---
title: "China's Infant Formula Prices Are the World's Highest—Deliberately Set by Manufacturers, but Prices May Be About to Drop"
description: "The abnormally high prices of infant formula in China are largely the result of deliberate pricing strategies by manufacturers. However, subtle changes are underway as domestic brands regain market share, potentially signaling the end of the high-price era."
author: "陈晓平"
publisher: "New Distribution"
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published: "2017-12-01"
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# China's Infant Formula Prices Are the World's Highest—Deliberately Set by Manufacturers, but Prices May Be About to Drop

> The abnormally high prices of infant formula in China are largely the result of deliberate pricing strategies by manufacturers. However, subtle changes are underway as domestic brands regain market share, potentially signaling the end of the high-price era.

The abnormally high prices of infant formula in China are largely the result of deliberate pricing strategies by manufacturers. However, subtle changes are underway as domestic brands regain market share, potentially signaling the end of the high-price era.

Many young Chinese parents traveling in Europe are often surprised by the low prices of infant formula in local supermarkets. Boots, a British health and beauty retailer, is frequented by 90% of British women, according to some statistics, and its baby product line is particularly comprehensive. In London's Boots stores, mainstream infant formula brands such as Aptamil, Cow & Gate, Wyeth, and Hipp are available, including special formula products. A 900g can typically costs between £10 and £12, roughly RMB 90-110.

For example, Aptamil's standard version retails at only £10 in Boots, while in China it commonly costs over RMB 200. It is not uncommon for the same brand of formula to be priced 1-2 times higher in China. Research indicates that globally, a can of infant formula typically costs between RMB 80 and 150, whereas in mainland China, the price range is RMB 200-400.

The huge price gap has made formula a major category for cross-border purchasing and daigou agents, even impacting the UK retail market. To combat bulk buying, retailers like Boots once limited purchases to two cans per person (now relaxed to four).

However, this has not significantly reduced the high cost Chinese families pay for formula, with monthly expenses exceeding RMB 1,000 being common. Studies suggest that an average British family spends about 6% of its total expenditure on infants, while in China, this figure is as high as 26%.

The unique "plateau effect" in Chinese formula prices cannot be explained by cost factors alone. Producing a can of infant formula primarily involves whey powder and fresh milk, along with various vitamins and minerals required by national food standards. Even with optional ingredients like DHA, the actual cost typically does not exceed RMB 50 per can. For fully imported formula, transportation and tax costs add only marginally.

In reality, the high prices in China are more a result of deliberate pricing strategies by brand owners, amplified by the unique psychology of Chinese parents and the complex market landscape.

**A former marketing strategist for a foreign formula brand admitted that they deliberately raised prices over a decade ago, unrelated to costs, purely for market positioning.** "The logic was simple: Chinese urban families were allowed only one child, and they wanted the best for that child. A high-price, high-profile strategy was a business choice."

Even now, leveraging the "win at the starting line" mentality of Chinese parents, many high-priced brands engage in clever concept marketing, though most formulas are essentially similar.

Individual brand pricing is understandable, but when public incidents trigger widespread consumer panic about formula quality, leading to cognitive biases like "expensive means safe" and "imported is reliable," the effects of such strategies are magnified.

Many foreign brands have taken advantage of this to continuously raise prices, prompting domestic manufacturers to follow suit with high-priced new products. Some, catering to the market's preference for imported products, adopt "original can import" formats, pushing prices even higher.

"Consumer trust is key in the dairy industry. A few years ago, that trust almost disappeared in the Chinese market. Local dairy companies need time and effort to rebuild it. For a family, infants are the center, and they are willing to pay high prices to ensure safety. This is a major reason for high formula prices in China," commented Richard Hall, former chairman of the Global Dairy Trade Federation.

**In China, infant formula has become a rare category with extremely high gross margins, with industry average gross margins exceeding 50%. Some listed companies' formula gross margins approach 70%. This is relative to ex-factory prices; considering channel profit margins, the production cost as a percentage of retail price is very low.**

Additionally, China's multi-brand competitive landscape and multi-tiered market conditions force brands to invest heavily in marketing and channel promotion, further driving up prices.

In the UK, the formula market structure is relatively stable. In 2015-2016, the top four brands held over 95% market share (Aptamil 51%, Cow & Gate 31%, Wyeth 14%, Hipp 2%). The government also restricts large-scale brand promotion, limiting marketing to individual customer service.

Furthermore, the UK only allows authorized large supermarkets or pharmacies to sell formula. Unauthorized individual vendors are not permitted to distribute it. Since approved companies are mostly national chains, products go directly from manufacturers to end consumers, eliminating multi-level intermediaries that add markups.

In contrast, China has over 2,000 formula brands. Many rely on massive marketing expenditures to expand share. Given the large market size, they must rely on distributors at various levels to achieve national coverage, making channel delivery costs exceptionally high. Some brands even deliberately raise retail prices to provide more profit margins for channel partners.

The distorted high prices and high margins have spawned a series of industry chaos, but the market is undergoing subtle changes. First, the regulatory authority's implementation of the formula registration system will raise entry barriers, making the market more standardized and orderly, while curbing the chaos of marketing and price hikes through formula upgrades. China's formula standards also align with international ones.

Second, the quality of domestic formula has significantly improved, gradually recovering from negative incidents and regaining consumer trust. Domestic brands are willing to expand the market with more affordable prices. Their market share is recovering, while foreign brands' dominance is weakening. For example, Mead Johnson's financial reports show a 3% decline in China sales in 2016.

Third, new channels such as e-commerce, direct sales, and the rise of large mother-and-baby chain stores are reducing distribution costs, giving brands more room to cut prices.

In fact, some domestic brands have already begun to adjust, lowering prices to below RMB 150 per can. With the relaxation of the two-child policy, an estimated 20 million newborns are expected annually from 2017 to 2020, and the infant formula category is projected to grow 7-10% over the next five years. **For forward-thinking brands, affordable and sustainable pricing is also a very attractive option.**

Source: 21st Century Business Review
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