Retail company AuMake International (ASX: AU8) has signed a supply agreement with Pure Nutrition to develop a brand of “A1 and A2” milk powder formula products, best known for their beta-casein protein content.
The pricing and exact deal terms have been kept confidential but AuMake has committed to producing around 1 million units of A1 and 600,000 units of A2, as its initial annual target volume.
For Pure Nutrition, the deal opens the door to further extend its dominance over the New Zealand market where Pure already ranks as the country’s 2nd largest dairy co-operative owned by 400 farming families and Hong Kong-based Ausnutria Dairy Corporation, a top-eight dairy infant nutrition company in China.
AuMake has confirmed that its A1 product is scheduled for launch in October/November 2018 with the A2 product range to be launched in April/May 2019.
The latest product launch, therefore, supplements AuMake’s development.
Earlier this year, AuMake partnered with Itrip.com, an online travel-agency booking platform, to commercialise the growing trend of Chinese consumers buying up many of Australia’s manufactured products, including health care products, cosmetics, dairy, food supplements and skin care.
AuMake says its main objective is to engage with the “growing and influential daigou and Chinese tourist markets, by offering a one-stop-shop retail network,” with a specific focus the ‘Free Independent Tourist’ (FIT) segment.
Dealing in milk powder
The terms of today’s announced deal stipulate that AuMake will hold exclusive rights to contract-packed A2 related products by Pure Nutrition for the Australian market and will be subject to minimum order quantities.
The agreement also allows for future extension to the range of organic and goat milk powder products already being sold by Pure Nutrition. If successful, the new range will supplement AuMake’s recent quarterly results which showed the company achieving A$7 million in sales and A$1 million in gross profit in Q3 2018 (up by a third compared to Q2).
In February, AuMake reported sales figures of A$5.2 million, gross profit of A$736,000 and a gross margin of 14%, although the daigou retailer did report a hefty $2.1 million loss in net cash flow as the company invested in additional inventory for its line-up of new stores.
According to AuMake, the company selected Pure as its partner to develop its innovative milk powder formula products to specifically cater for the needs of the Chinese market, currently experiencing strong growth on the back of amiable demographics trends that are supporting growing sales of baby products.
Utilising locally sourced New Zealand milk, Pure Nutrition says it will provide its specialist expertise in developing, producing and delivering final packaged product to AuMake for sale exclusively through its distribution channels.
AuMake said that the time is now “appropriate” to add a milk powder formula range to its brand portfolio given its expanding distribution network in Australia, including its mounting presence within the network of Chemsave pharmacies around Australia.
“AuMake has long been aware of the potential of the milk powder formula market and conducted extensive analysis of this market prior to committing to Pure Nutrition Limited as our supplier of choice,” said Keong Chan, executive chairman of AuMake International.
“The flexibility offered by our supply agreement with Pure Nutrition provides us with the ability to tailor products to the specific needs of various segments and demographics within the Chinese market. We have identified the ageing population of China to be of significant interest with 241 million people over the age of 60, which is forecast to grow to 487 million by 2050.
“We will immediately begin the development of brands and products under this Supply Agreement with the A1 range scheduled to launch in October/November 2018 and A2 in April/May 2019,” said Mr Chan.
Australian commerce in China
In addition to its Australian focus, AuMake is developing sales channels in China by demonstrating its ability to create new brand momentum within the influential Australian daigou and Chinese tourist markets.
In order to make an optimal entry into the Chinese market, AuMake says it intends to focus on the development and sale of milk powder formula products that do not require SAMR approval, including English-labelled infant formula sold within Australia.
Currently, Chinese authorities require companies to obtain certification if they intend to sell infant formula products, with no certification required for milk powder products.