. 

Understandable you might say, but new brands whose efficacy and safety has been approved in other countries, have to start all over.

Abbott and Reckitt have also benefited dramatically from the WIC programme, an initiative designed for lower income families. WIC covers about half of all infant formula sales in the US. States award WIC contracts to one of the two makers, coincidentally blocking rivals. WIC is effectively a large scale consumer trial promotion; mums are unlikely to switch formulas for fear of upsetting their child.

This year a manufacturing problem at Abbott’s Michigan plant (which supplied a whopping 15% of the US market) compounded by a shortage of key ingredients not to forget the global shipping bottlenecks, has led to stock outs and panic buying. Whilst the worst appears to have passed, in stock rates currently are around 70%. 

The FDA has loosened the rules, but only just.

A few foreign brands like Kendal Nutricare (UK) who have been given an FDA waiver (the catch: it expires on 14th November).

Photo: Anna Hecker

A US startup (with over $190m in funding), ByHeart, was the first new producer approved by the FDA in 15 years. Founded in 2016, run by a brother & sister duo, the brand which is only sold online, has benefited from Abbott’s woes. Whether this will last remains unsure.

Photo: PureWow

Congress has belatedly been asking questions about the lack of competition. 

Another unknown variable is Reckitt’s appetite for infant formula. It recently divested the Mead Johnson brand in China to private equity, and pre the US shortage was rumoured to be selling the entire venture.

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