Nestle’s Foray Into Baby Formula Market Falters : Courts: The company alleges in a suit that its poor market share was caused by a conspiracy involving rivals, doctors.
For all its conservative Swiss heritage, Nestle USA has hardly played it safe when marketing baby formula.
The Glendale-based unit of the giant Swiss food company entered the U.S. infant formula market in late 1988 with its Carnation brand and took the audacious step of pitching its product directly to consumers with television and print advertising. All of the other baby formula makers promoted their products through doctors and hospitals.
Still, Carnation’s share of the $2-billion-plus domestic infant formula market has never exceeded 5%. Nestle now blames its poor showing on a conspiracy between its rivals and some doctors and has taken the battle for market share to court.
In a lawsuit, Nestle contends that the American Academy of Pediatrics conspired with the nation’s two dominant formula makers--Abbott Laboratories and Bristol-Myers Squibb Co.--to thwart Carnation sales by opposing consumer advertising.
Nestle, under fire from consumer activists and pediatricians who encourage breast-feeding as better for babies, dropped its ads in early 1989 but resumed them in 1991.
Nestle also alleges that Abbott and Bristol-Myers, which together control 80% of the market for formula, participated in a price-fixing scheme and made exclusive deals with hospitals to give away samples in violation of federal and state antitrust laws. Abbott’s Similac formula is the nation’s top seller, and Bristol-Myers’ Enfamil is No. 2.
“The policy against advertising definitely put a major damper on our introduction” of formula, said Al Multari, Nestle’s marketing director of infant nutrition in Glendale.
Nestle’s lawsuit, filed in May in federal court in Los Angeles, came just after Abbott paid more than $140 million to settle antitrust charges about baby formula brought by the state of Florida and dozens of retailers. Bristol-Myers and American Home Products Corp., whose SMA formula is the No. 3 baby formula brand, settled similar charges in Florida last year. In settling, none of the three companies admitted guilt.
The academy, which represents 45,000 pediatricians nationwide, denied Nestle’s allegations, saying that since 1982 it has opposed any consumer advertising of baby formula. “We’re going to certainly challenge the Nestle case,” said Dr. James Strain, the academy’s executive director.
But Strain acknowledged that the academy has never found any scientific evidence that advertising discourages breast-feeding. And former academy officials and court records in the Florida case against Abbott suggest the medical group’s position on advertising may have been influenced by the leading formula makers, which lavished millions of dollars in donations to the academy.
Strain confirmed that the top three formula makers have donated about $1 million annually to the academy, including $250,000 from Abbott to build the academy’s $10-million headquarters in Elk Grove Village, Ill., in 1983. Because of their insistence on advertising, the academy has refused donations from Carnation and Gerber Baby Formula, also a small new player in the market.
Some analysts, however, think Nestle’s disappointing sales of formula in the United States is due partly to image problems of its own making. When Nestle launched its Carnation formula, the company advertised the product as “hypoallergenic.”
But after some infants were reported to have had allergic reactions to the product, state and federal regulators raised questions about Nestle’s advertising, and Carnation eventually agreed to drop the word on its label and pay a total of $90,000 to nine states.
The Nestle parent company was also the target of a worldwide boycott that began in the late 1970s for promoting the sale of powdered formula in Third World countries, where mothers unknowingly mixed it with contaminated water or over-diluted it, causing malnutrition and some deaths.
Officials at Nestle, however, contend that its baby formula sales languished because its big rivals and the medical group teamed up to stifle competitors. Nestle says it cannot compete fairly because Abbott and Bristol-Myers have long and entrenched relationships with hospitals and doctors, where many new mothers are introduced to infant formula. In doctors’ offices, “our sales reps were getting shut out,” said Laurie MacDonald, a Nestle USA spokeswoman.
Abbott’s Ross Laboratories, the Illinois subsidiary that makes infant formula, did not return calls seeking comment about Nestle’s suit.
New York-based Bristol-Myers, through its Mead Johnson subsidiary, said in a written response, “Nothing Mead Johnson has done has in any way inhibited Nestle from offering its products to hospitals or any other customer in any way it chooses.”
Nestle contends hospitals have exclusive arrangements with formula makers, which experts say provide free supplies and often donate to a pediatric centers. Pediatricians acknowledge that they tend to give away samples of brands they are familiar with and that they are most often of the top three brands.
