Soaring cost of baby formula puts big brands under pressure

Between posts about swaddling and liquidy poos, online forums like Mumsnet and Reddit are full of anxious, sleep-deprived parents looking for advice on which infant formula to buy. As formula costs continue to climb — a month's worth now runs about £89 ($112) in the UK — the pressure on caregivers is only being amplified.

While higher-end brands can go for as much as 70% more than the cheapest formulas, even the more affordable labels are becoming increasingly expensive. In the two years up to last autumn, formula prices rose 25% on average, according to the UK's Competition and Markets Authority. This week, as part of a broader backlash against excessive inflation of household goods, the anti-trust regulator said it was opening a market study into formula pricing.

Producers' margins fell during the cost-of-living crisis, and with the prospect of regulatory action looming, at least one is rolling back prices. This, in turn, has drawn attention to an aspect of the business that producers would prefer consumers ignore: all formulas are fundamentally the same. A survey of around 1,000 Mumsnet users showed around a third didn't know that, per law, all formula brands must contain the same core ingredients.

Formula-makers use "guilt to try to persuade people that products have better ingredients or outcomes," said Amy Brown, professor of maternal and child public health at Swansea University. However, she added, "there's no evidence showing any infant formula in the UK that you'd buy in the shop has any better outcome for babies."

Info graph: Bloomberg

Rising Price of Baby Formula in the UK

Nestle has issued a statement saying that despite "significant increases in costs" it has "been working to cut our costs wherever possible and only increase prices as a last resort." Danone, which controls around 70% of the UK formula market, responded to initial reports in November that the CMA wanted to investigate formula pricing by saying that it had worked hard to minimize price increases. Weeks later, the Paris-listed company offered retailers a 7% cut in the price of Aptamil, which is consistently more expensive than its lower-end offering, Cow and Gate.

While Aptamil sells for £13.50 at Tesco Plc, compared to £10.50 for a box of Cow and Gate, their ingredients are, as mandated by regulations, very similar. Both list different quantities of prebiotics, which are designed to improve the functioning of the baby's gut. Despite being around for decades, however, researchers say that there isn't robust evidence to prove their benefits.

Most research into formula ingredients is funded by manufacturers, meaning that only a limited amount of raw data is published. This prevents independent researchers from interrogating it, and "demonstrates the lack of transparency," according to Daniel Munblit, a researcher in paediatrics at King's College London. "The industry would say that it is protecting its intellectual property," he added, "but really it further diminishes trust from both the public and the scientific community."

A Danone spokesperson said the sources and quantities of core ingredients vary across formula milks, and additional ingredients and production methods differentiate them further.

But with prices rising, similar debates are playing out across Europe. In France, price increases have led to accusations of profiteering against consumer multinationals, and Greece has implemented price caps for products including baby milk.

Major supermarkets have spotted an opportunity to position themselves as consumer champions. Retailers such as Tesco and J Sainsbury Plc passed on Danone's 7% price cut to shoppers. Asda is allowing customers to pay for baby formula with store vouchers, and Morrisons is planning to do the same with loyalty points.

One complication, however, is that these moves could fall afoul of UK legislation which has long prohibited grocers from promoting baby formula out of concern that this could deter women from breastfeeding. While stores can lower prices to reflect reduced wholesale costs, they're not permitted to advertise formulas, provide samples or use "any other promotional device" to encourage sales.

But with scrutiny growing around formula pricing, stores are increasingly willing to test these limits. "We hope that by making this change we can highlight how the restrictions do limit retailers," Kris Comerford, Asda's chief commercial officer for food, said of the company's new policy.

Leading the charge to change the law around formula advertising is the budget supermarket Iceland. In August, Iceland announced it had permanently lowered the price of formula, flouting regulations, to help struggling customers feed their babies. Incidents of formula theft had jumped at Iceland prior to the news, and many retailers have resorted to security-tagging tubs.

Slashing the price "vastly reduced" Iceland's formula profits, although sales did increase. The chain received complaints from local authorities and the UK Department of Health, but has so far not incurred any fines.

"People are starting to really test this law now and growing pressure should help form the government's view that it does need to change," said Richard Walker, Iceland's executive chairman. Iceland has pushed for an amendment to a bill currently making its way through parliament to give retailers the freedom to promote formula.

The rules banning the promotion of breast milk substitutes in the UK also apply online, although formula makers can advertise follow-on milk for babies six months and older.

And they do. Kendamil, founded in 2015, publishes colorful posts touting its benefits, alongside tips on how to care for newborns. Paid content creators talk about how the product has stopped their weaning babies from fussing.

Kendamil co-founder Will McMahon clarified that these reviews are unscripted, adding that the company takes "care to avoid sharing any reviews in which a parent cites benefits that may be interpreted as representing any health claim."

But like many things online, regulation is tricky. Not all product promotion happens through companies — momfluencers often link to formula products in their profiles, enabling them to collect commissions. And some English-language advertisements originate from outside the UK.

Should marketing rules change, it could force producers to compete on prices. It could also, says Mumsnet Founder and CEO Justine Roberts, take the "pressure off parents to pay more for branding."

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.