The deal with Deloraine Dairy allows it to be in a position to gain key certification that will permit Bubs to sell Chinese-labelled baby formula into China.
Shares in the producer of goat milk infant formula rocketed higher Friday, adding 4 per cent, to 84¢. The stock has traded as low as 13¢ a year ago and as high as $1.10 last November.
Australia Deloraine Dairy is one of only 15 licensed facilities in Australia authorised by China’s Certification and Accreditation Administration (CNCA) to produce infant formula products eligible for importation into China, under the new regulatory requirements that kicked in January.
The manufacturer has three brand “slots”, one of which will be taken by Bubs.
Rival The a2 Milk Company already gained its Chinese certification last year via its manufacturing partner New Zealand’s Synlait, while Bellamy’s Australia is still waiting to hear if it has passed muster with Beijing.
Crucial step for expansion
Bubs chairman Dennis Lin said the strategic partnership is a crucial step in achieving CFDA registration, enabling the company to advance it’s China expansion strategy.
“The manufacturing agreement will also enhance visibility over our supply chain and product provenance for both our domestic and Chinese labelled products,” he said.
“There is an increasing demand for goat milk based infant formula in China, especially in Mother and Baby stores. The Manufacturing Agreement will facilitate our CFDA registration and provide a defined pathway to maximising Bubs’ access to 80,000 stores aligned with our partner QianJiaWanPu, China’s largest nationwide distributor of infant formula.”
Under the terms of the agreement, Bubs will purchase a minimum volume of 500,000 tins of formula in the first year post registration, with annual increments throughout the term, reaching 1.5 million tins in the fifth year. Bubs will pay the manufacturing facility a $1 million security deposit in instalments on meeting certain milestones, which will be refunded at the end of the term.
The deal with Alibaba’s TMall Global means the Bubs entire range of formula, organic baby food, cereals and snacks will be sold on the platform. Mother and Baby products are the second largest category on Alibaba, spearheaded by infant formula, the company said.
While specialised baby formula and goat’s milk product is a niche category, Bubs is hopeful that its growing interest from Chinese parents and support from Alibaba’s lifestyle ambassador, Jessica Rudd, will help with success in its new online presence.
Bubs earlier this month said it is targeting a five-fold increase in what is already the nation’s biggest milking goat herd to meet speciality product demand from Chinese families.
By: Carrie LaFrenz
Source: Financial Review