---
title: "China's Infant Formula: Our 15 Years of Turmoil"
description: "Over the past 15 years, China's infant formula industry has undergone dramatic changes, from rapid growth and price wars to policy overhauls and brand reshuffling. The industry has seen the rise and fall of domestic brands, the entry of international giants, and a shift towards high-end and imported products, with the market now dominated by a few key players."
author: "雷永军"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-04-09"
language: "en"
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---

# China's Infant Formula: Our 15 Years of Turmoil

> Over the past 15 years, China's infant formula industry has undergone dramatic changes, from rapid growth and price wars to policy overhauls and brand reshuffling. The industry has seen the rise and fall of domestic brands, the entry of international giants, and a shift towards high-end and imported products, with the market now dominated by a few key players.

Prologue: 15 Years in a Blink
As long as humanity continues to reproduce, the infant formula industry will not die. As long as humans have not found a substitute for milk, this industry will continue to develop.
For the past 15 years, I have used two sentences to inspire entrepreneurs in the formula industry, hoping they would grow stronger and represent Chinese dairy companies standing tall among the world's dairy leaders.
15 years have passed.
The former leader, Sanlu, has exited the stage of history; the second and third players are struggling to grow; and many others are lost and in peril.
Although we have seen new stars: Syutra, Yashili, Beingmate, Feihe, Biostime, and other Chinese-funded enterprises are still fighting in the market, careful observers have noticed that these companies have either already moved their bases abroad or are in the process of doing so. Meanwhile, we see another scene: imported brand Wyeth's sales exceeded 10 billion RMB, becoming the champion in both sales volume and profit in the Chinese market. Additionally, the e-commerce high ground is firmly controlled by Danone's Aptamil and Nutrilon, with few domestic or foreign competitors able to challenge them.
According to the tracking research of Beijing Putian Shengdao Enterprise Planning Agency, foreign brands' gross profit in China is on average about 30% higher than domestic brands, and net profit is about 40% higher on average. Although domestic brands hold some advantage in production volume, sales are almost evenly split, but net profit differs significantly.
**During these 15 years, the first 5 years saw crazy growth, with the market expanding 3-5 times, creating countless enterprises; the middle 5 years were about endurance and healing, with fierce price wars and intense three-line battles, benefiting many channel dealers; the recent 5 years have been dominated by overwhelming policies, heart-stopping industry-wide events, and many companies on the brink of life and death.**
In Chinese cultural thinking, 12 years constitute a cycle. The formula industry is a mix of good and bad, so this cycle took 3 extra years, totaling 15. While writing this article, I realized that I started researching the formula market in 2003. So, this also serves as a summary of 15 years of consulting and planning in the formula industry. After all, I have been a witness to almost all major and minor events in these 15 years.
15 years, a blink, the past like smoke.

2003: Syutra and Yashili's High Price, High Investment Strategy, Ambitious Brand Wars
In 2003, SARS.
I came to Beijing on a business trip and couldn't return to Xi'an. On a sunny morning, I suddenly felt this was a turning point in life, so I decided to stay in Beijing and start a business. Just like that, I accidentally entered the dairy industry.
2003 was definitely an extraordinary year for the dairy industry. It was widely recognized as the year Syutra and Yashili took off.
Friends working at Inner Mongolia Yili and Shijiazhuang Sanlu looked at Syutra and Yashili's packaging with disdain—can this product sell at 140-150 yuan per can at the terminal?
They didn't understand how consumers could accept a product priced 50-60 yuan higher than their own. They believed that such products would fail at the terminal because of one word: "expensive."
Indeed, these two products, which had been struggling for three to four months, suddenly became bestsellers. They went to the market to investigate and found that these companies were giving away a water basin and a pile of toys with each can of formula, so consumers flocked to buy them.
Can this work?
While everyone was still questioning, a few months later, these two companies' products were sold out in the market. The reason was simple: higher prices signaled higher quality, setting them apart from established brands like Sanlu and Yili. Consumers usually couldn't afford toys for their children, but now companies were giving them away. **This was the primitive state of the "high price, high investment" model.**
Success naturally attracts followers.
In the second half of 2003, almost all formula companies began to learn from these two companies. Looking back today, that year, Syutra and Yashili not only established the high price, high investment model but also set the approach and determination for investment.
Many companies' marketing departments submitted learned plans to headquarters, but they often went unanswered. A sales director from one company told me, "My boss keeps telling me to learn from Syutra. I did, and I submitted the plan to him, but he thinks I'm just spending money and talking nonsense." I said, "That's exactly what they do," but he didn't believe it.
The high price, high investment model is easy to imitate, but what supports it is the ambition of the entrepreneurs behind it. Without ambition, how could they invest first? With this insight, I set a principle for Putian Shengdao: only serve ambitious enterprises and entrepreneurs.

2004: "Big Head Dolls" Shake the Industry, High-End Formula Begins a New Journey
What?
Fake formula with no protein at all.
This was the first time Chinese consumers encountered a chemical issue in the formula industry. Some children were fed formula without protein, leading to various infant diseases, the most notable being enlarged heads and underdeveloped limbs, dubbed "big head dolls."
Top officials were furious. Six ministries immediately organized a joint law enforcement operation to the scene—Fuyang, Anhui Province.
The general public, encountering such an event for the first time, was stunned. A special group was in panic: about 50 million people—parents of infants. They carefully watched the government's handling while measuring their babies' head circumferences and comparing the formula they were drinking. The incident brewed for two months, with the six ministries' intervention as the climax, then quickly subsided.
A month after the incident ended, a strange phenomenon appeared in the market: sales of large enterprises surged, and sales of high-priced products surged. Naturally, Syutra and Yashili at least doubled that year. Sanlu also launched a mid-to-high-end brand—Beibei Formula—and its sales soared.
That year, Putian Shengdao conducted surveys in 14 provinces and found a special phenomenon. In 2003, consumers' ranking of concerns for infant formula was: price—quality—origin—brand—formula; after the "big head doll" incident, the ranking was: brand—quality—price—origin—formula.
**The severe crisis pried open consumers' awareness of quality, and brand, as a trust endorsement, was valued by consumers for the first time, jumping from fourth to first place.**
Should we make high-end formula?
This was the most difficult decision for infant formula companies in 2004. "The cost is only 30 yuan, but you sell it to consumers for 120 yuan. You're all black-hearted!" The speaker was none other than Tian Wenhua, then chairman of Sanlu Group. She said this at a medium-sized dealer meeting. She felt that Sanlu's essence was to produce high-quality, low-priced products, and Sanlu's Beibei formula was too expensive, which was unacceptable. But the company's young people convinced her with market data. In the following three to four years, Sanlu's Beibei formula went from "zero" to a 2 billion yuan category, which was a miracle.
The "big head doll" incident was a turning point for the Chinese formula market. From that year on, China's formula market opened up the mid-to-high-end segment, and domestic brands' individual product prices broke through 100 yuan per can for the first time (Figure 1). Products like Beibei Formula, Yashili Gold, and Syutra Youbo started a new era of high-end formula.

2005: Mengniu Aims for 10 Billion in Three Years, Pays Tuition and Gets Stuck in the Mud
A wolf is coming.
This is a prairie wolf.
In early 2005, at the Jiuhua山庄 Hot Spring Hotel in Changping District, Beijing, more than 10 formula entrepreneurs gathered. They had a common topic: I heard Mengniu is going to make formula?
"Yes," I answered, "Mengniu is indeed going to make infant formula!"
After New Year's Day, a group of nearly 10 people from Mengniu came to Putian Shengdao, hoping for in-depth cooperation on the formula project. It was at this meeting that Putian Shengdao proposed to Mengniu: First, we do not participate in any competitive pitches; Second, we had already assumed a market strategy for Mengniu's formula, because Mengniu's liquid milk image was too strong. Mengniu should abandon the Mengniu brand for formula and register a new brand suitable for infant formula. If these two points could be agreed upon, we could cooperate.
Having been in consulting for two years, I knew the harm of competitive pitches and had been hurt by them.
In 2003, Putian Shengdao had suggested to the head of Sanyuan's Liuhe Ranch that Sanyuan should leverage its People's Great Hall supply and Liuhe Ranch resources to launch a high-end liquid milk product. Sanyuan didn't adopt it, because its milk was already cheaper than Yili and Mengniu and was at a disadvantage; how could higher prices succeed? At the time, many in the industry laughed at this proposal, but over half a year later, this plan was almost identical to Mengniu's Telunsu. This was Putian Shengdao's first experience of being hurt by a competitive pitch. Another time was in 2007, when we planned for a southern formula company to export to Hong Kong and then sell back to the domestic market for brand enhancement. The company's marketing department took the plan directly but refused to cooperate. Although companies still imitate the Hong Kong export strategy ten years later, these incidents caused considerable damage to our company.
In the end, Mengniu agreed not to do competitive pitches but refused to accept Putian Shengdao's suggestion not to use the Mengniu brand for formula. After several attempts and explanations, the cooperation was terminated.
The formula industry knew that Mengniu's entry into formula was announced by Niu Gensheng at the dealer year-end meeting—with a target of 10 billion yuan in three years. This was a confirmed market decision and consistent with Mr. Niu's style.
Our discussion at the hotel was intense, but there was no answer on how to contain Mengniu. Finally, an entrepreneur suggested, "Let's wait and see! Once the product hits the market, we'll meet again."
Not long after, Mengniu formula was launched.
One day, this entrepreneur called me: "Xiao Lei, Mengniu formula is on the market. Have you seen it?" "I just saw it too; a friend on the front line told me." "What do you think of Mengniu's strategy?" After I shared the situation of Mengniu formula in Henan and Anhui with him, he said, "Xiao Lei, Mengniu formula won't succeed."
He hit the nail on the head.
At that time, he and I had a tacit understanding; I didn't ask why. Ten years later, looking back, this entrepreneur had a terrifying foresight.

2006: Nestlé's PR Misstep, Giant Loses Its Position as China's Leader
Before 2006, the leader in domestic infant formula was Sanlu, with annual production of 60,000-80,000 tons, equivalent to 7-10 billion yuan in sales at today's factory price of 130,000 yuan per ton. The leader among imported brands was Nestlé, with production comparable to Sanlu. Because its price was slightly higher than Sanlu's, it had been the leader among imported formula in China (Figure 2).
Back to May 25, 2005: Zhejiang Provincial Administration for Industry and Commerce published a quality inspection report on children's food in the province's market, listing "Nestlé" brand Gold Growth 3+ formula produced by Heilongjiang Shuangcheng Nestlé Co., Ltd. as exceeding iodine standards. At the same time, the administration notified all localities to investigate and deal with business units selling substandard children's food, temporarily seize substandard products, and require that similar products of different batches from the same manufacturer be taken off shelves first, sampled for testing, and only re-sold after passing.
In response, on the 26th, Nestlé China's PR department quickly reacted, issuing a statement to the media that the iodine content test results of Nestlé formula complied with the "International Standard for Infant Formula." Nestlé attached great importance to the iodine test results in Zhejiang and immediately conducted a comprehensive inspection of raw material use and production processes. The investigation found that the product used fresh milk as raw material, and iodine naturally exists in fresh milk. The iodine content exceeding the standard in this sampling was due to fluctuations in the natural iodine content of the milk raw material, and the content was very small. Nestlé Gold Growth 3+ formula was safe.
We believe that the Zhejiang Administration was definitely not making unreasonable trouble, and Nestlé's response was not wrong either. But the arrogant image of foreign enterprises quickly established itself in media circles, and many journalists felt psychologically unbalanced, leading to subjective reporting. Media reports further triggered consumer sentiment, and the matter quickly escalated. Throughout the PR process, no skill was seen from Nestlé, but its proud head never bowed.
Iodine exceeding the standard was not a big deal, but the big deal was that foreign enterprises didn't understand China's media and PR environment.
If the 2004 Fuyang formula incident gave domestic brands a lesson in crisis PR, the 2005 iodine incident taught imported brands what crisis PR is.
At that time, Nestlé's market was mainly in first- and second-tier cities, where consumers were loyal readers of newspaper media. Although there was not much TV coverage, most metropolitan media did follow-up reports. Nestlé's arrogance made the follow-up reports dramatic and full of highlights, but it also hurt the hearts of first- and second-tier consumers.
In the second half of 2005, Nestlé formula sales began to decline, and by 2006, the decline was even more severe. If Nestlé had taken proactive market actions at this point, such as allying with dealers and integrating media resources, it might have had a chance to solidify its position as the sales leader.
Unfortunately, Nestlé didn't realize that the sales decline would eventually become unmanageable.
While Nestlé's formula sales were declining, Chinese brands were adopting a strategy that emphasized both channels and brands, which naturally eroded some market share in first- and second-tier cities, adding insult to injury for Nestlé.
In 2006, Nestlé withdrew from the first camp in the Chinese formula market. To this day, 11 years later, Nestlé has never returned to its former glory.

2007: Market Madness, People Madness, A Nightmare Brewing
After more than four years of high price, high investment baptism, the market operation model of domestic formula brands not only surprised foreign brands but also made traditional industries feel inferior.
That year, both Syutra and Yashili aimed for sales of 3 billion yuan, with estimated gross profits of 1.2-1.5 billion yuan. Meanwhile, followers like Beingmate, Feihe, Nanshan, Ausnutria, Taizile, and Yaolan also showed strong growth. The smallest, Yaolan, had annual sales of 400-500 million yuan, and the situation was very promising.
For consumers, the nationwide surge in housing prices in recent years increased pressure on the post-80s generation. More women needed to work and also wanted to maintain a slim figure; they preferred cesarean sections and didn't like breastfeeding. At the same time, the growth of M2 (broad money supply) made consumers' wallets fatter.
**All this pointed to formula: the dual changes in economic structure and consumer attitudes led to simultaneous increases in volume and price. The rapid expansion of sales volume and high gross margins made the formula industry go crazy.**
I once witnessed two regional managers from different formula companies meeting to discuss how to use channel dominance to quickly weaken or directly drive out Sanlu, Yili, Feihe, and other companies from Henan, Anhui, and other places.
The two regional managers reached an agreement: Company A would occupy the air promotion resources at sales outlets, Company B would occupy ground resources, and they would each buy out two of the five shelves in supermarkets, leaving the other eight or nine brands to share one shelf. These conditions included providing the store owner with air and ground support, while not allowing the store owner to give individual brands special displays. Three months later, sales of major companies like Sanlu and Yili at these outlets shrank rapidly.
At that time, when researching in Henan, Anhui, and other places, we often saw one or two companies buying out all possible advertising spaces in stores, either a sea of Syutra, a sea of Yashili, a sea of Feihe, or a sea of Beingmate. The market was full of landmines, and the smell of gunpowder was strong.
When communicating with frontline sales colleagues, they no longer said they were selling formula; they said they were "selling white powder" (a metaphor for drugs).
At that time, formula salespeople in the market were very arrogant. Many dealers had to make appointments days in advance to meet regional managers, arrive a day early, and arrange a full itinerary of food, drink, and entertainment, carefully attending to the regional manager.
Many regional managers, like gang leaders in Shanghai, would shout at dealers at the slightest provocation. A dealer in his 50s, after dinner, accompanied a regional manager to an entertainment venue. The regional manager said, "If you drink 10 bottles of beer today, I'll give you the 'buy 10 get 1 free' policy." Remember, he had already drunk half a jin (250g) of liquor at the dinner table. Forced and desperate, he went all out. In the end, this dealer was carried out of the KTV by an ambulance, while others continued to enjoy themselves, as they were accustomed to such incidents.
Behind the glitz and glamour, a nightmare was brewing, and everyone was in a dream, unaware.

2008: Melamine Outbreak, Winners at the Brink of Collapse
I sat in the office of a company's boss, anxiously waiting with him for that day's news broadcast. On September 11, everyone received word that the evening news would announce which companies' formula contained melamine.
"Shanxi Province XX Dairy"—when hearing the word "Shanxi," the entrepreneur jumped up from his chair, instantly breaking into a sweat.
"Ah, it's Shanxi, Shanxi, Shanxi, not Shaanxi," he muttered to himself as he sat back down, seeming a bit out of sorts. I believe that night, many entrepreneurs lost their composure; it was said that one entrepreneur smashed his TV.
That night, almost all formula industry people and tens of millions of parents, grandparents, and great-grandparents were glued to their TVs, wanting to see if the formula their babies were eating was "poisonous."
That night, countless formula industry people couldn't sleep, and countless families argued. The sky had fallen; not many were crushed to death, but many were scared to death. This was the second chemistry lesson in the Chinese formula market.
Walking down Heping West Road in Shijiazhuang, in front of Sanlu's headquarters, barbed wire was set up, and many police officers and plainclothes agents paced back and forth, creating an atmosphere of imminent danger. The global media spotlight shifted from Beijing, which had just concluded the Olympics, to the new focus, Shijiazhuang. Many sports reporters abandoned their plans to tour China's scenic spots because they received assignments to cover the melamine social news before returning home.
The pain of the Wenchuan earthquake disaster had not yet healed, and the glory of the Olympics had just been lit. China was selling itself to the world, and at this critical juncture, the formula incident occurred. It all seemed like a special arrangement by "God," and to this day, some in the dairy industry still hold conspiracy theories about it.
Time and market development do not allow us to debate; we can only face reality.
China's formula industry suddenly lost most of its market, the Chinese dairy industry was on the brink of collapse, Chinese food safety became demonized worldwide, and the image of Chinese people and China was distorted by the global attention on the Olympics and the huge doubts about melamine.
The market was still shrinking.
Three months later, many companies with melamine had not recovered 20% of their market, and some were still shut down. Sanlu declared bankruptcy, and its assets were taken over by Beijing's Sanyuan.
After immense pain, people began to observe the market and think about the future. Rather than waiting to die, it was better to make a last-ditch effort. Sales of imported products generally increased, and domestic companies that did not report melamine generally saw sales growth.
At the end of the year, many companies set their 2009 market targets at recovering to 40%, 50%, 60%, etc., while the beneficiaries set targets of doubling or even tripling sales.
Among them, the most notable were Yaolan in the northeast with a 2009 sales target of 2 billion yuan, and Feihe with a target of 4 billion yuan. Previously, these two companies had sales of around 400 million yuan and 800 million yuan, respectively.
This target indirectly stimulated entrepreneurs who had been in the first and second camps.
What to do?
At the end of 2008, many formula entrepreneurs began to seriously think about the future.

2009: Price Wars as the First Choice for Disruption, Three-Line Battlefield Becomes a Hotspot
Domestic formula brands—the entire industry should thank Syutra.
History returns to January 2009.
On a scorched battlefield, several Chinese domestic companies were picking up the spoils of war, while the chariots of imported brands roared past. In January 2009, Putian Shengdao discovered that a northeastern company's monthly sales had jumped from an average of less than 50 million yuan in the first three quarters to an average of 130 million yuan per month in the fourth quarter. An imported company's monthly sales had risen from 100 million yuan to 250 million yuan. This change was shocking. Having personally experienced the price wars in the home appliance industry from 1999 to 2002, I suddenly smelled the brutal war to come.
At that time, Putian Shengdao was serving Yinqiao. I was in an office in Xi'an High-tech Zone, smoking a cigarette, carefully savoring the growth trajectory of this northeastern company.
The rapid growth of this small northeastern company could be compared to medium-sized northeastern companies like Feihe and Wandashan, as well as southern newcomers like Beingmate and Mingyi. That afternoon, Putian Shengdao predicted that Feihe's average monthly sales in the fourth quarter should be around 250 million yuan, while Beingmate in the south might be around 200 million yuan, and the four major foreign companies should also have 2-3 times growth.
Calming down, we wrote an email to the chairman of one company, roughly suggesting that they completely cut ties with melamine. Among the three brands with sales in the market, immediately stop production of the brand containing melamine, and split the brand without melamine into three, quickly launching them into the market. Remember, the brand containing melamine had sales of 800-900 million yuan at that time. Naturally, the suggestion was not adopted.
The next day, we called a professional manager at another company, suggesting the same strategy. Naturally, the suggestion was also not adopted.
Many formula companies that had not experienced major crises had not yet realized what cutting ties with the crisis would mean for the future.
The market was still changing.
Because we were serving several formula companies at the time, Putian Shengdao quickly made a preliminary judgment on market trends: although domestic brands had entered first- and second-tier markets from 2006 to the first three quarters of 2008, putting enormous pressure on foreign brands, after the melamine incident, from the fourth quarter of 2008 to early 2009, foreign brands' market share in first- and second-tier markets had risen to over 70%. We judged that it would be difficult for these companies to grow further. So, where would they go?
After in-depth research, Putian Shengdao believed that the strategic core of foreign brands would soon enter the third-tier market. The small and medium-sized Chinese formula companies picking up spoils on the battlefield were merely dividing up the sales of Sanlu and other crisis-hit companies. They did not have mature management, mature operational capabilities, or mature teams. How could they welcome the imminent Sino-foreign war? If the third-tier market was lost, domestic formula might have no future.
Having personally experienced channel defense battles in the home appliance industry, I knew that once the channel defense line was breached, it could be a disaster for many companies. Therefore, Putian Shengdao believed that it was necessary to build a third-tier defense, keeping imported brands out of the third-tier market, so that domestic formula could have a future and growth opportunities, and the companies we served could have a place in the market.
After in-depth analysis of industry development trends and the strengths and weaknesses of various companies, Putian Shengdao proposed the assertion: "The third-tier market is the focus of competition between Chinese and foreign formula companies; those who win the third-tier market win the world."
On one hand, we suggested that large companies still persisting in first- and second-tier markets should simply withdraw from those markets and use the saved gross profit to build a third-tier defense; on the other hand, we suggested that the entire industry use brutal price wars to block enemies in the third-tier market. I vividly called this strategy the "plate occupation strategy."
History is very coincidental: when we communicated this strategy to several company leaders, they generally agreed. Some companies said they had similar plans, and Putian Shengdao's professional advice strengthened their confidence.
To persuade a large company at that time to participate in the third-tier defense, Putian Shengdao proposed: "The price war in the third-tier market can not only block imported brands outside the third-tier market but also make domestic companies with sales growth in 2009 spend all their profits. This way, in 2010, you and your domestic competitors will still have a chance to compete. Otherwise, in 2010, if he has 1 billion yuan in cash, what will you do?" By the end of 2009, this assertion was validated. Due to management and decision-making issues, many companies with significant sales growth did not see a corresponding increase in profits in 2009, and some even fell into crisis or never recovered.
Around March 2009, Syutra and Yashili were the first to start the battle; a week or so later, Yili followed; three weeks later, 60% of companies in third- and fourth-tier markets followed; a month and a half later, almost all formula companies followed.
Buy 4 get 1 free, buy 3 get 1 free, buy 2 get 1 free...
In less than a month, the third- and fourth-tier markets were filled with the clash of swords and shadows, and everyone was bloodthirsty. At this time, imported brands coveting the third-tier market had driven their tanks and armored vehicles to the third-tier positions, but they found that the rules of the game had completely changed. The "plates" were occupied so tightly by domestic formula companies that they couldn't insert themselves and had to stop outside the third-tier market.
At that time, Putian Shengdao was serving Yinqiao. Based on Yinqiao's resources, we formulated a strategy for Yinqiao to become the number one in Shaanxi. Later, Yinqiao's Sunshine Baby formula dominated Shaanxi for 5 years, with sales approaching 500 million yuan at one point.
Looking back at the price war of 2009 today, although almost all companies participated, without the strategic breakthrough of companies like Syutra, the war might have been delayed by half a year, and the history of China's formula industry might have been rewritten. But it is certain that without this price war, the third-tier market would have collapsed, and domestic formula companies would not have so many small and medium-sized enterprises thriving today.
It is worth mentioning that Syutra withdrew from the price war about 6 months after it started, because it saw the rise of baby and child stores, while most companies were still fighting blindly for a year and a half.
Today, that brutal price war is still remembered, but it is history. For every practitioner in the formula industry, experiencing the 2009 price war means they have matured and can see things clearly.

2010: Baby and Child Stores Rise Suddenly, Industry Changes Unnoticed
By 2010, the price war was at a stalemate, profits were thinning, and salespeople no longer had the arrogant attitude of 2007.
Lack of profit was just the surface; the fundamental change was in the model and market.
"Mr. Lei, how do you see the future changes in the formula market?" At the end of 2009, an entrepreneur asked me this. Instead of directly answering, I asked him back: "What's the cost difference between 130 yuan formula and 260 yuan formula?" He looked at me, smiled knowingly, and then said cheerfully, "Let's cooperate!" I smiled and said, "Okay."
A cooperation worth millions, but the negotiation took less than three minutes.
This entrepreneur realized that Putian Shengdao was different from ordinary consulting firms; it had a deep understanding of the industry and was a truly practical consulting agency. Indeed, after 2010, the core of competition lay in the strategic understanding of costs. He and I both saw the essence of market changes; great minds think alike.
Any more words would be superfluous. The market went from high gross profit to medium-low gross profit, from brand wars to price wars, from single-channel competition to multi-channel competition. Putian Shengdao keenly grasped the key point of cost, which led to the scene above.
There is no difference in cost between 130 yuan formula and 260 yuan formula. So how would the market differentiate after the price war?
Putian Shengdao therefore proposed using the copycat model to continue fighting against foreign brands, thereby extending the price war to first- and second-tier markets; and using the multi-brand model to break the suppression of domestic brands.
At the same time, we saw the rise of a new channel.
The fierce price war served as a wake-up call to industry salespeople: formula has such high gross profit? So, from this year, many companies' salespeople began to open stores or become dealers. The market was still the same, but with a change in operators, the Pandora's box of the formula industry's channels was completely overturned.
According to Putian Shengdao's research, the number of maternal and child stores increased by more than 40,000 nationwide that year, becoming an important channel in the formula industry, accounting for about 20% of the market share. With the expansion of maternal and child stores, traditional supermarket formula sales began to shrink, and at this time, many formula companies were still struggling with how to unify prices in e-commerce.
Of course, there were also companies expecting miracles through traditional strategies. One company invested nearly 200 million yuan in advertising in 2010, but there was almost no market response, and even recruitment and terminal distribution made no progress.
It was a large company that hadn't yet smelled the market changes and the nature of baby and child stores—a group that is profit-hungry.
The channel had changed, and the multi-brand model came at the right time. From this year, the number of brands in China's formula market began to surge.
A new era had begun.
The curtain rose, and many people stood on stage, still thinking they were the audience.

2011: Wahaha's Edison Announces 10 Billion Again, Fake Foreign Devils Sprout Like Bamboo Shoots
**The changes in the formula market attracted the attention of a legendary figure: Zong Qinghou of Wahaha.**
History is often very coincidental.
Mengniu's bold claim of 10 billion yuan in formula sales had not yet faded, and Zong's Wahaha loudly announced its entry into the formula industry, also with a target of 10 billion yuan in three years. National media hype, mobilization meetings, 200-300 million yuan in advertising budgets, and the high-profile brand Edison—it seemed the 10 billion target was within reach.
Unlike the panic caused by Mengniu's entry into formula with a 10 billion target, the news of Wahaha's big investment only caused a ripple in the formula market.
When I learned that Wahaha wanted to achieve 10 billion yuan in three years, I happened to be drinking tea with two formula entrepreneurs in a teahouse. We all laughed—"Let the bullets fly a little longer!" The line from Jiang Wen's "Let the Bullets Fly" was often used in 2011.
Rumor had it that Wahaha's entry into formula was triggered by Zong Qinghou meeting Beingmate's Xie Hong at an entrepreneur forum in Zhejiang. Upon learning that Beingmate's sales had reached 4-5 billion yuan, Zong returned to the company and immediately called a meeting to discuss entering the formula market.
Of course, rumors are not credible.
In fact, Zong had always wanted to enter the formula market.
In 2008, he had hoped that Wahaha would acquire Sanlu's assets after its bankruptcy, even at a higher price. This way, on one hand, it could preserve the brand and team that had been the sales leader in China's formula market for 17 years, and on the other hand, it could integrate Sanlu's resources to enter the national formula market, and then enter the liquid milk market to compete with Mengniu and Yili. This was a perfect strategy, fully in line with the situation at the time.
Unfortunately, his plan was not adopted by the relevant authorities, and Sanlu was acquired by Sanyuan. Wahaha could only sigh in regret. I think it was at this time that Zong decided to make formula.
**This time, Wahaha's timing for entering the formula market was very good; 2010 was exactly the beginning of changes in the formula industry.**
Women born in 1985 turned 25 that year, just entering their peak childbearing years in third-, fourth-, and fifth-tier markets. They had different perceptions of products, prices, channels, and promotions compared to the post-70s and post-80s. They inherently opposed low prices, pursued individuality, and liked new things. When they became mainstream consumers, on one hand, the industry's price war was at its most brutal, and on the other hand, high-end formula was about to emerge. This was a market structure of ice and fire, brewing a huge opportunity.
Zong Qinghou of Wahaha clearly saw this opportunity—consumer changes, channel changes, price changes, and model changes all happened to align for him. It can be said that Wahaha had all the favorable conditions to successfully break through 10 billion yuan in sales within two to three years.
It was rumored that Zong said at an internal meeting, "Little Xie's 'What's-its-name' can do 4-5 billion, so Wahaha should have no problem doing 10 billion in 1-3 years." Of course, this rumor is also not credible, but it is an indisputable fact that Wahaha underestimated the characteristics of the formula market.
When Wahaha first encountered development obstacles, I told Wahaha's decision-makers, "If you give Edison to consumers, and 20% of consumers feed it to their children, Edison will succeed."
But Wahaha was too successful in the beverage industry, had its own three-board axe experience, and preferred beverage tactics. In the face of huge investment, the market did not develop as expected. **In 2011, the whole industry was watching Edison's performance, but Edison was stuck in the mud and stagnant that year.**
At the end of 2011, in a market diagnosis analysis report to Wahaha's decision-makers, Putian Shengdao said: "Wahaha shouted the slogan of 10 billion yuan, but lacked a strategic approach to control consumers. In fact, I have always been very concerned about Wahaha's development. When I heard rumors that Wahaha was going to make formula, I knew it had all the conditions to be a dark horse in this industry and would accelerate the industry's consolidation. But when I heard Wahaha shout that it would achieve 10 billion yuan in three years, my first reaction was that this company would make the same mistake as Mengniu formula (Mengniu also claimed 10 billion in three years in 2005), but at that time I couldn't easily judge success or failure! In Putian Shengdao's strategic thinking, category and price are the core embodiment of corporate strategy, and promotion reflects the company's understanding of the current market. So, we waited for Wahaha's category, pricing, and promotion to be announced. When we saw that Wahaha used the Wahaha brand for extension, adopted a single product line, and used the high-price, high-investment business model that most formula companies used around 2004, we basically judged that Wahaha didn't understand the current formula market and would inevitably take detours."
**Infant formula is different from all other products; not everyone can play it.**
From 2010 to 2011, Wahaha paid its tuition. According to Putian Shengdao's plan, it could have changed its business model in 2012 based on specific market conditions and regrouped. With Wahaha's resources at that time, even if it re-entered the market in 2012, it still had all the strategic conditions to quickly grow. So, we proposed a consulting-for-equity model, but unfortunately, Zong ultimately did not adopt it.
History is a cycle; Wahaha and Mengniu's performance in the formula market was surprisingly consistent. Although Wahaha didn't grow big, its model attracted strong attention from dealers and traders worldwide with international formula channels.
Yes, why not make an OEM product abroad?
The answer to the question is the answer itself.
At the end of that year, according to Putian Shengdao's understanding, at least 100 brands planned to launch in the first half of 2012. A company in Oceania even received OEM orders for more than 20 brands from the Chinese market that year.
**Starting in 2011, a large number of agents and trading companies went abroad to produce OEM formula in New Zealand, Australia, the United States, Europe, and other places.** In the following 2012, the Chinese formula market saw hundreds of new brands, most of which were imported products, but almost all were operated by Chinese.
These thousands of brands, along with Danone, which entered later, should have taken 50% of the market share that Wahaha could have had. That would not have been 10 billion yuan, but far more than 10 billion.
After imported products came in, third- and fourth-tier markets and first- and second-tier markets were simultaneously flooded. These products were despised by orthodox imported brands and also by orthodox domestic brands, so they were given a nickname—"fake foreign devils." Even many media outlets listed them by name.
With the changes in consumers and the transformation of corporate strength, many former fake foreign devils have become real foreign devils.

2012: Chinese Cross-Border Shopping, Buying Out the World, Hong Kong Purchase Limits, Jail for Buying Formula
In 2012, "tuhao" (nouveau riche) became the most resounding word, because China's high-end consumption and international tourism exploded that year.
That year, Chinese consumers frequently went to Hong Kong, Europe, and the United States, buying out luxury goods from one store after another in one go.
Tuhao, tuhao!!
Europeans and Hong Kongers cursed the Chinese countless times in their hearts, but they also loved them to death. Many luxury stores in Hong Kong and Europe equipped themselves with Chinese-speaking staff that year. Ninety-degree bows, smiling service that never fought back or talked back, made China's first generation of tuhao feel proud. Because these people liked gold, even "tuhao gold" became a global fashion color. To this day, Huawei, already a world-class company, continues to sell phones in tuhao gold.
After buying luxury goods, they would also help relatives and friends buy health products and formula. Among them, infant formula was often bought out from entire shelves, or even all the stock in the warehouse. Hong Kongers and Europeans were dumbfounded again: My God, this isn't shopping; this is a raid.
That year, domestic and foreign media summarized two keywords: one was tuhao, and the other was "sweeping goods."
Driven by tuhao's sweeping, the purchasing enthusiasm of the post-85s was ignited. They were naturally skeptical, had many overseas connections, good English education, and grew up with the internet. They bought formula abroad through all means of information transmission, and this trend almost paralyzed the postal systems of some European and American countries.
Merchants keenly saw that after sweeping goods, cross-border e-commerce also appeared.
At that time, whether at British airports or Hong Kong and Macau ports, there were bustling crowds of Chinese people pulling trolleys full of formula. Buying a can of formula in Hong Kong could earn 50 yuan, and with three or four trips a day, one could easily earn 7,000-8,000 yuan. How much in a month? Over 200,000 yuan!
This was a business.
Many mainlanders familiar with Hong Kong and Macau often took the first ferry to Hong Kong, occupied several supermarkets, and as soon as the doors opened, they bought all the formula and stock inside.
Today, looking back at this history: behind it were consumer demands; natural business opportunities caused by price differences between domestic and foreign, Hong Kong and mainland; and the direct and indirect spread of melamine incidents every one or two years, which dealt blows to domestic brands. Many industry insiders have always held "conspiracy theory" views on this.
That year, too many Europeans and Hong Kongers walked into supermarkets and found that the formula they needed for their babies was out of stock. Some foreign media commented that this was a phenomenon not seen in over a decade. Hehe, when the Chinese come, anything is possible.
The crazy formula buying spree disrupted formula markets in Europe, the United States, Hong Kong, and other places, and many countries and regions were considering the possibility of restricting purchases by Chinese.
In January 2013, Germany first imposed purchase limits on Chinese, with many supermarkets allowing only 3 cans per purchase, and only 5 cans per shipment to China.
A month later, Australia followed, announcing a limit of 4 cans of infant formula per person per purchase. In-store surveillance systems collected data and input it into the cash register system; if purchases exceeded the limit or were repeated within 24 hours, the computer would refuse the transaction. Then New Zealand followed; then the UK.
The most absurd purchase limit was Hong Kong's.
Hong Kong implemented the "Import and Export (General) (Amendment) Regulation 2013" on March 1, 2013. According to this law, any person over 16 leaving Hong Kong must not carry more than 1.8 kilograms net weight of infant formula per day, equivalent to two ordinary 900-gram cans. Offenders, if convicted, face a maximum fine of 500,000 Hong Kong dollars and two years' imprisonment.
Wow, buying a few cans of formula could lead to imprisonment! Is this crazy? Hong Kongers said it was public opinion; mainlanders saw it as small-mindedness.
When Hong Kong imposed the limit, it coincided with China's Two Sessions (political meetings), which made the Chinese government very embarrassed and planted seeds for all subsequent formula policies.
Everything is cause and effect.

2013: New Policy on Mergers and Acquisitions, Industry Turning Point Coincides with Necessity
Hong Kong's purchase limit became a topic at the Two Sessions, and the whole country was entertained by it.
I knew that when an event transforms from a serious political or economic event into an entertainment event, it is about to explode.
What is an explosion? It is severe destructive power.
Naturally, government departments monitoring public opinion would not fail to understand this basic common sense. So, when Hong Kong's purchase limit occurred during the Two Sessions, some media interviewed me, and Putian Shengdao predicted that China would introduce strict national policies for formula, but we didn't know what they would be. For the imminent national policy, Putian Shengdao for the first time proposed that China's dairy industry should introduce an industrial strategic thinking of top-level design for upstream and downstream.
It was also at this time that the China Dairy Club was established. Within three days, it gathered hundreds of people on a QQ group. Discussions went on 24 hours a day, and many company chairmen and general managers joined in, peeking at the heated discussions.
Sure enough, on May 31 of that year, the State Council held an executive meeting to study and deploy further strengthening of infant formula quality and safety work, and passed a number of legal amendment drafts and decisions to abolish and modify some administrative regulations around transforming government functions.
The curtain on the new formula policy was thus lifted. The government's rectification signal quickly stimulated the market, and all kinds of gods showed their abilities.
On June 4, the Ministry of Industry and Information Technology (MIIT) issued the "Action Plan for Improving Milk Powder Quality and Boosting Consumer Confidence," proposing six main tasks: first, urge enterprises to strengthen management; second, strengthen industry access; third, promote industrial structure adjustment; fourth, promote enterprise technological transformation; fifth, improve the standard system; sixth, strengthen public opinion guidance. According to the plan, MIIT would carry out re-examination and cleanup of infant formula enterprises (projects) within 2013, eliminating enterprises (projects) that did not meet national industrial policies and quality and safety guarantees.
On June 18, MIIT held a meeting. Wang Liming, Director of the Consumer Goods Industry Department, directly said to the enterprises below the stage: "All responsible persons of more than 120 infant formula production enterprises are present. I propose today as a matchmaking day. You can either complement each other through advantageous enterprise alliances or cross-regional alliances. First, fall in love. Today you have all met and gotten to know each other; those who can marry should marry quickly."
According to witnesses of the meeting, at that time, the 10 large enterprises in the first row turned around, stood up, and said to the other enterprises, "In the future, you can sell your enterprises to them."
This was a crude but clear signal of government intervention in the market.
Mengniu added fuel to the fire, announcing on the afternoon of the same day the acquisition of Yashili for approximately 11 billion Hong Kong dollars, creating the largest merger in China's formula market. Was this a coincidence or a premeditated act? We don't know.
While China's merger and reorganization plan was causing anxiety, imported products, which were generally favored by consumers, had an incident.
On August 2, New Zealand's Ministry for Primary Industries officially reported that a factory of Fonterra had found botulinum toxin in whey protein concentrate produced in May 2012, with some raw materials sold to China. After investigation, Hangzhou Wahaha Health Food Co., Ltd., Coca-Cola China, and Dumex Infant Food Co., Ltd. had used whey protein concentrate that might be contaminated with botulinum toxin. On August 3, the China Food and Drug Administration issued an urgent notice requiring the Shanghai and Zhejiang food and drug administrations, together with the quality and technical supervision bureaus, to immediately investigate the botulinum toxin issue in New Zealand whey protein concentrate, arrange for a series of tests and inspections, and do a good job in risk prevention.
Dumex infant formula was involved. The industry was shocked. Some even said that China had melamine, and foreign countries had botulinum toxin. Dumex, which had never faced a crisis, was confused and unable to cope.
On August 7, another industry news broke. Biostime, Mead Johnson, Dumex, Abbott, Friesland (Friso), and Fonterra were fined amounts equivalent to 3% to 6% of their previous year's sales, with total fines of 668.73 million yuan. Among them, Biostime was fined 160 million yuan, Mead Johnson about 200 million yuan, and Dumex, Abbott, Friesland, and Fonterra were fined 4 million to 170 million yuan. Wyeth, Beingmate, and Meiji were exempted from fines for cooperating with the investigation, providing important evidence, and actively rectifying.
This was almost adding insult to injury for Dumex, and the industry was shocked again.
On September 28, after enduring the anxiety of not knowing how the government would intervene in the market, the long-brewing domestic formula "national team" appeared. Reports said that MIIT had determined the list of the formula "national team," including Yili, Mengniu, Feihe, Wandashan, and Plateau Treasure. In response, Gao Fu, Deputy Inspector of the Consumer Goods Department of MIIT, said: "This is an erroneous report. There is no concept of a formula 'national team.' Who should be in the 'national team'? Who shouldn't? It's not right in any sense!" Although the national team was not recognized by the government, it spread like wildfire in the market. Later, the national team was organized a few more times, but eventually, no one mentioned the concept again.
And Dumex, which encountered botulinum toxin that year, saw its annual sales decline from 6.5 billion yuan, unable to stop the fall. When the crisis first hit, I paid close attention to Dumex's movements, because at that time, among international brands, only Dumex had a clear strategic trend to enter the third-tier market. After the crisis, Dumex made three wrong moves in succession, ultimately crashing in the Chinese market, which was very regrettable. The first was not valuing consumer and channel comfort, but instead fighting fiercely with Fonterra in court; the second was launching the wrong promotion at the wrong time, completely breaking through the psychological defense lines of channels and consumers; the third was launching layoffs without clear strategic measures, disrupting morale and adding insult to injury for the wounded company.
**All this indicates that 2013 was a turning point for China's formula market.**
Hong Kong purchase limits, new formula policies, mergers and acquisitions, the Yashili acquisition case, botulinum toxin, anti-monopoly, national team—it was overwhelming, but it all seemed coincidental.
That year, the government began to use the visible hand to intervene in the market, hoping to accelerate mergers and acquisitions through government action; that year, many small and medium-sized enterprises spent the year in fear, and domestic OEM products were released again; that year, many large enterprises, facing competition, began multi-brand layouts, with Feihe, Yili, Beingmate, and Yashili turning to learn from small and medium-sized enterprises. For a time, the "My Angel" strategic model pioneered by Syutra in 2010 blossomed everywhere; that year, large imported enterprises were cautious and withdrew from the medical black chain they had woven with doctors and nurses for 20 years.
The heavy medicine of mergers and acquisitions did not curb the market but made it even crazier. A large number of imported and domestic OEM products were waiting to fight for the last supper.

2014: Junlebao Disrupts with Low Prices, Plays E-commerce Then Offline
One day in May 2014, I sat in the office of Junlebao President Wei Lihua, drinking tea with Wei and his senior advisor, Mr. Cai, and envisioning the future of Junlebao formula. Wei said, "Everyone sells formula at such high prices. I think selling low is the opportunity. I won't use a new brand; I'll use Junlebao."
China's formula prices have followed almost the same trajectory as China's M2 index and real estate. In 2008, the U.S. subprime crisis brought the first winter to China's real estate. The government vowed to heavily suppress the real estate industry, but the result was that land kings appeared everywhere, and prices, after a slight dip, suddenly became unstoppable. I remember that the houses in Beijing's Shijicheng went from 70,000 yuan per square meter, down to 50,000, and then soared to 120,000.
The same was true for formula. The price war from 2009 to 2010 allowed Chinese consumers to buy the best formula at an average of 100-120 yuan, but various government adjustments and increased corporate costs eventually led to disruption before every major industry consolidation. In 2014, the average terminal price of formula was 240 yuan per can, far exceeding the mainstream price of 120 yuan before the melamine incident.
Like real estate, Chinese formula consumers buy on the rise, not on the fall. High-end products from Biostime and Wyeth's Illuma quickly gained volume, while formula priced below 150 yuan saw its share drop from 85% to less than 25% in three years. Data from the National Bureau of Statistics shows that from 2008 to now, the terminal retail price of formula has been rising.
Junlebao was going against the grain, pricing at 130 yuan per can. Would its model work?
As early as 2012, a company had planned to use internet means to do imported products, entering the market at low prices. Putian Shengdao participated in the strategy formulation for this company, recommending a price of 119 or 129 yuan. According to Putian Shengdao's "Four Trusts" marketing mix, we told the company: "If it's expensive, it should be expensive for a reason; if it's cheap, it should be cheap for a reason." The company had adopted the advice, but later a Taiwanese professional manager joined, and during execution, a 169 yuan price strategy was adopted. This company later did lukewarm business for two years and eventually withdrew from the market.
Behind the price strategy is corporate strategy, which requires support from capital, brand, model, team, and other aspects. Trends and evidence are also the best teaching materials, but success and failure are not replicable. However, Junlebao didn't seem to care and insisted on doing its own thing. Junlebao was full of confidence.
The emergence of the Junlebao model attracted a lot of attention in the formula circle at first, but as the market developed, it was found that Junlebao didn't bring much impact to offline stores because no company followed. One of the three major risks Putian Shengdao identified for Junlebao was that no one would follow, leaving Junlebao to sing a solo.
Just as Junlebao was re-examining the market, New Hope suddenly dropped a bombshell—it was going to make imported formula at 99 yuan per can.
This was a bomb.
The appearance of New Hope's 99 yuan formula not only challenged the entire industry's cognition but also catalyzed Junlebao's 130 yuan model.
Dealers and stores nationwide were watching to see how these two internet formula brands would fare. Putian Shengdao clearly stated that the 99 yuan formula would inevitably fail. The reasons were very simple:
First, it didn't conform to consumer cognition. 95% of consumers nationwide believed that good products are not cheap. But the company didn't strongly tell consumers the reason for the cheapness.
Second, it didn't conform to the consumer group of internet channels. In 2014, 85% of formula consumers on internet channels were concentrated in first- and second-tier markets, while low-price formula channels were in third-, fourth-, and fifth-tier markets, so the consumers didn't overlap.
Sure enough, not long after, Junlebao announced multi-brand entry into offline markets, and New Hope also entered offline markets. Now, both companies are developing well. Their experiments in internet channels are worth learning from for every company.
We look forward to these two companies creating brilliance.
Looking back, reflecting on internet B2C marketing. Many companies want to learn from Danone, thinking that the success of Aptamil and Nutrilon can be replicated.
**My judgment is that Danone's model is very simple, but its brand genes are difficult to replicate.**

2015: Qizhi Model Emerges, Wyeth's 10 Billion Dominates the Dairy Industry
While everyone was still discussing 130 yuan formula, a formula company called Qizhi suddenly rose on the grasslands of Zhangjiakou, Hebei. This company was invested in by Junlebao's Wei Lihua and former Modern Dairy's Deng Jiuqiang and others. On March 15, 2015, Qizhi held a press conference at Diaoyutai in Beijing, making a high-profile entry into the market.
Zero distance, integration, and two hours were its basic concepts. Enterprises and dealers in the national infant formula industry were impressed. Although the news was released, some entrepreneurs still didn't believe it—Qizhi was this fast??
Yes, from preparation on March 8, 2014 to the completion of the factory main body and equipment installation in October of that year, Qizhi created a world speed for large formula enterprises. On October 14, 2014, I made a special trip to visit Qizhi, to admire this magical enterprise. In the meeting room of Chabei Hotel in Zhangjiakou, at the "Top-level Design Seminar of Qizhi Dairy," I first learned that a group of experts in the liquid milk market were brewing the concept of "activity" that could be borrowed.
The next day, back in Beijing, I posted on WeChat Moments. An entrepreneur asked me, "Has Qizhi's main building been built?" I said the equipment was already installed. He was silent for a few seconds and said, "Impossible!" Then he said, "These people are really fast!"
Qizhi's speed pressed on the nerves of many enterprises and channel dealers.
Seeing my WeChat Moments, many dealer friends kept calling or messaging to inquire about Qizhi. Everything indicated that this enterprise, whether in terms of design concept or development timing, had the potential to be a dark horse.
Putian Shengdao believed that the essence of strategic competition ultimately lands on three directions: first, competition for public opinion rights; second, competition for standard rights; third, competition for pricing rights. Qizhi's model and its birth at this critical point perfectly coincided with these three key points. This was another enterprise, after Wahaha, with the opportunity for rapid development.
The Chinese concept was rising.
At the end of the year, imported brand Wyeth announced that its sales had exceeded 10 billion yuan. This once again stimulated channels and enterprises, and the third-tier market battle proposed by Putian Shengdao at the end of 2008 became a hot topic again among many entrepreneurs.
At the end of the year, when I met with Wyeth's China President, Mr. Qu, I congratulated him, saying that Wyeth's market now had momentum. If it adjusted its strategy appropriately in the future, it would put considerable pressure on competitors in the high-end market.
Yes, if we set aside the third-, fourth-, and fifth-tier markets and look only at first- and second-tier markets, Wyeth's share in those markets was approaching 40% that year, and in Beijing, its share was even around 80%. That year, Mead Johnson's growth was not significant, but its pressure was great; at the same time, domestic high-end products like Biostime and Beingmate's Aijia also felt the pressure from Wyeth's Illuma; Abbott was anxious, and its adjustment was very bold—it actually learned from domestic companies and authorized brand sales. This showed that Abbott had no ideas for the domestic market below the third tier, and it also indicated that it had encountered bottlenecks in marketing; Danone's Aptamil and Karicare entered the Chinese market at mid-range prices when imported big brands were at their highest, quickly gaining sales growth and brand stickiness. However, in 2015, these two products also encountered bottlenecks in e-commerce and baby store channels.
Whether online or offline, foreign enterprises in first- and second-tier markets all encountered growth bottlenecks. Overall, the core strategy of foreign capital in the future is to shift to the third-tier market, to compete for the core third-tier markets occupied by domestic companies like Yili, Beingmate, Yashili, Syutra, and Feihe.
This is a huge battle.
On one hand, foreign capital doesn't understand the third- and fourth-tier markets; on the other hand, the third- and fourth-tier markets are the lifeline of Chinese brands. One group must intervene because they have hit the ceiling in first- and second-tier markets; one group must prevent it because if the third- and fourth-tier markets are breached by companies like Wyeth, they will face a disaster.
The key issue is still the model.
Putian Shengdao once again proposed at the end of this year that the third-tier market is the focus of industry competition. Some companies in the industry began to think about reform. Companies that adjusted their strategies in 2015 saw significant development in the following two years, while those that didn't adjust saw sales decline in the next two years.

2016: Delisted Companies Layout New Strategies, Feihe Spreads Wings and Leads Domestic Brands
After New Year's Day 2016, two listed dairy companies announced privatization: one was Yinqiao, the first Chinese company to list abroad, privatizing from the Singapore stock exchange; the other was Syutra, the first to list in the U.S., privatizing from NASDAQ.
Why choose 2016 as the node?
I think these companies made this strategic move after a very long and intense struggle, indicating that the strategic integration of Chinese domestic enterprises is still ongoing. Before the strategy is finally stabilized, these companies face huge battles.
I had encouraged some companies five or six years ago to use delisting and re-listing to bring capital for strategic restructuring, to win the future competition from channel strategy to capital strategy. Today, some companies have done this, and some are doing it. Although Yinqiao and Syutra were a bit late, it's still a good thing. It's worth mentioning that Feihe, which started privatization in 2013, developed rapidly after privatization, with significant sales growth in 2014, 2015, and 2016. This benefited from the revision of its strategic model.
Speaking of Feihe, we should take a good look at this company, because in 2016 it already had the potential to be the number one in the domestic formula industry. Feihe's development is worth thinking about:
First is strategy: as described earlier, no need to repeat; second is team: half of Feihe's current team comes from Yashili, which is why Feihe grew rapidly while Yashili declined rapidly. Without a matching team, rapid growth can only be a dream; third is persistence in localization: although Feihe also plans to build factories abroad, its persistence in the domestic image over the years is still worth learning.
Feihe's capital strategy became a growth force, and Syutra's potential capital ties in the future could also have nuclear explosive energy. In 2016, I wrote: "If there are no other problems, Feihe and Syutra's infant formula revenue will definitely reach new heights in the next two to three years, ranking first and second in the domestic camp. Of course, other dark horses are not excluded!"
In 2016, the registration system was confirmed to be implemented, but when it would actually land was still far off. The market was waiting anxiously, and many government officials and experts were interpreting it everywhere, but the registration system remained difficult to deliver.
Pregnant women are not afraid of the pain of childbirth, but they fear the torment of difficult labor. The registration system was like a curse, already affecting the normal operations of most enterprises. Everyone was on tenterhooks, fearing that if their formula didn't pass, they would lose the market and go bankrupt. Some provinces even held meetings saying that in principle, if an enterprise reports three, you report one, and it will definitely pass.
What exists is reasonable. As the implementation date of the registration system approached day by day, in 2016, channels stopped stocking up. No matter how promotions were done, they only kept safe inventory.

2017: Registration System Lands with Risks and Opportunities, Large and Small Enterprises Show Their Muscles
At a formula forum in mid-2017, an entrepreneur who had spent the past two years threatening to sue the Food and Drug Administration, take media to court, and attack the registration system, gave a speech, roughly saying that the responsibility of an enterprise is to make good products, serve more consumers, cooperate with the government in the registration system, and quickly enhance the company's competitiveness in the same industry in China.
After the meeting, many peers sighed, saying that this entrepreneur had matured. In the first half of that year, almost all companies' writing styles changed dramatically, beginning to express support for the registration system almost obsequiously. Although I won't give examples here, one could still read the profit-seeking nature of enterprises as commercial organizations. An entrepreneur said to me, "I never care what policy comes out, nor whether it's reasonable. I only care how my company adapts and adjusts under this policy." He was right. When the registration system was difficult to deliver, many peers thought it might never land, but he firmly believed it would be implemented and made many strategic adjustments to his company in advance.
Yes, the arrow is on the string; it must be released.
If the registration system were announced, how would companies react? How would channels react? How would the future market change? As the general manager of Putian Shengdao, a company specializing in formula market research and strategic consulting for dairy companies, I also began to think about the future.
In August 2017, the first batch of the registration system was finally released. The first thing that caught the eye was Beingmate's first-pass effect. Whether it was the unintentional act of the authorities or Beingmate's PR, at the same time as the registration system was announced, Beingmate widely publicized that it was the first to pass the registration system and quickly arranged contract signings with large channel dealers and national agents. It was said that within a month, it signed sales commitments of nearly 4 billion yuan. Beingmate was the former sales leader, so its news naturally attracted attention. The new leader, Feihe, casually showed off its high-end share growth of over 200%. From a sales perspective, it was almost certain that Feihe was the domestic formula sales champion in 2017. Feihe's information stimulated the media and the market. Not long after, Syutra unveiled the world's largest infant liquid milk launch, a layout three years ahead of the industry, naturally dazzling and eye-catching. Just as Syutra's story settled, Junlebao released news of new retail and formula sales growth, and for a time, the dark horse position was occupied. At the end of the year, Yili also couldn't stay silent, releasing news of significant sales growth.
This was a show.
**At the 2018 planning meetings, almost all companies regarded 2018 as the decisive year. Thus, it's not hard to understand why so many companies kept showing their muscles in the second half of 2017.**
However, market competition risks and opportunities coexist. Putian Shengdao's research in 2017 found that in 2017, the decision-making weight of mothers in third-, fourth-, and fifth-tier markets for infant formula increased by 25%, reaching 70%. This was different from previous years when whoever paid decided, and male decision-making held a large share. This indicated two things: one is that post-90s mothers are more autonomous and don't trust authority. We made a portrait of the post-90s: the basic characteristics are: cool, simple, smart, new, and cute. This is a very important change. In subsequent surveys, this change was confirmed. In the ranking survey of quality, formula, price, origin, and brand, since the 2004 Fuyang incident, brand weight had always ranked first from 2004 to 2007, but from 2009 to 2016, brand weight ranked second, third, or fourth, often defeated by price, formula, and origin. In 2017, in surveys in six provinces and cities, brand ranked first in all. This is a very important finding.
This fully explains Feihe's growth, because Feihe has strategically moved away from channel-driven and transformed into a brand-driven growth model. And in 2017, brand ranking first again sounded an alarm for many companies: those that don't adapt to the market and still use extremely rough models will inevitably see sales decline and failure.
That year, many companies, in order to increase the number of brand formulas, either integrated backward production capacity domestically or abroad. This showed a lack of foresight, because these companies didn't see that the main body of competition had changed and consumers had changed. In this regard, many small and medium-sized domestic companies also raised product agency prices by 10-15 yuan. These short-sighted companies didn't modify their development models and still handed products to channels to operate. The channel-driven model was already exiting the stage of history, and this 10-15 yuan increase completely broke the interest chain of channel-driven, making most of these collaborations nearly paralyzed. Some dealers in certain markets, in order to protect their local dealership status, would make big promises to occupy brands and then shelve them, thereby reducing competitors.
Competition is competition; in the face of great opportunities, there are often great risks. Especially in the infant formula field, its increment will not decrease because of price reduction, nor will it increase because of the number of brands. The special nature of this product has led many companies astray, but more companies are still trying and making mistakes. The problem is that we see these companies have no future.
Putian Shengdao's research believes that the first half of 2018 will be a year of new products. After new products are launched, large enterprises will significantly increase various investments. This pressure will put oppressive pressure on 70% of small and medium-sized enterprises, and many small enterprises can only survive until the end of the year.
This pressure will break the current backward small and medium-sized enterprises and channel relationships by the end of 2018. If the top ten domestic and international companies adopt proactive strategies, then by the end of 2018, a large number of small and medium-sized enterprises and channel relationships will break, and hundreds of brands will be unable to find dealers and channel partners.
History is a cycle. The brand competition model that began in 2004 has returned. The market only believes in companies with strength and wisdom.
Let's all work hard!!!
Source: Dairy Information Network
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