Paul Manning has two missions. He wants to weaken the hold on the baby formula business long held by just two major brands, Enfamil and Similac. And he wants to revive a depressed small town.
He has managed to combine these two seemingly unrelated goals in Gordonsville, two hours southwest of Washington, population 2,000, from where he is marketing the first generic baby formula sold in the United States and doing quite well at it: After 18 months in business, Manning expects to have sales this year of about $30 million and capture about 6 percent of the retail business for powdered formula.
As for Gordonsville, it is changing profoundly. The downtown is being rescued from utter decay. Buildings are being refurbished. New businesses are moving in. And Main Street is once again main, graced by an antebellum mansion renovated by Manning and now the corporate headquarters of PBM Products--with Manning, the president and chief executive, and 14 headquarters employees.
Small towns have been dying in part because companies need infrastructure they generally can't provide. But Manning says the Internet makes it possible to run a big company from the middle of nowhere--or in this case, a place that struck his fancy during a nationwide search for a small-town site.
"Our short-term goal in the business is to get 10 percent of the [baby formula] market. I think we can get there in the next two years. . . . And we'll show everyone that you can operate a business in small-town America--a small southern town--and do as much business with as many companies as any business on Madison Avenue."
His bigger problem, though, is simply selling a generic formula to the mothers of America. Women try not to scrimp when it comes to their babies, so there has been little demand for a less-expensive, private-label alternative to the popular and trusted higher-priced brands.
The crux of Manning's marketing campaign is that infant formula is so closely regulated by the Food and Drug Administration that the generic version is bound by law to provide the same nutrition as a brand-name formula.
He has hit the market with an eye-popping price difference: a typical one-pound can of powdered Enfamil or Similac costs $12.98. Manning's formula, often sold as a store brand, is $6.98.
Industry experts--and the competition--are watching Manning closely. In the business, as in Gordonsville, his work has just begun.
"It's a pretty neat strategy--I'm not surprised he's making inroads," said Sarah Ross, a health-care analyst for the St. Louis investment firm Edward Jones. "But he's a long way" from catching up with "the big boys."
The $4 billion infant formula market is controlled by Abbott Laboratories, which makes Similac through its Ross Products division, and Bristol-Myers Squibb Co., which makes Enfamil through its Mead Johnson & Co. subsidiary.
And as yet, they have not responded to Manning's challenge by lowering their prices. "PBM may be doing good things, but in reality, they are a marketing company. We are a nutrition company," Enfamil spokesman Pete Paradossi said.
Manning believes the duopoly in the baby-formula market has led to ever-higher prices for formula, and gives women no choice and no chance to complain.
The makers of Similac and Enfamil spend millions of dollars marketing their formula to women when they are pregnant, sending free samples and working with pediatricians and hospitals. Most women, industry executives say, don't switch brands once they start using one, if the baby thrives.
Manning's lean company operates largely through Internet communication with retail chains--he even sells directly to consumers that way--and he has exactly three salespeople. As a result, he said, he can shave his prices to almost 50 percent of the competition.
Manning has broken the mold before. In 1984 he started a generic drug manufacturing company in New Jersey, back when generic drugs were scarce and widely derided. He sold the business eight years later for $18 million.
Manning says that his formula, most of which is sold as the private-label brand in chains such as Wal-Mart and Target, is nutritionally equivalent to the brand-name formulas. The law, he says, requires it.
His formula is manufactured by Wyeth Nutritionals of Vermont, a division of health-care giant American Home Products Corp.
FDA officials agree that all baby formula provides the same basic nutritional benefits to babies. "[The FDA determines] what nutrients must be in there--the minimum levels and in some cases the maximum levels," said Lynn Larson, an enforcement director at the FDA's center for food safety and applied nutrition. "Traditional baby formulas all have to meet those same requirements, whether they're manufactured by a name-brand producer or a producer who manufactures them for [a retail] outlet."
"Our position is we dispute that all infant formulas are the same," Paradossi said. Enfamil uses a higher-quality blend of fats than PBM, he said. And he stressed that the company spends millions of dollars on scientific research. The services that Mead Johnson provides mothers and pediatricians also set the company apart from the generic competition, he said.
Melodie Persinger, a pediatric dietitian at Children's Hospital in the District, said there are slight differences in all formulas, including in fat blends. She said no research has proven that one blend is better than another, though research continues to be done.
Scott Jamison, general counsel for PBM, said Wyeth does extensive scientific research and has been an innovator in the baby formula business for decades. "There are slight differences in all the formulas," he said. "But I don't think anyone can establish that they have a better quality formula or a better fat blend."
In the first half of last year, Manning's firm distributed hundreds of thousands of tins of powdered baby formula, most emblazoned with the names of respected national retailers, such as Wal-Mart and Target, but some with PBM's generic names, Babymil and Babysoy. Retailers had been eager to sell the private-label formula, as many chains sell formula as a loss-leader.
"I was surprised at how much work it was to get the mothers comfortable with buying a product that wasn't Similac or Enfamil," Manning said.
So PBM Products began an educational campaign. It sent videos to news outlets. It advertised in pediatric journals. And it made brochures for distribution in stores. The crux of the company's message was--and is--that the FDA requires that its formula be just as nutritious for babies as brand-name formula.
Sales doubled after that, he said, and continue to rise. The company is about to introduce a liquid formula, too. A spokesman for the supermarket chain Albertson's said PBM's formula accounts for less than 5 percent of its formula sales, but the bulk of its profits from that category.
Chris Rising of Norwalk, Conn., a 29-year-old employee of a Web site company, said she was "angry" about the cost of formula when she stopped breast-feeding her 6-month-old son last month.
She heard about the generic alternative in an America Online chat room. Her pediatrician approved the switch. "I'm a real fan of the product," she said. "The FDA scrutiny is so high, what's the difference?"
Manning is fighting this battle from a historic building right on Main Street in downtown Gordonsville. Built in the late 1800s, the mansion is one of 11 structures Manning has bought in Gordonsville in the past 18 months to renovate.
"You're not going to get your money out of the town, not in the short-term," he said. "But this is an efficient way to run the company. It's better than paying $26 or $30 a square foot for brand new office space in [nearby] downtown Charlottesville," he said.
With the Internet, Manning said, he can stay connected to all his accounts and be just as informed as if he were in a big city. The main drawback, as he sees it, is having to fly somewhere. He said once a week someone from the company has to take a plane, and it means taking a small one. "You have to go to Pittsburgh to get anywhere," he said.
The National Trust for Historic Preservation says that technology is contributing to a revival along the nation's Main Streets. "There is this massive growth of location-neutral businesses . . . locating in Main Street downtowns," said Kennedy Smith, director of the National Trust's National Main Street Center. "The overhead is low, it's one-of-a-kind space, it appeals to their entrepreneurial nature, and it's an easy walk to a bank, office supplies and so on."
Gordonsville's renovated buildings are beginning to get tenants: the Back Door bakery from Richmond, a gardening store from nearby Charlottesville, a jeweler, an oriental rug dealer. And another wealthy Charlottesville businessman has also started buying up property in town, multiplying the rejuvenation.
Hubert Allen, Gordonsville town manager, thinks the town's comeback will take five to seven years. The momentum comes from Manning, he said.
"It's had a major impact for us to have this company located here," Allen said. PBM employees shop and eat in the town, property values have risen, and Manning even pitched in to buy the local police department a radar gun.
"Down the road, I'm hoping he'll make greater use of our local airport," Allen said.
PBM says its generic brand accounts for about 6 percent of the retail business for powdered formula. Powder has about a quarter of the market share for all infant formula.
Infant formula market
Liquid 2.9 billion
Powder 1.1 billion
SOURCE: PBM Products
CAPTION: Paul Manning's PBM Products is aiming to capture market share with its generic baby formula.
CAPTION: Gordonsville resident Randy Young, left, and PBM Products chief executive Paul Manning compare the town's past with its present.