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Friday, Mar 29, 2024

Munchkin to Enter Big Baby Formula Market

Baby product manufacturer Munchkin Inc. is ramping up for the biggest product launch of its 25-year life and a competitive face-off against some of the largest corporations in the world. In March, the Van Nuys company will introduce its first infant formula to the U.S. market. It’s a $50 billion industry dominated by entrenched brands such as Gerber, Similac and Enfamil, and the giants behind them – Nestle, Abbott Laboratories and Mead Johnson Nutrition Co. While Munchkin isn’t small – it employs 250-plus people and expects $300 million in sales this year – that pales in comparison to the Swiss food giant Nestle, as its U.S. division generated $26 billion in sales last year. According to Forbes, it’s the 33rd largest company in the world. But Munchkin feels its market share in infant and toddler products and top-sales status with some of the nation’s largest retailers will open doors to success with its new infant formula. Plus, it’s already deep in development of its new infant formula – three years and several millions of dollars deep. The marketing strategy hinges on a new formula which uses milk from grass-fed cows rather than milk from cattle that eat grains – and which the company believes will disrupt the market. “It’s either genius or lunacy, I’m not sure which,” said Steven Dunn, Munchkin’s founder and chief executive. “In 25 years, I’ve never worked harder or had a bigger launch.” New Zealand dairy Munchkin sells 400 or so products for babies and toddlers, such as bottles, sippy cups, diaper pails, changing stations, food containers and car seats, but infant formula is unlike anything it’s ever developed. Dunn, a former venture capitalist who started Munchkin with an idea for a baby bottle that became a top seller, got turned on to grass-fed butter and ice cream when visiting New Zealand three years ago, because it tasted so much better, he said. He learned that grass-fed milk produced there was full of critical vitamins but also free of growth hormones. When he read that infant formula is 60 percent milk, a light bulb went off. “If milk makes up this high percentage of formula, they (moms) should know,” Dunn said, referring to the health benefits. To produce infant formula, Dunn spent a year sourcing farmers and a factory in New Zealand. It now contracts with 26 dairy farmers to graze their cows only on grass, and paid $3.5 million to buy a 4 percent share of formula maker Synlait to produce Munchkin’s grass-fed powdered formula. The formula has no growth hormones, genetically-modified organisms or antibiotics, he said. “Synlait is a flexible and public company, and we’ve become its fourth-largest shareholder, and now own almost 7 million shares in the company. We did this to ensure a close association,” Dunn said. Three months ago, Munchkin started selling the new formula in New Zealand and Australia through 600 retail stores. It’s an important market, Dunn said, because Australia is a stepping stone to the Chinese market. Infant formula is about a $50 billion global market, according to a 2016 study by the Henry Fund, a research arm of the Henry B. Tippie School of Management at the University of Iowa. Four companies – Nestle, Abbott, France’s Danone (makers of Dannon yogurt) and Mead Johnson – had 92 percent of the market last year. As the world’s middle class expands, demand for these products should grow, the study said, as consumers will be able to spend more money buying higher-quality products. The Chinese market alone is expected to reach $27 billion by next year. Existing players face increasing competition for market share. In the U.S., Mead Johnson and Abbott dominate, the report said, controlling almost 80 percent of the market. “The industry is very difficult to enter in the United States due to strict Food and Drug Administration regulation on marketing infant formula,” the study found, adding that companies must test their formulas for certain pathogens to ensure it supports normal growth. “With the high quality standards present in this market, it is difficult for a small company to find it profitable to enter on a small scale,” the study concluded. Meeting those FDA requirements has been another timely and costly challenge for Munchkin. Because of the grass-fed formula’s newness, it’s in the middle of a 16-week clinical trial with about 200 infants so Munchkin can legally sell the formula in the United States, Dunn said. The company has so far paid $4 million toward the trial. While a huge investment, the new baby formula makes sense for Munchkin because it already has established credibility with America’s parents – the average house has 17 or so of its products, according to Dunn – and it’s a top supplier to its big national retail customers – Target Corp., Wal-Mart Stores Inc. and Babies “R” Us. “We already have wonderful relationships with retailers, so it’s not hard to say, ‘We’re now selling infant formula,’” Dunn said. “We haven’t made a sales pitch where we haven’t gotten a ‘Yes,’ and ‘How quickly can we get it?’” Dual market In the breastfeeding versus infant formula debate, health care providers and others advise breastfeeding over formula for its health aspects. But with many moms working and other issues that affect lactation, infants usually get some combination of the two. To cover that aspect of the infant feeding market, Munchkin in August bought Seattle-based Milkmakers, which makes cookies and tea to help stimulate breast milk production. “We think it’s a perfect match because of our imminent launch of the infant formula,” Dunn said. “Those two subsets – breastfeeding supplements and formula-feeding – merge. Most moms end up doing both.” Adding the lactation cookies and teas, and the infant formula to Munchkin’s existing breast pads, formula mixers and portable formula packaging “gives us a great advantage as we are already very well-known by moms,” Dunn said. Promoting such a new product needs an educational element, so Munchkin has aligned with infant care doctors from UCLA and Children’s Hospital Los Angeles to help develop campaigns to educate new mothers about grass-fed milk and the formula. Munchkin’s advertising and marketing campaigns will also include television commercials, print ads and a traveling tour by old-fashioned milk trucks that will visit food, trade and consumer product shows, hospitals and parking lots of key retailers, Dunn said. The campaign will follow up with social media and a sampling program. Another first for Munchkin will be its new internet and app-based subscription delivery service for the formula – which has cost the company $200,000 to develop. “Subscriptions services have done very well for other products, and I think infant formula and other products fit this model very nicely.” Dunn said. Munchkin’s products usually sell at a premium or middle price point and the infant formula will follow that model, costing about 10 percent more than other premium formulas or about $40 for a 730-gram can, according to Dunn. As part of the massive effort, Munchkin also hired several food-oriented experts and outfitted a warehouse that will store just the new milk-oriented products. “Between our (baby) bottle line, (infant products’) cooking line and now formula, we’re a one stop shop in helping mom along her journey,” Dunn said.

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