Baby formula exports has become a lucrative business for Australia thanks to its reputation as a country with clean industry and strong food standards.
Vitamins business Blackmores saw the potential of this and in October inked a deal with Bega, one of Australia’s largest dairy manufacturers, to diversify its business and gain a foothold in the infant formula market.
The deal was seen as such a strong bet that when it was announced at the Blackmores AGM, the company’s shares exploded above $200.
While the joint formula business won’t go to market until at least early 2016, the product is expected to be popular among foreign buyers, specifically the Chinese.
Yesterday, at the launch of Blackmores’ first Australian flagship store in Bondi Junction, chairman Marcus Blackmore said his business was in the right spot at the right time.
“Consumers today are suspicious when they see ‘reduced salt’, ‘reduced fat’, ‘diet’ something else,” he said, “So what we’re seeing now is this strong movement towards natural food, organic food.
“Our time has come.”
Business Insider spoke to Blackmores CEO Christine Holgate about the Bega deal, where she sees the business going in Asia and how critical baby formula is to its success. Here’s what she had to say.
Australia has a BIG problem
While Holgate is focused on developing quality products for Australian consumers, she said there is a home-grown health issue that’s a big opportunity for the company as consumers look for solutions.
“One of the biggest problems that Australia has is obesity and an aging population,” she said. “We’re really keen to help and support that older population as much as we’re really keen to offer mums a really good solution about brands they can trust.
“Obesity and the aging population will be a focus point, not just for Australia because it’s actually massive world problem – as we become richer we eat more food. So one of the challenges of that is we’re eating too much sugar, we’re getting obese. We’re very keen to address that.”
Medical food will be a big trend
Holgate flagged the potential for the company to shift its focus from supplements to more diet-related products in an era when people are already attuned to “superfoods” such as chia seeds, kale and quinoa.
Expect to hear a lot more about “medical food” in the future.
The US Food & Drug Administration defines it as foods “intended for the specific dietary management of a disease or condition”, which suggests Blackmores, after investing heavily in scientific research for herbal remedies via a joint venture with Sydney University’s school of medicine this year, may now be looking to focus on more heavily regulated medicinal markets.
“We’re very excited about the partnership with Bega,” Holgate said. “I believe medical food will be a big trend going forward, and life stages in food is going to be really important too.
“Together Bega and Blackmores bring almost 200 years of experience. We’ve got 83 years of experience in nutrition and they’ve got almost 120 years experience in milk processing, so we think (a deal between) these two iconic Australian companies is really powerful and really exciting,” said Holgate.
Australia first, Asia second
While the Asian expansion has shareholders excited, Holgate says the Sydney-based company’s domestic focus remains a critical testing ground before the export push.
“Just as we (Bega and Blackmores) start this business together our first priority will be the Australian consumer,” she said.
“Australia is the heart of our business. It’s what has made our brand so popular in Asia. We’re renowned for our quality ingredients and our trusted advice so we will be launching here first, in Australia.
“We plan to do that in the early part of next year. We’d really like that to be the first stage of our journey into medicinal food with Bega. It’s early days but I think it’s a really important part of the market.
“We also have a very large fanbase of Asian people living in Australia buying our products as we’ve been in Asia for 35 years, not just China. And then we’ll start rolling that business out right across the Asian region.”
Taking on Asia
As the Chinese middle class continues to grow, the opportunities for premium brands are immense and Blackmores is keen to position itself that way, Holgate said.
“Chinese shoppers are very smart and very savvy,” she said. “They do an enormous amount of research, and they genuinely want the best. I think if you look at any premium brand in the world, China is their biggest market, because the Chinese shopper has done that research.”
But in the wake of recent stories about budding entrepreneurs clearing Australian supermarket shelves of baby formula, to sell online to Chinese buyers, Holgate is acutely conscious of meeting local demand first.
“Our number one priority is always Australian mums, but at Blackmores we do many things to try and help any consumer to find product when they need it,” she said.
“We have an advisory service, you can click to chat, we have naturopaths on call, you have an ability to call in and we can try and locate the product where it might be closest to you.
She also laid out the seven Blackmores products Chinese customers want most. See the list here.
What they want most isn’t clear, she said because Blackmores can’t keep up with the demand long enough to find out.
“The reason why I’m being slightly non-committal is because what happens with our products is that we’re just selling out of it,” she said.
Baby formula is more than just a business deal
Holgate revealed that personal experience was also driving the partnership with Bega.
“I lost my sister from cancer and I watched her have to give formula to her second child as she fell (ill) during her pregnancy. So I know everything we went through as a family and I want to give Australian mums who aren’t able to breastfeed, for whatever reason, a product they know is therapeutic and works and they can trust. I feel I owe that.
“We’re absolutely committed to the quality of our products. An example of that is we use anchovies in our pregnancy products for our fish oil component, not tuna fish. The reason why we do that is because there is less probability that there is any mercury in anchovies, it’s the most purist form of fish. And that’s what a pregnant mum wants.”
From wholesaler to retailer
The opening of the concept store takes Blackmores from supplier to the frontline of talking to its customers, but Holgate says they’re not chasing the additional margin from retail as a priority.
“Today we sell in Australia over 80% of our Blackmores branded products through pharmacy,” Holgate said. “We don’t need to be a retailer, we’ve got fantastic retailing partners,” she said.
She said the eight concept stores already open across Asia has allowed the company to learn not just what works for them but more about providing a health and education service for their consumers.
“Having these concept stores allows consumers to come in hear firsthand about the brand and get trusted advice, but also for us to learn from consumers and adapt what we’re doing from product development, services, education.
“It really helps us to serve that consumer better… and what additional services they want. An example of this is in our store in Singapore. We have an iridologist that works in the store, she’s completely booked out until April next year.”
The store concept headed in the opposite direction, shifting from Asia to Australia for the first time with a flagship store in Bondi Junction.
With so many other projects on the drawing board, Holgate says they have no plans to open further stores in Australia.
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