Infant formula manufacturer Bubs Australia has increased its reach into China by more than 83,000 stores, inking a deal with Chinese mother and baby products distributor Hipac.
ASX-listed Bubs said the deal included a collaborative sales and marketing strategy to deliver at least RMB 12 million ($2.4 million) worth of infant formula products in the next 12 months.
The deal allows Bubs infant formula, which is made from goat’s milk, to be sold prior to receiving approval from Chinese regulatory authorities, with the products to be shipped from HIpac’s warehouse located in the Shanghai Free Trade Zone.
Hipac is a leader in Chinese online-to-offline (O2O) e-commerce, where consumers place an order from an in-store terminal to have their purchases delivered to their homes.
The company, as subsidiary of Hangzhou Yangtuo Network Technology Co, employs more than 1,000 people across its logistics, finance, store account management and retail operations.
Hipac’s monthly gross sales are around $120 million, with 70 per cent of those sales generated by infant formula.
“Hipac has pioneered China’s O2O channel in the baby category with their expertise in real time data visibility and advanced supply chain logistics,” Bubs chief executive Kristy Carr said.
“We consider this new partnership an important milestone in expanding our brand presence and distribution coverage in the Mother and Baby store channel.”
The Hipac deal follows a distribution agreement unveiled earlier this year by Bubs, with China’s QianJiaWanPuCo, which also has a network of around 80,000 stores.
Bubs, which also released its preliminary annual report this week, supplies organic baby food pouches, cereals and snacks to QianJiaWanPu.
Bubs’ revenue was up 306 per cent compared to the previous financial year, reaching $18.42 million.
China exports were up 205 per cent, however, Bubs’ investment and marketing activities led the company to lodge a net loss of $63.9 million.
The majority of that loss was a $48 million non-cash goodwill impairment on the acquisition of NuLac foods.
Bubs said high costs of development for products tailored to the Chinese market also contributed to its loss.
“While building scale, we continue to invest in securing our supply chain and vertically integrated production capabilities,” Mrs Carr said.
“Following the NuLac Foods acquisition, we now have exclusive access to 13 million litres of goats milk from our Australian and New Zealand farms, double that of just six months ago.
“This milk pool includes the largest milking goat herd in Australia, underpinning our true provenance positioning and traceability back to farm gate, which is very important for both Australian and Chinese customers.
“With these domestic and cross-border ecommerce achievements established, we are now well placed to enter our next phase of product and market development, turning the focus to bringing the company into profitability.”