Bubs shares set to rally after approval to send more than 1 million tins to the US

Bubs (ASX: BUB) will be doing its part to help struggling US families feed their babies amid a severe formula shortage. The company's stock is currently up more than 20% in pre-market.

Bubs received approval from the US Food and Drug Administration (FDA) on Saturday, allowing it to provide at least 1.25m cans of infant formula products including Stage 1 and 2 Bubs Organic Grass Fed, Bubs Supreme A2 Beta-Casein Protein and Bubs Easy-digest Goat Milk.

According to Bubs, 500,000 tins are ready for immediate export and the remaining 750,000 are scheduled for completion in the coming months.

Production perspective

Bubs said in its FY21 annual report that its 100% owned Deloraine Dairy production facility has the capacity to process up to 10m tins per annum.

The facility "can triple capacity to meet demand", according to CEO Kristy Carr.

US: Route to market

After establishing the Bubs brand in Australia and China, the North American market has been described as the "next frontier" for growth.

The US market has more than 10 times the number of births and category sizes compared to Australia.

In the first-half of FY22, Bubs launched on America's largest eCommerce platforms including Amazon, Walmart and Thrive marketplaces.

Now, the company is targeting distribution into 3,000 of the potential 63,000 retail touchpoints.

The shortage and speedy FDA approval could be a catalyst that accelerates Bubs' brand awareness and distribution channels.

Understanding the US formula shortage

In February, baby formula manufacturer Abbott Laboratories closed a facility in Michigan after two babies died after bacterial infections.

The US baby formula market is dominated by just four companies, and Abbott accounts for almost 50% of domestic production.

According to Datasembly, 43% of US retailers were out-of-stock for baby formula for the week ending May 8, up from 31% at the end of April.

Shortage timeline

Abbott intends to restart the closed facility on June 4 and expects production to begin hitting the shelves around June 20.

In the meantime, the FDA said it will continue to evaluate options for getting products to the US as quickly as possible.