For certain segments of consumers (i.e., parents of very young children), baby formula is a clear necessity. They develop strong preferences for certain brands, especially as they learn that switching among different products can cause severe stomach upset for babies. The brand connections also tend to be emotional; the product is something they give to their adored and defenseless babies, who rely wholly on responsible adults to care for and feed them. But despite these powerful drivers, consumers’ brand loyalty is being put severely to the test by ongoing supply chain issues in the baby formula market.
In particular, parents have been expressing serious stress about their (in)ability to procure enough formula, due to shortages and limited supplies over the course of many months. Recent estimates indicate that the shortages are intermittent, but on average, the largest U.S. retailers were suffering out-of-stock rates of 20 percent on baby formula. For parents, who could not predict with any certainty whether their preferred brand or formulation (e.g., powdered versus premixed) would be available on a given day, such stockout rates are completely unacceptable.
The reasons for these shortage are widely contested among the members of the product supply chain. Retailers claim manufacturers simply are not producing enough. One Walmart spokesperson called out nearly all the major producers by name, asserting that “It’s really an industrywide challenge across the main suppliers: Abbott, Reckitt and Nestlé.” But the manufacturers, giving as good as they get, lay the blame directly on retailers, which they accuse of having inefficient logistics, shipping, and stocking policies. According to the confident assertion of an industry group spokesperson, “There is no shortage in manufacturers’ supply of infant formula.”
Yet another party to the shortage might be consumers themselves. When they hear even vague rumors of shortages, many parents immediately seek to stockpile enough for their own children. If their local stores are out of stock, they turn to online retailers and subscription services, as well as boutique producers. As one organic baby formula start-up recognized, in describing the vast increase in the number of orders it was receiving, all it takes is “one post on a Facebook moms group to send some into a panic.”
Nor were parents’ fears assuaged at all when the learned of a product recall, over concerns about contamination by bacteria, by Abbott Laboratories, which produces the Similac, EleCare, and Alimentum brands. It voluntarily recalled all formula produced by a Michigan facility from retail shelves, after several babies grew ill and even died. Although it ultimately claimed that the strain of bacteria that sickened the children was not found anywhere in the production facility, the recall already had had a nationwide impact, in terms of both supply and consumer confidence. Most major retailers adopted the same response: They imposed three- or five-can limits on daily purchases, both in stores and online.
Such daily limits conflict with the reach of the market, which was worth $4.3 billion in 2021 alone. They also conflict with consumers’ preferences: Parents demand sufficient confidence that the food they put in their babies’ bottles is safe and consistently available. These days, the formula supply chain seems unable to meet either of those standards.
- How can the different members of the supply chain overcome debates about who is responsible for shortages and find ways to address them?
- Are purchase limits on necessary products like baby formula legitimate responses by retailers to stockpiling by consumers? What other solutions might retailers adopt?
- How might marketers discourage consumers from stockpiling baby formula?
Source: Jennifer Maloney and Sharon Terlap, “Baby Formula Is Hard to Find. Brands and Stores Are Divided Over Why,” The Wall Street Journal, January 12, 2022; Sharon Terlap, “Baby-Formula Shortage Prompts Rationing at Target, Kroger, Walgreens, and CVS,” The Wall Street Journal, April 12, 2022