NEW INFANT FORMULA COULD AFFECT MARGINS

MIKE STERNMAN

PHILADELPHIA -- A new low-price infant formula from the third-ranked supplier could affect promotions and retail margins in the category, said retailers.

Formula maker Wyeth-Ayerst Laboratories, a division of American Home Products here, launched Bonamil Infant Formula brand in the United States in October, after marketing the product for 21 months in Canada.

Retailers who have sat through presentations about Bonamil said Wyeth claims the product's key point of difference is price, with savings to consumers of some $20 monthly, or as much as 30% under the cost of Similac.

Wyeth, holding some 10% of domestic category dollar sales with brands such as SMA and Nursoy, is marketing Bonamil head-to-head against Similac, made by market leader Ross Products, a division of Abbott Laboratories, Columbus, Ohio.

The labeling on the Bonamil can includes the message, "Compare Price to Similac." The powdered formula is in a one-pound (453 grams) container similar to Similac's.

Jim Nicholson, category manager at Randalls Food Markets, Houston, said Wyeth has suggested a per-unit retail of $5.99, which would bring Bonamil to $3 to $4 below Similac, and with a 16% margin; Similac, he noted, is sold at nearly break-even.

Initial indications are that at least some retailers are taking that margin, plus introductory allowances. Trade sources said they spotted Bonamil at $5.99 and Similac at $9.14 on the shelves of Kroger's Indianapolis stores this month, for example.

Buyers who've been initially evaluating the product said the fallout could go several ways. Some said they expect other players to retrench.

Randy Williams, a buyer-merchandiser at the Miami division of Fleming Cos., Oklahoma City,

saw Ross "just keeping their price and getting more aggressive in couponing and other marketing strategies, mainly through the pediatricians and the hospitals."

John Raley, the formula buyer at Raley's, West Sacramento, Calif., said the potential line that Bonamil's profitability might follow could parallel that of Carnation's product.

"Basically, what happened there was a margin structure that rapidly was eliminated. Historically, when people have come out with new formula-type products, competitive pressures bring the margin down to the level of the other, existing ones."

Rob Winett, grocery merchandising manager at Riser Foods, Bedford Heights, Ohio, thought Bonamil would add to the variety of his chain's substantial assortment.

"We're being assured by the Bonamil people that the quality is just as good as the other nationally branded items, and if that is the case, we will sell it."

Some merchandisers told SN they first learned of Bonamil from Wyeth's competitors weeks before the U.S. introduction.

Fleming's Williams said reps from both Ross and Mead Johnson, maker of the second-ranked Enfamil brand, asked him if he had seen the presentation or if he was going to accept the item.

Wyeth will rely on its medical sales force to spread the word among pediatricians, as it did in its launch in Canada last year, said Scott D. Litherland, a company spokesman. It will also use single-use trial packs of Bonamil mixable formula powder. Suggested retail for each trial pouch is 50 cents.

Ross plans to compete with Wyeth by raising quality comparisons, according to Tom Leskovec, grocery buyer at the Cedar Rapids, Iowa, branch of Nash Finch Co., Minneapolis.

"Similac is trying to come back and say, 'it's a cheaper-priced powder mix, alright,' but they are saying it with a 'you-get-what-you-pay-for' type of attitude," he said. He added that he'd received a flier that compared the ingredients of both brands and found "percentages of vitamins and other differences in Similac's favor." Wyeth said there was "very little difference" between Bonamil and Similac in nutrient composition. Several calls to Ross Products were not returned. However, Rex Mason, vice president of marketing for Mead Johnson, said he expects more changes and introductions within the baby formula category. "But we will make sure that we are competitive," he said.