Baby formula as a category is alive and kicking, but some supermarket operators complain they're the ones getting kicked.
The pullout of the third-leading formula manufacturer, the challenges associated with the Women, Infants and Children program and competition from alternate formats have some retailers and wholesalers feeling colicky.
In several Midwestern states, the decision by Wyeth-Ayerst, Philadelphia, to discontinue its baby formula products has left retailers wondering how best to balance the remaining brands, particularly because the Wyeth products were the ones approved by the state-run WIC programs.
In late April, Carl Jurgella, grocery director at Copps Corp., Stevens Point, Wis., said that because Wisconsin's WIC vouchers for Wyeth's products were good through the end of April, his chain was having trouble deciding how much Wyeth formula to shelve.
In addition, he was unsure about an adequate ordering amount for the new WIC-approved products from Ross Products, Columbus, Ohio, a division of Abbott Laboratories, Abbott Park, Ill.
"We don't know how many [WIC] checks are [still] out there that are good on [Wyeth-Ayerst's] SMA product. We hold back on SMA because that's ending and we speculate a little bit on [Ross Products'] Similac," he said.
Typically, products approved by WIC sell at least 10 to 15 times what they do if they're not on WIC, he added.
Copps is filling the empty shelf space where about 12 Wyeth stockkeeping units were shelved by adding more Similac, Jurgella said.
"At this point in time we don't intend to add a lot of things. We think we have everything we need. There are some slower movers that we don't have because we pretty much weeded those out. We wouldn't put them back in just because Wyeth discontinued its domestic formula line," he said.
The wholesaler, which also operates some corporate stores, also carries some non-WIC formula brands because they have some customer demand for them, said Jurgella. "We carry those for variety and because we have some kids who are allergic to the milk-based products," he added.
G&R Felpausch Co., Hastings, Mich., is in a similar situation, said Mort McKillop, director of procurement. "We're moving the Wyeth products just as they sell through," he said.
"Our chain expects the WIC-approved Ross Laboratories products to increase in usage just as Wyeth did," McKillop said. "To keep our shelves replenished, we're just increasing the brands we have on hand now," he added. The chain is also experimenting with full-case stock instead of having only single units, McKillop said. "We put a lot of full cases in our sections" to fill out where some Wyeth products were, he added. Wyeth-Ayerst's pullout has affected some chains on the East Coast as well. "It is going to leave a lot of people stranded because they've been using [Wyeth's products] and they think they are the ones to use," said Mike Kilgallon, grocery buyer and merchandiser at Genuardi's Family Markets, Norristown, Pa. "They can't get them now. They'll have to switch, but it'll cause some anger, I would imagine," he added.
The chain still has some goods on its shelves, but it's running out gradually, Kilgallon said. "[Our shoppers] want it, but there's nothing we can do. We can't get it," he said. Other retailers are experiencing little or no impact from Wyeth's decision.
"I don't think that's affected the market at all because it was such a small percentage. Our customers are not demanding the products at all," said Ron Renner, director of sales and marketing at Oak Creek Market, Ramona, Calif.
Ken Young, vice president at Jack Young's Supermarkets, Visalia, Calif., agreed. "[The pullout] had no effect. [Wyeth-Ayerst] had such a small share of the market," he said. The WIC program, designed to ensure the nutritional needs of children in lower-income families are met, impacts anything but a small share of the market.
According to retailers and wholesalers, the challenges associated with WIC are educating cashiers about the rules of the program, ensuring there's enough stock to fulfill consumers' needs, and pricing the products to ensure profitability.
"The biggest challenge," said Oak Creek's Renner, "is at the checkstand -- making sure all of our employees follow the rules of the WIC program. [Shoppers] must buy the proper items that are on the program -- no substitutions.
"The retailer just has to make sure that the customer is bringing up the right item. In other words, if the WIC voucher is for Enfamil, the customer is not going to be able to buy Similac," he added.
Kilgallon of Genuardi's said paying attention to WIC's guidelines is important because "they inspect quite a bit. You have to make sure all your ducks are in line.
"[The program] says you can only get a certain formula. You've got to make sure you don't give [your customers] another formula. You've got to give them what's on the voucher. If you constantly don't have it, then you get in trouble," he added.
Steve Scarpa, grocery buyer at Jax Markets, Anaheim, Calif., said the only challenge for his stores is "keeping it in stock -- having huge amounts of inventory."
"[We stock it] because [our customers] need to have it for the first of the month," which is when the WIC vouchers are issued, said Tom Brown, buyer at Church Point Wholesale Grocery Co., Church Point, La.
"It's a big issue with us. The way it affects us is that we can get absolutely no details whatsoever out of the WIC office as to what the pricing parameters are," he said.
He explained that WIC has told him representatives will visit four or five stores in about a 25- to 30-square-mile area. In each store, the WIC representative will take the same items and calculate a comparative reading on the retail prices of each item. If one store is significantly higher, WIC will alert the store that its prices are too high.
That store then phones the wholesaler (in this case, Church Point) to tell the wholesaler that its prices are too high. Brown's complaint is that the four or five stores WIC will investigate buy from Church Point, but the wholesaler has no pricing guidelines from WIC.
"They won't tell us, 'OK, WIC items can only be priced 15% above cost,' or 'WIC items can only be priced 5% above cost.' Nobody will tell us anything," he said.
Indeed, the WIC program in Louisiana does not provide pricing guidelines to wholesalers because WIC deals directly with the supermarket operators.
'We don't deal with the wholesalers. We're not concerned about the wholesale price; we're concerned about the retail price. We deal directly with the grocery stores," said Henry Klimek, WIC manager for Louisiana. Church Point's Brown added, "We work on a low markup anyway because we're a wholesaler, but as a result of that, we're making absolutely no money. We're probably losing money on baby formula because we have it marked so low that it doesn't even cover our cost of handling. Basically, we've got it because it's a service to our customers." The price of baby formula at the retail level is an issue for supermarket operators, too. Because they price it so close to cost and aren't making any margins, they cannot run promotions, many retailers said.
"It's terrible," said Young of Jack Young's. "It's usually [priced] below cost. We have to sell it cheap, too, to keep competitive," he said. "I never have promoted it. [When] you give it away, it goes fast," Young added.
Renner's Oak Creek Market does not promote formula either, and the grocer is not seeing any manufacturer support.
"I think the support group is fading at a terrible rate," he said. "The sales staff out there, not just on formula, but on all products -- there's just very, very little representation by the companies [with] their products out there," Renner added.
Other West Coast grocery operators had similar complaints, but chains in the Midwest said manufacturer support was not a problem.
Copps' Jurgella said he seldom promotes formula; maybe two or three times a year. That's still more than what the other retailers reported. Manufacturers aren't aggressively supporting the baby formula category, but they're offering something, he said. "I've had two promotional offers in the last six months from manufacturers," Jurgella said.
McKillop of G&R Felpausch Co. said manufacturer support in his area has been very strong. "We haven't had any lack of support from companies at all. They put out some good nutritional information [for consumer use]," he said.