Bubs Australia secures strong distribution foothold with Chemist Warehouse alliance

Bubs Australia ASX BUB distribution Chemist Warehouse alliance
Bubs Australia will have 28 of its products stocked on Chemist Warehouse shelves from June 2019.

Infant formula producer Bubs Australia (ASX: BUB) has bolstered its local distribution foothold after entering into a four-year strategic alliance with the Chemist Warehouse Retail Group.

Under the binding heads of agreement, Bubs products will be sold across Chemist Warehouse retail stores throughout Australia from 1 June 2019, including its domestic and Tmall online stores.

Chemist Warehouse has been stocking limited ranges of Bubs products online for some time, with the success of the online store prompting the pair to enter into discussions to expand the distribution of all Chemist Warehouse franchised stores.

Commenting on the strategic alliance, Bubs Australia founder and chief executive officer Kristy Carr said it was a remarkable opportunity for the company to deepen its relationship with Australia’s leading health and beauty retailer.

“We firmly believe this transaction will deliver strong growth in Bubs’ business, as well as offer significant long-term shareholder value,” she said.

“Now, with our key partners in place and a fully vertically integrated business with milk pool security and ownership of our manufacturing facility, we are set for rapid global expansion.”

Chemist Warehouse is Australia’s largest pharmacy chain network by total sales, with over 450 franchised stores throughout Australia and New Zealand.

Recently, the chain has evolved its business model to not only cater for a strong domestic market, but also act as a gateway to China for Australian brands in response to the increasing number of Chinese residents and tourists seeking Australian health and infant nutrition products.

Bubs said the alliance would also provide it with a strong gateway to China, given it had recently stepped up its Chinese presence by entering into a non-binding memorandum of understanding with one of China’s leading domestic infant nutrition companies, Beingmate China.

Sales and marketing services

Under the deal, Chemist Warehouse has also agreed to invest all the marketing and promotional fees to subscribe for shares in Bubs.

The agreement provides for an initial issue of about 12.3 million fully paid ordinary shares in Bubs to be purchased by Chemist Warehouse, out of the marketing and promotional fee, in two tranches.

Bubs will seek shareholder approval for the second tranche at its 2019 annual general meeting.

The marketing and promotional fee to be used by Chemist Warehouse remains subject to the satisfaction of certain sales performance targets relating to the sale of Bubs products in Chemist Warehouse stores over a three-year period.

Asset sale

Today’s partnership with Chemist Warehouse comes a day after Bubs informed shareholders it had entered into an agreement with The Remarkable Milk Company for the sale of certain assets acquired as part of its acquisition of NuLac Foods in 2017.

Bubs said the Coach House Dairy brand was not considered core to Bubs business strategy, which centres around infant nutrition and goat dairy products.

The assets include the business conducted under the Coach House Dairy brand for the production and sale of flavoured cow’s milk products, including the Australian registered trademarks, recipes, website and social URLs.

Consideration for the sale is $500,000, with the deal expected to be completed at the end of June.

Bubs is currently Australia’s only vertically-integrated producer of goat milk infant formula, with exclusive access to fresh milk at a fixed price from 24,000 goats in Australia and New Zealand.

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