The Infant Formula Market

Consequences of a Change in the 

WIC Contract Brand

Victor Oliveira

Elizabeth Frazão

David Smallwood

Economic

Research

Report

Number 124

August 2011

United States 

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Agriculture

Economic

Research

Service
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Recommended citation format for this publication: 

Oliveria, Victor, Elizabeth Frazão, and David Smallwood, The Infant 

Formula Market: Consequences of a Change in the WIC Contract 

Brand, ERR-124, U.S. Department of Agriculture, Economic 

Research Service, August 2011.

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United States

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A Report from the Economic Research Service

Abstract

The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) 

is the major purchaser of infant formula in the United States. To reduce cost to the WIC 

program, each State awards a sole-source contract to a formula manufacturer to provide 

its product to WIC participants in the State. As part of the contract, the WIC State 

agency receives rebates from the manufacturers. In this study, we use 2004-09 Nielsen 

scanner-based retail sales data from over 7,000 stores in 30 States to examine the effect 

of winning a WIC sole-source contract on infant formula manufacturers’ market share in 

supermarkets. We fi nd that the manufacturer holding the WIC contract brand accounted 

for the vast majority—84 percent—of all formula sold by the top three manufacturers. 

The impact of a switch in the manufacturer that holds the WIC contract was considerable. The market share of the manufacturer of the new WIC contract brand increased by 

an average 74 percentage points after winning the contract. Most of this increase was a 

direct effect of WIC recipients switching to the new WIC contract brand. However, manufacturers also realized a spillover effect from winning the WIC contract whereby sales of 

formula purchased outside of the program also increased. 

Keywords: WIC, Special Supplemental Nutrition Program for Women, Infants, and 

Children, infant formula, rebate, sole-source contracts, contract brand, spillover effect, 

ERS, USDA 

Acknowledgments

The authors thank Sid Clemans (Offi ce of Budget and Program Analysis, USDA), 

Zoë Neuberger (Center on Budget and Policy Priorities), Edward Harper, Linda Clarke, 

Lisa Southworth, Hayes Brown, Karen Meade, and Dennis Ranalli (Food and Nutrition 

Service, USDA), David Betson (Notre Dame University), Art Burger (Burger, Carroll & 

Associates, Inc), and Phil Kaufman and Ephraim Leibtag (Economic Research Service, 

USDA) for their comments on earlier drafts; Laurie True (California WIC Association), 

Brian S. Kohler (Lexis Nexis), and William H. Kaericher (Beech-Nut Nutrition 

Corporation) for their insights about the infant formula market and marketing issues; 

Priscilla Smith for editorial support, and Wynnice Pointer-Napper for design support.

Victor Oliveira, victoro@ers.usda.gov

Elizabeth Frazão, efrazao@ers.usda.gov

David Smallwood, dsmallwd@ers.usda.gov

The Infant Formula Market

Consequences of a Change in the WIC 

Contract Brand

Economic 

Research 

Report 

Number 124

August 2011
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Contents

Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

WIC and the Infant Formula Rebate Program. . . . . . . . . . . . . . . . . . . . . 3

 Overview of the WIC Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

 WIC’s Infant Formula Rebate Program . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Characteristics of the Infant Formula Market . . . . . . . . . . . . . . . . . . . . . 6

Infant Formula Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

 Representativeness of the ERS sample data . . . . . . . . . . . . . . . . . . . . . . 10

 States included in the analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

 Stores included in the analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

 Time period used in the analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

 Types of formula included in the analysis. . . . . . . . . . . . . . . . . . . . . . . . 13

 Identifying WIC contract-brand formula . . . . . . . . . . . . . . . . . . . . . . . . 14

Contract Brand Status and Market Share. . . . . . . . . . . . . . . . . . . . . . . . 16

Effect of a Change in the WIC Contract Brand on Market Share . . . . 19

Does WIC Limit Infant Formula Selection? . . . . . . . . . . . . . . . . . . . . . . 26

Retail Prices Are Not Behind Increases 

in Contract Brands’ Market Share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Appendix—Comparison of the Infant Formula Market Based 

on the Nielsen’s Supermarket Subsample and Nielsen’s 

National-Level Data Set. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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Summary

What Is the Issue?

USDA’s Special Supplemental Nutrition Program for Women, Infants, and 

Children (WIC) is the major purchaser of infant formula in the United 

States. In addition to other benefi ts, the program provides participants with 

a food instrument, typically a voucher or electronic benefi ts transfer (EBT) 

card, that participants redeem for food—formula, in the case of infants—in 

authorized retail stores. To reduce the cost of infant formula to WIC, Federal 

law requires that WIC State agencies enter into cost-containment contracts 

with manufacturers of infant formula. Typically, WIC State agencies obtain 

substantial discounts in the form of rebates from infant formula manufacturers for each can of formula purchased through the program. In exchange 

for rebates, a manufacturer is given the exclusive right to provide its product 

to WIC participants in the State. These sole-source contracts are awarded on 

the basis of competitive bids. The brand of formula provided by WIC varies 

by State depending on which manufacturer holds the contract for that State. 

What is the impact of WIC and its sole-source infant formula rebate program 

on market share? Does the program and its use of sole-source contracts have 

economic implications that extend beyond WIC? In this report, we examine 

the effect of the program on the infant formula market in supermarkets. We 

explore situations in which the holder of the WIC contract in a State switched 

from one manufacturer to another.

What Were the Study Findings?

The effect of WIC and its sole-source infant formula contracts on market 

share was signifi cant. Following are some key fi ndings among the 30 States 

that saw a shift in WIC contract brand from 2004 to 2009:

• The manufacturer of the WIC contract brand accounted for 84 percent 

of all milk-based formula (the predominant type of formula) sold by the 

three major formula manufacturers in supermarkets. 

• The market share of the manufacturer of the new WIC contract brand 

increased by an average 74 percentage points after the contract change. 

This increase was almost completely offset by the loss in market share of 

the manufacturer that lost the contract. 

 Most of the shift in market share was a direct effect of WIC recipients switching to the new WIC contract brand.

 Some of the shift in market share was due to spillover effects 

whereby sales of the contract manufacturer’s formula purchased 

outside the WIC program also increased. 

• The change in market shares was not explained by changes in the retail prices 

of the new WIC contract brand relative to the former WIC contract brand. 
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How Was the Study Conducted?

Our study is based on 2004-09 data from the Nielsen Company comprising 

weekly observations from store-based (point of sale) scanner data from over 

7,000 supermarkets in 30 States that experienced a switch in the manufacturer 

that held the WIC contract. Supermarkets are a key component of the infant 

formula market, accounting for nearly two-thirds of all infant formula sales. 

We used a pre/post methodology to determine the overall effect on market 

share when the holder of the WIC contract changed. We compared each manufacturer’s market share in a State in the 52 weeks prior to the contract change to 

its market share in weeks 13 to 52 after the contract change (weeks 0-12 were 

excluded to account for the potential lag in converting WIC participants to the 

new contract brand of formula during the transition period). 
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Introduction

WIC provides nutritious foods, nutrition education, and referrals to health 

and other social services to participants at no charge. WIC serves low-income 

pregnant, postpartum, and breastfeeding women, and infants and children up 

to age 5 who are at nutrition risk. WIC promotes breastfeeding as the optimal 

source of nutrition for infants, but provides free infant formula to mothers 

who choose not to breastfeed exclusively. 

WIC is the major purchaser of infant formula in the United States. To reduce 

the cost of infant formula to the program, Federal law requires that WIC 

State agencies enter into cost-containment contracts with the manufacturers 

of infant formula. Typically, WIC State agencies obtain substantial discounts 

in the form of rebates from the manufacturers for each can of formula 

purchased through the program. In exchange for rebates, a manufacturer is 

given the exclusive right to provide its products to WIC participants in the 

State. These sole-source contracts are awarded on the basis of competitive 

bids: the fi rm offering the lowest net wholesale price (equal to the manufacturer’s wholesale price minus the rebate) wins the WIC contract for that State. 

As a result, the brand of formula provided by WIC varies by State. 

On average, WIC State agencies rebid their infant formula rebate contracts 

every 4 years, and in many States, the manufacturer that wins the contract—

and thus the brand of formula provided through WIC—changes from one 

contract to the next. The overall objective of this report is to examine the 

effect of WIC’s rebate program and its use of sole-source contracts on the 

infant formula market in supermarkets by exploiting the natural experiments created when the WIC contract brand changes.1 Specifi cally, this study 

addresses the following fi ve questions: 

1. What is the WIC contract brand’s share of infant formula sales in 

supermarkets?

2. What is the effect of a change in the WIC contract brand on market 

shares?

3. Do infant formula manufacturers realize spillover effects from 

winning the WIC contract? 

4. Does WIC affect the selection of some brands of formula in 

supermarkets?

5. Are changes in the market share of the WIC contract brand 

associated with changes in its retail price?

It is important to note that this study is based on data on infant formula sales 

in stores that are more likely to have WIC redemptions (i.e., supermarkets), 

and do not capture formula sales in other types of stores that may be less 

affected by WIC (i.e., mass merchandisers without full supermarkets, warehouse clubs, drug stores, convenience stores, toy stores, and other channels).2

To the extent that WIC participants are more likely to redeem their food 

instruments in supermarkets, our fi ndings may overestimate WIC’s impact 

in the overall infant formula market. However, supermarkets are an important component of the overall infant formula market, accounting for about 

1Throughout this report, “changes 

in the WIC contract brand” refers to 

when the holder of the WIC infant 

formula contract switches from one 

manufacturer to another. It does not 

refer to changes in the composition of a 

specifi c infant formula product.

2Although data on WIC redemptions 

by type of store are not available, we 

hypothesize that most purchases of 

WIC foods occur in supermarkets for 

several reasons: (1) since WIC State 

agencies establish minimum requirements for the variety and quantity of 

foods that vendors must stock to be 

authorized for the program, supermarkets are more likely than other stores to 

meet the minimum requirements; (2) 

supermarkets are likely to offer a better 

selection of WIC authorized foods such 

as cereal, and (3) WIC shoppers, who 

may shop at supermarkets for their 

non-WIC foods, are likely to combine 

their shopping trips.
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63 percent of all infant formula sales. So, assessing how WIC affects infant 

formula sales in supermarkets is key to understanding WIC’s impact on the 

entire infant formula market. 

This study builds on previous ERS and ERS-funded research related to WIC 

and infant formula, that includes: a Report to Congress on the availability 

of infant formula by geographic area (Oliveira et al., 2001); an analysis of 

the effects of WIC and its infant formula rebate program on the retail prices 

of infant formula (Oliveira et al., 2004); the development of a model that 

provides the theoretical framework for the econometric analyses of retail 

prices for infant formula (Prell, 2006); an examination of trends in the 

factors affecting infant formula costs to the WIC program (Oliveira and 

Davis, 2006); an analysis on the effect of WIC’s sole-source contracts on 

the wholesale price of infant formula (Betson, 2009); and an examination 

of trends in infant formula rebates (Oliveira et al., 2010). In particular, this 

study expands an ERS-funded study by Huang and Perloff (2008) that looked 

at the effect that winning the WIC infant formula contract had on sales in 

the non-WIC market using data on powdered milk-based infant formula sales 

collected from a sample of 39 grocery stores in 1997-1999. Our study, based 

on 2004-09 data from over 7,000 supermarkets in 30 States, extends their 

analysis by examining liquid concentrate as well as powdered formula in 

different container sizes separately. Our data refl ect the introduction in the 

past decade of Docosahexaenoic acid and Arachidonic acid (DHA/ARA) 

supplemented formulas that now dominate the infant formula market. It is the 

fi rst large-scale study to quantify WIC’s overall effect, that is, the combined 

effect that winning the WIC infant formula contract has on sales in the WIC 

and non-WIC markets. 

The next section provides a brief overview of WIC and the infant formula 

rebate program. The following section examines the characteristics of the infant 

formula market while the remaining sections present the results of the analysis. 
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WIC and the Infant Formula 

Rebate Program

WIC is the Nation’s third-largest food assistance program in terms of 

expenditures, trailing only the Supplemental Nutrition Assistance Program 

(SNAP—formerly the Food Stamp Program) and the National School Lunch 

Program. In fi scal 2010, an average 9.2 million persons participated in WIC 

each month (USDA, 2010a). This included 2.2 million infants or over half of 

all infants born in the United States. 

Overview of the WIC Program

WIC is based on the premise that early intervention programs during critical times of growth and development can help prevent future medical and 

developmental problems. To participate in WIC, applicants must be either a 

pregnant woman, a nonbreastfeeding woman up to 6 months postpartum, a 

breastfeeding woman up to 1 year postpartum, an infant up to his/her fi rst 

birthday, or a child up to his/her fi fth birthday. The family income of WIC 

applicants must be at or below 185 percent of the Federal poverty guidelines. 

Applicants for the WIC program who participate in or who have certain 

family members who participate in SNAP, Medicaid, or the Temporary 

Assistance Program for Needy Families (TANF) are deemed to meet the 

income eligibility criterion automatically. Applicants must also be nutritionally at risk, as determined by a health professional such as a physician, nutritionist, or nurse and based on Federal guidelines. 

WIC provides participants with a package of supplemental foods designed to 

address their nutritional needs. For nearly all of the study period examined in 

this report, the WIC food package for fully formula-fed infants less than 1 year 

of age provided up to a maximum monthly allowance of 806 reconstituted fl uid 

ounces of infant formula, equivalent to 26 reconstituted fl uid ounces per day.3 

All States except Vermont and Mississippi distribute WIC foods, including 

infant formula, via the retail food delivery system.4 Under this system, participants “purchase” the WIC food items from retail food stores at the full retail 

price using a food instrument (i.e., voucher, check, or EBT card) that specifi es the types and amounts of foods that can be purchased and the dates that 

the instrument can be used. In the case of infant formula, the food instrument 

also specifi es the brand of formula to be purchased, the form (powder, liquid 

concentrate, or ready-to-feed), the base (milk, soy, or protein hydrolysate) and 

can size (see box on “Infant Formulas”). WIC recipients are issued either a 1-, 

2-, or 3-month supply of vouchers at any one time (7 CFR 246.12). Only those 

vendors (usually supermarkets, grocery stores, or pharmacies) authorized by 

the WIC State agency may transact and redeem food instruments. In 2008 (the 

latest data available), there were nearly 49,000 WIC-authorized food vendors 

nationwide (USDA, 2008). 

WIC’s Infant Formula Rebate Program 

Each WIC State agency operates its own infant formula rebate program and is 

responsible for negotiating rebate contracts with infant formula manufacturers 

(some States form multistate alliances to join in single rebate agreement). As 

a result, the conditions of the contract—including the amount of the rebate 

3The interim rule revising the 

WIC food packages was published in 

December 2007; however, no States 

implemented the new food packages 

prior to January 2009. The new food 

packages revised age specifi cations for 

the infant food packages and established 

three feeding options within each infant 

food package—fully breastfed, partially 

breastfed, or fully formula fed. Each 

infant food package provides different 

amounts of infant formula depending 

on the infant’s age and feeding option. 

Among fully formula-fed infants, those 

younger than 4 months of age receive 

the same amount of formula under 

the new food package as under the old 

food package. However, fully formulafed infants 4-5 months of age receive 

greater amounts of formula than before, 

while infants 6-11 months of age receive 

smaller amounts of infant formula under 

the new food package. 

4Vermont uses a home delivery 

system whereby the WIC foods are 

delivered to the participant’s home, 

while Mississippi, parts of Chicago, IL, 

and two Indian Tribal Organizations 

State agencies use direct distribution 

whereby participants pick up their WIC 

foods from storage facilities operated 

by the State or local WIC agency. 
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and the contract term (i.e., the period during which the infant formula rebate 

contract is in effect), as well as the manufacturer who holds the contract—will 

vary across States. Since the mid-1990s, only the three major infant formula 

manufacturers—Mead Johnson, Abbott, and Nestlé (now Gerber)—have held 

rebate contracts.5

Manufacturers designate the specifi c infant formula product—referred to 

as the primary contract brand—for which they submit a bid in response to 

a rebate solicitation and for which a contract is awarded by the WIC State 

agency. The WIC State agency must use the primary contract infant formula 

as the fi rst choice of issuance to the WIC participants in that State. However, 

winning infant formula bidders are required to supply and provide a rebate on 

all infant formulas they produce that the WIC State agency chooses to issue, 

except exempt infant formulas. That is, the WIC State agency may choose to 

5As of February 2010, the brand 

name of Nestlé’s line of infant formulas was changed to Gerber. This report 

retains the Nestlé label since the study 

period (2004-09) predated the brand 

name change.

Protein Base. Milk-based infant formulas, containing lactose and cow’s milk 

proteins, are the most widely used formula. Soy-based formulas, made with 

soy protein and free of lactose, provide an alternative protein source for infants 

with symptoms of lactose intolerance and are also used by parents seeking a 

vegetarian diet for their infants. A small proportion of infant formula uses protein 

hydrolysate as a base. As of 2004, most formulas are supplemented with the fatty 

acids docosahexaenoic acid (DHA) and arachidonic acid (ARA). 

Specialized Formulas. There is a wide range of specialized infant formulas 

designed for infants with unique nutritional needs. For example, milk-based, 

lactose-free formulas are available for infants sensitive to lactose. Hypoallergenic 

formulas, including protein hydrolysate formulas, are available for infants with 

food protein allergies. Other types of specialized formulas in the marketplace 

include organic formulas, prebiotic formulas, probiotic formulas, formulas 

marketed to older infants (e.g., 9 to 24 months) or to younger infants (e.g., 0 to 3 

months), as well as formulas to reduce colic, diarrhea, spit-up, fussiness, and gas. 

Exempt Formulas. These formulas are labeled for use by an infant who has an 

inborn error of metabolism or a low birth weight, or who otherwise has an unusual 

medical or dietary problem (21 U.S. Code 350a) they are available for infants 

with special nutritional needs (e.g., premature infants) and medical disorders, 

such as phenylketonuria (PKU). 

Product Form. Infant formulas come in three forms: powder (the least expensive 

form per reconstituted ounce), liquid concentrate, and ready-to-feed (the most 

expensive form per reconstituted ounce). 

Package size. Formulas—particularly powdered forms—are available in a 

wide range of package sizes that differ by manufacturer and product. All liquid 

concentrate comes in 13-ounce cans. 

Iron level. Formulas come in two different iron levels: added iron and low iron. 

The American Academy of Pediatrics (1999) recommends that formula-fed 

infants receive iron-fortifi ed formulas as a way of reducing the prevalence of 

iron defi ciency anemia. Prior to the recent revisions in the WIC food package, 

iron-fortifi ed infant formulas were routinely issued in WIC; all low-iron infant 

formulas issued through WIC required medical documentation. The new WIC 

food package disallows the issuance of all low-iron infant formulas to any infants.

Infant Formulas
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approve for issuance some, none, or all of the winning bidder’s other infant 

formula products. As a result, the specifi c infant formula products provided 

through WIC will vary across States, even in those States in which the same 

manufacturer holds the contract.6 All infant formulas (except exempt infant 

formula) produced by the manufacturer awarded the rebate contract are 

referred to as contract brand infant formulas.

Under special circumstances, WIC may also issue formula not manufactured 

by the WIC contract manufacturer. Such formula (referred to as noncontract 

infant formula) may be issued only with medical documentation provided by 

a licensed health care professional authorized to write medical prescriptions 

under State law that an infant has a condition that dictates the formula’s use. 

The only exception to this rule is that local WIC agencies may issue noncontract-brand infant formula without medical documentation in order to accommodate religious eating patterns (65 Federal Register 51213-51229). WIC 

State agencies do not receive rebates from noncontract-brand infant formula 

(some States have disallowed any use of non-contract formula). In 2004 (the 

latest data available), noncontract-brand formula was estimated to account 

for 8 percent of all formula provided to WIC participants (U.S. Government 

Accountability Offi ce, 2006). 

WIC State agencies reimburse the vendor for the full retail price of the 

formula purchased with WIC food instruments. The WIC State Agency then 

requests a rebate reimbursement from the manufacturer. As a result, the 

actual cost to WIC for each can of infant formula sold through the program 

is equal to the retail price minus the manufacturer’s rebate, or, expressed 

another way, the net wholesale price plus the retail markup. 

Manufacturer’s rebates are generally quite large. Among contracts in effect 

in December 2008, the amount of the rebate as a percentage of the wholesale 

price (or average percentage discount) for powder was 85 percent (Oliveira et 

al., 2010).7 Thus, on average, WIC paid only 15 percent of the wholesale price 

for formula (plus the retail markup). 

Rebates have been a major source of funds for WIC. For example, in fi scal 

year 2009, infant formula rebates totaled $1.9 billion compared to program 

expenditures of $6.5 billion post-rebate (USDA, 2010a and USDA, 2010b). 

Because WIC is a discretionary grant program funded annually by appropriations law, the number of participants that can be served each year depends on 

the annual appropriation and WIC’s operating costs. The savings generated 

by rebates are used to provide benefi ts to more participants within the same 

total budget. Since the mid-1990s, rebates have supported about one-quarter 

of all WIC- participants.

6For example, some States in which 

Mead Johnson held the WIC infant 

formula contract included Enfamil 

A.R. Lipil (a formula thickened with 

added rice starch targeted to infants 

who spit up frequently) on their list of 

allowable formula products while other 

States did not. 

7The percentage discount is based on 

wholesale prices at the time of the bid 

opening. The contracts contain infl ationary provisions whereby in the event 

of an increase in the wholesale price 

after the bid opening, there is a centfor-cent increase in the rebate amounts. 

Thus, if the wholesale price increases at 

any time during the life of the contract, 

the amount of the rebate increases 

and the average percentage discount 

received by WIC will be even greater.
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Characteristics of the Infant 

Formula Market

The information for this section comes from a proprietary report on national 

and regional trends in the infant formula market that was prepared for ERS 

by the Nielsen Company (2008). Nielsen used a variety of products and 

resources to develop estimates representing the entire U.S. infant formula 

market including sales in supermarkets, mass merchandisers, drug stores, 

convenience stores, and other outlets. 

The U.S. infant formula market accounted for about $3.5 billion in sales in 

2007. This was about the same as the previous year, and up slightly from 

2004 and 2005 (fi g. 1). On the other hand, infant formula sales by volume 

(in reconstituted ounces) have trended downward in recent years (fi g. 2). 

Between 2004 and 2007, volume sales in reconstituted fl uid ounces fell about 

5 percent. This decline is a continuation of a trend ERS identifi ed for the 

period 1994-2000 (Oliveira et al., 2004).

The infant formula market is highly concentrated. In 2008, three manufacturers accounted for 98 percent of all dollar sales (fi g. 3). Abbott, maker 

Figure 1

Infant formula dollar sales, 2004-07

Billion dollars

Source: Nielsen Company, 2008.

 2004 2005 2006 2007

0

1

2

3

4

Figure 2

Infant formula sales by volume, 2004-07

Billion reconstituted ounces

Source: Nielsen Company, 2008.

 2004 2005 2006 2007

0

5

10

15

20

25

30
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of the Similac product line (43 percent), and Mead Johnson, maker of the 

Enfamil line (40 percent), accounted for the bulk of dollar sales, while 

Nestlé, maker of the Good Start line, accounted for another 15 percent. Most 

of the remaining 2 percent of infant formula sales was accounted for by PBM 

Nutritionals, which produces the Bright Beginnings line of infant formulas as 

well as most of the private-label or store-brand formulas. PBM has never bid 

on a WIC contract. 

Infant formula sales are shifting from supermarkets to other outlets. 

Supermarkets (including mass merchandisers with full supermarkets) 

accounted for 70 percent of all dollar sales in 2004, but only 63 percent 

in 2007 (fi g. 4). During this period, the share of sales in warehouse clubs 

increased from 10 percent to 13 percent and the share of sales in “all other” 

channels (i.e., outlets other than supermarkets, mass merchandisers, drug 

stores, and warehouse clubs)—almost doubled, increasing from less than 5 

percent to 9 percent of all infant formula sales in 2007. This trend may refl ect 

the increase in online shopping for infant formula. 

Figure 3

Share of infant formula dollar sales by manufacturer, 2008

Note: Sales figures for 2008 were annualized based on data for the first 6 months of the year. 

Data exclude Walmart. 

Source: Nielsen Company, 2008.

Mead Johnson

Abbott

Nestlé

All other

40%

2%

15%

43%

Figure 4

Dollar sales by outlet, 2004-07

Percent

Source: Nielsen Company, 2008.

2004 2005 2006 2007

0

20

40

60

80

100

Supermarkets Mass merchandisers w/o supermarkets

Warehouse clubs Drug store All other
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Most formula is milk-based—comprising some 80 percent of dollar sales in 

2008, up from 76 percent in 2004 (fi g. 5). Soy-based formula accounted for 

14 percent of all dollar sales in 2008 compared to 17 percent in 2004. Other 

formula bases accounted for 6 to 7 percent of all 2004-08 sales. 

Powder is the primary product form for infant formula sold in this country 

and its share of the market continues to grow. In 2008, powder comprised 

83 percent of all dollar sales, up from 71 percent in 2004 (fi g. 6). During 

the same period, sales of liquid concentrate fell from 20 percent to only 

10 percent of all formula sales, and ready-to-feed fell from 9 percent to 7 

percent. The lower price of powder may be an important economic factor in 

its growth.8

One of the most important developments in the infant formula market in 

recent years was the introduction of formulas supplemented with the fatty 

8Powder was about 14 percent less 

expensive than liquid concentrate on a 

per reconstituted fl uid ounce basis based 

on the relative prices of Mead Johnson’s 

Enfamil LIPIL, Ross’ Similac Advance, 

and Nestlé’s Good Start Supreme DHA 

& ARA in powder and liquid concentrate as of September 2007.

Figure 5

Share of infant formula dollar sales by base, 2004-08

Percent

Note: Sales figures for 2008 were annualized based on data for the first 6 months of the year. 

Data exclude Walmart. 

Source: Nielsen Company, 2008.

Milk Soy Other

2004 2005 2006 2007 2008

0

20

40

60

80

100

Figure 6

Share of infant formula dollar sales by form, 2004-08

Percent

Note: Sales figures for 2008 were annualiized based on data for the first 6 months of the year. 

Data exclude Walmart. 

Source: Nielsen Company, 2008.

Powder Liquid concentrate Ready-to-use

2004 2005 2006 2007 2008

0

20

40

60

80

100
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acids docosahexaenoic acid (DHA) and arachidonic acid (ARA) which some 

studies have linked to improved vision and cognitive development in infants.9

Abbott fi rst introduced these formulas into their U.S. product lines in 2002, 

with Mead Johnson and Nestlé following in 2003. Although more expensive 

than unsupplemented formulas, sales of DHA/ARA-supplemented formulas 

increased rapidly, and by 2004 they accounted for 69 percent of all dollar 

sales. By 2008, DHA/ARA-supplemented formulas accounted for nearly 

all—98 percent—dollar sales (fi g. 7).

9The U.S. Food and Drug 

Administration (FDA) claims that 

the scientifi c evidence on whether the 

addition of DHA and ARA to infant 

formulas is benefi cial is mixed (U.S. 

Department of Health and Human 

Services, 2006). FDA states that 

“Some studies in infants suggest that 

including these fatty acids in infant 

formulas may have positive effects on 

visual function and neural development 

over the short term. Other studies in 

infants do not confi rm these benefi ts. 

There are no currently available 

published reports from clinical studies 

that address whether any long-term 

benefi cial effects exist.”

Figure 7

Share of infant formula dollar sales by DHA/ARA supplement status, 

2004-2008

Percent

DHA/ARA=Docosahexaenoic acid and Arachidonic acid.

Note: Sales figures for 2008 were annualiized based on data for the first 6 months of the year. 

Data exclude Walmart. 

Source: Nielsen Company, 2008.

Unsupplemented

DHA/ARA supplemented

2004 2005 2006 2007 2008

0

20

40

60

80

100
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Infant Formula Data 

In fi scal 2008, ERS contracted with the Nielsen Company, Inc., for a license 

to access proprietary data on infant formula sales in grocery stores with 

sales over $2 million per year in the 48 contiguous States in its Scantrack 

StoreView point of sale data monitoring and analysis system. Nielsen 

Scantrack StoreView provides store-level weekly data on dollar sales, quantities sold, infant formula product (universal product code or UPC), product 

characteristics (i.e., manufacturer, package size, physical form, product base, 

total yield), temporary price reductions, as well as various store characteristics. ERS obtained data for the period covering the week ending January 3, 

2004, to the week ending April 4, 2009. 

To maintain confi dentiality, Nielsen did not identify store names, chains, or 

street addresses. The sample of stores included traditional grocery stores 

and supermarkets as well as supercenters (i.e., a type of mass merchandiser 

that contains a full grocery within the store; examples include Super Kmart 

and Super Target). Sample stores did not include any Walmart supercenters 

because Walmart does not participate in the Scantrack system. The data also 

do not capture formula sold in drug stores, mass merchandisers without a full 

supermarket, toy stores, baby stores, or formula sold via the Internet. 

The ERS sample was comprised of 13,715 supermarkets or 39 percent of all 

supermarkets with sales of $2 million or more (Progressive Grocer, 2008). 

Stores included in the ERS sample tended to be larger than the average supermarket. Sales of infant formula in the stores comprising the ERS supermarket 

data set accounted for 70 percent of Nielsen’s estimate of infant formula 

dollar sales from all supermarkets and supercenters (including Walmart), 

and 44 percent of Nielsen’s estimate of infant formula dollar sales from all 

outlets—supermarkets, mass merchandisers, drug stores, convenience stores, 

etc.—in the United States.

Representativeness of the ERS sample data

As part of the agreement with Nielsen, ERS had access to individual storelevel data on infant formula sales from only a subsample of stores in Nielsen’s 

database—those retailers who permitted store-level disclosure of their sales 

(i.e., releasable retailers). Because of various privacy and nondisclosure 

restrictions, individual store-level projection factors were not available to 

ERS. As a result, the data obtained from the individual stores included in 

this data set could not be weighted up to national estimates. This raises the 

question—are the stores in the ERS supermarket sample representative of 

all supermarkets in the United States? Although the answer to this question cannot be defi nitively ascertained, comparing the characteristics of the 

infant formula sales based on the data provided to ERS to those derived from 

Nielsen’s national-level retail infant formula data provides an indication of 

whether the ERS data are similar to national-level estimates. 

As part of its contract with ERS, the Nielsen Company, Inc., provided a summary 

report of the entire U.S. infant formula market based primarily on Scantrack sales 

data from supermarkets, as well as mass merchandisers—both with and without 

full supermarkets—(excluding Walmart), drug stores, convenience stores, 
11

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warehouse clubs, and dollar stores (Nielsen Company, 2008). For this summary 

report, Nielsen supplemented the Scantrak data with its Homescan data that 

provides food-purchase information from additional outlets from a panel of U.S. 

households (food-at-home purchases from all individuals in the household were 

captured using a scanning device in the home). The data from these two sources 

were projected up to derive national estimates. 

ERS compared the characteristics of the infant formula market within 

the stores included in the ERS sample against the characteristics of the 

infant formula market at the national level, as provided by Nielsen (2008). 

In general, the mix of infant formula products in the ERS supermarket 

subsample was similar to the mix of products in the national formula market 

sample. That is, the share of formula sales (by both dollar sales and volume 

sales) by manufacturer, form, product base, DHA/ARA supplementation 

status, container size (for powder), and geographic region derived from the 

ERS supermarket subsample data closely mirrored that of the national infant 

formula market (see appendix). Because the Nielsen summary report did not 

provide State-level estimates for infant formula sales, it was not possible to do 

any State-level comparisons between the characteristics of formula sold in the 

supermarket subsample and the formula sold in all retail stores. 

States included in the analysis

The ERS data set contained information on stores in each of the 48 contiguous States and Washington, DC. However, because the focus of this report 

is to examine the effect of a change in WIC contract brand on the market, 

19 States, in addition to Alaska and Hawaii, were dropped from the analysis 

sample (table 1) because they either:

(a) did not use the retail distribution system for WIC (2 States),

(b) did not award a new contract during the study period (3 States), 

(c) did not experience a change in the WIC contract brand of formula 

because the same manufacturer that held the former contract also 

won the new contract (12 States), or

(d) the contract change happened either too early or too late in the 

2004-09 study period such that the data did not contain a full year of 

either prechange or postchange data (two States).

The fi nal data set used for the analyses discussed in this report included data 

from stores in 30 States (including Washington, DC), as detailed in table 2. 

Stores included in the analysis

Within the 30-State study sample, sales data were available from a total of 

8,370 stores. However, we were concerned that data from stores that entered 

or exited the market, or that were closed for some period during the study 

period (e.g., for renovations or due to a change in ownership), could bias 

the results of the analysis. In order to ensure that the sample included only 

those stores that were in business for a full year before and a full year after 

the change in the WIC contract brand, we restricted the fi nal sample to 

those stores with 52 weeks of sales both before and after the change in the 
12

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WIC contract. This restriction excluded from the study sample 989 stores 

(12 percent) that did not report any infant formula sales for 1 or more weeks 

during the year prior to and the year after the contract change.10 The fi nal 

data set consisted of 7,381 stores in the 30 States that had formula sales in 

every week for 1 year before and 1 year after the switch in the WIC infant 

formula contract brand (see table 2). 

Time period used in the analysis

The start dates, expiration dates, and lengths of the contracts vary by State. 

To control for this variation, the study looked at each State’s infant formula 

market during the year prior to the contract change and the year after the 

contract change regardless of when the contract actually changed. We designated the week in which the change occurred as week 0 and then numbered 

all other weeks sequentially from that point. For example, week -52 refers to 

52 weeks (i.e., 1 year) prior to the contract change, and week 52 refers to 52 

weeks (1 year) after the change.

In some States, vouchers issued prior to the contract change specify the “old” 

contract brand even if those vouchers are to be redeemed after the contract 

change.11 In those States, there is a transition period after the date the WIC 

contract brand changes when WIC vouchers for both the former and new 

contracted formulas can be redeemed. Further complicating matters, States 

issue vouchers for different time periods. In 2005, 23 of the 89 WIC State 

agencies issued food vouchers once every 3 months, 23 issued them every 2 

10On average, the excluded stores 

reported no infant formula sales for 46 

weeks during the 105-week study period.

11Every WIC voucher lists the specifi c period during which the voucher 

can be used (for example, the voucher 

may include “First Day To Use” and 

“Last Day To Use” dates). 

Table 1

States excluded from the analysis

State Reason for exclusion

Alaska Original Nielsen data set excluded Alaska

Alabama The same manufacturer held both the new and former contracts

Arkansas The same manufacturer held both the new and former contracts

Florida The same manufacturer held both the new and former contracts

Hawaii Original Nielsen data set excluded Hawaii

Indiana The same manufacturer held both the new and former contracts

Kentucky The same manufacturer held both the new and former contracts

Mississippi Mississippi does not use a retail food distribution system 

Missouri No new contracts were awarded during 2004-08

Nebraska No new contracts were awarded during 2004-08

New Jersey The same manufacturer held both the new and former contracts

New Mexico The same manufacturer held both the new and former contracts

New York The same manufacturer held both the new and former contracts

North Carolina The same manufacturer held both the new and former contracts

North Dakota The same manufacturer held both the new and former contracts

Ohio The same manufacturer held both the new and former contracts

Oklahoma The same manufacturer held both the new and former contracts

Pennsylvania 52 weeks of data after the contract changed were not available

South Dakota No new contracts were awarded during 2004-08

Tennessee 52 weeks of data before the contract changed were not available

Vermont Vermont does not use a retail food distribution system 

Source: USDA, Economic Research Service.
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months, 37 issued them on a monthly basis, and the remaining 6 issued them 

every 3 months or on an as needed basis (USDA, 2005). States that issue 

vouchers 3 months at a time will have longer transition periods than States 

that issue vouchers for shorter periods of time. To account for this transition 

period, we excluded the fi rst 3 months of data after the contract change (i.e., 

weeks 0 to 12) from some of the analyses, as noted in the text. 

Types of formula included 

in the analysis

All of the analyses discussed in this report were limited to formula produced 

by the three major infant formula manufacturers—Mead Johnson, Abbott, 

and Nestlé—that held one or more rebate contracts during the study period. 

Table 2

States included in the analyses

State

Number

of stores

Former WIC

contract brand

New WIC

contract brand

Date of

contract 

change

Arizona 397 Mead Johnson Abbott 10/1/2007

California 1,533 Abbott Mead Johnson 8/1/2007

Colorado 286 Abbott Mead Johnson 1/1/2008

Connecticut 154 Mead Johnson Nestlé 10/1/2006

Delaware 54 Mead Johnson Abbott 10/1/2007

District of Columbia 19 Mead Johnson Abbott 10/1/2007

Georgia 481 Mead Johnson Abbott 10/1/2006

Idaho 53 Mead Johnson Abbott 10/1/2007

Illinois 365 Abbott Mead Johnson 2/1/2008

Iowa 101 Mead Johnson Abbott 10/1/2007

Kansas 79 Mead Johnson Abbott 10/1/2007

Louisiana 114 Abbott Mead Johnson 10/1/2007

Maine 69 Mead Johnson Nestlé 10/1/2006

Maryland 344 Mead Johnson Abbott 10/1/2007

Massachusetts 297 Mead Johnson Nestlé 10/1/2006

Michigan 273 Abbott Mead Johnson 11/1/2006

Minnesota 56 Mead Johnson Abbott 10/1/2007

Montana 45 Mead Johnson Abbott 10/1/2007

Nevada 144 Mead Johnson Abbott 10/1/2007

New Hampshire 89 Mead Johnson Nestlé 10/1/2006

Oregon 202 Mead Johnson Abbott 10/1/2007

Rhode Island 35 Mead Johnson Nestlé 10/1/2006

South Carolina 322 Abbott Nestlé 4/7/2005

Texas 626 Mead Johnson Abbott 10/1/2007

Utah 92 Mead Johnson Abbott 10/1/2007

Virginia 598 Nestlé Abbott 7/1/2006

Washington 353 Mead Johnson Abbott 10/1/2007

West Virginia 68 Mead Johnson Abbott 10/1/2007

Wisconsin 108 Abbott Nestlé 1/1/2006

Wyoming 24 Mead Johnson Abbott 10/1/2007

Total 7,381

Note: To be included in the analyses, stores must have reported some infant formula sales during both the 52-week precontract change period and the 52-week postcontract change period.

Sources: USDA, Economic Research Service calculations based on Nielsen supermarket 

scanner-based data and unpublished USDA, Food and Nutrition Service data.
14

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Infant formula produced by other manufacturers not participating in WIC’s 

infant formula rebate program, such as PBM, were not included in the analysis. These other brands accounted for an average of only 2 percent of all 

dollar sales of formula throughout 2004-2008 (excluding sales at Walmart) 

(Nielsen, 2008). 

This report focuses solely on milk-based formula in two forms—powder and 

liquid concentrate (thus, soy- and other-base formulas, as well as all ready-tofeed formulas were excluded from the analysis).12 Because both the can sizes 

and reconstitution factors for formula in powder form differ across manufacturers and products, we converted all volumes to a standard unit—26 fl uid 

ounces of reconstituted formula, which represents WIC’s daily maximum 

allowance during the study period (it is also the equivalent of a 13-ounce (oz) 

can of liquid concentrate). 

For this study, we grouped these formulas into the following three categories: 

Powder formula in 12- to 16-oz containers—all powder formula 

purchased through WIC during the study period was sold in 12- to 

16-oz containers. Some of the formula in this size container is also 

sold outside of the WIC program. Each State determines which of the 

contract brand products to offer to WIC participants in that State, and 

we were not able to determine the exact mix of products provided 

through WIC for each State during the entire study period, so we 

included all products. However, given the size of the WIC program, 

the powder formulas purchased through WIC will account for the 

vast majority of the sales in this size category. 

Powder formula in non-WIC size containers—this category 

includes all powder formula sold in containers either smaller than 12 

oz or larger than 16 oz. Since WIC does not provide formula in these 

sizes, all of the formula in this category is provided outside of WIC. 

Liquid concentrate—Since liquid concentrate is only sold in 13-oz 

containers, this category includes both WIC and non-WIC sales of 

formula.

These three types of milk-based formulas accounted for 80 percent of all 

volume sales in the ERS 30-State data set during the 105-week study period 

(fi g. 8). Powder in 12- to 16-oz containers accounted for 55 percent of all 

sales, powder in other size containers accounted for 17 percent of sales, and 

liquid concentrate accounted for another 8 percent of sales. 

Identifying WIC contract-brand formula

The ERS 30-State data set identifi ed every infant formula product sold 

in each store every week from January 2004 to April 2009. We used data 

provided by USDA’s Food and Nutrition Service (FNS)—the agency that 

administers the WIC program—to identify the State-specifi c WIC contract 

brand for the current contract and the previous contract (as used in this 

report, the term “WIC contract brand” refers to all the formula produced by 

the manufacturer that held the WIC infant formula contract in a State at a 

particular point in time). This allowed us to code each infant formula product 

12Local WIC agencies are required 

to issue all infant formula in powder or 

liquid concentrate form. Ready-to-feed 

formulas are only authorized in certain 

situations, for example when: (1) the 

participant’s household has an unsanitary or restricted water supply or poor 

refrigeration; (2) the person caring 

for the participant may have diffi culty 

in correctly diluting concentrated or 

powder forms; or (3) the WIC infant 

formula is only available in ready-tofeed (7 CFR 246.10).
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sold in a particular State each week based on whether the manufacturer held 

the WIC contract before or after the change in the contract brand:

New WIC contract brand—all formula produced by the manufacturer awarded the most recent WIC contract.

Former WIC contract brand—all formula produced by the manufacturer that held the previous WIC contract.

Other brand—all formula produced by the manufacturer that did not 

hold either the former or the new WIC contract. 

For example, in Arizona, Abbott held the most recent WIC contract and Mead 

Johnson held the prior contract. Therefore, all infant formula produced by 

Abbott, regardless of point in time, was coded as “new WIC contract brand,” 

all formula produced by Mead Johnson was coded as “former WIC contract 

brand,” and all formula produced by Nestlé was coded as “other brand.”

Figure 8

Volume sales of infant formula by base and form, 

ERS 30-State data set

WIC=Special Supplemental Nutrition Program for Women, Infants, and Children.

Note: Based on the 7,381 stores in the 30-State ERS data set during the 105-week 

study period. 

Source: USDA, Economic Research Service calculations based on Nielsen supermarket 

scanner-based data. 

14%

17%

55%

8%

Other bases

Soy-based

Milk-based powder, ready-to-feed

Milk-based powder, non-WIC sizes

Milk-based powder, 12-16 oz

Milk-based liquid concentrate

3%

4%
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Contract Brand Status and Market Share

Among the 7,381 supermarkets in the ERS 30-State data set, volume sales 

of infant formula from the manufacturer holding the WIC contract brand 

accounted for the vast majority—84 percent—of all milk-based formula 

(excluding ready-to-feed formula) sold by the 3 major manufacturers in 

supermarkets (fi g. 9).13

The share of formula sales going to the manufacturer that holds the WIC 

contract varied signifi cantly by form and container size. The WIC contract 

brand accounted for 92 percent of all sales of powder in 12- to 16-oz 

containers and 95 percent of all sales of liquid concentrate in supermarkets. 

Thus, the manufacturer holding the WIC infant formula contract accounts 

for the vast majority of formula sales in liquid concentrate and 12- to 16-oz 

powder in supermarkets. The WIC contract brand accounted for a smaller 

proportion of sales of powder in non-WIC sizes, although it still accounted 

for over half—51 percent—of all sales in this category. 

The large market share attributed to the manufacturer holding the WIC 

contract brand provides an indication of the major role that WIC plays in the 

infant formula market. However, there are several possible factors behind the 

WIC contract brand’s large share of infant formula sales in supermarkets, 

only some of which are related to WIC: 

1. Direct WIC effects: This occurs when WIC recipients use their WIC 

food instrument to purchase the WIC contract brand of formula. 

Given the large amount of formula purchased through WIC, the 

direct effect is undoubtedly responsible for most of the sales of the 

WIC contract brand. However, the exact magnitude of the direct 

effect cannot be ascertained from the data. In a previous study, the 

authors estimated that about 57-68 percent of all infant formula 

sold in the United States in 2004-06 was purchased through the 

program (Oliveira et al., 2010). However, this fi gure includes sales 

in all outlets—supermarkets, as well as mass merchandisers (with 

13For each State, the WIC contract 

holder’s percentage of total sales 

was estimated by using data on the 

52 weeks prior to a contract change 

and weeks 13 to 52 after a contract 

change. Weeks 0 to 12 after the change 

were excluded because those weeks 

represent a potential transitional period 

when some States may experience sales 

of “WIC” formula from both the old 

and new contract holder. 

Figure 9

The WIC contract brand's percentage of formula sold in supermarkets, 

by formula type

Percent of formula sold

WIC=Special Supplemental Nutrition Program for Women, Infants, and Children.

Source: USDA, Economic Research Service calculations based on Nielsen supermarket 

scanner-based data.

All formula Powder, 12-16 oz Liquid concentrate Powder, other sizes

0

20

40

60

80

100
17

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and without full supermarkets), warehouse clubs, drug stores, convenience stores, toy stores, and other channels—and the percent of 

infant formula sales in supermarkets that is purchased through WIC 

may differ. 

2. Indirect effects: This occurs when winning the WIC contract leads to 

increased sales in the non-WIC market (see box on “Spillover Effects 

of WIC” for a discussion of how formula manufacturers can realize 

indirect effects). 

3. Factors not related to WIC: Non-WIC customers may purchase 

the WIC contract brand for reasons totally unrelated to WIC. For 

example, because of price, personal preference, or recommendations 

from family and friends, a non-WIC mother may purchase a specifi c 

brand of formula regardless of whether or not it is the WIC contract 

brand. That is, she would have purchased the same formula product 

even in the absence of the program.

The next section further examines the WIC contract brand’s large share of 

infant formula sales in supermarkets by disentangling the effects of WIC’s 

rebate program and its use of sole-source contracts—that is, the combined 

direct and indirect effects of WIC—from effects unrelated to WIC. 
18

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When infant formula manufacturers win a WIC infant formula contract, they also 

experience the indirect effect of increased sales of formula that is not purchased 

with WIC food instruments. That is, the benefi ts of holding the WIC infant 

formula contract “spill over” to non-WIC sales. There are a number of possible 

mechanisms by which infant formula manufacturers may realize spillover effects: 

• Since WIC infants account for a large portion of infant formula consumers, 

retailers may devote more shelf space and better product placement to the 

WIC contract brand. This results in greater product visibility, which in 

turn may spur sales of the contract brand to non-WIC consumers. The U.S. 

Government Accountability Offi ce (2006) interviewed the three main U.S. 

formula manufacturers about factors infl uencing the attractiveness of a WIC 

contract and reported that all three “manufacturers noted the importance of 

shelf space and product placement to their marketing strategies.”

• Sales may also rise if hospitals and/or physicians recommend the WIC contract 

brand to non-WIC mothers. The same 2006 Government Accountability 

Offi ce report stated that “State WIC programs often work with physicians 

to educate them about the program and the requirement that most WIC 

participants use the contract brand of infant formula. Physicians may decide 

to recommend the WIC brand of infant formula to all patients to avoid having 

to differentiate between those enrolled and not enrolled in WIC. Similarly, 

some hospitals agree to provide WIC-brand infant formula to new mothers 

so that they won’t have to switch infant formulas after they leave the hospital. 

It may be easier for hospitals to provide the WIC-brand infant formula to all 

new mothers.” 

• Being identifi ed as the WIC brand also may increase the credibility of the 

product among non-WIC consumers. That is, the increase in demand for the 

WIC brand among non-WIC consumers may be due to the Government’s 

tacit endorsement of the product. 

• To the degree that the quantity of formula provided by WIC does not meet all 

of their infant’s formula needs, mothers of WIC infants may be reluctant to 

feed a different brand of formula to their infants and will therefore be likely 

to supplement the formula provided through WIC by purchasing the same 

brand of formula out of pocket. 

• Former WIC recipients may demonstrate brand loyalty by buying the same 

WIC-provided brand they used with one infant when they have subsequent 

babies after leaving the WIC program. 

• WIC recipients who are satisfi ed with the WIC contract brand of formula 

may recommend the brand to their non-WIC friends and relatives.

• After the infants reach 1 year of age—when WIC no longer provides formula 

to the child—some WIC mothers may choose to feed their child toddler 

formula (i.e., formula targeted to young children). Mothers may be more 

likely to purchase the same brand of toddler formula that was provided to 

their infant through WIC. 

Spillover Effects of WIC
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Effect of a Change in the WIC Contract 

Brand on Market Share

To better understand the impact of WIC’s rebate program and its use of 

sole-source contracts on the infant formula market in supermarkets, we 

took advantage of the natural experiments created when the WIC contract 

brand in a State switched from one manufacturer to another. Specifi cally, 

we conducted a pre/post analysis (also known as an event study analysis) of 

the overall effect (i.e., the direct and indirect effects of WIC combined) of a 

contract change on market share. To do this, we compared each manufacturer’s average market share in each State in the 52 weeks prior to the switch in 

the contract brand, to their average market share in weeks 13 to 52 after the 

switch. Weeks 0-12 were excluded to account for the transition period when 

there may be a lag in converting all WIC participants to the new contract 

brand of formula. 

Figures 10-12 illustrate the pre/post analysis of the overall effect of a change 

in the WIC contract based on the 1,533 sample stores in California—the State 

that serves the largest number of WIC infants. The impact of a change in the 

WIC contract on manufacturer’s share of infant formula sales for milk-based 

powder in 12- to 16-oz containers was dramatic (fi g. 10). The market share 

of the manufacturer that lost the WIC contract (Abbott) decreased substantially after the change, while the share of the winning manufacturer (Mead 

Johnson) increased substantially after the change. The same general pattern 

held for liquid concentrate (fi g. 11). The change in the market share of the 

contract-winning manufacturer of milk-based powder in non-WIC sizes also 

increased after the change in the WIC contract brand, although to a much 

lesser degree (fi g. 12). 

All of the other States included in our analysis showed the same general 

pattern as California. Figure 13 summarizes the changes in overall market 

shares for all milk-based formula (excluding ready-to-feed formula) after the 

Figure 10

Share of volume sales by WIC contract brand status

12-16 oz milk-based powder (California)

Percent

WIC=Special Supplemental Nutrition Program for Women, Infants, and Children.

Note: Dashed line represents the week the contract brand changed. 

Source: USDA, Economic Research Service calculations based on Nielsen supermarket 

scanner-based data.

-52 -39 -26 -13 0 13 26 39 52

0

20

40

60

80

100

New WIC contract brand

Other brand

Former WIC contract brand

Week
20

The Infant Formula Market: Consequences of a Change in the WIC Contract Brand / ERR-124

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WIC contract changed. Across all 30 States, the market share of the manufacturer of the new WIC contract brand contract increased by an average of 

74 percentage points after the contract changed.14 This increase in market 

share for the winning manufacturer was almost completely offset by the 

loss in market share of the manufacturer that lost the contract as its share of 

sales decreased by an average 73 percentage points across all 30 States. The 

other manufacturer in the State (i.e., the one that did not hold the contract in 

either period) appears to be unaffected, with its market share decreasing by 1 

percentage point on average. 

14Throughout this report, averages 

refer to simple unweighted averages 

whereby each State receives the same 

weight regardless of how much infant 

formula was sold in each State. 

Figure 11

Share of volume sales by WIC contract brand status

milk-based liquid concentrate (California)

Percent

WIC=Special Supplemental Nutrition Program for Women, Infants, and Children.

Note: Dashed line represents the week the contract brand changed. 

Source: USDA, Economic Research Service calculations based on Nielsen supermarket 

scanner-based data.

-52 -39 -26 -13 0 13 26 39 52

New WIC contract brand

Other brand

Former WIC contract brand

Week

0

20

40

60

80

100

Figure 12

Share of volume sales by WIC contract brand status, 

milk-based powder in non-WIC sizes (California)

Percent

WIC=Special Supplemental Nutrition Program for Women, Infants, and Children.

Note: Dashed line represents the week the contract brand changed. 

Source: USDA, Economic Research Service calculations based on Nielsen supermarket 

scanner-based data.

-52 -39 -26 -13 0 13 26 39 52

New WIC contract brand

Other brand

Former WIC contract brand

Week

0

10

20

30

40

50

60

70
21

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Economic Research Service/USDA

Estimates of changes in formula market shares—for both WIC and non-WIC 

formula types and sizes—after a WIC contract change are presented below: 

 Powder in 12- to 16-oz cans

 Results of the pre/post analysis of the overall effect of a change in 

the WIC contract indicate that the increase in the average market 

share after a manufacturer won the WIC infant formula contract was 

striking, ranging from 67 percentage points in CT to 93 percentage 

points in AZ (table 3). Using a simple average across the 30 States, 

the manufacturer’s share of total volume sales of milk-based powder 

in 12- to 16-oz cans increased by 84 percentage points after it won the 

contract. The market share of the manufacturer that lost the contract 

decreased by almost the same amount—83 percentage points across 

the States—while the market share of the other manufacturer in the 

State decreased by less than one percentage point on average. 

 Liquid concentrate

 Liquid concentrate is also strongly impacted by changes in the WIC 

contract brand. Manufacturers winning the WIC contract saw an average 

88-percentage-point increase in their market share while manufacturers 

who lost the contract saw an average 86-percentage-point decrease in 

market share (table 4). The manufacturers with neither contract showed 

little change in market share after the contract change. 

 Powder in non-WIC sizes

 Because WIC formula in powder form is only provided in 12- to 16-oz 

cans, manufacturers of formula in other size containers do not realize 

any direct effect from winning the WIC contract. Therefore, one might 

hypothesize that sales of powder formula in other container sizes 

would be unaffected by changes in the WIC contract brand. However, 

the pre/post analysis indicates that the manufacturer winning the WIC 

contract experienced an average 18-percentage-point increase in sales 

of powder formula in non-WIC size containers (table 5). Manufacturers 

who lost the contract experienced an average 19-percentage-point loss 

in their volume share of formula in non-WIC size containers, whereas 

the manufacturer that had neither contract showed little change. 

Figure 13

Change in market share after the WIC contract changes

Percentage points

WIC=Special Supplemental Nutrition Program for Women, Infants, and Children.

Source: USDA, Economic Research Service calculations based on Nielsen supermarket 

scanner-based data.

Winning manufacturer

Losing manufacturer

Other manufacturer

-100

-80

-60

-40

-20

0

20

40

60

80

100
22

The Infant Formula Market: Consequences of a Change in the WIC Contract Brand / ERR-124

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Results of the pre/post analyses indicate that manufacturers’ market shares 

are signifi cantly impacted by a change in the WIC contract brand of formula 

(see box for a discussion of “What Happens to Market Share in States in 

Which the Contract Brand Does Not Change?”). Manufacturers experience 

a large increase in their share of the formula market after winning the WIC 

contract. Most of the increase in market share is due to the direct WIC effect 

resulting from recipients using their WIC food instruments to purchase the 

contract-winning manufacturer’s brand of formula. However, since manufacturers do not realize any direct effects of a contract change in non-WIC 

sizes, the change in market share is due entirely to the indirect effect. That 

is, manufacturers of formula realize spillover effects from winning the WIC 

Table 3

Share of infant formula sales in 12-16 oz powder by manufacturer and State in the prechange and 

postchange periods

State

Prechange period Postchange period Change between periods

Mead

Johnson Nestlé Abbott

Mead

Johnson Nestlé Abbott Winner Loser Other

Percent Percent Percentage points

AZ 96.8 1.5 1.8 4.2 0.8 95.0 93.2 -92.5 -0.7

CA 4.7 4.9 90.3 96.3 1.4 2.3 91.6 -88.0 -3.6

CO 7.6 2.3 90.1 94.6 1.1 4.3 87.0 -85.8 -1.2

CT 86.6 5.5 7.8 20.5 72.8 6.7 67.2 -66.1 -1.2

DC 96.6 1.0 2.4 5.2 0.4 94.3 92.0 -91.4 -0.6

DE 96.2 1.8 2.0 6.4 1.2 92.4 90.4 -89.8 -0.5

GA 91.2 3.3 5.5 8.5 2.1 89.4 83.8 -82.7 -1.1

IA 91.6 3.7 4.7 6.1 2.7 91.2 86.5 -85.5 -1.0

ID 95.1 2.8 2.1 7.7 1.0 91.2 89.2 -87.4 -1.7

IL 10.3 6.4 83.3 94.9 1.3 3.7 84.6 -79.5 -5.1

KS 93.2 2.1 4.8 3.9 1.0 95.1 90.3 -89.2 -1.1

LA 9.3 1.7 89.0 93.9 0.9 5.2 84.6 -83.8 -0.8

MA 93.1 2.7 4.2 9.5 87.1 3.3 84.4 -83.5 -0.9

MD 95.1 1.7 3.2 5.7 0.8 93.5 90.3 -89.3 -0.9

ME 90.9 6.3 2.8 19.7 75.6 4.7 69.3 -71.2 1.9

MI 12.4 7.7 79.9 90.5 4.7 4.9 78.1 -75.1 -3.0

MN 93.7 2.5 3.8 7.3 1.4 91.3 87.6 -86.5 -1.1

MT 95.1 2.8 2.1 13.6 1.9 84.5 82.4 -81.5 -0.8

NH 88.7 6.7 4.6 11.0 84.2 4.8 77.5 -77.7 0.2

NV 93.6 2.2 4.2 4.7 1.6 93.7 89.5 -88.9 -0.6

OR 93.8 2.7 3.5 5.5 3.8 90.7 87.2 -88.2 1.0

RI 92.0 3.6 4.4 8.0 87.7 4.3 84.1 -84.0 -0.1

SC 9.1 5.5 85.4 12.7 77.3 10.0 71.8 -75.4 3.6

TX 96.4 1.4 2.2 6.4 0.9 92.6 90.4 -90.0 -0.5

UT 87.2 5.6 7.1 17.3 3.3 79.3 72.2 -69.9 -2.3

VA 9.5 86.8 3.7 8.0 4.3 87.6 83.9 -82.5 -1.5

WA 96.2 1.4 2.4 4.2 3.5 92.2 89.8 -92.0 2.2

WI 6.2 8.2 85.6 8.7 85.3 6.0 77.2 -79.7 2.5

WV 93.6 2.9 3.5 4.8 1.1 94.1 90.6 -88.8 -1.8

WY 88.8 4.3 6.9 22.5 2.6 74.9 68.0 -66.3 -1.7

Average 83.8 -83.1 -0.7

Notes: Winner refers to the manufacturer who held the WIC formula contract in the postchange period. Loser refers to the manufacturer who held 

the WIC formula contract in the prechange period. Other refers to the manufacturer who did not hold the WIC formula contract in the postchange 

period. Figures highlighted in red represent the manufacturer who held the WIC rebate contract during the period.

Source: USDA, Economic Research Service calculations based on Nielsen supermarket scanner-based data.
23

The Infant Formula Market: Consequences of a Change in the WIC Contract Brand / ERR-124

Economic Research Service/USDA

contract whereby sales of formula purchased outside of the WIC program 

also increase. 

For the powdered formula in WIC size containers and liquid concentrate, the 

data do not allow spillover effects to be separated from the direct effects of 

winning the WIC contract. However, it is likely that spillover effects accrue 

to the entire product line of the manufacturer holding the WIC contract. That 

is, the same factors that result in increased sales of powder in non-WIC sizes 

for the manufacturer that wins the WIC contract—such as increased shelf 

space devoted to the WIC contract brand—may be in play for the other types 

of formula as well. Since non-WIC consumers, who pay for formula out-ofpocket, are probably more likely to purchase the more economically priced 

Table 4

Share of infant formula sales in liquid concentrate by manufacturer and State in the prechange and 

postchange periods

State

Prechange period Postchange period Change between periods

Mead

Johnson Nestlé Abbott

Mead

Johnson Nestlé Abbott Winner Loser Other

Percent Percent Percentage points

AZ 84.2 9.3 6.5 12.1 3.1 84.8 78.4 -72.1 -6.3

CA 3.8 0.8 95.5 95.8 0.4 3.8 92.0 -91.7 -0.3

CO 10.2 5.2 84.5 92.0 0.4 7.5 81.8 -77.0 -4.8

CT 95.8 1.2 3.0 19.7 77.4 2.8 76.2 -76.1 -0.1

DC 99.7 0.1 0.2 1.2 0.1 98.7 98.5 -98.5 0.0

DE 97.8 1.0 1.2 3.8 0.5 95.8 94.6 -94.1 -0.5

GA 95.3 2.3 2.5 3.5 2.0 94.5 92.1 -91.8 -0.3

IA 94.8 0.3 4.8 9.2 0.6 90.2 85.3 -85.6 0.3

ID 95.5 2.6 1.9 14.4 1.2 84.4 82.6 -81.1 -1.5

IL 2.9 1.6 95.5 96.4 0.9 2.7 93.5 -92.8 -0.7

KS 89.5 5.4 5.1 6.2 1.5 92.3 87.2 -83.3 -3.9

LA 1.8 0.5 97.6 98.3 0.3 1.4 96.4 -96.2 -0.2

MA 97.8 0.5 1.7 9.0 89.9 1.1 89.4 -88.8 -0.6

MD 98.0 0.9 1.1 4.1 0.4 95.6 94.5 -94.0 -0.5

ME 95.3 2.3 2.3 3.5 96.2 0.3 93.8 -91.8 -2.1

MI 4.2 5.6 90.1 93.2 2.6 4.1 89.0 -86.0 -3.0

MN 96.7 1.2 2.0 6.1 0.5 93.4 91.4 -90.7 -0.7

MT 96.9 2.1 1.0 12.3 4.1 83.7 82.7 -84.6 1.9

NH 92.1 4.1 3.8 9.8 89.0 1.2 84.9 -82.3 -2.6

NV 90.3 2.7 7.0 11.1 2.5 86.3 79.3 -79.2 -0.2

OR 94.6 2.5 3.0 7.5 1.5 91.1 88.1 -87.1 -1.0

RI 98.3 0.4 1.2 4.7 94.6 0.7 94.2 -93.6 -0.6

SC 1.9 1.1 97.0 3.4 86.8 9.8 85.7 -87.1 1.5

TX 97.6 0.9 1.5 5.0 0.7 94.4 92.8 -92.6 -0.2

UT 89.5 6.3 4.2 22.5 5.7 71.8 67.5 -67.0 -0.6

VA 7.0 89.3 3.7 4.8 3.2 92.0 88.3 -86.1 -2.2

WA 98.2 0.5 1.3 6.6 0.2 93.3 91.9 -91.6 -0.4

WI 3.0 3.2 93.8 2.3 90.9 6.8 87.7 -87.0 -0.6

WV 92.5 4.6 2.9 3.5 1.4 95.0 92.1 -89.0 -3.1

WY 89.8 6.6 3.7 15.1 5.9 79.0 75.3 -74.7 -0.7

Average 87.6 -86.4 -1.1

Notes: Winner refers to the manufacturer who held the WIC formula contract in the postchange period. Loser refers to the manufacturer who held 

the WIC formula contract in the prechange period. Other refers to the manufacturer who did not hold the WIC formula contract in the postchange 

period. Figures highlighted in red represent the manufacturer who held the WIC rebate contract during the period.

Source: USDA, Economic Research Service calculations based on Nielsen supermarket scanner-based data.
24

The Infant Formula Market: Consequences of a Change in the WIC Contract Brand / ERR-124

Economic Research Service/USDA

larger size powder containers, the spillover effect is likely to be smaller for 

liquid concentrate and powder in 12- to 16-oz containers. 

The spillover effect is important for manufacturers because, unlike the 

formula that is purchased with WIC food instruments, manufacturers do not 

pay a rebate on formula purchased outside of WIC. Based on a rebate with 

an average discount of 85 percent off the wholesale price of powder—the 

average among all States as of December 2008—manufacturers’ revenues 

for non-WIC formula was over 6 times greater than for the same formula 

purchased through WIC. 

Table 5

Share of infant formula sales in other size powder by manufacturer and State in the prechange and 

postchange periods

State

Prechange period Postchange period Change between periods

Mead

Johnson Nestlé Abbott

Mead

Johnson Nestlé Abbott Winner Loser Other

Percent Percent Percentage points

AZ 68.5 12.0 19.5 42.3 12.5 45.2 25.7 -26.2 0.5

CA 38.5 14.3 47.2 55.8 14.0 30.3 17.2 -16.9 -0.3

CO 42.9 12.8 44.3 60.1 11.6 28.3 17.2 -16.0 -1.2

CT 60.0 12.6 27.4 46.3 23.8 30.0 11.2 -13.7 2.6

DC 62.1 14.0 23.9 40.5 15.4 44.1 20.2 -21.6 1.4

DE 65.6 14.2 20.2 45.2 14.1 40.7 20.5 -20.3 -0.2

GA 58.5 14.2 27.3 44.8 13.7 41.4 14.1 -13.7 -0.4

IA 68.4 12.3 19.4 42.8 12.9 44.2 24.9 -25.6 0.7

ID 72.3 11.5 16.2 53.5 8.7 37.8 21.6 -18.8 -2.9

IL 39.0 16.6 44.5 52.9 15.9 31.2 14.0 -13.3 -0.7

KS 71.6 7.2 21.1 46.6 7.8 45.6 24.4 -25.0 0.6

LA 50.9 10.5 38.7 70.2 8.8 21.0 19.4 -17.7 -1.7

MA 59.8 16.2 24.0 44.6 26.1 29.3 9.9 -15.2 5.3

MD 64.8 13.1 22.1 50.6 12.2 37.2 15.0 -14.2 -0.9

ME 65.0 12.5 22.5 51.6 23.4 25.0 10.9 -13.4 2.5

MI 35.8 21.4 42.8 52.0 15.5 32.5 16.2 -10.4 -5.8

MN 72.0 19.2 8.7 35.0 18.5 46.6 37.8 -37.1 -0.8

MT 72.0 11.5 16.5 52.3 9.6 38.1 21.6 -19.7 -1.9

NH 52.7 16.9 30.3 43.2 23.9 32.9 6.9 -9.5 2.6

NV 66.4 11.4 22.2 53.4 10.3 36.3 14.2 -13.0 -1.1

OR 71.8 9.7 18.5 47.1 10.1 42.8 24.3 -24.7 0.4

RI 74.9 10.7 14.4 54.3 26.3 19.4 15.6 -20.6 5.0

SC 38.2 19.4 42.4 36.3 35.3 28.4 15.9 -14.0 -1.9

TX 68.3 11.7 20.0 50.1 12.3 37.6 17.7 -18.2 0.6

UT 66.2 16.3 17.5 50.6 15.0 34.3 16.8 -15.6 -1.2

VA 41.6 33.9 24.4 44.8 22.1 33.1 8.6 -11.8 3.1

WA 65.0 9.6 25.4 42.8 8.6 48.6 23.2 -22.2 -1.0

WI 21.9 18.7 59.4 28.3 44.5 27.2 25.8 -32.2 6.4

WV 72.0 9.8 18.2 48.5 10.3 41.1 22.9 -23.4 0.5

WY 64.7 14.1 21.2 49.0 11.7 39.3 18.1 -15.7 -2.4

Average 18.4 -18.7 0.3

Notes: Winner refers to the manufacturer who held the WIC formula contract in the postchange period. Loser refers to the manufacturer who held 

the WIC formula contract in the prechange period. Other refers to the manufacturer who did not hold the WIC formula contract in the postchange 

period. Figures highlighted in red represent the manufacturer who held the WIC rebate contract during the period.

Source: USDA, Economic Research Service calculations based on Nielsen supermarket scanner-based data.
25

The Infant Formula Market: Consequences of a Change in the WIC Contract Brand / ERR-124

Economic Research Service/USDA

The analysis discussed in this report takes advantage of the natural experiments 

created when the WIC contract brand in a State switched from one manufacturer 

to another. However, we also looked at changes in market share in the 3,959 stores 

located in 11 States—AL, AR, FL, IN, KY, NC, NJ, NM, NY, OH, OK—that 

awarded a new contract during the study period to the manufacturer that had the 

old contract).1 Since the WIC contract brand in these States did not change, these 

States represent a control group for assessing the impacts of a change in the WIC 

contract brand on market share. The accompanying fi gure shows the market share 

for milk-based powder in 12- to 16-ounce containers in the 52 weeks before and 

the 52 weeks after the contract was awarded in Florida, the fourth-largest State in 

terms of number of WIC infants.

Contrary to the pattern observed among the 30 States where the contract 

brand changed, there was no noticeable effect on manufacturers’ market 

shares in supermarkets in Florida upon a new contract being awarded to those 

manufacturers. This same general pattern occurred among the other States as 

well. That is, among the 11 States, the market share of the winner of the 2 contracts 

for milk-based formula in all forms and sizes, excluding ready-to-feed, increased 

by about 1 percentage point on average in the year after that contract winner was 

awarded the second contract. This fi nding indicates that it is the change in the 

WIC contract brand, and not the awarding of a new contract per se, that affects 

the manufacturer’s market share within a State. Note that while the manufacturer 

of the WIC contract does not experience a boost in market share from retaining 

the WIC contract, it is able to maintain its market share. 

1Twelve States awarded a new contract during the study period but did not change contract brand. North Dakota was excluded from the analysis since only two sample stores 

in that State reported having sales during the entire 105-week study period. Each of the 

remaining 11 States had at least 50 stores that reported having sales during the entire 105-

week study period.

What Happens to Market Share in States in 

Which the Contract Brand Does Not Change?

Share of volume sales by WIC contract brand status, 

12-16 oz milk-based powder (Florida)

Percent

WIC=Special Supplemental Nutrition Program for Women, Infants, and Children.

Note: Dashed line represents the week the contract brand changed. 

Source: USDA, Economic Research Service calculations based on Nielsen supermarket 

scanner-based data.

Week

-52 -39 -26 -13 0 13 26 39 52

0

20

40

60

80

100

 WIC contract brand

 Other brand 2 Other brand 1
26

The Infant Formula Market: Consequences of a Change in the WIC Contract Brand / ERR-124

Economic Research Service/USDA

Does WIC Limit Infant Formula Selection? 

The previous analyses indicated that manufacturers of the WIC contract 

brand realize spillover effects from winning the WIC contract. In this 

section we examine one possible source of the spillover effect—the reduced 

likelihood that non-WIC brands of formula are available in supermarkets. 

The rationale is as follows: because sales of non-WIC brands are relatively 

small, it may not make fi nancial sense to devote valuable shelf space to such 

products. This may be especially true for smaller stores with limited shelf 

space. These stores may decide to stock only one brand of formula—the 

largest seller—which in most cases will be the WIC brand (WIC-authorized 

stores are required to maintain a minimum stock of the WIC contract 

brand). Non-WIC patrons of these stores have limited options and may 

choose to purchase the WIC-brand of formula at that store rather than shop 

for non-WIC brands of formula at a different store. Manufacturers of the 

WIC brand of formula will realize a spillover effect from these stores to the 

degree that non-WIC patrons of these stores, who might otherwise purchase 

a non-WIC brand of formula if it was available, instead purchase the WIC 

contract brand. 

Because the Nielsen data represent sales of formula in stores, we were not 

able to directly determine the availability of formula in stores—that is, 

whether infant formula was on the stores’ shelves. However, as a proxy for 

availability, we looked at the last week in which the store sold any noncontract brands of formula. For example, if a store last had sales of a noncontract 

brand of formula in week 46, that means the store did not sell noncontract 

formula during weeks 47 to 52, that is, over the last 6 weeks of the study 

period.15

Only 1 percent of the sample stores reported no sales of noncontract brands 

of powder in 12- to 16-oz containers during the last 6 weeks of the study 

period, and only 4 percent reported no sales of noncontract brands of powder 

in the non-WIC sizes. So, there is little evidence that WIC affected the availability of noncontract brands of powder formula to consumers. 

On the other hand, 35 percent of the stores in the ERS 30-State sample 

reported no sales of noncontract brand of liquid concentrate during the last 

6 weeks of the study period, 21 percent had no sales of noncontract brand 

of liquid concentrate during the last 13 weeks (i.e., about 3 months), and 9 

percent reported no sales of noncontract brands of liquid concentrate during 

the last 26 weeks (i.e., 6 months) of the study period (fi g. 14). Since it is 

doubtful that a store would continue to carry products that were not selling 

for long periods of time (6 weeks or more), it is likely that the store had eliminated the noncontract brands of formula from their shelves. 

These results suggest that WIC and its rebate program may affect the availability of noncontract brands of liquid concentrate infant formula in supermarkets. Sales of concentrate are much smaller than that of powder, and 

liquid concentrate requires more shelf space per reconstituted unit of volume. 

Because infant formula is an integral part of a formula-fed infant’s diet, 

some WIC State agencies may require that WIC-authorized vendors stock 

a large enough supply of formula—including liquid concentrate—to fully 

15The study period consisted of the 

52 weeks after the contract change (i.e., 

the year following the change in the 

contract brand).
27

The Infant Formula Market: Consequences of a Change in the WIC Contract Brand / ERR-124

Economic Research Service/USDA

meet demand even during heavy WIC redemption periods, thereby reducing 

the amount of shelf space that is available for other brands of formula. As a 

result, food stores, especially smaller stores, may stock just the WIC contract 

brand of liquid concentrate in the hope that non-WIC mothers will reduce the 

store’s inventory.16 This would be an extreme case of the “shelf space” theory 

for how manufacturers of the WIC contract brand realizes spillover effects in 

the non-WIC market. 

Although this study focused solely on milk-based powder and liquid concentrate, it is possible that WIC affects the availability of other types of slowerselling formulas in addition to liquid concentrate. For example, soy-based 

formulas and ready-to-feed formulas account for a small portion of infant 

formula sales. Stores, especially those with limited selling space, may be 

more likely to offer just the WIC contract brand for those types of formula.

16Some have argued that WIC’s 

minimum stock requirements for 

infant formula, especially liquid 

concentrate, are too high and “results in an artifi cially high inventory 

level” that increases warehousing 

costs and reduces storage capacity for more high demand products. 

See the testimony of Jennifer Smith, 

Director of Regulatory Compliance 

Wal-Mart Stores, Inc., Before the 

United States Senate Agriculture 

Committee “Reauthorization of 

U.S. Child Nutrition Programs: 

Opportunities to Fight Hunger and 

Improve Child Health” Tuesday, 

November 17, 2009. Available at http://

www.paramountcommunication.com/

nwica/Testimony_Smith_Walmart_

SenAgHearing_17Nov2009.pdf/. 

Figure 14

Percent of stores with no sales of liquid concentrate in the year 

after the contract change, by contract brand status

Percent

Source: USDA, Economic Research Service calculations based on Nielsen supermarket 

scanner-based data.

No sales in 

last 6 weeks

No sales in 

last 13 weeks

No sales in 

last 26 weeks

0

10

20

30

40 Non-contract brand WIC contract brand
28

The Infant Formula Market: Consequences of a Change in the WIC Contract Brand / ERR-124

Economic Research Service/USDA

Retail Prices Are Not Behind Increases 

in Contract Brands’ Market Share

This study has shown that State-level market shares change dramatically 

when there is a change in the WIC contract brand. However, it is important to determine whether this result was due to the change in the WIC 

contract brand or if changes in the retail price impacted the result. It is 

possible—but as we will discuss below, highly unlikely—that the shift 

in market share was driven by retailers offering the new WIC contract 

brands at reduced prices relative to the former contract brand. We examined the retail price of the winning and losing brands of formula in the 

year prior to and the year after the contract change to determine how the 

retail price of the wining brand changed relative to the retail price of the 

losing brand of formula. 

The analysis was limited to each of the three major manufacturer’s primary 

milk-based powder infant formula product during the study period—

Similac Advance (Abbott) 12.9-oz can, Enfamil LIPIL (Mead Johnson) 

12.9-oz can, and Good Start Supreme (Nestlé) 12-oz can.17 All of these 

products are supplemented with DHA and ARA. These supplemented 

formulas were introduced to the U.S. formula market in 2002-03, and WIC 

State agencies began authorizing them for their WIC programs at different 

times. Once authorized, the supplemented formulas quickly became the 

primary formula distributed through that State’s WIC program. However, 

the data indicate that in seven of the States included in this study, the WIC 

program was transitioning to the supplemented formulas during the year 

prior to the contract change. This is indicated by the fact that in the year 

prior to the contract change, unsupplemented formulas outsold the supplemented formulas during some of the 52 weeks prior to the contract change. 

To avoid confusion as to whether changes in the price of formula were due 

to the State switching to supplemented formula or due to the new WIC 

infant formula contract, these seven States—CT, ME, MI, NH, RI, VA, and 

WY—were dropped from this analysis. 

For the remaining 23 States, the relative price of the new to the former 

contract brand was measured by the ratio of the real retail price (i.e., 

adjusted for infl ation using the Consumer Price Index for All Items) of the 

new contract brand to the real retail price of the former contract brand. The 

change in the relative real price of the new WIC contract brand was then 

estimated as the difference in the relative price in the year after the contract 

change and the year prior to the contract change:18

17These three products, in addition 

to being the primary contract brands in 

WIC, were their respective fi rm’s biggest sellers, accounting for an estimated 

one-quarter of total dollar sales of 

DHA/ARA-supplemented formula between January 2004 and August 2008. 

18Within each store, the average 

price—weighted by volume of sales—

was estimated for the winning and 

losing brand for both the post and pre 

period. State averages were estimated 

by taking the average among all stores 

in the State with each store having the 

same weight (i.e., store averages were 

not weighted by volume of sales).

The relative real price change of the new WIC contract brand is equal to:

Year after contract change Year prior to contract change

 Average real price of new contract brand minus Average real price of new contract brand

 Average real price of former contract brand Average real price of former WIC contract 
29

The Infant Formula Market: Consequences of a Change in the WIC Contract Brand / ERR-124

Economic Research Service/USDA

A positive number indicates that the price of the new contract brand of formula 

increased by a greater percentage than the price of the former contract brand 

of formula. Conversely, a negative number indicates that the price of the new 

contract brand increased by a smaller percentage than the price of the former 

brand of formula. A value of zero indicates that the price of new contract brand 

did not change relative to the price of the old contract brand.

Results of the analysis showed no clear pattern in the change in the relative price of the winning brand (table 6). In 12 States, the ratio was positive 

(indicating that the percent price change was greater for the winning brand 

than for the losing brand), and in 11 States the ratio was negative (indicating 

that the percent price change was smaller for the winning brand than for the 

losing brand). On average, the retail price of the winning brand relative to 

that of the losing brand increased by less than 2 percentage points between 

the year prior to the contract change and the year after the contract changed. 

That is, the price of the winning brand relative to the price of the losing brand 

did not change appreciatively between the two periods. 

This fi nding indicates that the shift in market share was not due to a decrease 

in the relative retail prices of the new WIC contract brand to the former WIC 

brand of formula, but rather was due to the change in contract brand status. 

Table 6

The relative real price change of the new WIC contract winner to the 

former WIC contract holder when the contract changes

State

Percentage point change

Arizona 0.35

California 2.07

Colorado 3.59

Delaware -1.57

District of Columbia -0.59

Georgia 1.06

Idaho 5.56

Illinois 4.10

Iowa -2.80

Kansas -1.18

Louisiana -3.77

Maryland -0.81

Massachusetts 2.54

Minnesota -3.07

Montana -1.06

Nevada -2.67

Oregon 0.39

South Carolina 0.31

Texas 2.23

Utah 0.28

Washington -1.26

West Virginia 0.05

Wisconsin -1.86

23-State average 1.88

Source: USDA, Economic Research Service calculations based on Nielsen supermarket 

scanner-based data. 
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This fi nding is noteworthy for another reason. Rather than retail prices 

affecting market share when the WIC contract changes, it is more likely 

that changes in the WIC contract brand would affect retail prices. Economic 

theory suggests that the proportion of a store’s infant formula customers who 

participate in WIC should affect the store’s retail markup, and hence affect 

the retail price of formula. Since WIC recipients purchase their formula 

with WIC food instruments, they do not pay for their WIC formula from 

their personal funds and therefore are not sensitive to the prices that a store 

charges for formula. As a result, stores serving a greater percentage of WIC 

recipients have an economic incentive to raise the retail price of the WIC 

brand in order to take advantage of the WIC recipients’ price insensitivity. 

Market forces limit the degree to which WIC vendors can take advantage 

of the price insensitivity of WIC participants and charge higher prices for 

the WIC contract brand of formula.19 That is because WIC vendors serve 

both WIC and non-WIC customers, and if a WIC vendor charges too high 

a price for the WIC foods, the non-WIC customers—who pay out of pocket 

for their food—may respond by shopping at another store, resulting in a loss 

of revenue for the vendor. However, as the proportion of price-insensitive 

customers increase, there is less economic incentive to the store to keep 

prices low. That is, the loss in revenue from the relatively few non-WIC 

consumers purchasing formula (and potentially other foods as well) who 

decide to shop in another store is more than offset by the increase in revenue 

generated from raising the retail price of the WIC brand of formula.

Given the large percentage of formula purchased through WIC and the price 

insensitivity of consumers who purchase their formula with WIC food instruments, one would expect that retail prices of the new WIC contract brand 

would increase relative to the retail price of the former WIC contract brand in 

the absence of current Federal regulations. The results of this analysis indicate that this did not happen. An earlier ERS analysis of the infant formula 

market in 1994-2000 concluded that the WIC contract brands of formula 

were associated with modestly higher retail prices in supermarkets (Oliveira 

et al., 2004). On the other hand, the results of this study are consistent with 

the results of the study by Huang and Perloff (2009), who found that the 

retail prices of formula did not change when the WIC contract changed. They 

attributed this to retail prices being sticky and retailers only adjusting retail 

prices after a change in wholesale prices. ERS is planning to conduct a more 

detailed study of WIC’s impact on retail prices at the individual store level 

using the ERS supermarket data set from Nielsen. 

19Federal regulations also limit the 

degree to which WIC vendors can take 

advantage of the price insensitivity of 

WIC participants. The WIC vendor cost 

containment fi nal rule was published on 

October 8, 2009, which follows up on 

an interim rule published in 2005. The 

interim rule addressed the rising costs 

of vendors that had more WIC sales 

than non-WIC sales, by requiring that 

such vendors must be cost neutral for 

the program. Under these provisions, 

the WIC State agency may pay such 

vendors no more on average per food 

instrument than the State agency pays 

all other vendors statewide. The fi nal 

rule made only minor adjustments to the 

provisions of the interim rule, providing 

simplifi cation and exemption processes 

to reduce the administrative burden 

of WIC State agencies, and providing 

additional due process protections for 

vendors. The fi nal rule was effective on 

November 9, 2009. 
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Discussion

Rebates from infant formula manufacturers are important to WIC, 

supporting about one-quarter of all participants in the program. Although 

average percentage discounts (i.e., the rebate as a percentage of the wholesale price) decreased slightly in recent years, they remain high—on 

average, about 85 percent.20 Economists have long wondered how the infant 

formula manufacturers can afford to offer such large rebates to WIC. The 

results of this study suggest several reasons for the sizeable rebates. These 

reasons are tied to both the direct and indirect effects that winning the WIC 

infant formula contract has on the winning manufacturer’s share of the 

infant formula market. 

Winning the WIC contract assures large volume sales to the manufacturer. 

On average, WIC contract brands accounted for 84 percent of all formula 

sold in supermarkets in the ERS 30-State sample. Most of this large market 

share is due to the direct WIC effect of participants using their WIC food 

instruments to purchase the contract brand of formula. However, manufacturers also realize indirect or spillover effects from winning the WIC contract 

whereby sales of formula purchased outside of WIC also increase. Unlike 

formula purchased through WIC, manufacturers do not pay a rebate on 

formula that is purchased outside the program.

The large volumes of formula sold via WIC’s direct effects, and, to a lesser 

degree, its indirect effects, may also reduce the winning manufacturer’s 

costs on a per unit basis. For example, manufacturers pay a variety of fees 

and payments to retailers to persuade them to carry their product (Federal 

Trade Commission, 2003). These may include slotting fees, pay-to-stay 

fees, and promotion and advertising allowances, all of which increase costs 

to the manufacturer. Anecdotal evidence suggests that the WIC contract 

winning manufacturer has an advantaged bargaining position and can 

negotiate lower fees than the other manufacturers because of the larger 

volume of sales associated with the WIC contract brand. In addition, since 

WIC-authorized stores are required to provide the WIC contract brand 

formula to consumers, retailers participating in WIC have little leverage 

when negotiating informal fees, such as a slotting fee or a pay-to-stay fee 

for the primary WIC contract brand. As a result, the per unit costs to the 

contract brand manufacturer may be lower than that of the other formula 

manufacturers, holding other factors constant.

Infant formula manufacturers have large fi xed costs associated with their 

manufacturing plants and low, and perhaps declining, marginal costs of 

production. Operating plants at less than their optimal level may be ineffi cient 

and lead to higher per unit costs. On average, manufacturers who win a WIC 

contract experience a 74-percentage-point increase in market share. This 

means that winning a WIC infant formula contract, especially a contract for 

one of the larger States or one of the multistate alliances, can have a considerable impact on the manufacturer’s ability to operate at or near optimal 

capacity. That is, winning a WIC contract may not only increase sales but 

also lower per unit costs. 

20Oliveira et al., (2010) estimated 

that the average percentage discount 

for powdered formula in the contracts 

in effect in December 2008 was 85 

percent, compared to an average 91 

percent in the previous contracts 

(Oliveira, et al., 2010).
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The Infant Formula Market: Consequences of a Change in the WIC Contract Brand / ERR-124

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As a result, manufacturers who are operating at less than their optimal 

level, or manufacturers who want to keep their production levels high 

and are facing expiring contracts, have an incentive to bid aggressively 

on new contracts. Furthermore, because volume sales of formula have 

been decreasing over the last several decades, formula manufacturers are 

competing for a shrinking infant formula market, making winning the WIC 

infant formula contracts even more important.
33

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References

American Academy of Pediatrics. 1999. “Iron Fortifi cation of Infant Formula 

(RE9865), Policy Statement of the American Academy of Pediatrics,” 

Pediatrics, Vol. 104 (1), July. 

Betson, D. 2009. Impact of the WIC Program on the Infant Formula Market, 

CCR-51, USDA, Economic Research Service, January.

Federal Trade Commission. 2003. Slotting Allowances in the Retail Grocery 

Industry: Selected Case Studies in Five Product Categories, FTC Staff 

Study, November. 

Huang, R., and J. Perloff. 2009. WIC Contract Spillover Effects, Food 

Marketing Policy Center Research Report No. 118, University of 

Connecticut, December. 

Nielsen Company. 2008. The Infant Formula Market: January 2004 through 

June 2008, Final Report, unpublished report prepared for USDA, 

Economic Research Service. 

Oliveira, V., and D. Davis. 2006. Recent Trends and Economic Issues in the 

WIC Infant Formula Rebate Program, Economic Research Report No. 22, 

USDA, Economic Research Service, August.

Oliveira, V., E. Frazão, and D. Smallwood. 2010. Rising Infant Formula Costs 

to the WIC Program: Recent Trends in Rebates and Wholesale Prices, 

ERR-93, USDA, Economic Research Service, February. 

Oliveira, V., M. Prell, D. Smallwood, and E. Frazão. 2001. Infant Formula 

Prices and Availability: Final Report to Congress, E-FAN-02-001, 

USDA, Economic Research Service, October.

Oliveira, V., M. Prell, D. Smallwood, and E. Frazão. 2004. WIC and the 

Retail Price of Infant Formula, FANRR-39, USDA, Economic Research 

Service, June.

Prell, M. 2004. An Economic Model of WIC, the Infant Formula Rebate 

Program, and the Retail Price of Infant Formula, FANRR-39-2, USDA, 

Economic Research Service, December.

Progressive Grocer, April 15, 2008.

USDA, Food and Nutrition Service. 2010a. Program Information Report 

(Keydata), U.S. Summary, FY 2009-FY 2010, September 2010, 

December. 

USDA, Food and Nutrition Service. 2008. WIC and Retail Grocery Stores, 

Fact Sheet, January.

USDA, Food and Nutrition Service, Supplemental Food Programs Division. 

2005. The Integrity Profi le (TIP) Report, Fiscal Year 2005. Available at 

http://www.fns.usda.gov/wic/tip/tipreport2005.htm/.
34

The Infant Formula Market: Consequences of a Change in the WIC Contract Brand / ERR-124

Economic Research Service/USDA

USDA, Offi ce of Budget and Program Analysis. 2010b. 2011 USDA Budget 

Explanatory Notes for Committee on Appropriations, Chapter on 

Food and Nutrition Services.

U.S. Department of Health and Human Services, U.S. Food and Drug 

Administration, Center for Food Safety and Applied Nutrition. Website 

updated 5/14/2009 on “Infant Formula: Frequently Asked Questions,” 

accessed on October 29, 2010 at http://www.cfsan.fda.gov/~dms/inf-faq.

html/.

U.S. Government Accountability Offi ce. 2006. FOOD ASSISTANCE, FNS 

Could Take Additional Steps to Contain WIC Infant Formula Costs, 

GAO-06-380, March. 
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The Infant Formula Market: Consequences of a Change in the WIC Contract Brand / ERR-124

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Appendix—Comparison of the Infant 

Formula Market Based on the Nielsen’s 

Supermarket Subsample and Nielsen’s 

National-Level Data Set

In order to evaluate the representativeness of the stores included in the ERS 

supermarket data, we compared the characteristics of the infant formula 

market based on the ERS supermarket subsample to the characteristics of the 

infant formula market based on Nielsen’s national level infant formula market 

data set. Two separate comparisons were made, one based on dollar sales 

(appendix table 1) and the other based on volume sales (appendix table 2).

Appendix table 1

Comparison of dollar sales of infant formula based on Nielsen’s 

national data set and the ERS supermarket data set, by product 

characteristics, 2004-08

2004 2005 2006 2007 2008

Percent

Manufacturer:

Estimates based on Nielsen nationally representative data 

Mead Johnson 48.3 NA NA 44.6 40.1

Abbott 40.1 NA NA 38.5 42.7

Nestlé 10.3 NA NA 15.1 15.0

All other 1.3 NA NA 1.8 2.2

Estimates based on ERS supermarket data

Mead Johnson 45.3 NA NA 43.4 39.4

Abbott 41.6 NA NA 38.8 42.1

Nestlé 11.8 NA NA 16.4 17.0

All other 1.3 NA NA 1.4 1.6

Form:

Estimates based on Nielsen nationally representative data 

Powder 71 75 78 81 83

Concentrate 20 16 14 12 10

Ready-to-use 99877

Estimates based on ERS supermarket data

Powder 69 73 77 80 83

Concentrate 22 18 15 14 11

Ready-to-use 109765

Base:

Estimates based on Nielsen nationally representative data

Milk 76 76 78 79 80

Soy 17 17 16 15 14

Other 67777

Estimates based on ERS supermarket data

Milk 75 75 76 78 80

Soy 18 18 17 15 14

Other 77777

—continued
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Appendix table 1

Comparison of dollar sales of infant formula based on Nielsen’s 

national data set and the ERS supermarket data set, by product 

characteristics, 2004-08—Continued

2004 2005 2006 2007 2008

Percent

Supplementation status:

Estimates based on Nielsen nationally representative data 

DHA/ARA 

 supplemented 69 79 87 96 99

Unsupplemented 31 21 13 4 1

Estimates based on ERS supermarket data

DHA/ARA 

 supplemented 66 77 85 96 99

Unsupplemented 34 23 15 4 1

Container size (powder):

Estimates based on Nielsen nationally representative data 

12 oz 9 10 12 14 13

12.9 oz 50 53 53 53 53

14.3 oz 117410

16 oz 4 4 4 4 4

25.7 oz 17 18 18 17 18

Other 9 8 9 11 12

Estimates based on ERS supermarket data

12 oz 8 9 12 15 16

12.9 oz 52 55 55 56 56

14.3 oz 117400

16 oz 6 7 7 7 7

25.7 oz 15 16 15 14 12

Other 76789

Region:

Estimates based on Nielsen nationally representative data 

Northeast 16 16 15 15 15

Midwest 24 24 23 23 22

South 39 39 40 40 41

West 21 22 22 22 22

Estimates based on ERS supermarket data

Northeast 19 19 19 18 18

Midwest 19 19 19 18 18

South 39 39 39 40 40

West 22 23 23 23 23

DHA/ARA=Docosahexaenoic acid and Arachidonic acid.

Notes: NA=Not available. 

Estimates based on Nielsen nationally representative data are based on Nielsen projections of 

total infant formula sales from all outlets. Estimates based on ERS supermarket data are based 

on unweighted estimates from a sample of supermarkets with annual sales over $2 million. 

Sources: Nielsen Company 2008 and USDA, Economic Research Service calculations 

based on Nielsen supermarket scanner-based data.
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Appendix table 2

Comparison of volume sales of infant formula based on Nielsen’s 

national data set and the ERS supermarket data set, by product 

characteristics, 2004-08

2004 2005 2006 2007 2008

Percent

Manufacturer:

Estimates based on Nielsen nationally representative data 

Mead Johnson 46.2 NA NA 43.0 37.9

Abbott 37.7 NA NA 37.5 42.2

Nestlé 13.4 NA NA 15.7 15.4

All other 2.7 NA NA 3.7 4.5

Estimates based on ERS supermarket data

Mead Johnson 43.1 NA NA 42.3 38.1

Abbott 38.8 NA NA 38.0 41.6

Nestlé 15.4 NA NA 17.0 17.3

All other 2.7 NA NA 2.7 3.0

Form:

Estimates based on Nielsen nationally representative data 

Powder 76 79 82 85 87

Concentrate 18 14 12 10 9

Ready-to-use 76655

Estimates based on ERS supermarket data

Powder 73 78 81 84 86

Concentrate 20 16 14 12 10

Ready-to-use 76544

Base:

Estimates based on Nielsen nationally representative data

Milk 79 79 80 81 82

Soy 17 17 16 15 14

Other 44444

Estimates based on ERS supermarket data

Milk 78 78 79 80 82

Soy 18 18 16 15 14

Other 44544

—continued
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Appendix table 2

Comparison of volume sales of infant formula based on Nielsen’s 

national data set and the ERS supermarket data set, by product 

characteristics, 2004-08—Continued

2004 2005 2006 2007 2008

Percent

Supplementation status:

Estimates based on Nielsen nationally representative data 

DHA/ARA 

 supplemented 64 76 84 95 98

Unsupplemented 36 24 16 5 2

Estimates based on ERS supermarket data

DHA/ARA 

 supplemented 60 73 82 95 99

Unsupplemented 40 27 18 5 1

Container size (powder):

Estimates based on Nielsen nationally representative data 

12 oz 7 8 12 14 14

12.9 oz 53 56 55 55 54

14.3 oz 117400

16 oz 6 6 6 6 6

25.7 oz 16 17 16 16 16

Other 7 6 7 9 10

Estimates based on ERS supermarket data

12 oz 11 11 13 15 16

12.9 oz 48 52 54 56 56

14.3 oz 118510

16 oz 4 4 4 4 4

25.7 oz 16 17 16 15 13

Other 10 8 8 9 11

Region:

Estimates based on Nielsen nationally representative data 

Northeast 16 16 15 14 15

Midwest 23 23 24 23 23

South 40 40 39 40 40

West 20 21 22 23 22

Estimates based on ERS supermarket data

Northeast 19 19 18 18 18

Midwest 19 19 20 19 19

South 39 39 39 40 40

West 22 23 23 24 24

DHA/ARA=Docosahexaenoic acid and Arachidonic acid.

Notes: NA=Not available. 

Estimates based on Nielsen nationally representative data are based on the Nielsen Company, 

Inc. projections of total infant formula sales from all outlets. Estimates based on ERS 

supermarket data are based on unweighted estimates from a sample of supermarkets with 

annual sales over $2 million. 

Sources: Nielsen Company, 2008; and USDA, Economic Research Service calculations based 

on Nielsen supermarket scanner-based data.