The attachments are article and lecture slide. The questions are:
1. Summarize the main points in the article. (3 marks)
2. Critically discuss the article with specific reference to one (1) of the theories discussed in the lecture slide. (7 marks)
Print Article: Blackmores faces big test in cracking infant formula market
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Blackmores faces big test in cracking infant formula market
Jared Lynch and Mark Hawthorne
Published: April 11, 2016 5:53PM
Investors have dumped shares in Blackmores amid a Chinese crackdown on foreign foods, just as the market darling faces one of its biggest tests with a major assault on the
Australian infant formula market.
Confidential market data obtained by Fairfax Media reveals that Blackmores' much anticipated range of infant formula ? which has so far only been available online and via
pharmacies ? has failed to win over Australian mums and dads.
Blackmores has managed to win just 0.1 per cent of the $173 million formula market in Australian pharmacies.
The company's shares dived as low as 13 per cent to $179.42 after Chinese authorities reined in what foreign products could be bought and sold through its official cross
Under the changes, health foods require regulatory approval, which Fairfax Media understands can cost up to $200,000 per item and can take up to four years.
The further tightening of regulations came after Beijing last Friday slapped a 11.9 per cent tax on goods bought through foreign websites.
Abject failure with consumers
According to a key supply manager with one of Australia's biggest pharmacy chains, the release of Blackmores infant formula has been an "abject failure" with consumers.
"There are basically three brands dominating the market, and they are Aptamil, A2 and Bellamy's," said the source.
IRIAztec compiles pointofsale scan data from the majority of major supermarkets and pharmacies across the country.
That data reveals that Blackmores has won just 0.1 per cent market share of the total amount of infant formula sold by Australian pharmacies, the equivalent to just $1.7
million of annual sales.
But company chief executive Christine Holgate defended the figures, saying they had engaged in a "soft launch" of the product in late January. That launch was backed by a
television advertising campaign.
Ms Holgate said the company waited to launch its infant formula range across supermarkets, which account for 90 per cent of the Australian market, to ensure it had enough
supply for Australian mums and dads.
"With our infant formula, if we had launched across grocery up front, we wouldn't be able to support the supply and we would have been criticised for it," she said.
"Do you prioritise sales or the right thing by the customers? We believe we have taken the right approach."
From this month, Blackmores formula will be available in more than 200 supermarkets across Australia. Coles and Woolworths account for almost 90 per cent of all
Australian infant formula sales. Blackmores' foray into supermarkets will compete headon with the major brands of the industry in Aptamil, A2 Platinum, and Bellamy's.
Infant formula has been dubbed "white gold" due to unprecedented demand from China for the product, but data shows that Blackmores is not the only company to fail to
cash in on the boom.
Natures Way has only managed to win 0.4 per cent of the Australian pharmacy market for infant formula.
Coles, which has launched its Nutriforme Gold homebrand formula, has also failed to win over consumers. Just 0.8 per cent of the formula sold by Coles is its homebrand
Print Article: Blackmores faces big test in cracking infant formula market
Market share of infant formula sales
Australian pharmacy sales
Danone (estimated) 42%
Coles Group sales
Source : Aztec Scan Data
But still early days
But Morgans analyst Belinda Moore said it was still early days for the Blackmores, which launched its brand of infant formula in a partnership with Bega Cheese last
October and began selling on its websites and pharmacies in January.
"And you have to remember that it's conventional infant formula, which is highly competitive," Ms Moore said, adding that only companies with a point of difference like
Bellamy's and a2 Milk have seen big gains in market share.
A2 Milk chief executive Peter Nathan said his company was still enjoying a boom in sales to Chinese nationals, and his company had worked hard to overcome supply issues
at major supermarkets. He likened Chinese tourists buying tins of Australian formula to take home to Australians going on shopping sprees while overseas.
"The phenomenon of Chinese tourists buying infant formula from Australian retailers is similar to the recent experience of Australian consumers buying Levi Jeans in large
numbers from the US," he said.
"This really is new and welcome territory for Australian brands, where aspirational Australian brands such as A2 Platinum have such significant traction with the largest
consumer market on the planet, in China.
"This has very positive commercial benefits for the Australian economy as selling highvalue brands is far preferable to just selling commodities."
Since December 2014, Blackmores shares have surged from $33 to a high of $220.90 reached in January this year.
CLSA analyst Naveen Patney the "key challenge" for Blackmores under China's new regulations would be to "educate the relevant regulatory authorities that a large number
of their products should be considered normal foods rather than health foods".
Approval can take four years
Health foods, Mr Patney said, need regulatory approval to be placed on the "positive list" and sold through official channels ? a process that can take two to four years.
He said while official cross border ecommerce channels [CBEC] accounted for a small amount ? about 5 to 10 per cent ? of Blackmore's, a2's and Bellamy's sales into
China, they were "key to longterm success".
"We view the positive list as a potential negative for Blackmores, given nearterm uncertainties and the potential for some Blackmores products to not be permitted under
CBEC," Mr Patney said.
Blackmores chief executive Christine Holgate is in China this week in what the government has dubbed the "largest ever" trade mission to the Asian powerhouse.
She said all that all of the companies main products, such as fish oil, were still allowed to be exported into China.
"I haven't seen anything in the regulatory changes that gives me any concern," Ms Holgate said.
"I continue to be excited by the prospects for not only Blackmores but Australia".
Tom Parker, head of consultancy firm Bastion S&Go's China advisory, expected the grey market ? or what he preferred as the overseas shopper market sending products
back to China ? to flourish in the short term because it was more nimble than the official channels and not subject to the taxes and fresh regulatory changes.
"But the Chinese government, if anything, has a longterm vision and these regulatory changes are about getting the bigger players used to it, because once you have them on
these crossborder channels, you can place taxes on them, regulation ? you can control trade," Mr Parker said.
"It's the castle and moat strategy ? you can pull up the drawbridge whenever you like."
This story was found at: http://www.theage.com.au/business/blackmoresfacesbigtestincrackinginfantformulamarket20160411go3h7c.html
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