According to market intelligence firm CCM, the infant formula sales in China have been surging in 2017, measured by the success of four major players in the industry. While China’s newly introduced two-child policy is not causing a higher baby rate as expected, dairy companies are fighting for the shrinking market share.
In the past year, China’s dairy consumption rebounded and milk price rose slightly compared with 2016. It is widely believed that China’s milk price will rise in 2018, as the global milk crisis ended in 2017.
In 2016, the Chinese government had relaxed its stance on the one-child policy, allowing two children under special circumstances. However, the changed politic has not brought the ease of Chinese new-born rate, as was hoped for. In fact, according to the National Bureau of Statistics in China, there were 17.23 million of newborn babies in 2017, down by 630,000 compared to 2016. This trend is an alarming news for infant formula producers, who hoped for a higher demand driven by more babies.
The birth decline in China was mainly due to the number of newborn first children declined from 9.73 million in 2016 to 7.24 million in 2017. By contrast, the number of newborn second children reached 8.83 million in 2017, up 1.62 million, and accounting for 51.2% of China’s newly born population last year.
After the new so-called Second-Child Policy took effect in 2016, government officials, industry experts and trade sources predicted that the number of newborn babies would peak in 2017 at above 20 million. But this prediction did not come true, as the figure even declined. Insiders explained that the rise in births in 2016 was probably an extraordinary event as those couples who wanted a second child did so in the first year already.
As a result of this trend, the domestic infant formula market will likely shrink in the future and competition among infant formula producers will certainly heat up.
Ausnutria Dairy revealed that in 2017, its revenue reached over USD630 million, an uptrend by 46% compared to 2016. Furthermore, the sales of its infant formula reached about USD200 million, up by 62.5%. Hence, the business of infant formula was better than the average financial performance. What’s more, the company has targeted sales of USD950 million for 2018, up by 50%.
It is worth noticing, that Ausnatria Dairy aims to become a leading world provider of infant formula by 2025, as stated in their long-term strategic goal.
Junlebao Dairy achieved an evenly outstanding performance in 2017, announcing its sales surpassed USD1.59 billion. This makes it the 4th locally-based dairy company with sales exceeding RMB10 billion, following Yili, Mengniu and Bright Dairy.
Liu Senmiao, Junlebao’s Vice President and General Manager of its Infant Formula Business Division, said the company’s high sales mainly came from brisk business for infant formula and its fresh yoghurt. In 2017, its sales of infant formula were almost USD400 million, doubling the figure in 2016. Junlebao targets infant formula sales of USD793.08 million in 2018
Yili’s Infant Formula Business Division revealed at its 2018 Client Meeting that, as of October 2017, its sales of infant formula were up 24.1% YoY, taking the lion’s share of the domestic market, and its sales of adult milk powder went up 12.6% YoY.
Feihe Dairy announced that its total sales in 2017 were up more than 60% and sales of premium products went up over 200%. In 2018, it is targeting total sales of more than USD1.59 billion.
Dairy Companies Deepening Cooperation with E-commerce Platforms
On 1 February, JD.com announced a new Deep Strategic Cooperation Agreement with Mengniu and set a goal that Mengniu’ sales at JD Supermarket should total USD1.59 billion in 2018–2020. According to the agreement, Mengniu will launch more customised products on JD.com, while JD.com will provide Mengniu with more open data, strong marketing support and opportunities for new product releases.
Seeing the booming E-commerce business in China, all dairy companies, domestic and foreign, are keen to cooperate with the country’s E-commerce platforms. Their cooperation has extended from product sales to logistics, data sharing and brand promotion.
With the development of the Internet and logistics, online sales of dairy products are increasing yearly. In 2015, they totalled USD9.07 billion, with monthly sales exceeding USD745.50 million on average. On 11 November 2017 alone, the total online sales of liquid milk reached USD161.79 million and that of infant formula were USD697.28 million. At present, online sale of dairy products mainly comprise infant formula, followed by imported milk and premium liquid milk.
JD.com and Tmall.com combine to account for 80%–85% of the online dairy market, followed by yhd.com. Tmall.com takes the biggest share of the online liquid milk market, while JD.com dominates the online infant formula market. In 2016 JD.com’s sales accounted for 45.9% of the total online sales of infant formula, followed by Tmall.com at 36.7%. In 2017, JD.com took 54.5% of the online infant formula market, whilst Tmall.com took 70%+ of the online adult milk powder market.