Bellamy's launches baby formula with omega-3

By Carrie LaFrenz

Updated Feb 8, 2019 — 12.21pm,first published at 11.27am

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Bellamy's Australia has launched a baby formula with twice the omega-3 of its rivals, making it a likely winner with mothers, helping to boost sales and earnings.

Chief executive Andrew Cohen has been looking to rebuild the business and regain investor trust after several tumultuous years that almost led to the collapse of the organic baby food and formula maker.

Mr Cohen believes he has laid the foundations for a stronger business, aiming to hit $500 million in revenue by financial year 2021, a model supported by product innovation such as new cereals like pumpkin baby rice, an exotic fruits range of pouches and new packaging.

Bellamy's Australia has launched an omega-3 formula in Coles, with Woolworths and Chemist Warehouse soon to follow. SHUTTERSTOCK

A soft launch of the formula has targeted Coles, with Woolworths and Chemist Warehouse to follow. Bellamy's said the formula would be stocked once the old formula had sold through, and a more formal launch would be likely after Lunar New Year when supermarkets had fully stocked the product.

Product development is critical for every consumer company, Morgan Stanley analyst Thomas Kierath says.

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'Key change'

"The key change in the infant formula market over the past five years has been that omega — which reportedly supports brain development amongst other things — is now considered essential," he wrote in a note to clients.

"Bellamy's old formula didn't have omega, but the new formula does, which we think changes the game. Our recent survey of 1500 infant formula buyers indicates that Bellamy's brand awareness in China is high relative to A2 Milk, which leads us to think that recent performance has been product, rather than brand driven.

"The product has just been improved. Bellamy's price point should drive volume growth, rather than margin expansion."

The once-troubled Launceston-based company is pricing its stage three product at $28 (for a 900 gram tin) compared with rivals Nan Organic at $31 and Biostime at $38 (both 800 gram tins), so the product should appeal to a wide base.

"In the future, we think that there is the potential for a premium product to be launched which will drive margin," Mr Kierath said.

The Chinese market

Bellamy's reports its first-half results on February 27, when investors will look for upbeat commentary about the outlook in China, and to see whether it has gained the needed certification from Beijing allowing it to sell Chinese-labelled products in China.

The company filed the application more than a year ago to the new market regulator, the State Administration for Market Regulation (formerly called the China Food and Drug Administration). Mr Cohen had expected to get certification before the end of last year.

In October, Bellamy's flagged full-year sales for its baby formula would be at the lower end of its guidance, and first-half revenue would fall by as much as 15 per cent as it looked to run down trade stock before a brand upgrade.

Mr Kierath expected the company to take some provisioning at the full-year results, outlining a $20 million, one-off provision of older formula product. Bellamy's already took a $6 million provision at the 2018 full-year results.