GlobalData: Chinese Demand May Lead To Seismic Shift In Sales Pattern Of Baby Formula In Australia

Wednesday, May 30th, 2018 | 1241 Views

Daigou—the practice of a person outside of China purchasing commodities for a customer in mainland China—is creating havoc in Australia as baby formula crisis hits baby milk market, says leading data and analytics company GlobalData.

The demand for foreign products has reportedly surged in China, following a series of infant milk scandals over the past decade. Subsequently, this is leading to baby formula shortages at retail stores and pharmacies in different countries, including Australia.

Fiona Dyer, consumer analyst at GlobalData, says: “Tins of formula are being bought out by Chinese ‘daigou’ shoppers who then sell them on to Chinese buyers via applications such as WeChat, who are prepared to pay up to five times the purchase price for the guarantee of a clean formula for their infant.”

“Australian parents are routinely faced with empty supermarket shelves and the need to visit multiple supermarkets to source their formula of choice. Others are reluctantly forced to change formula brands when they are simply unable to source their preferred options,” Ms Dyer adds.

Against this backdrop, Coles—one of Australia’s biggest supermarket chains—has decided to move baby formula behind the counter to restrict bulk-buying for resale in China and protect Australian parents who have a ‘genuine need’ for their infants. Coles’ main retailing rival, Woolworths, has declined to follow suit—yet—but has reinforced its two-can-per-person limit.

According to GlobalData, grocery stores such as Coles and Woolworths dominate the distribution of baby milks, accounting for an estimated 89 percent of value sales in 2016. However, their online rivals are charging ahead and quickly chipping away at this share and the physical retailers are clearly lagging behind.

Ms Dyer also said: “There are several issues at play for Coles and Woolworths. They were comparatively late into online retailing and consequently consumers are used to buying from other types of online outlet rather than necessarily sticking to the online version of their favourite bricks and mortar establishment.”

“In addition, parents have traditionally been a key consumer group for grocery outlets. Having been enticed into the store to buy formula, they tend to do the rest of their grocery shop there as well. That is a lot of potential lost revenue,” she continues.

She also adds: “As long as babies are still being born in China, there is unlikely to be any reduction in demand from this source and it will remain an issue within the Australian market for some time to come. There is a very real possibility that the seemingly insatiable demand for Australian manufactured formula in China could lead to a seismic shift in the way formula is sold.”