Two years after a formula shortage, startups have made gains — but innovation remains difficult

Organic formula company Bobbie, previously only sold online and at Target, expanded to Whole Foods in September. ByHeart this fall expanded to shelves in Wegmans, Walmart and Whole Foods. And Happy Baby Organics also debuted a new formula made in Europe that hit supermarkets in October.

The expanded market comes as a response to the formula shortage crisis that started in 2022. A widespread recall from Abbott, coupled with ongoing supply chain challenges, led to a decrease in formula available on shelves.

Behind the scenes, the companies have put significant years and dollars into the supply chain to boost production, coupled with changes from the FDA meant to encourage more brands to come to market in the U.S. Strict regulations and the high costs of doing business have traditionally meant that only a handful of authorized manufacturers could sell in the U.S. By Heart in 2022 became the nation’s fourth fully-integrated formula manufacturer in 15 years, while’s Bobbie’s new facility is the first to be built from the ground up in over two decades.

But while formula startups have broken more ground in the U.S. over the past two years, the category overall is still difficult to innovate in and expensive to scale. Founders and executives are pushing to see more tax incentives to help stimulate more formula production. At least two proposals came in front of Congress this year.

“What we’re seeing on the back of something like the infant formula shortage is increased awareness and education around what quality really looks like,” said Laura Modi, founder of Bobbie.

Wake-up call and response

For parents of infants in 2022, the formula shortage meant months of worries about how to keep their children fed. About 80% of parents “combo feed” their infants, meaning they get some form of breastmilk and formula as their primary source of nutrition until they are about a year old.

But the Abbott voluntary recall and production halt at a Michigan factory ripped product from shelves and sent demand for other brands skyrocketing. In-stock rates went down to 47%, compared to an average of 85% to 90%, according to a federal impact report. 

Modi said the shortage led her company to invest further in its supply chain to serve growing demand. The company had to shut down to new subscribers and limit the amount of cans it could send to Target, its first retail partner.

“The shortage in 2022 was a wake-up call, I think, to all American infant formula companies that we are not resilient enough to be able to continue to supply American families,” she said. “It was very clear to me that if we wanted to expand to have a larger impact and larger reach with our quality product, we needed to invest in our supply chain.”

That effort included the acquisition of Nature’s One and its $32 million manufacturing facility. By July 2024, Bobbie opened up the new 90,000 square foot manufacturing facility in Ohio that has helped the company be able to triple its reach. Bobbie in October also launched a whole milk version of its formula available online, a product that took about three years to develop, Modi said.

“Making infant formula is not like any other pantry product,” she said. “It is one of the hardest and most rigorous products to make. And it should be. It’s not like there’s a yellow pages of infant formula manufacturers we can just call up.”

A healthier push

Bobbie was far from alone in seeing potential opportunities to serve U.S. parents. The White House began a program to import more infant formula, leading to companies like the European organic formula brand Kendamil getting sold in the United States. Then, it launched a goat’s milk version in 2023 that has quickly gained a following among parents who are looking for lactose-free formula. 

Over at Happy Family Organics, CEO Anne Laraway said the company was still developing its latest Happy Baby Organics brand formula when the shortage hit. The company had been acquired by Danone back in 2013, and Laraway said the French multinational corporation had several European baby formula brands under its umbrella and about 50 years worth of research to support its efforts.

The company launched its first formula using a co-manufacturer in 2017. But after seven years of research and development, it created a new product made in its owned European factories that hit supermarkets and pharmacies nationwide.

Laraway said the product differentiates itself from others on the market because it includes pre and probiotics. It also has different formulations for babies of different ages. “Historically, we’ve had a duopoly in the formula market, but parents are craving more options and transparency,” she said in an interview.

The organic push also led Abbott to expand its Irish-made organic Pure Bliss line. It now includes the only ready-to-drink organic formula on the market. A company spokesperson told Modern Retail via email that organic and ‘simple’ positioned formula segment makes up about 10% of the non-WIC infant formula market and has grown by more than 30% in the past year.

While organic is still a small portion of the baby formula market, Laraway believes that may change as retailers put more differentiated products on shelves. And while the Happy Baby Organics products aren’t made in the U.S., she said she sees room for many players.

“We can’t allow situations like the formula shortage to happen again. It’s critical to ensure enough supply, variety, and manufacturing support in this country,” she said.

A domestic supply chain 

While the year saw big gains from formula startups, experts in the industry are eager to see more competition. Modi, in particular, wants to see more infant formula made in the United States, given the potential for future supply chain disruptions and what that could mean for babies who rely on formula. “America is proud of making cars. We are proud of steel. We should be proud of our baby’s food.”

The Infant Formula Made in America Act would create a 30% tax credit for companies that manufacture baby formula in the U.S., up to $150 million per company. Similarly, the bipartisan Infant Tax Credit Act would give companies a 25% credit for formula manufacturers, plus a $1.50 per pound production tax credit.

Mia Funt, co-founder at By Heart and supporter of the Infant Tax Credit Act, said such a move could be the only way to get more companies making formula in the United States, given the high costs of building manufacturing facilities. By Heart owns its three manufacturing facilities in Pennsylvania, Iowa and Oregon, which helps them control their costs and own their sourcing. But it’s been a long road that included nationwide clinical trials and $395 million in fundraising to date.

“This category makes it very difficult to innovate, and you truly have to go all in,” Funt said.
“It is critical that the U.S. infant formula industry helps more manufacturers come to market to ensure that we never have another situation where parents can’t find full source nutrition for their babies.”