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Diversifying the infant formula industry will be critical to preventing another shortage, startup founders say

May 13, 2022, 1:39 PM UTC

Good morning, Broadsheet readers! New Zealand will open its borders to all travelers this summer, the Interior Department has uncovered abuse at hundreds of boarding schools Native American children were forced to attend, and the infant formula shortage drives home the importance of innovation. Have a wonderful weekend.

– Duopoly dangers. Disrupting the infant formula industry is difficult but necessary, founders say, after seeing the devastating effects of a nationwide shortage.

Just four companies make almost 90% of the American supply of formula, which three in four parents rely on to feed their babies, according to the Centers for Disease Control. About 40% of formula is now out of stock nationwide. Abbott, which makes Similac, and Mead Johnson, the maker of Enfamil, account for almost 80% of the market.

The shortage began in February when Abbott recalled products made at a Michigan plant after children who ingested the formula fell ill. Pandemic-related supply chain issues and U.S. regulatory and trade policy (which The Atlantic dives into here) set the stage for this to be more than a run-of-the-mill recall. Abbott now says an internal investigation revealed the plant was unlikely to be the source of the infections and, pending FDA approval, it can restart production. But it will take at least six weeks for new products to hit store shelves, and parents are struggling to feed their children now.

A shelf empty of baby formula in Chicago, Illinois.
Scott Olson—Getty Images

Formula is a sole source of nutrition for children who consume it and, as a result, the FDA requires producers to meet stringent guidelines. Imports are similarly restricted, with the FDA rejecting products that meet European standards but fail to meet its own, often because of labeling differences.

The infant formula startup Bobbie knows this all too well. The startup first launched in 2019 as a producer of the less-regulated “toddler formula,” only to be shut down by the FDA for failing to meet the standards for infant formula. The company relaunched in 2021 with full FDA approval. When cofounder and CEO Laura Modi first heard about the Abbott recall, she says, “It immediately hit me—we’re going to be dealing with a crisis.”

“When one company the size of Abbott has a recall, it means there’s going to be a huge gap in the market,” she says. “The smaller players are not in a position to ramp up to that level of capacity and meet demand.”

Bobbie’s customers doubled to about 70,000 within two months, before Modi decided three weeks ago to stop accepting new customers and, instead, make sure the company could send formula to its existing subscribers. Bobbie’s product is meant to mimic formulas sold in Europe, often preferred by ingredient-conscious parents, and sells for $24 for a 14-ounce container, a higher price point than drugstore brands.

Bobbie cofounder and CEO Laura Modi.
Courtesy of Bobbie

Modi doesn’t take kindly to suggestions that moms turn to breastfeeding as a replacement amid the shortage. For many parents, it’s “challenging, time consuming, and in many cases physically impossible to breastfeed exclusively,” she says.

Laura Katz, the founder and CEO of the infant nutrition startup Helaina, has been watching the shortage closely. Her company doesn’t yet have a product on the market, but has raised $25 million in funding to use fermentation to develop human milk proteins that it says contain the same health benefits as breast milk. The shortage, to Katz, has validated her food science-based strategy. “I was seeing all this innovation in making a [meat-free] burger bleed,” she says of what inspired her to pursue the idea. “But [feeding infants] is the core of where life starts. This is where we should be putting our time and research and money. And it shouldn’t take a shortage for us to act.”

Try as they might, no single startup can make up for what some deem as the failure of a corporate giant like Abbott. Plus, producing infant formula comes with more responsibility than selling any other kind of food product. “At most businesses, you plan for how a crisis is going to impact your business,” Modi says. “But at that size, you need to crisis plan to protect the safety of the industry. You need to prepare for the country.” The Biden administration took some steps to ease the crisis yesterday, announcing it would allow faster importing and manufacturing of formula. Much attention is on the Special Supplemental Nutrition Program for Women, Infants and Children, or WIC, which accounts for about half of formula purchased in the U.S.

Changing the corporate monopoly moving forward will be critical, founders say. “If we do not diversify the industry, we could find ourselves in this situation again,” Modi says.

Emma Hinchliffe
emma.hinchliffe@fortune.com
@_emmahinchliffe

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PARTING WORDS

“Baby Henry’s first earnings call.”

-Bumble founder and CEO Whitney Wolfe Herd, sharing a photo with her newborn son during Bumble’s most recent earnings call.

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