a2 Milk Company to consider manufacturing instead of being just a brand owner

Australian-based a2 Milk Company contemplates switching from being solely a brand owner to a manufacturer in a bid to bolster supplies of infant formula after a doubling of sales in China. The recent outbreak of coronavirus has also further strengthened demand.
Currently, a2 Milk has a long-standing contract with New Zealand dairy group Synlait, which holds the exclusive right to manufacture its infant formula, and has a nutritional milk powder manufacturing partnership with Fonterra.
a2 Milk has been considering the transition from brand ownership to manufacturing for the past 5 years, said Chief Executive Geoff Babidge. However, it is unlikely to follow beleaguered vitamins group Blackmores in buying its own factory.“Our preference will be to work with others in taking some kind of investment in manufacturing capacity,” added Mr Babidge.
a2 Milk hopes to maintain strong positive relationships with Synlait and Fonterra, and it seeks to do something complementary to maintain these relationships, as ‘manufacturing’ is not the company’s core strength currently.
In 2019, Blackmores made the switch from brand owner to manufacturing when it acquired a factory near Melbourne for A$43 million (US$24.84 million). Although the factory is in good working condition, Blackmores expects the operation to wipe off it’s A$9.5 million (US$5.5 million) earnings.
Sales of a2 infant formula in China soared 100% in the 6 months ended December 2019. Mr Babidge said that sales in China had remained strong in the first 2 months of 2020, despite the coronavirus outbreak, as a2 successfully got its products into China using sea and air freight, while its partnership with China State Farm had ensured distribution throughout China remained uninterrupted. Online sales continue to rise with most people in China working from home to avoid possible infection of the virus.
a2 Milk is also on track to reach its target of US$100 million in annual sales in the US in the near future.