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Bubs share price surges 10% on new Woolworths deal

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The Bubs Australia Ltd (ASX: BUB) share price will be on watch this morning after the infant formula company announced it has entered a new supply agreement with Woolworths Group Ltd (ASX: WOW).

Bubs shares rocketed 7.14% when the market opened this morning and are now trading 10% higher at $0.77 at the time of writing.

Details of the new deal with Woolworths

Bubs first entered into a supply agreement with Woolworths in February 2018, which involved stocking Bubs’ Goat Milk Infant Formula products in 120 stores.

This new updated agreement will see Bubs now offer its entire range of eight infant formula products across a targeted selection of Woolworths’ 700 national store network.

Bubs commented that the super-premium segment, which includes goat milk and organic formula products, is the fastest-growing sector of the infant nutrition category and now represents more than half of the total infant formula market in Australia.

Under the new agreement with Woolworths, all three stages of Bubs Goat Milk Infant Formula store representation will increase more than threefold to 400 stores.

The new Bubs Organic 365 days Grass Fed Infant Formula range was recently launched into over 300 stores in the Australian pharmacy channel in Q2 FY20. All three stages will now be ranged across 700 Woolworths supermarkets.

The agreement also secures ranging for Bubs’ new Junior Nutrition range to be sold in 100 premium Woolworths stores. The Australian launch will coincide with the launch of a registered China label equivalent Goat Junior Nutrition product with iron-binding protein lactoferrin, to be ranged in mother and baby stores in China. The Junior Nutrition category in China is worth an estimated $1 billion and has experienced double-digit growth since 2017.

Bubs anticipates doubling of its domestic shelf space exposure

Bubs commented that it anticipates the new agreement will have the effect of more than doubling its shelf space exposure and retail points of distribution across the Australian grocery retail sector. Further, the company is confident it will have a significant uplift in its domestic volume and expects the deal to materially add to its domestic revenues.

In-store implementation of Bubs Organic Grass Fed Infant Formula will commence in March 2020 with full distribution completed by the end of May. All other new products and additional store ranging for existing products will also be rolled out into stores by the end of May.

Bubs noted that around $3.3 million infant formula base powder and finished goods inventory was produced in Q2 FY20. This was in preparation for the Woolworths expansion of Bubs Goat formula products, the national roll-out of Bubs Organic formula products, and to fulfil opening orders for the launch of both Goat and Organic Junior Nutrition products into multiple retail channels.

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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BUBS AUST FPO. 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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