Profit-making idea: Manufacturing of affordable baby formula in Kenya
When US-born entrepreneur Jehiel Oliver moved to Kenya, he was struck by how expensive formula milk was. The product is already overpriced in the US, but the mark-up in many African countries is even greater.
“It is cheaper for me to buy the overpriced formula in the US where the mark-up is 60% and ship it to Kenya. It’s crazy,” he says.
Oliver believes an opportunity exists for the local manufacturing of formula for the African market and export. The price of formula milk in the US is artificially inflated because the government buys it for public programmes. “Wherever government is the biggest buyer of anything, the price automatically gets inflated as businesses apply unjustified markups. And if you look at baby formula, it is significantly overpriced.”
The cost of production is a fraction of the asking price.
“My hypothesis is that it’s an emotionally driven market and the companies take advantage of that. Parents want the best food for their child and won’t compromise. They are sensitive to narratives about products and product safety, so parents defer to popular brands they deem safer but this is not necessarily true,” he explains.
There is a barrier of entry for smaller manufacturers because they do not have the brand reputation or the ability to provide free product samples at all hospitals. “This is a web that you have to untangle, but I think there’s a real opportunity,” Oliver notes.