The chilled fresh milk track is becoming increasingly crowded. As traditional product markets saturate, dairy companies are turning their attention to the high-margin chilled fresh milk business. Recently, Junlebao, a regional dairy company in northern China, announced its entry into the fresh milk market. With this, major domestic and international dairy companies, including Fonterra and Mengniu Dairy (02319.HK), have successively launched fresh milk businesses. The influx of latecomers has intensified market competition, posing new challenges for regional dairy companies that rely on chilled fresh milk. After being sold by Mengniu and becoming independent, Junlebao quickly launched its first fresh milk product on November 16 and announced plans for nationwide expansion. As the largest dairy company in Hebei, Junlebao had previously invested heavily in chilled yogurt and milk powder businesses but had never launched fresh milk products. In response, Junlebao Group President Wei Lihua explained that the move is driven by the market prospects of chilled fresh milk products. The market share of chilled fresh milk in China is less than 25%, while in developed countries such as Europe and the United States, the share of chilled fresh milk products is as high as 90%. Previously, room-temperature milk dominated the market due to limitations in preservation and transportation. However, with consumption upgrades and the maturation of basic conditions, more nutritious chilled fresh milk products are now presenting opportunities. Junlebao has become another new entrant in the domestic chilled fresh milk market this year. In April 2019, international dairy giant Fonterra also announced the launch of its first chilled fresh milk product in China. Since 2018, the congestion of the chilled fresh milk track has been increasing. In particular, Mengniu Dairy, one of the two dairy giants, officially entered the chilled fresh milk market in 2018 with the help of Modern Dairy's (01117.HK) industrial layout. It has now completed the layout in 16 provinces and cities, with its factories in Qingyuan, Guangdong, and Tianjin starting production in the first half of 2019. Traditional dairy companies such as Bright Dairy (600597.SH) and Wandashan are also expanding their chilled fresh milk business coverage. Previously, the chilled fresh milk market was mostly dominated by a single regional dairy company, with little fierce competition. Taking the Beijing market as an example, Sanyuan Foods (600429.SH) previously dominated the chilled fresh milk market in Beijing. However, a reporter from Yicai found that chilled fresh milk products from brands such as Mengniu, Bright, Wandashan, and Meiji are now on sale, and they are even busy developing milk subscription customers in the Beijing market. In the industry's view, dairy companies are increasing their investment in the chilled fresh milk category because they value its high growth rate and high gross margins. According to Zhao Hui, General Manager of Kantar Worldpanel North China, as competition in the domestic dairy market intensifies, growth in traditional categories is becoming difficult. In the dairy industry, liquid milk sales continue to grow, but the growth in per-household demand has basically stalled. Market sales growth relies more on natural household growth and price increases. In contrast, the market penetration of chilled fresh milk has increased by 3% over the past year, indicating that more consumers are willing to consume chilled fresh milk. Other data shows that the average annual growth rate of chilled fresh milk is 18.5%, while the growth rate of room-temperature products has remained in single digits in recent years. At the same time, with repeated price competition in traditional products, profits are becoming thinner. Chilled fresh milk, which emphasizes health and premium positioning, brings more profits. According to data from New Hope Dairy, which went public in early 2019, the gross margin of its low-temperature products is 42.87%, much higher than the 24.67% for room-temperature products. In terms of ton price, the ton price of chilled fresh milk is 10,798.5 yuan/ton, while that of room-temperature milk is only 6,866.5 yuan/ton. The development of cold chain logistics has also provided a foundation for the expansion of chilled fresh milk. Song Liang, an independent dairy analyst, told Yicai that chilled fresh milk needs to be developed around cities, requiring high-quality distributed milk sources and a cold chain logistics, transportation, and storage system. The coverage radius often does not exceed 300 kilometers, so chilled fresh milk is also the domain of regional dairy companies, with each company managing its own territory. However, in recent years, to develop chilled yogurt, dairy companies have accelerated the construction of cold chain logistics. Since the channels for both are consistent, this has also provided conditions for the development of chilled fresh milk. At the same time, the application of new technologies is continuously breaking the limitations of transportation and sales radius for chilled fresh milk. For example, Junlebao's chilled fresh milk uses new INF sterilization technology, extending the product's shelf life from 7-11 days to 19 days. It is worth noting that chilled fresh milk is also the foundation for regional dairy companies to resist the invasion of national dairy companies and to survive. A person in charge of a regional dairy company in East China told Yicai that the profit from chilled fresh milk products accounts for more than 50% of the company's total profit. However, with the addition of more new brands, regional dairy companies will face new competitive pressure. Some regional dairy companies have already felt this pressure this year. For example, regional dairy company Tianrun Dairy's revenue in the first three quarters was 1.22 billion yuan, a year-on-year increase of 10.2%, and net profit was 120 million yuan, a year-on-year increase of 12.8%. However, a research report from Sinolink Securities shows that Tianrun Dairy's growth rate slowed significantly in the third quarter, mainly due to intensified competition in the low-temperature business, which led to a slowdown in revenue growth for the low-temperature business, affecting overall revenue growth that fell short of expectations. In Song Liang's view, the competition in the chilled fresh milk market is just beginning. The chilled fresh milk business volumes of various dairy companies are still not large, and no strong national brand has emerged. Regional dairy companies still have their geographical and channel advantages, and it is difficult to say who will win in the short term. However, in the long run, chilled fresh milk does not have the conditions to sink to lower-tier city markets. Therefore, brands will repeatedly compete in first- and second-tier city markets, and regional dairy companies will face greater pressure and difficulties. Source: Yicai Tips will be paid 400-2000 yuan once adopted.