17 August 2026
Executive Summary
New Zealand dairy group a2 Milk has provided an unusually clear demonstration of a supply-chain cost that does not appear on a freight invoice:
Customers can leave while a company is fixing the disruption.
The company reported today that unexpectedly strong demand, production backlogs and higher freight costs disrupted supplies of its China-label infant formula.
Availability became sufficiently constrained that customers switched to alternative brands.
China-label infant-formula sales fell 14% to NZ$544.3 million during the financial year, and a2 Milk says that although stock levels have now significantly improved, it must work to regain customers lost during the disruption.
The company’s own annual report confirms that fourth-quarter supply disruption reduced product availability and that the contributing operational factors have since been resolved.
The risk lesson is significant:
Restoring the supply chain does not necessarily restore the business.
UK Impact
UK companies often measure supply disruption through:
- Increased freight.
- Lost production.
- Overtime.
- Expediting costs.
- Emergency sourcing.
- Missed deliveries.
But the larger long-term cost can be customer behaviour.
If a customer’s preferred product is unavailable, they may try a competitor.
If the alternative works well, they may not return when the original product becomes available again.
That is particularly important in sectors involving:
- Consumer products.
- Pharmaceuticals.
- Food and beverage.
- Industrial consumables.
- Components.
- Specialist chemicals.
- Subscription services.
- Regular B2B supply contracts.
For highly substitutable products, even a temporary stock shortage can therefore produce a permanent market-share consequence.
Global Impact
a2 Milk’s wider business continued to grow, but the disruption to one strategically important product channel was significant enough to affect its outlook.
Reuters reports the company expects the consequences to continue into its 2027 financial year while it attempts to win back lapsed customers.
This demonstrates why traditional business-continuity calculations can underestimate disruption.
The financial loss may continue after:
- Production restarts.
- Inventory recovers.
- Freight normalises.
- Warehouses refill.
The operational event may be finished while the commercial consequence continues.
Our View
Businesses should incorporate customer retention risk into supply-chain continuity planning.
Companies should ask:
- Which products can customers easily substitute?
- How long will customers tolerate non-availability?
- Which accounts are strategically important enough to prioritise?
- Can limited inventory be allocated to protect key customers?
- How quickly can substitute products be approved?
- How should customers be communicated with during shortages?
- Can partial deliveries preserve the relationship?
- Are alternative distribution channels available?
- What is the cost of regaining a customer compared with preventing the loss?
- Does the business-continuity calculation include lost future revenue?
Supply-chain teams understandably focus on getting products moving again.
But recovery has two stages.
The first is restoring the product.
The second is restoring the customer.
Risk Indicator: ELEVATED
Disclaimer
The information contained within these Market Alerts is provided for general market awareness and informational purposes only. It does not constitute financial, legal, investment, regulatory or insurance advice. Whilst every effort has been made to ensure accuracy at the time of publication using multiple reputable and independently verified sources, geopolitical events, legislation, regulation and market conditions may change rapidly. Readers should obtain appropriate professional advice before acting upon any information contained herein.
Invictus Risk Solutions LLP – Helping organisations stay ahead of emerging risks through informed insight and independent analysis.