Bega and Blacmkores Chinese infant formula venture struggling

Posted by AFN Staff Writers on 26th October 2016
China

Editorial 

The dramatic 16.7 per cent fall in the share price of Bega Cheese has generated much comment.

The slump was the market reaction to the announcement by the company that its joint venture with Blackmores in producing infant formula milk powder had not found a foothold in the Chinese market.

Bega chairman, Barry Irvin, cited three factors behind the fall:

  • A regulation change in China
  • The supply response to demand signals – at this time in 2015 supermarket shelves in Australia were empty while local and international orders were increasing
  • The evolution of new supply channels to market.

These cannot alone explain the correction. Blackmores shares are trading at much the same price and volume as a week ago although A2 Milk Company Limited suffered a 4.7 per cent drop in its share price and Bellamy’s Organic experienced a more modest slump of 1.8 per cent.

Since its January 2016 launch, Blackmores infant formula has garnered less than 0.4 per cent of the Australian market – approximately 1600 units per week in a total market of 400,000 units.

It is estimated that around half of all Australian retail purchases of infant formula are made by personal shoppers, called Daigou, who send them to China by courier for resale.

The Digou, who occupy a position of trust with their Chinese customers, are now seeking to deal directly with manufacturers.

As infant formulas are product consumers feed to their children, Chinese buyers of infant formula look for a recommendation product (by the Daigou) or a long track record before committing to a purchase.

Blackmore’s certainly has the long track record in China but the joint venture appears to have been launched just as the clamour in China for trustworthy Australian infant formula began to diminish.

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