Wattle Health looks to boost distribution via supply agreement with Chemist Warehouse

Wattle Health Australia ASX WHA Chemist Warehouse Uganic Little Innoscents Ranges
Chemist Warehouse has the largest presence for online sales in China via Tmall and is the largest infant formula retailer in Australia.

Nutritional products maker Wattle Health Australia (ASX: WHA) has struck a deal that will see its organic nutritional dairy range stocked in as many as 450 Chemist Warehouse stores across Australia.

Wattle Health unveiled a 10-year supply agreement with Chemist Warehouse earlier today that ensures its premium range of Uganic infant formula and the Little Innoscents organic skincare range will be made available nationwide.

Wattle launched its Uganic range in September this year, aiming to provide consumers with a certified organic, traceable and highly nutritious range of dairy products.

According to the company’s chief executive Lazarus Karasavvidis, the early reception from consumers at trade shows and from direct sales has been extremely positive with today’s Chemist Warehouse agreement set to propel the brand to greater sales via one of Australia’s largest retail chains specialising in infant formula.

Chemist Warehouse is a prominent name in the retail market and one of the most established pharmacy chains in Australia with total sales topping $5 billion per year. The company operates more than 450 stores in Australia, New Zealand and China, with infant formula sales representing around $200 million.

Furthermore, Wattle Health said that its products will also be sold at Chemist Warehouse Tmall Global stores – a subsidiary of Chinese giant Alibaba – who are currently the largest in the world when measured by gross merchandise volume. The supply agreement means Wattle products will be sold overseas in high demand regions such as China.

One of the biggest drivers for Wattle’s agreement with Chemist Warehouse (and for the overall growth in demand for high-quality infant formula in general) is that consumers around the world are actively showing a preference for products that are certified organic and produced to the highest standards, especially from Australia.

As part of a strategy to boost sales, Wattle stated that it will spend around $1.2 million per year in marketing support to build brand awareness, sales and brand loyalty.

“It’s an important addition to Wattle Heath’s vertical integrated supply chain which extends from securing supply of Australian certified organic fresh milk through to a dedicated organic spray drying facility, and the proposed majority-owned blending and packing plant all the way to the end consumer,” said Mr Karasavvidis.

Share issuance

As part of the supply agreement announced today, Wattle said it plans to issue share equity based on specific performance milestones.

First off, Wattle will issue 3 million shares upon the final confirmation and signing of the deal post shareholder approval. The company will also issue another 5 million shares if Chemist Warehouse opts to provide equivalent value in marketing support and the ranging of the Uganic infant formula range across its retail network.

Additionally, Wattle will issue a further 10 million shares when Chemist Warehouse provides equivalent value in marketing support and the ranging of its proposed ultra-premium certified organic A2 protein-based infant formula range in its stores.

Finally, Wattle will issue 1.1 million shares for “professional services” required to establish and complete the deal.

However, there could be a stumbling block before the deal is finalised.

The supply agreement with Chemist Warehouse can only move forward if Wattle manages to finalise its proposed acquisition of Australian dairy and infant formula specialist company Blend and Pack, including obtaining shareholder approval for the acquisition, via an ongoing current rights issue.

The rights issue is seeking to raise a minimum of $62 million by the end of the calendar year with an extraordinary general meeting set for 16 December in order to ratify the company’s ambitious growth, capital raising and supply expansion plans.