If you think the market for exporting baby formula from mainland Australia is big, then just go down to your local Chemist Warehouse on any weekend and watch the expat Chinese clean-out the shelves of two Brands.
1) Swisse
2) Blackmores
The volumes are staggering and would dwarf milk powder by many multiples.
Its called Branding.
Blackmores is a highly reputable brand among the Chinese. It is also far more widely recognized. If their product proves to be of a quality standard and they can ramp up production to meet demand, then you can be sure they will gain market share.
Big Company's with quality products and deep products are going to invest heavily to secure the biggest market share.
A2M's biggest supply issue - The Cows
".......A2 Milk Company's chief executive Peter Nathan said supermarkets were not restocking their shelves quickly enough.
In a statement on Friday, he said "the company had struggled to keep up with a rapid growth in consumer demand".
He said the company wants to ensure a steady supply to Australian mothers but the company needs longer lead times than most competitors because it rears cows that produce only A2 protein."
A2M are restricted on the amount of product they can sell. Unlike their competitors A2M must make investment decisions now which may or may not prove successful in 2.5 to 3 years time. Thats how long it takes to rear and start milking a Cow. They can't just pick up any old cow and make formula.
If A2M reaches its production capacity within the next two months, then chances are their growth will be tied to the investment decisions made 3 years ago.
In a nutshell, once A2M reaches maximum output on its current milking cow assets, then its growth will be hedged to the modest breeding investment made nearly 3 years earlier. Or in other words no more 30-40% sales increases.
The biggest risk to A2M is a competitor providing an alternative product with similar benefits before A2M can effectively respond to the current demand.
This was pointed out to me today by a fund manager with rather deep pockets. His view is simple - There is no doubt A2M has a premium product - but the Company needs to reveal to the investment community its realistic production capabilities over the next few years.
Interesting times ahead.
'Peak Oil' did not happen - but will 'Peak A2M' be closing in.
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