Jun 17, 2022 - Economy

Baby formula shortages boost profit margins

Illustration of milk coming out of a bottle in the shape of an upward trend line

Illustration: Sarah Grillo/Axios

Widespread baby formula shortages have bolstered the profit margins of the product's manufacturers.

Why it matters: Families have been scrambling to find formula for their babies since a massive recall in February — and now they’re paying more for it, too.

Driving the news: The industry’s profit margin has jumped from 11.6% in 2021 to an estimated 14.2% in 2022, the highest point since 2015, according to new IBISWorld data provided to Axios.

  • “While the COVID-19 pandemic disrupted supply chains and caused input costs to increase, high demand for formula and high market share concentration have allowed manufacturers to increase prices and maintain profit,” IBISWorld said in the June report.

State of play: Between March 2021 to May 2022, baby formula prices jumped by an average of 11%, according to an analysis of a dozen major retailers — including Kroger, Amazon and Costco — conducted by DataWeave.

  • Four companies like Abbott Laboratories, Mead Johnson, Perrigo and Nestle accounted for more than 87% of the market, according to IBISWorld.

Of note: Officials with all four companies did not respond to requests seeking comment. But industry leaders have acknowledged that the mad rush to buy formula has boosted the bottom line.

  • “We also are benefiting this year from, frankly, a terrible situation … and I need you to know that Perrigo is part of the solution, not part of the problem,” Perrigo CEO Murray Kessler said Wednesday at a conference, noting the company had increased production to help meet demand.

Yes, but: Baby formula price increases had started before the Abbott Nutrition recall, according to DataWeave.

  • Manufacturers have been dealing with extra costs associated with raw materials, labor and distribution, all contributing to the industry’s broader inflation crisis.
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