Click the image above for details Attention, Shanghai's old friend Bright Dairy—the East China market is about to see a hot battle in low-temperature fresh milk. On August 4, the signing ceremony for the high-end finished low-temperature milk project jointly invested by Coca-Cola and Mengniu was held in Hefei, Anhui. According to the announcement from the People's Government of Wuhe County, Anhui, the project's total fixed asset investment is 2.1 billion yuan, divided into four phases, with the first phase investing 500 million yuan, and production and sales are planned to officially commence in the third quarter of 2021. In other words, around this time next year, we should be able to drink low-temperature fresh milk produced by Coca-Cola and Mengniu. The project is jointly controlled by Coca-Cola China Investment Co., Ltd. and Mengniu Dairy, and will set up new professional production equipment at Modern Dairy's Zhuding Ranch in Wuhe, Anhui—Modern Dairy is known as "China's largest upstream dairy enterprise," with Mengniu as its largest shareholder. As early as May 6 this year, the State Administration for Market Regulation had already released information that the case for the new joint venture between Coca-Cola and Mengniu was concluded at the end of April. Coca-Cola's optimism about dairy products and its choice to cooperate with Mengniu are both reasonable: COFCO Corporation holds a 65% stake in COFCO Coca-Cola, making it the only bottling group in Coca-Cola's China region controlled by a Chinese party, and COFCO is also the largest single shareholder of Mengniu. What is more worth considering is the category and location chosen for the joint venture. Low-temperature milk requires refrigeration, tastes better, and is fresher, but it has a shorter shelf life and higher cold-chain transportation requirements; it is currently the fastest-growing category in the dairy industry. As for Anhui, it is the base of Modern Dairy, Mengniu's most important partner in upstream milk sources. Setting up the ranch and production equipment here allows Mengniu to better reach the economically strong East China market and ensure cold-chain transportation efficiency. -01- No Matter US, Australia, Japan, or Korea, Fresh Milk Is the Ultimate Destination Currently, China's dairy industry is dominated by two leading enterprises (Yili and Mengniu), with regional dairy companies each having their own territories: Beijingers love Sanyuan, the Jiangsu-Zhejiang-Shanghai region prefers Bright Dairy, New Hope Dairy has a large audience in the southwest, and Guangdong has local brands like Yantang and Xiangmanlou. Even in Inner Mongolia, the home base of the giants, there is room for local dairy companies like Mengyuan and Mengchun. At regional dairy companies like Sanyuan, Bright, and New Hope, you can buy fresh milk—bagged or gable-top packaged, with a short shelf life but better taste. Low-temperature fresh milk generally uses pasteurization (heating at 72–90°C for 10–15 seconds) for sterilization, hence it is also called "pasteurized milk." However, the low-temperature milk sector is gradually introducing ultra-instant sterilization and high-pressure sterilization processes, so it will not rely entirely on pasteurization in the future. Compared to the ultra-high-temperature sterilization used for ambient milk, pasteurized milk better preserves the nutritional components and active substances of milk, which is why it has a very short shelf life. From transportation to sale, pasteurized milk requires a full cold chain to maintain a temperature of 0–6°C; once it breaks the cold chain, it easily spoils. Due to various historical factors, Tetra Pak ambient milk is still the choice of most Chinese consumers. According to data from the China Dairy Industry Association, the market share of low-temperature pasteurized fresh milk in China is about 15.2%, while ambient milk accounts for 84.8%. Ambient milk remains the mainstream in the market. But for more mature consumer markets, low-temperature milk is the ultimate destination for consumers—better taste, fresh and nutritious, and in the most common terms, "it really tastes like milk." Pu Shaohua, Chairman of Bright Dairy, mentioned at the First China Dairy Freshness Summit and Dairy D20 Summit in December 2019 that, based on the consumption of pasteurized milk in developed regions, the proportion of fresh milk in their liquid milk industry is: Canada 99.9%, the US 99.7%, the UK 99.5%, Japan and South Korea 98%, and Australia 92.6%. In recent years, the growth of low-temperature milk has gradually become noticeable—in 2019, the entire pasteurized milk market reached 34.3 billion yuan. According to data from China Industry Information Network, the annual growth rate of pasteurized milk has remained above 7% since 2011, with a compound annual growth rate of 8.8% from 2015 to 2019. -02- A Gap of 11 Billion: How Can Mengniu Defeat Yili? For Mengniu, betting on fresh milk is an important means to compete with Yili. The 2019 annual reports of the two dairy giants show that Yili's total revenue was 90.223 billion yuan, a year-on-year increase of 13.41%; Mengniu's total revenue was 79.03 billion yuan, a year-on-year increase of 14.6%. Further down, there is Bright Dairy with revenue of 22.563 billion yuan, Health and Happiness Group (with brands including Biostime) with 10.93 billion yuan, and Sanyuan with 8.15 billion yuan, showing a clear gap from Yili and Mengniu. But the gap between Mengniu and Yili is also as high as 11 billion yuan, and compared to the 10 billion yuan difference in 2018, the revenue gap between the two has widened again. Before this, Mengniu had already opened a new battlefield, determined to bet on the low-temperature milk sector to differentiate itself from Yili. Mengniu officially established its fresh milk division in April 2017, and its main sub-brands in the low-temperature milk sector are Shixian Yushu (Daily Fresh) and Modern Ranch. According to Mengniu's disclosures, with consumers' growing demand for low-temperature fresh milk, Daily Fresh has grown very rapidly: in 2019, it saw a year-on-year increase of nearly 500%. This is related to the fact that the products under "Daily Fresh" are very "detailed" and good at catering to changes in consumer demand. In the brand's initial stage, Daily Fresh positioned itself as high-end, with prices around 8 yuan/250ml in supermarkets and convenience stores, targeting urban white-collar workers. In 2019, Daily Fresh successively launched new products such as 0-fat fresh milk and cold-brew coffee latte—those familiar with the consumer market would immediately know that these two products were designed to capture the fitness crowd and ride the wave of the coffee category's rise. Lu Minfang, President of Mengniu Group, said in a group interview with media at the end of May this year that Mengniu's fresh milk business market share has exceeded double digits, and the company requires its sales to double every year. Whether the push in the low-temperature milk sector can help Mengniu catch up with Yili and achieve its "double thousand billion" goal remains to be seen. The cooperation between Coca-Cola and Mengniu is still positioned at the high end, and it is expected to continue to lock onto households in first- and second-tier cities and capture changes in the consumption tendencies of high-end consumers. In addition, as mentioned at the beginning of the article, the leading company that has long dominated the ambient milk sector entering the East China market will inevitably trigger a price war in the Jiangsu-Zhejiang-Shanghai region that locals will enjoy watching, especially for regional dairy companies like Bright Dairy. Source: Shiyi Xiaofeizhe (ID: gjgc168); Author: Qiao Qiaoge