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For my first 35 years, infant formula never crossed my mind. And yet over the past two, the topic seems to recur every couple months. Our younger child used formula. Data science extraordinaire Vicki at Normcore Tech chronicled her struggles to find her formula of choice, which sent me down a rabbit hole on the structure and quirks of the US formula industry.
Why does this matter? Why does anything matter with COVID going on? Formula and diapers are a massive expense for many households, with estimates of up to $1500/yr for formula and $900/yr for diapers, so any opportunity to save is extremely important in a time of financial stress. And with grocery delivery slots as hard to get as concert tickets (remember concerts??), maintaining an affordable and reliable supply of essential baby items is paramount.
In buying these items, my two guiding principles are to maximize quality while minimizing unit cost (cost per ounce of formula, cost per diaper). In doing so, it’s useful to consider private label/store brand options, which I’ve long recommended for saving money. Let’s start with formula, the higher-priced and quirkier item.
Infant Formula - The Enfamil/Similac/Gerber Oligopoly
First, some backstory. The United States infant formula market is very concentrated. As of a few years ago, three players accounted for an estimated 94% of total sales - Enfamil, Similac, and Gerber.[1]
Up to two-thirds of all formula is sold to families participating in the WIC (food stamp) program.[2] The formula manufacturers provide product to retailers at deep discounts (typically 85% off) for sale to food stamp recipients, in exchange for being the exclusive WIC seller of formula in a given state.
These are pretty deep discounts, so how do the formula makers make money? They generate huge profits from everyone else who purchases formula at retail. And pricing is extremely high. Random searches show name-brand formula at $1.25-1.75/ounce in many cases, which can easily add up to $4-6 per day or more.[3] A 2011 paper estimated that the producer’s cost amounted to less than $0.03 per ounce, not surprising as the top 3 ingredients in most formula is milk, sugar, and vegetable oil.[4]
So, how do you save on formula?
First, don’t get hooked on free samples - Before each of our kids were born, we received a package from one of the big 3 formula companies. And at the hospital, we received complimentary samples of another brand. These are not gifts - they are trying to lock you in. Most families, once they have found a formula that their infant will accept, are extremely unlikely to consider switching to anything else. It’s just too much of a hassle, especially during the first several sleep-deprived months.
Second, consider name-brand and private label options - We started with our favorite review site, The Wirecutter. Notice that none of their recommended options come from the big three formula makers, as they concluded that private label/generic options (generally made by Perrigo, a manufacturer of formula for store brands) were affordable, high quality options. In our case, we decided to go with a fancier USDA-certified organic option (Earth’s Best) that is still cheaper than the name brands, despite most of the name brands not being organic. At $1.19/ounce or $1.01/ounce via Subscribe & Save from Amazon (plus another 5% cash back with the Amazon Prime Visa, plus another 0.5% for charity with Amazon Smile), this was slightly to significantly cheaper than name-brand options. The Wirecutter also recommends private label options from Costco, Target, and Walmart that can be as affordable as about $0.50-0.65/ounce.[5] Make sure to use cash back when ordering!
Finally, shop around - Amazon is great, but look broadly at other retailers to see if the per ounce price is cheaper elsewhere. Even within Amazon, compare the prices on Amazon.com, Prime Now, and even Amazon Fresh (if you can get a delivery slot). We noticed that prices often change, and once in a while the price on one site would be dramatically lower than another and we would stock up.
Diapers
The diaper market is not nearly as strange and dysfunctional as the infant formula market, but the same advice applies - try to find the cheapest, well-reviewed diapers that are reliably leak-proof. Early on, we switched from Pampers Swaddlers to Amazon’s Mama Bear brand (which we love) for a significant savings, but have noticed recently that Amazon has significantly raised their Mama Bear diaper pricing.
Many other retailers offer private label/store brand diapers for a small fraction of name brand pricing. One search turned up Target’s well-reviewed store brand for approximately $0.12/diaper (Size 1) versus $0.24/diaper for Size 1 Pampers Swaddlers. 12 cents may not seem like much, but with children using an average of 2000-3000 diapers in their first year of life (and the diapers get more expensive as they get bigger!), it really, really adds up.
I hope this has been helpful. If you liked it, please share it with a friend! Also, please send me your feedback, requests, and success stories.
[1] Enfamil is owned by Mead Johnson, a subsidiary of the British multinational Reckitt Benckiser. Similac is owned by Abbott Laboratories, the Chicago-based healthcare company. Gerber is owned by Nestle, a giant multinational with almost $100 billion in annual sales. I’m using Statista’s 2016 market share estimates.
[2] This is a fairly dated estimate, but searches did not turn up meaningful evidence of any major change.
[3] In addition, formula is generally available in dry (powder) or liquid (ready to feed bottle) form. Liquid is more convenient but also generally much more expensive, and in a fairly tricky way, since both are priced per-ounce. But, in our case (and I think in general, though your situation may vary) each ounce of powder when mixed with the instructed amount of water yielded slightly more than 7 fluid ounces of formula. In our experience, buying the liquid stuff would have cost at least 30% more, and often far more than that. Fun fact - an American fluid ounce (a unit of volume) of water weights approximately, but not exactly, one ounce (a unit of weight). But for almost everything else, including liquid formula, fluid ounces and ounces are completely different.
[4] In fairness, this was just an estimate, and does not factor in several additional costs in the supply chain. But, um, that’s a big markup. In Mead Johnson (Enfamil)’s last earnings report before it was acquired by Reckitt, it earned gross margins of 62.6% across all product sales (including discounted sales to sellers of product to food stamp recipients), an extremely high margin.
[5] Amazon has also begun selling organic and regular private label formula under their “Mama Bear” and “Love & Care” brands. On a recent look, they are cheaper than the name brands and Earth’s Best, but more expensive than most big box store private label brands.