Kroger deal marks US ‘mainstream validation’ for Aussie baby food brand Little Bellies

Now representing 36 per cent of the Australian baby and toddler snack market, Little Bellies may have a smaller market share in the US but a recent deal with retail giant Kroger signals an evolution to the "mainstream" for the Sydney-based company as double-digit growth continues on the other side of the Pacific.

Little Bellies co-founder Clive Sher describes Kroger as a more conservative retailer by US market standards with a tendency to "wait to make sure brands and products are working and have been accepted before they lean into them".

"That's been our experience because we've been trying to talk to Kroger for five or six years, and it's taken us that long to finally get on shelf," Sher tells Business News Australia.

"Kroger means a huge amount because it's a validation that our journey in North America is becoming more mainstream and less boutique.

"We've gone beyond proof of concept. We’re now a competitive brand on shelf in North America."

It is a breakthrough that comes some two decades after Sher and his brother Steven Sher started their organic food business Every Bite Counts, in response to Steven's son's diagnosis as anaphylactic to dairy, peanuts and tree nuts, suffering from severe skin sensitivities.

"We saw at the time a lack of organic foods in a mainstream, accessible sense in Australia. We wanted to make better-for-you organic foods more widely accessible," Clive Sher says.

In 2011 the business spawned the Little Bellies brand, which would become the largest range of its kind in Australasia, followed by a US market entry in 2019.

A '20-year-old startup' in North America

Sher says Little Bellies now has a 4 per cent market share in the US with its products sold in about 14,000 outlets, as well as 2,000 in Canada and approximately 3,500 retail stores in Australia and New Zealand. For the latter it actually commands a majority market share at 51 per cent. 

The co-founder says while the business is mature in Australia and New Zealand with a product range of up to 50 items, in the US it is still very much a "20-year-old startup".

"We’re still in a very early stage of growing the brand in North America," he says.

Sher explains the product range in the US is still limited to around 15 items, as Little Bellies' approach is to start with a core range of foods for seven-month-old babies who are learning to self-feed, followed by the progressive introduction of lines aimed at 10, 12, 18 months and beyond.

In the case of Kroger, the retailer is stocking just four Little Bellies items to start with: the organic strawberry pick-me sticks and organic sweet potato pick-me sticks for seven months-plus, and two such yoghurt-covered sticks with berry or mango for 10 months-plus.

"In each age and stage there are certain developmental milestones, and so the texture will change, the flavour will graduate, the shape will change. We simplify parents’ lives to make it clearly easy to navigate age and stage feeding," he says.

"We never add sugar or salt to our snacks for babies younger than 12 months. We don't even add a natural flavour.

"While there’s nothing wrong inherently from a health perspective with a natural flavour, for a young child coming off breast milk and rice cereal and formula, they have a very sensitive palate and the last thing we want to do is expose them to this heavy flavour."

Growth after market entry hiccups

Even though the market share is much smaller and there is less diversity of items per store, the sheer size of the market means the US has now overtaken Australia in terms of Little Bellies' total sales. The US launch initially began with two small regional chains, but in March 2020 the business was lucky to receive early adoption from Walmart.

"But COVID also came in March 2020, so we actually had a very rocky first year as we navigated that territory," Sher says.

"Once we had Walmart it gave us initial scale, even though we had some major challenges with having committed to too much inventory and navigating that.

"Our biggest concern in that first year when we weren't getting the sales we hoped, was would Walmart stick with us? We finally had this opportunity and it came at the wrong time effectively."

He says Walmart has been a phenomenal partner, sticking by the brand "year after year" to the extent it now stocks 11 Little Bellies items, with at least some range of products in almost every Walmart store.

The poor timing of COVID was more problematic in Canada where Little Bellies had pre-launch commitments from three customers, but only one followed through.

"We had product on the water, product committed to, and then COVID hit and two of them pulled away and we were left with one retailer who's still our largest customer in the Canadian market," he says.

"Today the brand has grown at a similar rate to the US business – it’s probably a little bit further behind in maturity, but we're across virtually every major retailer in Canada now.

"In Canada we probably started to get traction in mid-2022. It took a couple of years to be able to get to a point where retailers were starting to take appointments again, and we always work a long way out - for example we just presented to certain customers in the US for March next year."

When asked how Little Bellies has been able to gain so much traction in a competitive US market, the co-founder puts it down to several factors, from its approach to product development to its marketing strategy.

"There’s a famous saying - 50 per cent of marketing works, the question is which 50 per cent? It’s hard to pinpoint what is the one thing that we’ve done that's worked for us in the US," Sher says.

"We invest heavily on being present where parents are looking for information, so social and digital channels; we invest heavily in paid search, with influencer partners to tell our story and to get our message out. Where we have retail distribution in a geographic sense, we do a lot of geotargeting.

"I won’t lie, particularly as a smaller brand without a multinational budget, (it's hard) to be everywhere and anywhere in the US because of the cost of doing business. I think what’s really made us stand out in the US is having a very different approach to our category than traditionally was available in the US."

Sher looked to a couple of "very entrepreneurial" startup brands in the US for inspiration when Little Bellies was launched in 2011, at a time when the business was still years away from North American expansion.

"Both of those brands got bought in 2013 by multinationals, and we were so shocked when we came back in 2018 and started looking at the market before we launched that nothing had changed," he says.

"They had just become stagnant. That level of innovation had dried up, so there was a category in the US that had become more and more commoditised, everyone was doing the same thing, and we have a very different approach to the category that we've built up and honed in Australia.

"That really gave us confidence to say we think we can do something different for the category. And I think that's what's proven to be successful - a unique approach that has stood out from the rest."

Tariff uncertainty and manufacturing

The co-founder says the introduction of tariffs has been a major challenge for Little Bellies, which manufactures its products in the UK, Türkiye and Canada.

"We don’t yet know the tariffs for each origin, and it's very hard for us to predict what they'll be. So we don't want to make multiple price changes, and we've chosen to absorb it for the few months until we have a bit more certainty," he says.

"We are at the same time starting to look whether there’s opportunity for local US manufacturing. But to give you an idea, to bring a new manufacturer on usually takes 12 months plus, especially when you’re transitioning an existing range that has an existing organoleptic taste, flavour, texture profile.

"You can't can’t just rewrite the rule book. You need to match it, and that takes a long time to do."

In the early days of the business the intention was to manufacture in Australia, but Sher says this proved difficult both due to the manufacturing environment and the availability of organic ingredients.

"Because 95 per cent of what you do is organic, there’s a real lack of available ingredients with the right, consistent quality spec in a cost-effective manner that's available here. All of our suppliers are specialist organic manufacturers who have very strong supply chains in organic foods," he explains.

He claims a foray into local manufacturing in 2013 led to a major quality issue that forced two withdrawals from the market of product.

"It almost took the brand down with it," he says.

"What we find is that bigger manufacturers in Australia who have the right quality processes don't have the organic ability or willingness to go down that route of organic, and with the smaller manufacturers there's a huge risk around quality and reliability.

"We’d love to produce in Australia, but for us the reliability of consistency of quality is first and foremost."

Aldi copyright case sets a precedent

The manufacturing incident in 2013 is not the only time that Little Bellies has faced an existential challenge. In December last year it became the first company in Australia to win a copyright infringement case against supermarket giant Aldi, which has had global ripple effects.

Sher says Aldi is appealing the findings and Little Bellies is cross-appealing the part of the case it wasn't successful in, but overall he feels vindicated.

"We went down the novel route of a copyright case - we have an artistic work that we’ve invested a considerable amount of money and time developing, and we own that copyright. They're deemed to flagrantly have breached that," Sher says.

"We really are hoping it sets a precedent. For far too long it's been too hard for smaller companies to be able to defend their IP, to find a way to stand up.

"It's too expensive...it’s taken us four years and a considerable amount of money to get to the point of where we are now, but it goes on. We've got another year-and-a-half to two years."

He says that following the successful case, US foods company Mondelez is "now taking the same approach to Aldi".

"To even think that we’ve had that kind of impact where someone like Mondelez feels like they can start standing up, is great to see," he says.

"I’m delighted with where we stand and that outcome, and having been vindicated for where we stand, but it’s a very frustrating journey to go on because it’s a lot of uncertainty and you never know how someone else may see things, even though we felt very strongly in our case."