By He Danlin | Image from the Internet

This article is from Interface News

[Editor's Note] Fluctuations in raw milk prices, competition from international dairy giants, reforms to reduce pressure on distributors, underperforming milk powder business, and internal friction from acquired brands... Mengniu faces internal and external challenges. The gap between Mengniu and Yili is widening. In 2014, Mengniu and Yili both entered the 50 billion club for Chinese dairy companies; in 2015, the revenue of China's second-largest local dairy company fell below 50 billion, while Yili's total revenue is expected to exceed 60 billion. The 2015 annual revenue of 49.0265 billion yuan not only represents Mengniu Dairy's departure from the "50 billion club" but also marks the first annual revenue decline in three years since the company resumed stable growth in 2013. On March 22, Mengniu Dairy (02319.HK) released its 2015 annual report, stating that as of December 31 last year, revenue decreased by 2% year-on-year to 49.0265 billion yuan, while net profit slightly increased by 0.7% to 2.367 billion yuan. Last year, Mengniu's liquid milk revenue was 43.3266 billion yuan (compared to 43.0361 billion in 2014), accounting for 88.4% of Mengniu's total revenue. Data shows that Mengniu Dairy's operating revenue in 2014 reached 50.05 billion yuan, a year-on-year increase of 15.4%; net profit was 2.35 billion yuan, up 44.1%. In 2013, operating revenue was 43.36 billion yuan, up 20.4%; net profit was 1.63 billion yuan, up 25.2%. Although star brands such as Telunsu, Chunzhen, Youyi C, and Guanyiru continued to perform well, overall, Mengniu's UHT milk, dairy beverages, ice cream, and milk powder businesses all declined to varying degrees, with yogurt business showing the best growth. Currently, Mengniu's joint venture with Danone, Mengniu Danone, maintains the number one market share in the national low-temperature dairy market. Regarding last year's performance decline, Mengniu attributed it more to external factors in its financial report: Last year, China's total dairy consumption showed a slow growth trend; In the past two years, supply-demand imbalance and raw milk price fluctuations intensified competition in China's dairy market, creating a diversified landscape; Upstream companies entering the downstream market, international dairy giants competing to enter the Chinese market, and regional dairy companies increasing industry investment have led to multi-level competition in the domestic liquid milk market; The increase in imported dairy products stimulated domestic dairy companies' market response speed and accelerated the pace of product structure adjustment and upgrading. While the difficult industry environment is partly responsible, since competitors facing the same issues achieved growth, this cannot fully explain why only Mengniu lagged behind. Perhaps the most critical point is that Mengniu did not push inventory onto distributors last year. The self-media account "Shiwu" reported that Mengniu began reforms last year, proposing to "strengthen regional offices" and "streamline headquarters", reallocating profits to promote the initiative and enthusiasm of its 18 major regions, and gradually converting distributors in each region into delivery agents. This means that if Mengniu had used the tactic of pushing large volumes of inventory onto distributors to boost performance, given the current number and scale of its distributors at all levels, it could have easily achieved regular growth. However, they did not do so in 2015. Therefore, the performance decline is an inevitable cost of the early stages of reform, and the long-term effectiveness of the reform remains uncertain. Converting distributors into delivery agents may increase Mengniu's operating costs. Another reason for last year's performance decline was the drag from Mengniu's milk powder business. Xiang Jianjun, a food industry researcher at CIC Consulting, told reporters: "Yashili's performance plummeted last year, Dumex became a hot potato after the botulism incident, and last year Mengniu gave substantial discounts and increased sponsorship activities to cope with weak consumer demand, all of which impacted Mengniu's performance." Mengniu faces many hidden dangers and problems. Previously, Mengniu's size increased through a series of acquisitions, but most of the acquired companies operate independently and are unwilling to give up any regional market, leading to inevitable internal competition. For Mengniu, which has slowed down and wants to "strengthen and refine", solving the internal friction caused by product competition is a headache. In addition, although Mengniu expanded its influence upstream through equity participation, it does not actually manage operations, so its milk source control capability is weaker than competitor Yili, and upstream-downstream synergy is poor. Excellent Product Promotion: China's first brain gold beverage "Shanlong" brain gold beverage national recruitment. Reasons for recommendation:

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