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Shares in infant dairy formula company Bubs Australia (ASX: BUB) jumped almost 12 per cent this morning after a new supply agreement was reached with the country's largest retailer Woolworths (ASX: WOW).
The company's first agreement with Woolworths in February 2018 involved stocking its goat's milk infant formula in 120 stores, but the expanded deal now encapsulates the entire range of eight infant formula products across a targeted selection of 700 outlets nationwide.
Bubs expects these new sales opportunities will materially add to its domestic revenue.
"This is a major vote of confidence in Bubs based on strong performance in stores where we have beenrepresented for the last two years, and an increasing demand for premium infant formula products across the Woolworths network generally, particularly in the super-premium goat and organic milk segments," says Bubs founder and chief executive officer Kristy Carr (pictured).
"While the details of the new agreement are confidential, it will have the effect of more than doubling our shelf space exposure and retail points of distribution across the Australian grocery retail sector, and we are confident that it will have a significant uplift inour domestic volume as we continue to build awareness and trust in the Bubs brand with Australian parents."
Today's share price surge was against an overall decline in shareholder value at Bubs since July, which has only been made worse since the novel coronavirus Covid-19 outbreak in China where the company - like others such as A2M (ASX: A2M) and Nuchev (ASX: NUC) are heavily exposed.
But Carr is optimistic, highlighting a big part of Bubs' growth strategy is to get goat's milk on shopping lists even after babies grow to become toddlers, courtesy of its Junior Nutrition products.
"In addition, in the super-premium infant formula segment we have expanded our addressable market beyond goat milk into the much larger cow's milk market with the launch of our high quality and premium Bubs Organic 365 days Grass Fed Infant Formula," she says.
"Importantly, with prebiotics and probiotics, as well as DHA and ARA for cognitive health, our organic formulation provides premium support for key drivers of choice; immunity, digestion and healthy growth.
"This significant expansion of our all-Australian manufactured product lines is now validated with our increased presence in Woolworths and is a significant step-change for our business."
The substantial expansion of the Bubs portfolio across the Woolworths network will be supported by a strong trade media campaign in Woolworths media, as well as a multimedia consumer brand campaign launching in March, including TV, outdoor, digital and social media.
Some $3.3 million worth of infant formula base powder and finished goods inventory was produced in Q2 FY20 in preparation for the Woolworths expansion of Bubs Goat formula products, the national roll-out of Bubs Organic formula products, and to fulfil opening orders for the launch of both Goat and Organic Junior Nutrition products into multiple retail channels.
"This underscores the strength of being able to scale up production rapidly through our integrated supply chain with all eight products being manufactured in-house at Deloraine in preparation for sales growth," says Carr.
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