Infant formula maker Bubs Australia is winding down its Chinese joint venture in favour of creating its own wholly owned subsidiary in what is its fastest-growing export market.
Bubs currently owns 49 per cent of Bubs Brand Management Shanghai, with controlling partner Beingmate which holds the Bubs trademark rights in China and its exclusive distributor there, the balance.
The company said, in its first-quarter results update, that the decision to take direct control will result in a higher margin for core products in the channels where it sees the highest growth opportunities.
Bubs will continue to use integrated e-commerce channels with fulfilment delivery ex-Australia or via bonded warehouses within China – including online-to-offline (O2O) covering general trade and mother and baby stores – live-streaming e-commerce and social-selling channels, as the basis of its operating model in China.
“There will be no changes to the company’s strategic partnerships, including existing third-party distributors, e-commerce platforms such as Alibaba, JD, Kaola, VIP, and other customers, as their supply agreements will be reinstated under the new entity,” the company said.
“This move is a direct reflection of the favourable results we have already seen in our direct supply and focus on the cross-border e-commerce channel, as well as our O2O and general trade customers,” said Bubs chairman, Dennis Lin.
Select employees will transfer from the joint venture to the new company and Bubs is actively recruiting senior executive staff in China.
“This restructure will not result in any disruption to existing business and has not impacted our sales forecast. Bubs and Beingmate have mutually agreed to revisit the localised manufacturing proposal at its Beihai facility once this process is finalised,” said Lin.
Sales increase in core categories
The announcement coincided with a first-quarter trading update showing a 60-per-cent increase in Bubs’ sales on third-party e-commerce marketplaces in China.
Group quarterly gross revenue was $11.8 million. The company has three core growth priority areas: Infant formula, where gross revenue rose by 4 per cent year on year, Chinese export sales, which soared 28 per cent; and the daigou channel, up by 19 per cent.
In the local market, Bubs remained the fastest-growing infant formula manufacturer across Chemist Warehouse, Coles and Woolworths with scanning data showing a 37-per-cent rise year on year.
Bubs founder and CEO Kristy Carr said while the company could not replicate the abnormally high group gross quarterly revenue of Q3 of last financial year – which was driven by the sudden ‘pantry stocking’ demand surge in the domestic market related to the Covid-19 pandemic – there were continued signs of accelerated growth momentum across the three core priority areas.
“In addition, we continue to build on our presence in Malaysia and Vietnam. We are also well progressed with registration in Korea and Redmart in Singapore, with first shipments for both markets expected to be delivered in the fourth quarter of FY21,” said Carr.