Buoyed by strong sales growth, Bubs Australia (ASX: BUB) has signed a deal to increase its reach into the Chinese market with a further 80,000 stores in its sights.
Earlier today, the baby food and formula producer announced a binding manufacturing agreement with Australia Deloraine Dairy to both sure up its production capacity and to obtain greater access to the Chinese market given Australia Deloraine’s licensed status.
Bubs also intends to leverage the deal to obtain its own business-critical China Food and Drug Administration (CFDA) registration.
Under the terms of the agreement, Bubs will purchase a minimum volume of 500,000 tins in the first year post registration, with annual increments throughout the term, reaching 1.5 million tins in the fifth year. Bubs will pay the manufacturing facility a $1 million security deposit to be refunded at the end of the term.
“This strategic partnership is a crucial step in achieving CFDA registration, enabling us to advance our China expansion strategy for physical export of Bubs Chinese labelled infant formula products into mother and baby stores in China.
The manufacturing agreement will also enhance visibility over our supply chain and product provenance for both our domestic and Chinese labelled products,” said Dennis Lin, chairman of Bubs Australia.
According to Mr Lin, there is growing demand for goat milk-based infant formula in China which Bubs wants to cater for through its parallel agreement with QianJiaWanPu, China’s largest nationwide distributor of infant formula.
“The manufacturing agreement will facilitate our CFDA registration and provide a defined pathway to maximising Bubs’ access to 80,000 stores aligned with our partner QianJiaWanPu,” said Mr Lin.
Online sales boost
In addition to its partnership with QianJiaWanPu, Bubs is also pushing ahead with its online expansion courtesy of a deal with Alibaba Group.
Bubs has signed a merchant service agreement with Alibaba with a “flagship store” now launched on Tmall Global, currently the largest business-to-consumer retail platform in Asia enabling businesses to sell directly to millions of consumers throughout China. Its online storefront at Tmall.com is considered to be “China’s premier online shopping destination.”
As a company, Alibaba is the largest e-commerce platform in China, recording around US$547 billion gross merchandise volume last year, with 580 million mobile monthly active users across its range of applications.
‘Mother and baby’ products are the 2nd largest category on Alibaba, with infant formula having become the most popular purchase item in the segment over the past few years.
Furthermore, infant nutrition cross-border sales between Australia and China, increased 8.8% last year on the platform, with the strongest growth drivers coming from organics, specialised formula and goat milk products.
“Alibaba is one of the largest retailers in the world. This is therefore an important milestone in the evolution of our cross-border e-commerce strategy, that will significantly broaden our reach to Chinese parents,” said Ms Kristy Carr, founding managing director of Bubs Australia.
“We are confident that with Bubs longstanding Australian brand heritage and unique premium offering, coupled with Alibaba’s lifestyle ambassador, Jessica Rudd’s endorsement, our flagship store will be a great success,” said Ms Carr.
According to Bubs Australia, its online store has now launched with forecasts indicating that Bubs will generate a global merchandise value in excess of RMB 5 million (A$1 million) in the first 12 months of trading.