According to the State Administration for Market Regulation, Coca-Cola and China Mengniu Dairy have received approval to establish a joint venture to produce and sell low-temperature milk products in China. The partnership leverages Mengniu's dairy expertise and Coca-Cola's global brand to tap into China's growing low-temperature milk market. When the Chinese dairy giant aspires to go global and become an international brand, and the world's largest beverage behemoth wants to enter the Chinese dairy market, with COFCO, a matchmaker with deep ties to both sides, the capital connection was quickly sealed. So, what specific areas will these two giants venture into after the joint venture? -01- Unexpected but Reasonable According to Coca-Cola, the company and China Mengniu Dairy have received the "Decision on Not Conducting Further Review of Concentration of Undertakings" from the State Administration for Market Regulation, approving the establishment of a joint venture to produce and sell low-temperature milk products in China. In fact, in my view, Coca-Cola and Mengniu's collaboration in the low-temperature milk market is only "unexpected but reasonable." First, for Mengniu, the focus of development over the past four years has been largely on low-temperature milk. In the 2019 annual report released by Mengniu in March, the performance of low-temperature liquid milk was particularly impressive. Last year, Mengniu's low-temperature yogurt sales maintained high single-digit growth despite market headwinds, ranking first in the industry for 15 consecutive years. New products such as Nordic Cheese and Yolix Passion Fruit grew strongly; the low-temperature fresh milk business emerged as a new force, with market share doubling. The Daily Fresh Milk brand saw sales growth of nearly 500% year-on-year, becoming the top domestic high-end fresh milk brand. By the end of 2019, Mengniu's low-temperature fresh milk products had covered 24 provinces and 50 key cities in East China, South China, North China, Central China, and Northeast China. So it is not surprising that Mengniu continues to strengthen its low-temperature liquid milk business through the joint venture. What is somewhat surprising is Coca-Cola, which has a relatively weak low-temperature product line. To date, Coca-Cola has not sold any low-temperature milk products in the Chinese mainland market. Even abroad, according to reporters, it was only in January this year that Coca-Cola announced the acquisition of the remaining shares of the high-end milk company fairlife. After the acquisition, fairlife will become a wholly-owned subsidiary of Coca-Cola. According to fairlife's official website, its product portfolio includes various dairy products. The most classic ultra-filtered milk series is refrigerated liquid milk. fairlife's products are sold in the United States and Canada but have not yet been introduced to the Chinese mainland, a huge dairy consumption market. In addition, Coca-Cola has also laid out low-temperature milk products in Brazil and other places. According to Coca-Cola's global CEO James Quincey, the company is confident in gaining more market share, especially in juices, dairy, plant-based beverages, and water. Coca-Cola also stated that this cooperation with Mengniu will accelerate Coca-Cola China's transformation into a "total beverage company," providing a range of beverage brands for consumers to choose from. This is also another testament to Coca-Cola's long-term commitment to the Chinese market. -02- Low-Temperature Milk Is Heating Up It is easy to see that both giants are busy in the low-temperature milk field, but in the internet age, there is never a shortage of eyes spotting opportunities. In recent years, dairy companies have continuously entered the low-temperature milk market. In addition to Mengniu launching Daily Fresh Milk in 2018, Mengniu's old rival Yili launched the Baigete pasteurized fresh milk brand. Bright Dairy, a leading low-temperature milk company, launched new products such as Youbei Concentrated Fresh Milk in 2019 and acquired Jiangsu Huishan Dairy and Jiangsu Huishan Animal Husbandry for 750 million yuan. In 2019, Fonterra's Anchor brand launched its own brand of fresh milk, officially entering the domestic low-temperature fresh milk market. New Hope Dairy acquired a 9.28% stake in Modern Dairy and a 55% stake in Fuzhou Aoniu. Even foreign dairy companies seem to have set their sights on the domestic low-temperature milk market. Just recently, Meiji Dairy acquired a 25% stake in AustAsia for 1.8 billion yuan. For a long time, due to uneven distribution of milk sources, channels, and the lack of interest in low-temperature milk in third- and fourth-tier markets, the market share of low-temperature fresh milk in China's milk market has not exceeded 25%, while in developed countries such as the United States, Japan, and Australia, the share is over 90%. Therefore, beneath the calm surface of the low-temperature milk market lies a huge potential. According to the "2019 Fresh Life White Paper" released in September last year, from August 2018 to August 2019, low-temperature fresh milk sales increased by 19.5%, with market penetration reaching 33.6%. I also found that in March this year, sales of liquid milk on Alibaba's online channels reached 1.072 billion yuan, a year-on-year increase of 62%, of which low-temperature milk sales were 59 million yuan, a year-on-year increase of 206%. During the pandemic, when the National Health Commission suggested that adequate dairy intake could aid in the recovery and prevention of COVID-19, and when community group buying boomed to cater to the "stay-at-home" economy, the milk delivery service from the 1990s seemed to make a comeback. Naturally, while many dairy products were sluggish, low-temperature milk saw counter-trend growth. Looking back at the alliance between Coca-Cola and Mengniu, it is by no means a simple case of two giants acting on impulse; it is clearly premeditated. -03- Summary By hitching a ride with Mengniu, Coca-Cola will not have to worry about basic milk sources, will smoothly enter the Chinese dairy market, and will go further in its strategy of becoming a "total beverage company." On the other hand, Mengniu, by hitching a ride with Coca-Cola, can build itself into an internationally renowned brand, expand overseas markets, and enter the international market indirectly. A Coca-Cola spokesperson said regarding the joint venture that the new entity will leverage the advantages of both parties in dairy R&D, dairy processing technology, brand influence, and distribution channels to bring a new low-temperature milk brand to Chinese consumers and promote the upgrading of dairy consumption in China. Tips will be paid 400-2000 yuan once adopted.