Bellamy's bid to purge baby formula market of rival brand Nutriforme

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A war is raging in the baby formula section of Coles supermarkets, with a major brand attempting to purge the market of a budget rival run by a former senior employee.

On the far right - where more expensive products are usually positioned - sits Bellamy's Organic baby formula, and on the far left, Nutriforme, at half the price.

Nutriforme baby formula, beside Bellamy's baby food pouches, on the shelves of Coles.
Nutriforme baby formula, beside Bellamy's baby food pouches, on the shelves of Coles. Photo: Esther Han

In court filings, Bellamy's has accused its former national sales manager, Chris Flahey, of surreptitiously creating Nutriforme while an employee to personally capitalise on a Coles' supply deal.

Out-of-court mediation for the past six months has failed, with Bellamy's rejecting Mr Flahey's settlement offer, which includes handing over the business, the intellectual property rights and a $50,000 payment.

"I negotiated because there is no point fighting a $1.3 billion company," Mr Flahey told Fairfax Media.

"They're now demanding I pay them $200,000, which will break us, and what's worse, they want me to sign an agreement saying I'll never work in the industry anywhere in the world."

In his defence documents lodged this month, he said Bellamy's suffered no loss or damage because it was never going to launch a non-organic product it is  now claiming rights to.

'Let's fool Coles'

Both parties say that, in mid-2014, Bellamy's, in an effort to get its new pouch range on Coles shelves, pursued a deal to supply Coles with a non-organic, "everyday low price" formula, which the retailer could use to compete with Aldi's Mamia line.

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Bellamy's claims in September that chief executive Laura McBain instructed Mr Flahey to "not take active steps" in developing the product until the company had "sufficient time and resources to fully consider and discuss [the product]".

In contrast, Mr Flahey claims Ms McBain wanted him to "string Coles along", letting it believe the non-organic product was being developed - when it wasn't - until it was too late and it couldn't back out from stocking the pouches.

"We will only ever be an organic supplier ... let's keep Coles thinking we will launch the [conventional product]," Ms McBain allegedly said.

Chris Flahey, who owns Nutriforme baby formula, sold at Coles, is in a legal dispute with his former employer Bellamy's.
Chris Flahey, who owns Nutriforme baby formula, sold at Coles, is in a legal dispute with his former employer Bellamy's. Photo: Janie Barrett

When he protested, she said: "Well, we won't be doing it."

He replied: "If we don't do it, someone else will."

She allegedly ended the conversation with: "So be it!"

Australian mums and dads for months have complained about a baby formula shortage, which has recently eased.
Australian mums and dads for months have complained about a baby formula shortage, which has recently eased. 

A Bellamy's spokeswoman said the Federal Court would decide whether Bellamy's allegations are upheld or Mr Flahey's defence is justified.

Nutriforme is born

Both parties agree in early 2015 Mr Flahey began developing "Nutriforme" - registering the business name "Australian Brand Marketers", the trade mark, and himself as a sole trader.

He resigned in February but stayed on until June. In that period he created web domains and finalised the deal between Australian Brand Marketers and Coles.

Ex-Bellamy's CEO Laura McBain stepped down in January.
Ex-Bellamy's CEO Laura McBain stepped down in January.  Photo: Bret Salinger

Bellamy's had intended to supply the non-organic product through a new, separate entity.

The three-step Nutriforme range, manufactured by Blend & Pack, began appearing on Coles shelves last June.

Mr Flahey disputes Bellamy's claim he breached his employment contract, leading to the loss of the Coles deal, the profits and shelf space - to the tune of more than $4 million.

He says Bellamy's "abandoned that opportunity" and did not lose shelf facings because it could not keep up with demand.

Last year Australian customers struggled to locate Bellamy's products, as tins were wiped from shelves to satisfy the grey market and overseas demand.

Mr Flahey also says he never signed a non-compete clause. He also denies he used confidential information.

Bellamy's alleges Mr Flahey misleadingly represented to Coles he was developing the formula on behalf of his employer.

Bellamy's did not provide further comment to Fairfax Media.

A public feud

Mr Flahey says Bellamy's latest demand for $200,000 plus a promise to never work in the industry again was "vindictive and malicious".

"It's gone way past a normal business negotiation. It's personal," he said.

He's launched a crowd-funding campaign in a bid to raise $150,000 so he can cover legal costs for a "winnable' court battle.

Asked why the public should foot the bill, he said: "It's about supporting a small business being bullied by a $1.3 billion company."

If he wins, he plans to donate the funds to the Childrens Leukaemia & Cancer research foundation.

Nutriforme did not turn a profit in its first year.

Sales data shows Bellamy's sells 40,000 tins a week, whereas Nutriforme sells 2300 units.