FORMULA FOR GROWTH 2000-02-21 (1)

BARBARA MURRAY

The worst thing about baby formula, retailers say, is that they don't make any money on it. The best thing is that, they hope, it brings customers in who then buy many other items in the store.

Consistent with SN's findings last year, this category is tremendously influenced by the manufacturer that has the state's Women, Infants and Children contract, a federal program awarded by bid state by state. "Ninety percent of it is WIC," said Bruce Tara, grocery manager at County Market, Worthington, Minn.

Enfamil With Iron is the current WIC brand in Minnesota, he said, but some Carnation products have recently been added. Prices are low. "It's like Miracle Whip; you lose a dollar everytime you sell one," said Scott Anderson, the store manager.

"Ross Products used to have the WIC designation, and now Mead Johnson has it. You see the sales pattern completely switch," said Jim Gordon, baby formula buyer for Minyard Food Stores, Coppell, Texas, who added that WIC approval can mean 60% of the sales. Ross makes the Similac line; Mead Johnson makes Enfamil.

New items usually help drive sales, too, according to Gordon. He recently saw the new Similac 32-ounce ready-to-feed product in a plastic, resealable container -- which will be available on a national basis by March 1, according to Ross Products spokeswoman Mary Beth Arensberg. Speaking from the Columbus, Ohio, division headquarters, Arensberg said the plastic bottle has had "tremendous" consumer and retail response. The 32-ounce size typically came in a metal can before, and she said the plastic container is less susceptible to damage in shipping. "Technologically, it's a plus," she said, because the container comes with a tamper-evident outer plastic seal and a notched cap for easy opening of the protective foil seal inside.

"It's the first baby-formula item that is going to a plastic and resealable container," Gordon said, predicting that others will follow.

Many products also come with directions printed in languages other than English on the inside of the label, but the instructions for preparing the infant formula have come in "pictogram form," or a series of pictures illustrating the use of the product, for a number of years, Ross' Arensberg said.

Sales of ready-to-drink formula, considered a convenience food, have increased nicely in the supermarket channel, according to Information Resources Inc., Chicago. In the food-store channel, this type of formula grew by 9.2% in dollar sales and 6% in unit sales, IRI said, for the year ended Jan. 2, 2000. Total baby-formula sales of all three types -- powder, ready-to-feed and liquid concentrate -- for the period were almost $3 billion. By contrast, total sales of powder, the largest, were $1.5 billion, followed by liquid concentrate, with sales of $939.5 million, and ready-to-drink, at $539.9 million.

Attempting to explain the apparent trend toward increased sales of the ready-to-drink varieties in the supermarket channel, Mike Donnelly, category manager at Unified Western Grocers, Los Angeles, said perhaps "the supermarket baby aisle has become more of a destination, and the supermarket is more of a one-stop shopping place." Convenience, as with most categories, helps this segment. "With the husband and wife both needing to work, convenience comes into bigger play," Donnelly said.

Sales of ready-to-drink baby formula in the supermarket channel were $309 million for the 52 weeks ended Jan. 2, 2000, according to IRI. This performance quite outpaced the total (up by 7% in dollar sales; 4.2% in units) and it also outpaced each of the other main channels: drug and mass merchants.

Food stores already had the lion's share of this segment, with drug generating a relatively puny $82 million, and mass merchants counting sales of $148.4 million.

However, in powder, which is the largest segment, supermarkets, while growing 10.4% in dollar sales and 6.5% in units, did not reach the growth rates of either the mass (23% growth in dollar sales; 8.7% in units) or the drug channel (12.5% growth in dollars, and 10.3% in units).

Liquid concentrate fared best in the mass channel, but even there it was flat in sales value and down almost 5% in unit volume.

"From a retailer's point of view, formula is an item that you must carry, but you make a low profit. It's a high theft item; people have just hauled off big quantities, and they can sell it on the black market here," said Gordon of Minyard. He cited one incident in which a shopping cart full of baby formula was loaded from the store into a van parked in the back, and was driven away without anyone being caught. "What's bad about it is, you don't make money on it to begin with," Gordon said. He said Minyard sells 2,750 cases a week of the main WIC item, "and you have to check it three times a week, because that's an item you don't ever want to be out of stock on. If a mother comes in for it, and you don't have it, she'll go to a competitor and might not come back."

Enfamil With Iron, concentrated in the 13-ounce can, is the biggest seller for Minyard, Gordon said. "It's a WIC item here in Texas, so it's big." Next biggest is the Enfamil powder with iron, 16-ounce size, of which 1,300 or more cases a week are sold, Gordon said.

Other retailers also tell of people stealing baby formula. Some will give the money back without a receipt, concerned about keeping a customer, but at least one manager, Anderson, of County Market, said, "We can't give them their money back. Only if they have a doctor's note. You'd risk losing the whole WIC license."

Claire D'Amour, spokeswoman for Big Y Foods, Springfield, Mass., said the 32-ounce ready-to-feed variety of Enfamil drives sales, since it's in the the WIC program, along with 16- to 32-ounce size packages in the powder form. Besides the WIC program, the next biggest sales booster has been doctors giving out samples and coupons, she said.

"Our sales are increasing, just because of the customer base," Donnelly said. "Our population is growing in southern California, and that means more babies." He also cited a drop in breastfeeding.

Donnelly said the WIC program still covers about half of the babies born, and its items still do about 60% of Western Unified stores' sales. "More of our stores will allocate about 80% of their shelf space toward WIC items, and it looks like formula space has increased about 30% in the last 10 years," he said.

Formula is the second-largest dollar item in baby care, after diapers, Donnelly said. "So when the merchandisers or stores look at their sections they will allocate that space toward it.

"A lot of the drug and mass, the Wal-Marts, are pricing at cost or below," Donnelly noted. "A lot of the drug and mass [merchants] run it cheaper than the supermarkets, they're paying about the same as we are, and they sell it in bulk, too; I am a wholesaler, but your retail customers -- how they merchandise and how they sell is up to them, but they may sell it by the case too. I know some do."

Ross Products' Arensberg told SN sales derived over the consumer hotline and from the company's Web site are more of the specialty nature, for babies with digestive and absorption problems. "Those aren't readily found in so many retail outlets," she said.

"The baby customer's first purchase is usually formula, and then they develop their shopping preference," Unified's Donnelly told SN. "They [retailers] will give away the formula in order to get the rest of their purchases. The baby shopper's average order is one of the largest of all customers. They will buy so much more, because they can't get out as much or they don't want to shop three or four stores. They are hoping to get as much out of the way as possible in one place."

Donnelly predicted sales of baby formula will continue to grow, and said the drug, mass and food retailers need to continue to use it as a draw item, to get the people in their stores. "That's where a lot of the success has come from, giving the formula away, and then having the opportunity to make their margins elsewhere."

He said Unified has no private-label baby formula. "It hasn't been a success. Consumers don't view it as as good, plus, it's not on the WIC program," said Donnelly. "And a lot of the education is done with the pediatricians. These [formula-manufacturing] companies give them so much material, the consumers listen to their doctors and are buying the name brands."

Still, for the first time last year, a private-label brand, Wal-Mart's Parents Choice, moved up into the IRI standings in powdered formula, ranking ninth, according to IRI, and generic "private label" turned up seventh in the rankings of ready-to-drink formula. "We back it up with our own name and guarantee," said John Bisio, a spokesman for Wal-Mart Stores, Bentonville, Ark.