Monday, May 27, 2024

The Illusion of the Shelf – The Driving Force Behind Infant Formula Shortages, and What Needs to Change

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In early 2022, the temporary closure of one infant formula manufacturing facility triggered one of the most significant food shortages in our country’s modern history, leaving half of the U.S. without sole-source nutrition for their babies.

For parents who cannot or choose not to breastfeed — a group that describes 80% of American families in the first year of a baby’s life — infant formula is the only other suitable complete nutrition for babies. It quite literally sustains life when a baby’s critical systems are developing: immune, gut, brain, digestion and metabolism. No parent should experience the fear and heartache of driving from state to state to find empty shelves of their baby’s only food source. And yet, the country’s formula supply chain is vulnerable to such catastrophic disruption because of our reliance on so few infant formula manufacturers and innovators.

We cannot accept the inertia that has characterized this industry over the past half-century. We are in the most exciting era of nutrition science and breast milk research — the understanding of breast milk has advanced significantly in recent years, with breakthroughs at the academic level. Yet, very few companies have both the motivation and capability to translate new advancements into better products for babies’ health.

The illusion of the shelf

Picture this: you’re standing in front of a crowded shelf in the formula aisle of a grocery store — the colorful cans shouting benefits are seemingly endless. You’d assume that dozens of companies nationwide are making these formulas, right? Wrong — it’s an illusion.

I want to let you in on a little industry secret: 90% of the formulas manufactured in this country come from the same two companies that have comfortably owned the market — going virtually unchallenged — for decades, plus a single contract manufacturer. Until ByHeart, every new infant formula brand that had entered the market in the last 15 years had used that one contract manufacturer, which produces formula for brands utilizing the same, off-the-shelf recipe it’s been using for years — a common manufacturing practice called white-labeling. Because this manufacturer makes only minimal changes to an existing recipe (like swapping standard ingredients for organic versions), they can skip the step of conducting a new clinical study for FDA registration and bring the premium-priced brand to market quickly, using a recipe that closely mirrors much of what already exists on shelves.

Related: 4 Key Questions to Ask When Analyzing Competition

Who doesn’t love a shortcut?

The reason for this stagnation is that creating a new and advanced product is lengthy, risky and expensive. Infant formula is the most heavily regulated food in the world, as it should be—but industry newcomers are systemically disincentivized from innovating, with friction occurring at multiple touchpoints (like the substantial investment it takes to build new factories). Parents and babies are paying the price. It’s no wonder these industry giants have gone unchallenged for so long—the path to true innovation is daunting.

What’s to be done?

Option A: Build a new infant formula from scratch. Time to market: 7-10 years

Truly innovating a new infant formula to do better for babies requires a ground-up approach to scientific research, global ingredient sourcing, innovative product development, clinical testing, building state-of-the-art manufacturing and distribution, and an extensive FDA registration process—this takes years and significant financial investment ahead of commercialization.

Option B: Launch a new brand with a white-labeled formula. Time to market: 1 year

To start, contact the country’s only contract manufacturer. Skip product development and white-label an existing product, outsource manufacturing, bypass the clinical trials, create a logo and a fresh marketing angle, and you’re in business.

It’s not surprising that so few companies have joined us in choosing Option A. Investors have asked us if parents actually do the research and understand the difference between options, and the answer is unequivocally yes — we see it with our customers every day.

Related: 3 Reasons Why I Gladly Welcome Competition

How do we fix this?

Loosening regulations or shortening the development process on infant formula is not the answer. In order to see a genuinely diversified formula aisle with better options for parents, we need to incentivize companies to prioritize innovation and infrastructure.

Here’s how:

1. Raise the bar for claims and require clear package labeling. Benefit claims should only be permitted for marketing use when a company has conducted a clinical trial that has produced tangible evidence. Setting more stringent parameters for claim use, along with improved label transparency, will encourage companies to invest in product innovation, as parents can easily identify the difference between options.

2. Safeguard store-brand generics by creating a clearer regulatory pathway to quickly bring affordable infant formulas to market. Lower-cost store-brand generics play a crucial role in providing access to families across the country, and the added competition ultimately pressures market leaders to innovate and tout product differentiation.

3. Establish a financial incentive program to build additional domestic manufacturing facilities. As long as the number of FDA-registered facilities remains static, the country will continue to face the threat of another shortage. Infrastructure development requires significant financial investment, and without clear pathways to secure funding, the lack of supply chain diversification will remain a dangerous bottleneck.

The industry must recognize the importance of formula as foundational food for babies at a pivotal stage of development. It’s time to incentivize companies to do the hard work required to diversify our supply chain and drive scientific discoveries. If we don’t, we’re just waiting for the next facility shut-down to put us back into shortage. Our babies deserve better than that.



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