The shift towards plant-based initiatives only continues to gain momentum — and what investors might not be aware of is its presence in the baby formula market.
In fact, the plant-based baby food market was estimated to be valued at US$8.71 billion in 2021, and is expected to reach $38.72 billion by 2029, growing at a compound annual growth rate of 20.50 per cent between now and then.
As the market continues to rise fueled by a growing infant population and the demand for products to ensure the healthy development of children, companies like Else Nutrition Holdings Inc. (TSX:BABY, OTCQX:BABYF, Forum) are contributing to that growth.
With operations in the U.S., Canada, and China, Else is a food and nutrition company focused on developing innovative, clean and plant-based food and nutrition products for infants, toddlers, children, and adults. Its revolutionary, plant-based, non-soy formula is a clean-ingredient alternative to dairy-based formula.
The Market Herald Canada recently caught up with Else Nutrition CEO Hamutal Yitzhak to discuss the company’s recently announced Q3 2022 results and what the company has planned moving forward.
TMH: What makes Else Nutrition’s products different in the infant/toddler nutrition market?
HY: Else Nutrition has patented the world’s first whole plant-based dairy and soy-free infant formula line as the third infant formula option in the world after dairy and soy.
TMH: The company recently announced its Q3 2022 results. What are some of the key takeaways investors should know?
HY: Revenues were $2.2M, an 83% increase versus 1.2M in 3Q21, and a 4% decline versus $2.31M in 2Q22. The growth pause in revenues was due to a temporary product shortage driven by a mechanical malfunction at the Company’s US facility, which delayed production by about six weeks. The demand for the products stayed very high. Management estimates the revenue loss from the malfunction was roughly $0.3M-$0.5M in 3Q22.
Sales in 3Q22 on Amazon.com increased by 7% versus 2Q22. Demand exceeded supply during the quarter as the Company made the decision to pull back on supplying Amazon.com and its own e-store, to be able to fulfill all orders from brick-and-mortar retailers.
Else products are listed in over 4,500 stores in North America, selling in over 3,400 stores already, compared with 1,200 stores in 1Q22. New 3Q22 retail chains include Walmart (400+ doors), CVS (1,000+ doors), Win Dixie (500+ doors), BuyBuyBaby (133 doors), Giant Food (161 doors), London Drugs (79 doors in BC and Alberta), Metro Ontario stores (139 stores in Ontario), and more. Management expects to surpass 5,000 listed stores and 10,000 Points of distribution by the end of 2022.
Cash balance as of September 31, 2022, was $17.4M CAD (including restricted cash and short-term bank deposit).
The Company had no loan liability as of September 30, 2022.
TMH: Else has experienced a lot of growth this year with its products expanding into different markets. Can you outline some highlights and any hurdles you’ve had to overcome? How is Else positioned to keep up with this growing demand?
HY: We expanded US retail presence to more than 4,500 stores in the United States and Canada, including the recent launches in CVS, London Drugs, Winne-Dixie, and Metro Ontario stores, while continuing to increase retail sales velocity and product range in existing stores, and adding key mass and grocery chains to our customer list.
Entering the Canadian market with the launch on Amazon.ca and in brick-and-mortar stores, experiencing an unexpectedly fast market acceptance, interest, and demand was another highlight. We’re expecting to be listed in more than 1,100 Canadian stores by the end of 2022.
We also entered the Chinese market with the launch of its flagship Chinese store on Tmall Global and will be selling our full range directly to Chinese consumers through the store.
Else Super Cereal, the first US cereal brand certified safe from heavy metals, reached the best-seller status in its category on Amazon.com within months of its launch.
Else Nutrition Kids Shakes started selling in September in 400 Walmart stores in 35 states, including California, Florida, and Texas, with other products to follow soon.
As an overall statement, I can clearly say that the demand for the products all over and especially in the more mature markets in NA, is very high. We were challenged by the steep growth in Q2 combined with the mechanical issues that caused us to cease production for a few weeks and resulted in OOS. despite that, we are working very diligently to catch up with the demand, replenish our inventories as usual and also add 2 additional production sites that will start operations early next year and support the growing demand.
TMH: The company has globally patented the world’s first whole plant-based, non-dairy, non-soy, clean-label infant formula. Can you talk about the need for this kind of formula and why it’s so important?
HY: Else products create the first alternative in the market for a very large and growing population of sensitive babies around the world who cannot well tolerate the dairy/ soy options in the market, as well as for families who seek plant-based alternatives for lifestyle reasons. In the USA alone, the category catering to allergies and sensitivities is currently over 40% of the market.
These categories of current products catering to allergies are made of milk, but they are ultra-processed to a level that the baby’s immune system does not detect the protein.
We are providing a much healthier, dairy and soy-free alternative, minimally processed, based on whole food ingredients, and clean label certified. This creates a choice for consumers for the first time ever in the entire global market.
TMH: Earlier this year, the company completed the second preclinical study of its plant-based baby formula. Do you know what kind of timeline you have for getting FDA approval and what that process looks like?
HY: Yes, in Q2 2022, Else conducted a second preclinical study, demonstrating the quality of the infant formula protein as part of the FDA requirements for new infant formula to be marketed in the US. Else is working on final preparations for the infant growth clinical study for the FDA and European permits, planned to start by early 2023 and conclude in early 2024. We’re still awaiting a control formula which was not available so far due to the shortage. The completion and submission of the healthy newborn growth study to the FDA will be the holy grail of the company’s achievements, and it is not far from us. We are looking forward to that major achievement as a game changer in the infant formula world, as well as for the company and its stakeholders and investors
TMH: Moving into 2023, what outlook does Else Nutrition have, and what goals is it hoping to achieve?
HY: We expect to see significant growth in North America, starting the year with 5,000 stores and growing the listing significantly during the year in both the US and CA while accelerating in-store sales velocity.
We expect significant revenues from the Chinese market, growing sales on Tmall, opening additional stores, and increasing consumers’ awareness of the Else brand and brand benefits
We plan to enter Western Europe in 1H202, starting in the UK via Amazon, with other countries to follow.
We plan to enter Australia in 1H202, this market will also serve as a second launch pad for cross-border China sales.
We plan to launch the liquid RTD products in 2H2023, depending on manufacturing capacity availability (the products are ready for production)
We plan to launch adult products by the end of 2023, mainly on RTD, depending on manufacturing capacity availability.
TMH: Is there anything about the team you’d like to highlight?
HY: Our team in Israel, US and Canada is a real dream team of fully committed, highly experienced experts and go-getters, who work diligently with full enthusiasm and dedication to make this dream come to fruition in such challenging times. I have no words to thank them all.
For more information, please visit elsenutrition.com.
This is a paid article produced by The Market Herald Canada
