A flurry of new products from infant formula makers has retailers anticipating healthy sales and even an improvement in the category's often-anemic margins.
Manufacturers, trying to stretch the boundaries of their category, have been introducing pharmaceuticals for a host of baby's ills. Among the developments:
The injection of specialty formulas, ordinarily placed in drug sections, into the mainstream set.
The launch of a budget brand that could lead to two-tier pricing.
The introduction of an innovative brew that differs from the two major types of milk-based and soy protein formulas.
The targeting of a new class of nutritional products at the huge postformula crowd of 20 million toddlers. One of these is even reaching past toddlers, to the 3-to 10-year-old set. The strategy parallels similar efforts by baby food manufacturers.
Retailers told SN that the significance of all this activity on the part of manufacturers is that it raises hopes of building some margin back into this painfully profitless but absolutely must-have category.
"You're trying not to sell anything with a negative margin unless you have to," said Sue Bacher, grocery purchasing specialist at Giant Food, Landover, Md. "Hopefully, the introductions of some of these new areas will bring profit into the category."
Most retailers said they also welcomed the stream of offerings because it offers them a keener competitive edge in attracting and holding young families.
"I think new entries are showing some growth for the category, which is fairly flat overall," said Ron Bissinger, category sales manager at Kash n' Karry Food Stores, Tampa, Fla.
National scanning figures reveal infant formula sales dollars have been steadily climbing. According to Nielsen North America, Northbrook, Ill., formula dollar volume through supermarkets swelled 58.6% to more than $1.9 billion over the five-year period ended June 11, 1994. Unit sales advanced 12.2% during the period.
Jim Nicholson, category manager at Randalls Food Markets, Houston, said that for the future, he'll keep his eye on the potential of a newly presented item -- Bonamil -- that's caused a stir in the trade because it's priced significantly lower than its competitors. From Wyeth-Ayerst Laboratories, a division of American Home Products, Philadelphia, it is initially selling for $4 a can below the market leaders, promising at the same time to deliver the kind of profit seen in a specialty formula.
"In this particular market, formula is pretty much given away at cost. My gut feeling is that we probably will go with the item," Nicholson said.
"We are very interested in providing variety to our customers, so we're willing to give the [Bonamil] item a try, as opposed to just staying with the high-tonnage SKUs," said Rob Winett, grocery merchandising manager at Riser Foods, Bedford Heights, Ohio.
"We carry a wider variety than a deep discounter or mass merchandiser," he added.
At the same time, however, the appearance of a hefty bunch of new products has some retailers wondering where they all will go.
"Formula is a really difficult category to bring new items into because it is overfull now," said John Raley, HBC buyer at Raley's, West Sacramento, Calif. "Right now we're carrying over 50 SKUs, which is a very robust selection. Past the top 10 items or so, we look at the particular niche of the market we definitely want shopping at our stores.
"WIC [the government-run Women, Infants and Children program] items are always on the top of the list," he added. "We look at the bottom of the list for movement. We might drop the ready-to-use and keep the powder version based on that. In one brand, we had a jumbo-size powder, 35-ounce, where the movement was slow, with no appreciable price advantage over the smaller size. So we dropped the giant sizes of the powders."
Penn Traffic's P&C Food Markets division in Syracuse, N.Y., has been able to widen its selection of formula goods only as a dividend of the company's overall "tremendous remodeling and growth pattern," said spokeswoman Sue Hosey. She said larger, modern stores enabled P&C to provide "more sizes, more selection of formula and a fuller line of products for babies" than its nongrocery competition.
Bacher at Giant Food said her company, like many others, is toning down its emphasis on merchandising cases, and freeing up space for new, nontraditional entries such as milk-based drinks for toddlers, as well as items transferred from drug areas of the store.
G&R Felpausch Co., Hastings, Mich., is holding the line on formula space, while trying to enhance other categories such as organic baby food, in an effort "to make us more of a total store," said Mort McKillop, frozen, grocery and dairy merchandiser.
"We've been adding different flavors lately. And, of course, that is on top of the concentrate, the powder, the ready-to-use, the ready-to-use with iron, the regular . . . the number of SKUs of the same size in, for instance, the two biggest selling formulas," McKillop said.
Now, he said, the retailer will "weed out the weak sisters" among the bewildering list of formula choices available, using shelf movement data and schematic services obtained from its wholesaler Spartan Stores.
The space challenge is not likely to abate, given predictions in some quarters for continued growth. Packaged Facts, a New York-based research company, predicts the category has enough steam in it to jump another 27% in dollar sales by 1998, despite a static baby population of about 4 million births annually.
Supermarkets stand to share in much of the increase. The latest Nielsen figures give the food channel a dominant $8 out of every $10 spent on formula, with mass merchandisers and drug stores accounting for much of the rest.
The proliferation of new-product introductions has manufacturers relying more on consumer advertising -- a dramatic change from the traditional strategy of marketing infant formula, mostly through medical-related avenues.
"We are starting to see more promotions coming through, especially on the newer toddlers' items," said Randy Williams, buyer-merchandiser at Fleming Cos.' Miami division. "Some of it is couponing in hospitals and through doctor's offices. I am also noticing TV commercials, and that is something I don't recall ever seeing. It makes a lot of sense, though, for people who haven't been informed that the product is available and happen to see it on a shelf but not know what that product is."
Confirming this shift in strategy, the vendor of a major toddler item said direct consumer outreach is being used to supplement traditional sales force activity through health care channels.
"We're advertising the toddler formula directly to mothers to make sure that as their infant gets toward the 10- to 18-month period they remain aware of the product," Williams said. He added that the company plans to continue to promote the product through direct mail and selective use of freestanding inserts.
Tom Leskovec, a grocery buyer at the Cedar Rapids, Iowa, branch of Nash Finch Co., a Minneapolis-based wholesaler, said toddler products face an uphill climb because of their higher retail and because of questions of their acceptability in the WIC program.
Other sources said toddler products could be helped, on the other hand, by the medical community's concern over the widespread use of low-fat milk spilling over into baby feeding, where it is considered less nutritionally advantageous.
"The growth in the category over the next several years is going to come from the opportunity to keep babies on formula longer, instead of trading over to whole milk," Winett said.
Industry sources also said the WIC program promises to continue to support volume in the formula category overall. According to a major vendor study, WIC now represents more than 50% of all formula consumption, up considerably from about one-third five years ago. One major formula supplier reported children in the WIC program consume about 1,200 8-ounce bottles in a year vs. around 900 feedings for non-WIC children.
That translates into formula dollars, especially for the bigger brands. However, chains as widespread geographically as A&P see sales fluctuations, because they can accept WIC vouchers for only the brand authorized by the state a given store is in.
"When [a brand] is in the program, it does fine. When it's not, it has a tendency to really slow down," said Bill Vitulli, vice president of government and community relations for the Montvale, N.J.-based retailer.