The formula market needs more producers, but new entrants face huge hurdles
Industry insiders have long feared a situation like this: American parents are desperate for an adequate supply of formula for their infants during a national shortage.
The formula shortage has revealed an inflexible industry dominated by just three to four major players who own the majority of formula production in the United States. There is little wiggle room when a factory closes abruptly, as Abbott Nutrition’s factory in Sturgis, Michigan did in February after bacterial contamination.
In May, stores were reporting that up to 40% of infant formula was out of stock, exacerbated by continued supply chain slowdowns and infant formula recalls.
Abbott, Reckett Benkiser and Nestle produce the top five formula brands in the United States – Enfamil, Similac, Gerber, PediaSure and Isomil – according to market research firm Euromonitor International.
Why haven’t new companies broken into such a critical sector? There are simply too many barriers to entry.
Siblings Ron Belldegrun and Mia Funt have spent over five years trying to make headway in the highly concentrated formula market.
They are co-founders of New York-based ByHeart, a direct-to-consumer formula brand that uses organic, grass-fed cow’s milk, devoid of certain ingredients used in branded formulas that have become unpopular with parents. health-conscious, such as corn syrup, maltodextrin (a starch additive in food products), soy or palm oil.
Bringing their product to market was not easy. Belldegrun and Funt’s formula had to meet all federal nutrient requirements, a long and arduous process. They spent two years looking for a manufacturing partner before deciding to acquire a factory in the United States to produce it themselves.
They then built the supply chain to directly source all ingredients to ensure quality and safety, and conducted rigorous clinical trials over a six-month period with 300 babies to test safety and efficacy. effectiveness of their formula.
Bringing a new formula to market is extremely expensive. Funt said the startup has raised more than $190 million in premarket capital from investors including Polaris Partners, D1 Capital Partners and Bellco Capital.
“Infant formula is – rightly – the most regulated food in the world. The road to providing babies with a single source of nutrition must be approached with the utmost rigor,” Belldegrun said. “But for the benefit of babies and their parents, there must be more incentives for new brands to take up the challenge. We need more support for infant formula manufacturing and product innovation at the state and federal levels.
Belldegrun said ByHeart is the first new infant formula maker in more than 15 years to be registered with the FDA. “We own our manufacturing, we buy our ingredients directly and we sell directly to consumers,” he said.
ByHeart launched its brand in late March amid a worsening nationwide formula shortage.
Just eight weeks after its launch, Belldegrun said the rate of new ByHeart customers had reached nearly 15 times the company’s annual projections. ByHeart temporarily halted new subscribers and increased production to 24/7 at its facilities.
Shazi Visram founded her baby food company Happy Family Organics in 2003 at her kitchen table.
It quickly became a leading organic baby food brand and was acquired by Danone 10 years later. Visram had started working on creating organic infant formula for the brand in 2012. Happy Baby organic infant formula hit stores in 2017.
“It’s extremely difficult to introduce a new brand of formula to the market,” said Visram, who stayed on as CEO of Danone’s Happy Family Organics but left in 2017 to start his second company, HealthyBaby, in 2020.
“The regulatory process to put a product on the shelves is extremely rigorous, very slow and capital intensive. If you’re starting from scratch, the most aggressive time to market is three to five years, starting with recipe development, supply chain development, then clinical trials, review by the FDA and finally production.
Happy Family used an existing supplier to reformulate with probiotic and organic ingredients an existing infant formula that was already approved for sale in the United States, so it was not required to conduct clinical trials for the new formula.
“Even then, it was a multi-year process to ensure we got enough line time in the facility,” Visram said. “The barriers to innovation in this category are so high and this current shortage is a wake-up call that we need a regulatory framework that supports pathways to innovation while maintaining maximum quality and safety to our babies.”
Food scientist and entrepreneur Laura Katz is developing infant formula using precision fermentation to recreate the human proteins found in breast milk.
Katz, who launched her formula-making startup Helaina in 2019, said the goal was to produce a formula with health properties previously only available through breast milk.
She was 23 when she started looking for her idea. Now 29, Katz is closer to the finish line but knows it could still take over a year or more. It has raised $25 million to date from Siam Capital, Spark Capital and others as it seeks to start manufacturing.
“Formula milk is a very sensitive and vital product and that’s why establishing its safety through tests and clinical trials is such a long journey,” she said. “But with continued innovation comes greater access to choice for consumers.”