Baby & infant: babycare hit by big Brexit price spikes

It’s going to take more than the 0.2% dip in the birth rate [OFT] to explain this one away: volumes are falling in three of the four key baby & infant sectors in the supers. Why?

You can blame Brexit, for some of it at any rate. “Foreign exchange rates have impacted many consumer goods categories in recent months, including babyfeeding,” says Roz Davies, head of category development at baby formula market leader Danone.

Baby formula volumes have crashed 9.3% in the wake of hefty price rises. And, as in many other sectors such as nappies, rising prices in the mainstream mults are driving more and more shoppers to the discounters and online in search of a bargain.

That’s not all. The private export market to China - created by the 2015 relaxation of the state’s one-child policy and safety fears sparked by the 2008 melamine contamination scandal - has collapsed after the Chinese authorities introduced new rules restricting individuals from bringing British-bought formula into the country in their luggage.

“The total babyfeeding market is in slight value decline and more significant volume decline, driven by milks, due to a slowdown of sales to China and higher retail prices, resulting in consumers exiting the market early,” says Hipp Organic MD John Allaway.

Indeed, the average price of infant milk formula is up 6.4% on last year’s, the sixth greatest price rise in this year’s report. All the big players have seen volumes slump, while value sales have held up as a result of higher prices. Combined sales of Hipp’s milk products are up 1.8% while volumes are down by more than a fifth; Aptamil is down 0.9% by value and 7% by volume; Cow & Gate has lost 9.7% of its value and 11.9% of volume.

Another factor pushing babymilk prices up is the growth of RTDs. Hipp, for example, has launched RTD versions of its milk products in 250ml formats. Danone reports solid growth for its RTDs, too. Davies adds: “They’ve been the big winner as they offer a convenient, quick and no-preparation option to parents.”

Demand for convenient options also explains why baby snacks have defied the decline of the wider category. “Baby-led weaning, a desire for convenient ‘healthier than’ treats, and new innovative products focused on taste are driving the growth,” says Sally Preston, founder of Kiddylicious, which has seen sales surge 77.1% to £12.6m.

The biggest snacking brand is Organix. Even with the growth shown by Kiddylicious, it is still three times the size of its closest rival. “The three drivers behind the double-digit growth of snack foods are increased time out of home, more snacking occasions and their health benefits,” says MD Philipp von Jagow.

That more parents are buying such products on impulse (see number three snack player Bear’s growing presence at c-store till points) helps explain why baby snacks have seen the greatest average price rise of the year, of 10%. But that’s not the whole story.

“The category is sensitive to promotional activity and retailer strategies have led to changes, notably the reduction or removal of multibuy activity,” says Preston. “There has been some currency impact to manufacturers and some rsps have moved. But this is exceptional. In most cases, brands have absorbed the effects of cost inflation and Brexit.”

Allway points to a 19% cut in promotions on wet and dry food as a key culprit for the falling volumes in the sector, although that will only go some way to explain why his brand has lost 29.8% of its value on volumes down 39.6%. Hipp has also lost significant shelf space as retailers have delisted many traditional jarred SKUs in favour of pouches (a trend that has benefited market leader Ella’s Kitchen). Own label is also stealing share, up 87.9%, albeit from a small base.

Success in 2018 will partly rest on allaying growing health concerns. See the terminal decline of baby juices due to fears over sugar levels for proof of how a market can be hit by changing ideas of health. Danone says it’s “proud of our decision to have exited this category” and supermarkets have abandoned own-label juices for babies.

Heinz juice sales are £3.3m, less than half the £7.2m of five years ago. Heinz isn’t keen to talk about juice, but it is seeing growth in babyfood, with sales up 14.3%. “We’ve developed a number of innovative products,” says Francesca Mattiussi, Kraft Heinz marketing manager for infant. “This included teaming up with Minions to release a range of 100% fruit and vitamin C fruit pouches with absolutely nothing else added.”

The supers’ baby & infant care teams face further challenges, says Allway: “Given the growing availability of branded milk packs in the discounters we expect to see a more significant shift in total category sales away from mainstream retail into early 2018.”

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