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Woolworths cracks down on infant formula sales: Should A2 Milk Company Ltd (ASX:A2M) be concerned?

The shares of infant formula companies A2 Milk Company Ltd (ASX: A2M), Bellamy’s Australia Ltd (ASX: BAL), and Bubs Australia Ltd (ASX: BUB) will be on watch on Tuesday after Woolworths Group Ltd (ASX: WOW) cracked down on daigou shoppers at its supermarkets.

After footage emerged on Reddit showing long queues of daigou shoppers stockpiling infant formula at a Melbourne Woolworths supermarket, the supermarket giant has decided to change its policy again.

A spokesperson told Yahoo7 News that: “We can confirm from next week the baby formula limit will revert to two tins per transaction. We’ll closely monitor our on shelf availability and feedback from customers as we make this adjustment. We will communicate this limit to our store teams and ensure our customers are advised by displaying signs in our stores.”

In August Woolworths increased its limit fourfold to eight tins per shopper. It made the move after working closely with suppliers to ensure adequate supply of infant formula in its stores.

But the footage that emerged this weekend has led to the company making a sudden and unsurprising backflip, much to the dismay of daigou shoppers that have been profiting by buying the products in store and selling them to customers on the Chinese mainland at inflated prices.

What now?

While the rule changes will make it harder for daigou shoppers to purchase large amounts of infant formula, it is worth noting that the spokesperson has stated that it is two tins per transaction.

There doesn’t appear to be anything stopping the shopper from returning to transact a second, third, or fourth time.

In light of this, I don’t think there is reason to be alarmed. In fact, what I’m taking away from this news is that infant formula demand from China is still incredibly strong. So any concerns that infant formula sales to China are waning appears to have been dismissed.

Which I feel could mean it is worth considering a2 Milk Company and Bellamy’s shares after their sizeable declines in recent weeks.

Though, it is worth noting that Bellamy’s is due to have its annual general meeting this week, so it may be prudent to wait for an update on trading and its CFDA accreditation application before snapping up shares.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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