Baby formula products are in red-hot demand, and it's easy to see why…
According to a report from news.com.au, Chinese individuals known as "daigou", which translates to 'buyer's agent' or 'buying on behalf of', are raking in six-figure salaries, well above the income for the average Australian citizen.
By buying tins of the infant and baby formula aka "white gold" from local supermarket and pharmacy shelves, they then on-sell them to China via various online media platforms and online shopping sites like Tmall.com and Taobao.com for a significant profit. Some estimates suggest they're sold online for as much as five times their local retail price.
Sales have been particularly strong recently due to China's online shopping event 'Singles Day' (which is happening today) while the scrapping of China's one-child policy could also be playing a role. Indeed, Credit Suisse estimates that this could add an extra six million new births every year by 2017, creating an enormous growth opportunity for the companies producing it.
Indeed, for the producers themselves, being unable to keep up with demand is a great problem to have. Demand for Bellamy's Australia Ltd (ASX: BAL) branded products is skyrocketing with the company itself predicting that up to 40% of its products sold locally are actually purchased for the benefit of people overseas.
Blackmores Limited (ASX: BKL) is keen to get in on the action too, announcing plans to enter the baby formula business, while OnCard International Limited (ASX: ONC) could also be headed that way, having recently announced the acquisition of dairy business, The Van Diemen's Land Company. Clover Corporation Limited (ASX: CLV) shares have also jumped 21%, with the company producing a range of ingredients used in baby and infant formula.
However, while parents tend to stick with products that work for their children (and Bellamy's is very popular with kids, and thus with parents), if the supply isn't there, consumers will be forced to buy tins from rivals. Although excess demand is always encouraging, it is a problem that will need to be resolved nonetheless.
In saying that, it could also be something that the supermarkets themselves can lend a hand with. Woolworths Limited (ASX: WOW) currently has an eight can limit per transaction on baby formula, although it's questionable how well this is enforced. Coles, owned by Wesfarmers Ltd (ASX: WES), also has a transaction limit with the company also experiencing mass-selling of baby formula products.
Bellamy's share price rose another 2.7% today to $9.84 after hitting a new all-time high of $10.32 earlier in the session. Although they have risen a remarkable 496% since the beginning of the year, there could still be more gains to be made in the long-run.
