Australian ‘health food’ companies are killing it in on the stock exchange: What does it mean?

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Blackmores, Bellamy’s, A2M (a2 Milk Company). These three companies were the poster children of the Australian stock-market in 2015, generating incredible returns for their shareholders as demand for their ‘health food’ products soared.

Who are Blackmores, Bellamy’s and A2M?

While they’re household names in Australia, Blackmores, Bellamy’s and A2M aren’t yet world-famous, though it may not be long.

Blackmores, which describes itself as “Australia’s leading natural health brand” is an 80-year-old company, which opened one of Australia’s first health food stores in Brisbane in 1938. By comparison, Bellamy’s Organic and the A2 Milk Company are relative newcomers to the market.

Tasmania-based Bellamy’s, which produces toddler milk, baby formula, teeth rusks, toddler snacks and baby meals only launched in 2004. The A2 Milk company began just four years earlier in 2000, when its New Zealand founder discovered a new strain of milk which was completely free from the A1 protein, making it suitable for people who are lactose intolerant.

What do Blackmores, Bellamy’s and A2M have in common?

While their stories are all a little different, Blackmores, Bellamy’s and A2M all share  several commonalities.

They have made a fortune over the last 12 months.

Demand for the products of all three companies has skyrocketed in the last 12 months – so much so that they have struggled to keep supermarket shelves stocked, creating surging sales and profits.

Blackmores, traditionally a safe, but fairly unexciting investment prospect grew its sales by just 6% in 2014, before they suddenly soared by 517% in 2015. The company presently has a market capitalisation of $2.5 billion (up from $575 million a year ago), pushing it into the ASX 200 index of the Australia’s biggest listed companies. 

Bellamy’s only listed on the stock exchange in June 2014, but its shares have soared by close to 1000% since then and it has a market cap of $850 million. Not bad for a company that has only been public for 18 months.

While Blackmores’ share price went up five-fold in 2015 and  Bellamy’s increased seven-fold, A2 Milk merely quadrupled. Nonetheless, A2M upgraded its EBITDA (earnings before interest, tax, depreciation and amortisation) guidance for the 2016 financial year from $12 million to $22 million in November, and then from $22 million to roughly $35 million a week before Christmas – a total increase of 192% in the space of a month… again, not a bad result!

They produce ‘health food’ products with increasingly broad international appeal.

For Blackmores, Bellamy’s and A2M, recent sales and growth are closely linked to increased demand for ‘healthy’ products from emerging markets and fears about food safety.

The burgeoning middle-classes in China, South-East Asia and other emerging markets like the Gulf Cooperation Council (GCC) states are are simultaneously eager for safe, premium, ‘healthy’ and ‘green’ and highly sceptical about the quality of domestic produce.

This shouldn’t come as a surprise,  particularly given the number of Chinese food-safety scandals that have peppered the news over the last decade or so (the 2008 baby-formula scandal is probably the most famous, while the hepatitis A outbreak linked to frozen berries from China  caused a huge stir in Australia last year). 

Because a number of these markets are almost entirely reliant on imported food, they are especially keen to ensure that food can be trusted.

These trends have had a marked impact on Blackmores, Bellamy’s and A2M. For example the rapid rise in the Blackmores’ share price is almost entirely due to Chinese consumption of its health supplement products.  Demand for the company’s new infant nutrition products grew so quickly in 2015 that Blackmores entered into a partnership with dairy company, Bega, last October to manufacture infant formula, 20% of which will go directly to export markets in Asia. 

Bellamy’s also posted exponential growth throughout 2015 on the back of sales to China. Demand from the Chinese mainland was so high that by November, Bellamy’s Organic milk formula was reportedly out of stock across Australia, but showing up in large quantities on Taobao, the Chinese equivalent of eBay, for double the standard retail price.

A2M’s experience has been similar to Bellamy’s. In 2015 its Platinum infant formula was stripped from Australian supermarket shelves and onsold to Chinese consumers via the internet. These skyrocketing sales to the Chinese market mean that the Platinum product now accounts for about half of the company’s overall revenue.  

They are capitalising on long-term trends.

Seemingly insatiable demand for quality infant formula, and ‘healthy’, ‘green’ products more broadly is expected to continue growing rapidly as middle-class populations in China and other emerging markets explode. Blackmores, Bellamy’s and A2M seem to have stumbled upon this exciting opportunity almost by accident, and they’re sticking with it.

What are the implications for other Australian food companies?

Blackmores, Bellamy’s and A2M have captured the headlines over the last few months, but there is plenty of potential for other Australian food companies to benefit from current demographic and economic trends in emerging markets. 

Rapidly expanding middle classes across the world will continue to seek out high-quality food which is often unavailable from domestic sources. Demand for healthy and organic food products across Asia and the Middle East will also rise inline with growing awareness about healthier foods and non-communicable lifestyle diseases like diabetes and heart disease. Australian foodstuffs are sought after as seen as ‘clean’, ‘green’, safe products and consumers are prepared to pay a premium for them.

In short,  with demand high and the dollar low, Australian companies should be capitalising on their competitive advantage in the food and agricultural space… there has never been a better time for them to take a stab at becoming the next stock market success story.

Want to find out whether your company is ready to go global? Take the Strategy Stress Test to find out.

For more on doing business in the Middle East, download a free chapter of my book, Camels, Sheikhs and Billionaires: Your Guide to Business Culture in the Middle East and North Africa.

Cynthia Dearin is managing director of Dearin & Associates, a boutique international market entry consulting firm.

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Cynthia Dearin is managing director of Dearin & Associates, a boutique international market entry consulting firm.

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