Bellamy's Australia Ltd (ASX: BAL) has come under fire with local customers becoming frustrated at the lack of availability of its products on supermarket shelves.
Indeed, Bellamy's enjoys incredible brand recognition, largely due to its products being 100% certified organic. While kids seem to enjoy the taste, people around the world are also able to trust that they're getting quality Australian-made product that is less likely to cause adverse reactions in their children.
This is particularly the case in China, where there is a wide disconnect between parents and local producers following a number of food safety scares in the recent past. In fact, while Bellamy's makes the majority of its sales in Australia, the company estimates that between 30% and 40% of those products are then resold for a profit in China, sparking frustration among local consumers who can't seem to get their hands on the company's tins.
The buy-up appears to have intensified even more recently in the lead up to China's online shopping event known as 'Singles Day' on 11 November. As highlighted by The Sydney Morning Herald, there has been an 'extreme shortage' of its products lately with the formula 'becoming impossible to find'. Some customers have even reportedly contacted every Coles supermarket within 20 kilometres while others drove for hours in search of some of the tinned "white gold".
That's some extreme dedication for Bellamy's products. Once parents find something that works with their infants, they'll tend to stick with it through thick and thin.
What does this mean?
Bellamy's has enjoyed incredible growth in recent years. In fact, it reported 153% growth in sales in the 2015 financial year while net profit after tax, or NPAT, surged 617% to $9.1 million. That was well beyond the company's own growth forecasts.
Despite that growth however, it's also clear that that growth has been somewhat restrained by its inability to keep up with demand! It's a great problem to have, but an issue nonetheless that it will need to address if it is to live up to its full capacity. This is especially the case now that China has scrapped its one-child policy, which could see demand for baby formula products skyrocket in the years ahead.
To do this, Bellamy's is focused on growing inventory levels to meet demand, while also developing the organic supply chain and manufacturing availability. It will also explore greater e-commerce opportunities, which are already proving successful in China and could help the company achieve even greater margins in the future.
Should you buy?
Bellamy's shareholders received a scare recently when Blackmores Limited (ASX: BKL) announced they had entered a partnership with Bega Cheese Ltd's (ASX: BGA) Tatura Milk Industries to manufacture a new range of baby formula products. Indeed, Tatura Milk is also Bellamy's lone manufacturer of baby formula, so investors may be uneasy about what that means for their current relationship (although Bellamy's does have a six-year agreement with them, signed in July 2015).
In saying that however, the opportunity is enormous, both locally and internationally, and I believe there is plenty of room for more than one company to thrive. Although Bellamy's isn't 'cheap', per se, I believe it could still be a buy today considering the incredible demand for its products around the world.
