Parents shouldn't have to worry about getting food for their babies, but 2022 had many of them wondering where the next meal would come from. The US saw baby formula supply drop by 43%, and some states even saw a 50% shortage. The most concerning thing is that even as families struggled to feed their babies, the baby food market saw massive growth. In 2022, the same year the supply chain broke, it reached $280 billion and $303 billion the following year, yet parents were desperate to find nourishment for their babies. This crisis showcased how fragile the baby formula supply is and how, in the midst of it all, two startups are fighting to make a change so that no baby goes hungry.
Since the 19th century, society has sought the perfect replacement for breast milk, which isn't always available. By 1870, Nestlé was selling the first iterations, but they were imperfect and, in some cases, were more a risk than a benefit. Then, as technology improved over the decades, baby formula became a reasonable substitute for breast milk, and it took off as a nourishing product that was easy to obtain. Despite criticism from breastfeeding advocates, baby formula has become a mainstay in infant nutrition because of one inescapable fact: not all women can breastfeed for many reasons. So, from 2006 to 2022, its consumption has tripled globally. The problem is that it hasn't grown ethically.
Four companies dominate the baby formula industry and have done so for decades: Abbott, Reckitt Benckiser, Nestlé, and Perrigo. Together, they account for 89% of the US market and hold similar market shares globally. These four giants have created a monopoly that inevitably has fallen into corrupt and discriminatory practices. With a steady control of supply, they can charge whatever they want, and it's not unusual for prices to double every ten to fifteen years, costing parents thousands of dollars per year. At the same time, pharmacies and supermarkets have followed suit and have spiked prices, but that's not the only problem. Research has found that baby formula now has concerning sugar levels and, in some cases, insufficient essential vitamins and nutrients. Despite this, at the end of it all, the parents struggle to feed their babies, which is what two startups want to change.
Mia Funt and her brother Ron Belldegrun understood the challenge from the start: creating a baby formula startup would not be easy, but that's precisely why they wanted to do it, so they created ByHeart. From the outside, it makes perfect sense that the baby formula is difficult to get into. Of course, there should be stringent quality control, as in some cases, this is the first food a baby will have, but they found the market took a lot of work to get into for all the wrong reasons. The four other companies have dictated their own rules, from controlling quality control and clinical trials to regulating prices, and even dictating supply. Still, the two persisted, and after five years of hard work, the startup became only the fifth baby formula supplier in the US. Plus, it was the first newcomer to the market in fifteen years. Unfortunately, despite ByHeart becoming a new player in this critical game, the market hung on a delicate balance that would collapse in 2022.
All it took for the market to break down was one recall and one plant to close down, not even permanently. In February 2022, Abbott had to recall its formula after pressure from the FDA, citing possible links between it and serious bacterial infections in four cases, which caused two deaths. When it shut down its Michigan plant, this small move sent ripples throughout the supply chain, which had already deteriorated from the COVID-19 pandemic, where families and businesses stockpiled baby formula. The 2021 supply chain debacle further worsened the situation, so the Michigan plant was the straw that broke the camel's back.
Despite the challenges, ByHeart soldiered on and has managed to land $180 million in funding. After all, these very same adverse conditions encouraged investors to invest in the sector, as there's potential to do things differently, and fortunately, ByHeart isn't the only startup working hard.
Bobbie is a startup born out of necessity. Founder Laura Modi was dealing with medical issues that rendered her unable to produce enough milk. So, with a hungry baby, she begrudgingly turned to formula, as do 75% of new parents.
The problem was that she felt uncomfortable with a single product as she scanned through the ingredients. So, in 2018, she quit her job at Airbnb and created Bobbie, which aims to provide a "European style" formula that uses less sugar, organic products, and a healthier dose of essential proteins, vitamins, and minerals.
Modi took a different approach with her startup than that of ByHeart. To accelerate FDA approval, she partnered with Perrigo, one of the big names in the market, to use the base formula and improve it. The recipe worked as Modi has steadily grown as a potential competitor, but it's still a long way back. While ByHeart is challenging Nestlé for third place in babies fed, Bobbie is still in the tens of thousands but with consistent growth.
The fact that only two startups have managed to break into a market that has existed for more than a century highlights how wrong the industry is. Fortunately, they have survived and grown, but they shouldn't be the only ones. We shouldn't need a global crisis for startups in the baby formula industry to thrive. Instead, the market should allow new players to emerge, which will eventually happen. After all, we've proven that there's a lot to change, but at the same time, the evidence is there. Startups need to disrupt this industry for the good of all those parents who want to feed their babies.
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