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Else Nutrition
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=== Still in its infancy === In 2021 Else had revenues from three product lines: baby snacks, baby feeding accessories and Else Formula. In Q421, baby snacks accounted for 11% of revenue and baby feeding accessories represented c 12% of revenue. Both product lines were only sold in Israel. Else Formula thus represented 77% of revenues in Q421. Else Formula comprises product lines that are made from the proprietary 100% plant-based, dairy- and soy-free nutrition products. It includes toddler formula, kids nutrition shakes, baby cereal and toddler omega line, and, in future, is expected to include adult nutrition and infant formula. The products currently on the market are: Else’s toddler nutrition formula; a nutritional shake for older children that comes in four flavours; a line of cereal products for babies six months and older in four flavours (natural, vanilla, mango, and banana); and a toddler Omega drink. Importantly, Else has also developed a product for infants that has not yet been launched, thus opening up a substantial market opportunity. Else claims that it has devised a disruptive and game-changing process to produce its products (which is patented): it uses enzymatic and mechanical procedures in its production thus preserving intact proteins, which are easier to digest. Its process does not involve any acids or solvents, nor any protein isolates. It transforms three main ingredients (almonds, buckwheat and tapioca starch) into a substitute for human breast milk. ==== Distribution ==== At present, Else products are available in US retailers (both in-store and online) and on Amazon.com, with no prescription necessary. Stores that stock Else products include Sprouts Farmers Market, Big Y, Raley’s and Natural Grocers, among many others, with the sales velocity in Sprouts Farmers Market reaching 1.2 units of product per store per week, which was higher than the category expectation. On Amazon.com, roughly 55% of Else’s customers are repeat buyers, and c 15% have purchased Else products at least 10 times. Management stated that according to the Amazon data available to Else, these are better performance metrics than Else’s competitors. This is again a testament to the products’ quality. Launches in Canada and Europe are planned for FY22, with Canada being rolled out in July 2022, and distribution in Europe in H222, initially planned via Amazon. At the start of June, Else announced that it had signed an agreement with Baozun, a leading e-commerce distributor in China. This will give Else direct access to retail buyers in China, starting in Q322, through a wide range or online shopping platforms including Tmall and JD.com. As discussed above, Else sells its products both online and in-store. Edison believes the split is c 75% online (which includes retailer-owned online platforms) and c 25% in-store. Edison expects the online business to grow more rapidly in the short term, but the offline business to accelerate as larger retailers are added. Else is first targeting natural food and grocery retailers, which tend to be smaller, and indeed has already been successful in rolling out in this segment. It then plans to target mass and club retailers, drug stores and convenience stores. Some of these will start to roll out as early as H222. Discussions are ongoing with most major retailers, as demonstrated by Else’s listings on Walmart.com and Kroger.com during Q122. In terms of geographical coverage, Else is currently available in the United States, on amazon.com and other websites that sell both in the US and internationally. Else recently announced that it will be launching all three of its current category segments in Canada in July. Over time, Edison would expect Else to roll out its products across geographies, with China, Australia and additional EU markets the most obvious choices, given the size of these respective markets. Indeed, in terms of its distribution, Else is in advanced discussions to sign distribution agreements for Europe via Amazon and other retailers and, as discussed above, has recently signed a distribution agreement in China. Else is working on reimbursement protocols with one US health insurance provider, with a view to getting its products approved for reimbursement. Once reimbursement is approved by one provider, others should follow. Else has worked with Amazon.com such that Amazon now accepts payment for Else products via Electronic Benefits Transfer (EBT), making it more attractive for lower income households. ==== Product offering ==== Edison illustrates Else’s product offering on Amazon.com in Exhibit 1 and compare it to other infant and toddler formula available. For completeness, Edison includes some standard (non-hypoallergenic) formula. Edison notes that the largest infant formula brands by market share in the United States are Enfamil (owned by Mead Johnson, which was bought by Reckitt in 2017), Similac (owned by Abbott) and Gerber (owned by Nestlé). Danone is another major player in the global baby food market, with its Nutricia brand. Prices are shown as of the start of April, when formula shortages were already an issue but less acute than at present. Edison does not believe more recent pricing on Amazon is representative owing to many SKUs being out of stock or only available at inflated prices through third-party sellers. We can see in Exhibit 1 that Else’s formula is priced at a premium versus the hypoallergenic alternatives, particularly the larger pack bundles whereby the competition gives much more significant discounts. In the hypoallergenic space, the most directly comparable products are Enfamil’s Nutramigen Toddler Formula, and Nutricia’s Neocate Junior: these are both toddler milks and both brands are recommended for children suffering from cow’s milk allergy (CMA) and are soy free. Other products either contain soy or are lactose-free, although it is important to distinguish between lactose intolerance and CMA. While some babies are lactose-intolerant, those affected by CMA are sensitive to other proteins present in the milk and hence lactose-free formula will still cause them discomfort. Edison notes that 70% of Else’s current customers state that they have chosen Else for lifestyle reasons and not due to allergies or other nutritional conditions. In this context, therefore, Else’s direct competitors are the premium organic dairy formula products. Else is unique in that it provides a dairy-free formula: its competitors are either organic dairy formula products or hypoallergenic formula products that are still made from hydrolysed dairy protein or contain animal-based amino acids. Edison believes that by 2025, Else aims to have a suite of products on the market encompassing: * Infant nutrition (stage one, aimed at 0–12m) in both powder and ready-to-drink (RTD) form, * Baby cereals (spoon feed, aimed at six months+), * Baby high-protein complementary nutrition (bottle feed, aimed at six months+), * Toddler complete nutrition (stage three, aimed at 12 months+), * Kids complete nutritional drink (aimed at three years+) in both powder and RTD form, and * Adult complete nutrition product line (aimed at the elderly) in both powder and RTD form. {| class="wikitable" |+Exhibit 1: Selection of infant and toddler formula available on amazon.com<ref>Source: Edison Investment Research, amazon.com. Note: Prices at 7 April 2022. *Contains milk. **Contains soy.</ref> !Product ! colspan="2" |Weight per pack (oz) !Number of packs in bundle !Total price (US$) !Price per oz (US$) |- | colspan="2" |Neocate Junior (1+ years) Unflavoured |14.1 |1 |73.99 |5.25 |- | colspan="2" |Neocate Junior (1+ years) Strawberry flavour |14.1 |4 |250.00 |4.43 |- | colspan="2" |Neocate Junior (1+ years) Chocolate flavour |14.1 |4 |235.00 |4.17 |- | colspan="2" |Neocate Nutra (6+ months) |14.1 |1 |39 |2.77 |- | colspan="2" |Neocate Nutra (6+ months) |14.1 |4 |152 |2.70 |- | colspan="2" |Enfamil Nutramigen Infant & Toddler Formula (Lactose-free) |12.6 |1 |32.98 |2.62 |- | colspan="2" |Gerber Extensive HA Hypoallergenic Infant Formula for Cow's Milk Allergy |14.1 |1 |33.99 |2.41 |- | colspan="2" |Enfamil Nutramigen Infant & Toddler Formula (Lactose-free) |12.6 |6 |161.99 |2.14 |- | colspan="2" |Gerber Extensive HA Hypoallergenic Infant Formula for Cow's Milk Allergy** |22 |1 |34.98 |1.59 |- | colspan="2" |Enfamil Nutramigen Hypoallergenic Infant Formula |22 |2 |70.00 |1.59 |- | colspan="2" |Else Toddler Nutrition |22 |4 |136.00 |1.55 |- | colspan="2" |Else Toddler Nutrition |34.9 |3 |155.59 |1.49 |- | colspan="2" |Else Toddler Nutrition |20 |1 |28.99 |1.45 |- | colspan="2" |Similac 360 Total Care Sensitive (for lactose sensitivity)* |16 |1 |22.98 |1.44 |- | colspan="2" |Gerber Good Start Plant-based protein infant formula (lactose free)** |22 |1 |29 |1.32 |- | colspan="2" |Else Kids Nutrition |12.7 |6 |98.94 |1.30 |- | colspan="2" |Else Toddler Omega |30.8 |4 |147.84 |1.20 |- | colspan="2" |Baby's Only Sensitive Toddler Formula (for lactose sensitivity)* |14.1 |6 |83.94 |0.99 |- | colspan="2" |Similac Soy Isomil Infant Formula ** |32 |6 |152.88 |0.80 |- | colspan="2" |Pediasure Powder Grow & Gain Gluten-Free * |8 |12 |24.49 |0.26 |} ==== Infant formula ==== Infant formula does not technically require FDA approval before it can be marketed in the United States, but it cannot be marketed until the manufacturer receives a ‘no objection’ letter from the FDA. The formula must meet federal nutrient requirements and infant formula manufacturers must notify the FDA prior to marketing a new formula. The infant formula manufacturer must provide assurance that the formula will provide adequate nutrition for infants to thrive. The infant formula needs to undergo preclinical and clinical trials to this end, and the manufacturer must receive a ‘no objection’ letter from the FDA, effectively granting approval. The development of these trials has been completed, and collaborations are already in place with world-class investigators to oversee and advise on the clinical growth study protocols. Marketing and approval processes vary by country, though clinical research performed in one country can usually be used for approval elsewhere (as long as all jurisdictions’ requirements are met). Else’s clinical study is designed to meet both FDA and European Food Standards Authority (EFSA) requirements, and is planned to finish by the end of FY23. In addition, clinical research is being performed to validate clinical claims for Else’s product suite on growth, hypoallergenicity and tolerance. Edison notes there are ongoing delays in the reviewing process by the FDA and other regulatory agencies, primarily caused by the pandemic and the resulting refusal of medical centres to recruit subjects for clinical studies, the closure of testing laboratories and the imposition of restrictions. The clinical infant growth study is expected to complete by end FY23, with submission to the FDA filed thereafter. Management expects the overall cost of this to be c US$5–6m. The current shortage of infant formula in the US market has been widely publicised. While the shortage is particularly acute in the hypoallergenic segment (it was caused by the recall of Similac hypoallergenic lines), it has caused panic-buying among consumers and thus has become more widespread. Else’s infant formula is not yet available as the company is still going through the steps to meet FDA requirements to obtain a no-objection letter, but the general lack of availability of the bigger brands of formula should serve as a tailwind for a new and disruptive brand such as Else.
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