WEBVTT - Safety vs. Speed Dilemma in Baby Formula Production

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<v Speaker 1>You're listening to Bloomberg Business Week with Carol Messer and

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<v Speaker 1>Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, if

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<v Speaker 1>you've been paying any attention, then you understand the dire

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<v Speaker 1>shortage of baby formula in this country. White House officials

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<v Speaker 1>are working to provide government transportation and logistics support to

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<v Speaker 1>infant formula makers. This is President Joe Biden seeks to

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<v Speaker 1>address a national shortage of the vital products that's left

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<v Speaker 1>shelves empty and parents frustrated. Joining us now is somebody

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<v Speaker 1>who knows quite a bit about the industry. Laura Modi

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<v Speaker 1>is the co founder and CEO of Bobby. It's a

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<v Speaker 1>baby formula that's organic, it's female founded, and mom lead

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<v Speaker 1>here in the United States. Laura, good to have you

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<v Speaker 1>with us. Um I want to just get an idea

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<v Speaker 1>from you about demand that you're seeing right now, because

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<v Speaker 1>here's a note on your website when you go to

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<v Speaker 1>it that says we're temporarily at capacity for new customers.

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<v Speaker 1>When when did you have to to tell people that

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<v Speaker 1>you can't take on new customers. Look, it breaks my

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<v Speaker 1>heart to have to be in a position where we

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<v Speaker 1>can't accept anyone new into the family. But the recall happened.

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<v Speaker 1>That Abbott recall happened in late February, and we saw

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<v Speaker 1>unprecedented growth following that. The first week of the recall,

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<v Speaker 1>our customer count doubled and it didn't stop. We were

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<v Speaker 1>absorbing the shock of a large player unable to serve customers.

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<v Speaker 1>And it was about three weeks ago. I'm staring at

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<v Speaker 1>supply versus demand and saying we need to make a

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<v Speaker 1>tough decision here, And in hindsight, it was actually one

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<v Speaker 1>of the easiest to prioritize serving our current subscribers versus

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<v Speaker 1>growing the business. So what do the issues look like

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<v Speaker 1>in terms of what are you trying to tackle to

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<v Speaker 1>increase capacity. Look, this isn't like any other industry. Into

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<v Speaker 1>in formulas an essential good. I mean, we're continuing to

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<v Speaker 1>hear about the safety and quality requirements of infant formula

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<v Speaker 1>and speaking out about the careful dance that we need

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<v Speaker 1>to have between safety and speed is very critical. You

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<v Speaker 1>can't just ramp up capacity at the flick of the switch.

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<v Speaker 1>It takes many years. So we need to look at

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<v Speaker 1>solution in two different ways. What are we doing in

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<v Speaker 1>the immediate to get out of the crisis, and then

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<v Speaker 1>what are we doing in the long haul to make

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<v Speaker 1>sure that we're getting more production capacity online in the

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<v Speaker 1>country to be able to serve babies. What specifically needs

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<v Speaker 1>to be done in order to get us there, because

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<v Speaker 1>it seems like to me, like you said, it's not

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<v Speaker 1>like any other industry, it's heavily regulated, um in the

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<v Speaker 1>supply chain is long and it spans different areas. What

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<v Speaker 1>needs to happen in order to get us back on track. Look,

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<v Speaker 1>as I said, like in the short term, we have

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<v Speaker 1>to actually look at this like a crisis. There is

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<v Speaker 1>not enough production capacity in the country to be able

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<v Speaker 1>to serve the demand. And what the White House is

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<v Speaker 1>doing in the FDA stepping in to create more flexibilities

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<v Speaker 1>to allow formula from overseas, I mean, that really is

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<v Speaker 1>the solution to get out of today's crisis. But in

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<v Speaker 1>the long haul, we're going to have to take a

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<v Speaker 1>hard look at how many facilities are online in the

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<v Speaker 1>country and what is this scenario if another one of

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<v Speaker 1>those formula companies goes down? Are we prepared to feed babies?

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<v Speaker 1>So we need more production? So how what would you

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<v Speaker 1>ask say if you were trying to present bind right now,

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<v Speaker 1>what would you ask for to make that process faster,

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<v Speaker 1>more expedient, and safer, Get more funding and resources into

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<v Speaker 1>the f d A as soon as possible. I mean,

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<v Speaker 1>we're we're seeing kind of the numbers of people that

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<v Speaker 1>are supporting the Infant Formula team, and it needs to

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<v Speaker 1>be far greater than nine people. Getting more resources and

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<v Speaker 1>funding to be able to get boots on the ground,

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<v Speaker 1>to open up more manufacturing, to increase safety protocols has

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<v Speaker 1>to happen immediately. Speaking from an industry standpoint, it takes both.

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<v Speaker 1>We require the government support, government assistance and the FDA

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<v Speaker 1>is oversight to be able to produce more And if

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<v Speaker 1>we can get that funding and resource online, I believe

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<v Speaker 1>you'd be able to see more diversity in the market.

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<v Speaker 1>I'm looking at the ingredients in body infant Formula, Laura,

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<v Speaker 1>and there are literally dozens of them. Which ones are

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<v Speaker 1>the hardest ticke at right now? Great question. I mean, look,

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<v Speaker 1>the recall is on the back of an already constrained

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<v Speaker 1>supply chain, and we were already dealing with questions around

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<v Speaker 1>can we get certain oils, and you know, deep in

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<v Speaker 1>the news right now you're seeing constraints around getting sunflower

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<v Speaker 1>oil palm oil, which we don't use, is another ingredient

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<v Speaker 1>that's having some issues. So I do think following this

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<v Speaker 1>one issue we're seeing the industry has to take a

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<v Speaker 1>hard look at other dependencies, including bottlenecks for single ingredients

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<v Speaker 1>being used, and question, if we can't find that ingredient,

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<v Speaker 1>then what are we using and replace of it so

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<v Speaker 1>that we're not in this again. So I guess that

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<v Speaker 1>brings me to the next question, which is are there

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<v Speaker 1>sub institutes available for some of these ingredients that are

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<v Speaker 1>hard to find? Our are getting pricier and you mentioned,

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<v Speaker 1>uh the several types of oil that seems to be

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<v Speaker 1>a direct effect from the war Ukraine getting out, So

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<v Speaker 1>I'm wondering do you have substitutes lined up? There is substitutes,

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<v Speaker 1>but I don't think operationally as an industry we are

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<v Speaker 1>ready to flip it over very quickly. And if this

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<v Speaker 1>recall has taught us anything is that we need to

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<v Speaker 1>be prepared. So while there's solutions in place, are those

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<v Speaker 1>solutions ready to go immediately? No, And I think it's

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<v Speaker 1>an industry we need to get ahead of it now. Laura,

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<v Speaker 1>when are you going to be able to take more

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<v Speaker 1>customers at Bobby we're hoping later into the summer, I

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<v Speaker 1>will say, with the uncertainty ahead, we are making no

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<v Speaker 1>promises and giving as much peace of mind to our

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<v Speaker 1>current subscribers, which coming at this as a mom first

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<v Speaker 1>and foremost. If your baby is on a product, on

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<v Speaker 1>a brand, you want to go to bed at night

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<v Speaker 1>knowing that you're going to continue to be able to

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<v Speaker 1>get that. So until we see this clear up, we're

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<v Speaker 1>going to keep just serving our current subscribers. As we've

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<v Speaker 1>learned in you know, for people who haven't covered the

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<v Speaker 1>industry very closely, I mean I certainly learned this in

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<v Speaker 1>recent weeks that the baby formula industry is controlled by

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<v Speaker 1>a number of massive players. Um, where do you fit

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<v Speaker 1>in at, Bobby. Yeah, Look, there's no surprise here. The

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<v Speaker 1>shortage we're seeing is inextricably tied to the fact that

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<v Speaker 1>two players dominate the market. When two players dominate the market,

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<v Speaker 1>it essentially means that as a country we have become

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<v Speaker 1>dependent on them. And again we're talking about a product

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<v Speaker 1>that seventy of babies before six months of age rely on.

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<v Speaker 1>This is not like toilet paper or any other product.

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<v Speaker 1>It is an essential good. It is a product that

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<v Speaker 1>we have to turn to Bobby. I mean, really, my

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<v Speaker 1>dream is to break into this market, to be able

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<v Speaker 1>to support parents with another option. We've been unprepared for

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<v Speaker 1>only eighteen months into launching. The business is absorbing the

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<v Speaker 1>shock of the major player not being able to serve

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<v Speaker 1>the market. Talk to us very quickly thirty seconds about

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<v Speaker 1>pricing power. Here you talked about the ingredients you aren't

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<v Speaker 1>able to get. Are you passing on any of those

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<v Speaker 1>costs your customers? We haven't gotten there yet, but I

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<v Speaker 1>will say inflation is something that no industry right now

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<v Speaker 1>can shy away from. It's the gracious that we've seen

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<v Speaker 1>in decades, and we're continuing to see a rise the

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<v Speaker 1>balance that we have for a product like the formulas

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<v Speaker 1>that we want to continue to provide a high quality product,

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<v Speaker 1>but we are seeing costs increase. So really, within the

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<v Speaker 1>next few months, we're going to take a hard look

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<v Speaker 1>at our wrong ingredients in question what is the impact

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<v Speaker 1>on the end product? And I really do hope we're

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<v Speaker 1>getting support from the government to be able to think

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<v Speaker 1>about the right subsidence to be able to produce and

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<v Speaker 1>make it accessible to the masses. Laura Modius, co founder

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<v Speaker 1>and CEO of Bobby, the infant formula company startup joins

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<v Speaker 1>us via Zoom from Washington, d C.