Retailers are winning over parents who usually buy national-brand
infant formula by demonstrating store-brand quality before price
Health officials say it happens every time the economy gets bad: Parents begin watering down their baby's infant formula to stretch their supply.
A Florida mother made the near-fatal mistake when she added extra water to her 5-month-old son's powdered formula, not realizing that diluted nutrients can lead to malnourishment and water intoxication.
But not all means for affording what some have dubbed “liquid gold” are as drastic. Retailers, for instance, are observing a newfound willingness on the part of parents to trade down to store brands.
The behavior is unusual, since baby items are typically recession-proof, as parents will sacrifice their needs to afford what's best for baby. The trend is usually even more pronounced in the infant formula category, where national-brand-loyal parents chalk the $1,500-a-year expense up to being the sole source of nutrients for little ones who aren't breastfed.
But now the tide is beginning to turn. Although on a relatively small base, private-label formula sales spiked 28% during the 52 weeks ending Oct. 5, 2008, according to Information Resources Inc.
Hy-Vee, Des Moines, Iowa, has seen the trend play out more recently on its shelves, where unit sales of its Mother's Choice formula are up 7.2%, company spokeswoman Chris Friesleben told SN.
“We think this is an excellent opportunity for us to convert first-time buyers of Mother's Choice to regular users,” she said. “They'll realize that with the high quality the formula demonstrates, they are not trading down, they're simply saving money.”
But not all sales are so easily won. Although the tide is rising for all private brands, store-brand infant formula is often a hard sell, noted Jim Hertel, managing director of Willard Bishop, Barrington, Ill.
“Retailers have to do a lot to demonstrate the value that's created, and not just that price has been taken away,” he said.
Hy-Vee, for instance, switched its Mother's Choice Infant Formula to the same 25.7-ounce container size used by national-brand leaders Enfamil Lipil and Similac Advance, for easier nutrient and price comparison.
“Mother's Choice Infant Formula is nutritionally comparable to Enfamil Lipil Infant Formula, offering a savings of more than 35%,” says Hy-Vee on a website dedicated to the line, www.motherschoiceformula.com.
On the site, each Mother's Choice brand Milk, Soy, Gentle and Toddler Formula is compared to a national-brand equivalent. The resource also details the nutritional attributes that its items have in common with breast milk.
“Mother's Choice Infant Formula is fortified with iron and contains all the vitamins, minerals and nutrients required by your healthy baby's first year,” the site reads. “Our infant formula is also specially formulated with DHA (docosahaxaenoic acid) and ARA (arachidonic acid), naturally occurring nutrients in mother's milk that may support mental and visual development.”
Like Hy-Vee, Associated Food Stores, Salt Lake City, has experienced close to a double-digit increase in sales of its Western Family infant formula, Tammy Marlowe, a manager who oversees the category, told SN. The 9% store-brand lift is remarkable, since its comes as overall infant formula sales at AFS are flat.
“Customers are starting to give private label a try,” Marlowe said.
Similac continues to dominate as AFS' best seller, since the brand is tied to benefits obtained by low-income shoppers through the Special Supplemental Nutrition Program for Women, Infants and Children — also known as WIC. The lowest-bidding national brand of formula in a particular state becomes the brand that can be obtained by WIC beneficiaries, for free, as part of the voucher program.
Private labels are at a disadvantage in that they aren't eligible to hold these contracts, according to Joe Shields, spokesman for PBM products, maker of store-brand formula for Wal-Mart, Target, Kroger, Hy-Vee, Meijer, Safeway and others.
In addition to Similac and Western Family brands, AFS carries Enfamil and Good Start formulas. Their profit margins are typically under 10%, while the margin obtained on a Western Family formula sale comes in at around 15%, Marlowe said.
Infant formula is so costly that it amounts to nearly 75% of baby food and drink dollar sales at food, drug and mass channels combined, according to Mintel's “Baby Food and Drink” study. Still, products in the category have relatively low margins, said Jim Wisner, president of Wisner Marketing Group. That goes for corporate-brand products too. So why should retailers care about converting parents to a store brand?
Wisner suggests that locking members of the profitable “families with children market” into an exclusive brand will not only encourage them to keep coming back to your store, “you'll also be saving them money that they might be spending on something else there,” he said.
Kroger is hoping that more parents will give its 10-year-old Comforts for Baby store-brand line a try. In addition to new green packaging and a firefly logo, the quality of certain items was enhanced before the products hit shelves last month.
“We wanted to give the line a fresh look for customers and emphasize the quality and value the line offers shoppers — all at a good price,” Kroger spokeswoman Meghan Glynn told SN last month.
To that end, Kroger dedicated a special edition of its My Magazine to the line.
“There is a reason why parents call infant formula ‘liquid gold,” reads My Magazine. “It can be a costly expense! Fortunately, Comforts for Baby created a reasonably priced line of nutritious infant and toddler formulas for a variety of digestive needs.”
Alongside a coupon for $3 off the purchase of one 25.7-ounce can of formula, Kroger details the nutritional attributes of the product.
“Each Comforts for Baby Formula contains essential ingredients for your baby, including iron, a blend of lipids, DHA and ARA, nutrients found naturally in mother's milk,” Kroger said.
Because Kroger has built a reputation for quality with loyalists of its other corporate brands, Hertel predicts Comforts will be well received.
“They've already got some equity in their own brand, and that will translate,” he said.
Still, players in the corporate-brand formula space may be fighting for an ever-shrinking piece of the pie.
As parents look for new ways to save, many are extending the age that they'll breastfeed their child, noted Tamu Johnson, author of the Mintel report. It found that members of the industry also face formidable competition from breastfeeding advocates like the American Academy of Pediatrics and the U.S. Department of Health and Human Services. As a result of their efforts, breastfeeding rates have increased steadily over the past 20 years.
If cost pressures weren't enough to push moms to reconsider feeding regimens, recent scientific findings might make for a more jolting catalyst.
In November, a U.S. Food and Drug Administration analysis revealed domestically manufactured infant formula with “extremely low levels of melamine in one sample and extremely low levels of cyanuric acid in another.”
Despite a call by consumer advocacy group Consumer Union for a recall of these products, no action was taken.
“There is too much uncertainty to set a level [of melamine and melamine compounds] in infant formula and rule out any health concern,” said the FDA on its website. “However, it is important to understand this does not mean that any exposure to any detectable level of melamine and melamine-related compounds in formula will result in harm to infants.”
Just last week, published reports indicated that scientists at the U.S. Centers for Disease Control and Prevention found traces of a chemical used in rocket fuel in samples of baby formula. Members of the formula industry dismissed the findings, since the trace levels of perchlorate detected are below reference levels established by the U.S. Environmental Protection Agency. But others have raised concerns about the chemical's effect on brain development, according to reports.
There is no telling how significantly this news will affect formula feedings. But about 80% of moms with children under 3, polled last year for the Mintel study, reported using formula either exclusively or in combination with breastfeeding. That combination, however, drops after the first child, when formula-only feeding increases.
“Moms who've already committed to formula are looking to make that formula less expensive, whether it's by switching to private label or going to stores like Costco and buying bigger sizes,” Johnson said.
Certain segments of shoppers, like those with infants 7 months or older, might be more receptive to store brands.
“When the baby starts eating solids, and formula accounts for less of their intake, that's the time when people might consider it,” Johnson said. She said she felt confident switching her son from a national brand to Target-brand formula as he approached his first birthday.
Retailers might also find success by zeroing their marketing efforts in on Asian and Hispanic consumers. Close to half (49%) of Asian consumers polled by Mintel use formula, compared to 37% of overall consumers. Likewise, Hispanic shoppers (40%) rely more on formula than average consumers.