On the evening of March 27, Mengniu released its 2017 annual results: total revenue was RMB 60.1556 billion, up 11.9% from RMB 53.7793 billion in 2016; net profit was RMB 2.0478 billion, compared with RMB -751.2 million in 2016. This means that in China's dairy industry's 600-billion club, Yili is no longer the only dominant player. Mengniu once set records as the first domestic dairy company to break through 20 billion and 30 billion in revenue, surpassing Yili, which had over 30 years of history, to become the champion of China's dairy industry. But since 2009, Mengniu's growth rate began to lag behind Yili, and in 2011, Yili's revenue surpassed Mengniu, returning to the top position. In 2012, Mengniu was again embroiled in a food safety incident, widening the revenue gap between the two. On the Mid-Autumn Festival night in 2016, Sun Yiping stepped down and Lu Minfang took over. In the first half of 2017, Mengniu lagged behind Yili by 4 billion yuan. 2017 was the first complete fiscal year for Mengniu's new management team. Previously, Lu Minfang had defined it as "a key year for Mengniu's deepening reform and the opening year for stepping onto a new stage," so the results attracted considerable market attention. After assuming the CEO role, Lu Minfang carried out drastic reforms within Mengniu, including adopting a new business unit system and advocating the return of a "wolf culture" of "if you can, you stay; if you can't, you go." The annual report shows that Lu's management has achieved initial results. Now that Mengniu has entered the 600-billion club, in comparison, we cannot help but ask: What is the current fundamental state of Mengniu, and will this be another new cycle for it? 1. The advent of a new "golden decade" for China's dairy industry Consumption in China's dairy market has begun to recover, providing a foundation for the growth of domestic dairy enterprises. In the past two years, the government has intensified efforts to clean up miscellaneous brands and small brands in lower-tier markets, while large domestic dairy companies have accelerated their expansion into markets below the third tier and in counties, townships, and villages. Compared with other international markets, the penetration rate of China's dairy market is still very low. According to Macquarie's 2016 research, China's per capita annual liquid milk consumption was 17.8 kilograms at that time, while Japan and the United States were 30.8 kilograms and 71.6 kilograms respectively; China's per capita annual dairy consumption expenditure was 20-30 US dollars, while developed markets were 100 US dollars. Although per capita yogurt consumption is still not high, the growth trend is obvious. From 2010 to 2017, the compound annual growth rate of average yogurt prices in the Chinese market reached 5%. In the medium and long term, Mengniu will be a beneficiary of the growth in China's dairy consumption. 2. World Cup boosts overseas expansion In December last year, Mengniu and FIFA jointly announced that Mengniu officially became a global official sponsor of the 2018 World Cup and the official supplier of drinking yogurt and pre-made ice cream for the World Cup. As a sponsor, Mengniu has the right to air up to 7 minutes of advertisements during all 64 matches of the World Cup, which helps expand the international visibility of its brand—the 2014 Brazil World Cup had a total audience of 3.2 billion. In addition to becoming a World Cup sponsor, Mengniu has also actively expanded its overseas business. Mengniu's ambient dairy products (including pure milk, low-fat high-calcium milk, Telunsu milk, fruit milk drinks, and Pure Zhen yogurt) and low-temperature dairy products (including Youyi C lactic acid bacteria drinks, and ice cream brands such as Dilan Shengxue, Suibian, and Green Mood) have already appeared in important Asian markets such as Hong Kong, Macau, Mongolia, Myanmar, and Singapore. Euromonitor predicts that from 2017 to 2022, the compound annual growth rate of dairy consumption in Indonesia, Myanmar, Laos, Cambodia, and Vietnam will reach 5%-9%. On February 24 this year, Mengniu also announced that Argentine star Lionel Messi would become its brand ambassador, another important move in Mengniu's World Cup marketing campaign. In short, Mengniu's international journey is still long, and becoming a World Cup sponsor is only the first step. 3. Catering to the premiumization trend China's consumer market is undergoing a wave of premiumization. Yogurt is an example of the premiumization trend in dairy products. Euromonitor research shows that China is the largest yogurt consumption market in the Asia-Pacific region, accounting for nearly 62% of the region's yogurt sales in 2017 and contributing as much as 83% to the growth of the Asia-Pacific yogurt market sales from 2012 to 2017. In China, both supply and demand factors drive yogurt consumption. On the one hand, low-temperature yogurt containing probiotics is increasingly popular among Chinese consumers; on the other hand, dairy companies such as Mengniu have launched a variety of yogurt products, including low-priced and ambient yogurt products. Mengniu holds a 30% share of China's low-temperature yogurt market. The company is keenly aware of the premiumization trend and launched new yogurt products last year, including ultra-high-end low-temperature Telunsu yogurt and Youyi C-LC37 small blue bottle lactic acid bacteria drink (as shown in the figure below). At the same time, Mengniu also launched European-style charcoal-baked yogurt. In addition to yogurt, Mengniu also launched M-PLUS high-protein milk for athletes and sports-loving consumers. The formula of this product includes high-quality milk, vitamins, minerals, and taurine. 4. 600 billion is just the beginning; Mengniu's goal is "champion" If following the previous development pace, 2017 was undoubtedly a year in which Mengniu took two steps in one, completing in just one year what previously took two years. However, 600 billion is not Mengniu's ultimate goal; it is just the beginning of a new journey. Their aim is the industry-wide "champion." On December 16, 2017, Mengniu held its customer annual meeting in Xiamen, where Lu Minfang first announced Mengniu's "Road to Championship." At that time, he said: Mengniu's original aspiration is "Inner Mongolia cow, China cow, world cow." While striving toward the original aspiration, we must also shape a "wolf culture" and advance on the road to championship with the fierce determination to win and to win together! Lu Minfang pointed out that under the situation where opportunities and challenges coexist, Mengniu must "win." "If we don't win, we die; behind second place is a cliff." Obviously, he is not willing to be the industry's second, and the Mengniu people with blood and dreams are no longer willing to be second. It can be said that at this annual meeting at the end of last year, the wolf nature of Mengniu people was stimulated! As of March 28, Yili shares had not yet published its 2017 annual report. Compared with being once left behind by Yili by more than 10 billion, Mengniu's revenue performance in 2017 undoubtedly made great progress! Yili's 2016 revenue was 60.3 billion, and Mengniu broke through 60 billion in 2017, reaching Yili's scale of the previous year, and showing an increasingly fast development momentum, which makes people look forward to the performance of the two dairy giants in the next three years. This article is compiled and edited by New Distribution. -END-