---
title: "Mengniu's Transformation: What Are the Odds for an Ambient Milk Giant Venturing into Pasteurized Milk?"
description: "Pasteurized milk is expected to become the main battlefield of China's dairy industry in the 'new decade.' As market competition intensifies, the dynamics between the two major liquid milk camps are subtly shifting. It is reported that profits for ordinary ambient milk have dropped to near 'dumping' levels, prompting dairy companies to focus on high-end markets and the rapidly growing pasteurized milk segment. Mengniu and Yili have repeatedly denied rumors of entering the pasteurized milk market, but in early this year, Mengniu quietly launched three fresh milk sub-brands in Hangzhou, officially entering the fray."
author: "叶碧华 詹戈萌"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-08-25"
language: "en"
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# Mengniu's Transformation: What Are the Odds for an Ambient Milk Giant Venturing into Pasteurized Milk?

> Pasteurized milk is expected to become the main battlefield of China's dairy industry in the 'new decade.' As market competition intensifies, the dynamics between the two major liquid milk camps are subtly shifting. It is reported that profits for ordinary ambient milk have dropped to near 'dumping' levels, prompting dairy companies to focus on high-end markets and the rapidly growing pasteurized milk segment. Mengniu and Yili have repeatedly denied rumors of entering the pasteurized milk market, but in early this year, Mengniu quietly launched three fresh milk sub-brands in Hangzhou, officially entering the fray.

“**Pasteurized milk is expected to become the main battlefield of China's dairy industry in the 'new decade.'** ”
As market competition intensifies, the dynamics between the two major liquid milk camps are subtly shifting. **It is reported that profits for ordinary ambient milk have dropped to near 'dumping' levels, prompting dairy companies to focus on high-end markets and the rapidly growing pasteurized milk segment.** Pasteurized milk is expected to become the main battlefield of China's dairy industry in the 'new decade.'
In the past two years, rumors of Mengniu and Yili entering the pasteurized milk market have been persistent, but both companies have repeatedly denied them. **Until early this year, Mengniu launched three fresh milk sub-brands in Hangzhou at once, officially announcing its entry, but all this was done very quietly.**
According to an industry insider in the pasteurized milk sector, Mengniu's 'Daily Fresh' pasteurized milk was already in production in January this year, and in March and April, Mengniu conducted concentrated promotions, but the market response was lukewarm, and it is currently only visible in some northern markets.
However, Gu Jiasheng, vice chairman of the National Dairy Science and Technology Innovation Alliance, believes that "pasteurized milk cannot be made too big." Due to product characteristics and high requirements for raw milk and cold chain transportation, pasteurized milk must be produced at a moderate scale to cover a certain market.
Mengniu's Entry
Recently, 21st Century Business Herald learned from the National Dairy Science and Technology Innovation Alliance that Mengniu is applying to join the China Quality Milk Project, and last month the alliance inspected 10 of Mengniu's factories. On August 22, a Mengniu spokesperson confirmed this to our reporter.
In fact, as early as last year, Mengniu established a fresh milk division. In January this year, Mengniu's fresh milk division held a new product launch meeting in Hangzhou, introducing three sub-brands at once: the home delivery channel brand 'Mengniu·Fresh Selection', the high-end fresh milk brand 'Daily Fresh', and 'Fresh Factory' focusing on 'freshness'.
According to the reporter, 'Daily Fresh', positioned in the high-end market, uses glass bottle packaging, with 1L and 250ml specifications currently priced at approximately 30 yuan and 4-6 yuan respectively. 'Fresh Factory' uses the 'fresh house' packaging typical of pasteurized milk, with 180ml, 450ml, and 950ml specifications.
**However, the distribution of the three brands has not yet been fully expanded. On August 22, the reporter visited several supermarkets in Guangzhou and did not find any of Mengniu's three fresh milk brands. In contrast, in the ambient milk section, price wars were in full swing, with multiple brands including Yili, Mengniu, and New Hope offering discounts and promotions.**
For example, Yili Jindian organic pure milk dropped from 65 yuan per box to 52 yuan, and Yili Shuhua lactose-free high-calcium milk (250ML×12 boxes) dropped from 58.8 yuan per box to 36.9 yuan. E-commerce platforms are similar: Shengmu organic pure milk (200ml×16 boxes) on JD.com dropped from 68 yuan per box to 46.5 yuan, and Mengniu Telunsu (250ML×16 boxes) gift box dropped from 86 yuan to 65 yuan.
Dairy expert Song Liang told reporters that due to weak domestic consumption since May this year, slowing industry growth, and increased promotional efforts by companies, ambient milk profits have been compressed to less than ten yuan per box. It is understood that during the off-season in July and August, both Yili and Mengniu were conducting nationwide promotions with discounts ranging from 20% to 40%.
A review of the financial reports of the two major dairy companies reveals that the gross margin of liquid milk is declining year by year. Last year, Yili's liquid milk revenue was 55.766 billion yuan, with a gross margin of 35.17%, down 0.79% year-on-year. During the same period, Mengniu's UHT (ultra-high temperature sterilized milk) revenue was 25.689 billion yuan, accounting for 48.5% of liquid milk revenue, compared to 49.6% in 2016.
In contrast, although pasteurized milk is also affected by declining purchasing power, prices remain relatively firm with only slight declines. A person in charge of a dairy company in Guangdong told reporters, **"Currently, the profit margin for pasteurized milk in the industry can be maintained between 10% and 15%. Although the prices of raw and auxiliary materials, energy, and logistics transportation continue to rise, we still dare not rashly raise prices."** **"After all, pasteurized milk is still milk, and people have psychological expectations about drinking milk; they won't pay too high a price for it."**
This is one of the challenges Mengniu faces in making pasteurized milk. Taking 'Daily Fresh' as an example, although it is positioned in the high-end market, it is a new brand with little accumulated market reputation or brand awareness, yet its pricing is higher than other major pasteurized milk brands on the market, making sales difficult to imagine.
What Are the Odds?
Last year, Mengniu increased its stake in China Modern Dairy through a series of transactions, raising its shareholding to approximately 60.77%. According to Mengniu, after increasing its stake in Modern Dairy, it will strengthen upstream and downstream business synergies with Modern Dairy.
Upstream, Mengniu plans to utilize Modern Dairy's raw milk supply and national pasture resources to secure a stable raw milk supply, supporting its development in low-temperature yogurt and fresh milk business layout. Downstream, Mengniu and Modern Dairy launched the ambient pure milk 'Fresh Language' in July last year under a combined brand, emphasizing the 'freshness' and 'activity' of the milk.
However, from the current situation, the new brand still needs market cultivation. Among these, milk sources are one of the core elements Mengniu must address in making pasteurized milk.
A technician familiar with pasteurized milk technology told reporters that although the national standard does not distinguish between raw milk for pasteurized and ambient milk, pasteurized milk actually has higher requirements for raw milk. "In terms of total bacterial count and protein content, it is stricter because this determines whether you need to heat to 70 or 80 degrees Celsius to kill all bacteria, but the higher the temperature, the greater the destruction of active components in milk."
Next is the cold chain. "We always refer to the cold chain as the lifeline of pasteurized milk. Once the cold chain is broken, pasteurized milk has no guarantee." Cai Yongkang, chairman and general manager of Fujian Changfu Dairy Co., Ltd., told reporters, "Due to the short shelf life and the need for a full cold chain, the sales radius of pasteurized milk is limited to within 600 kilometers."
In fact, the cold chain starts at the pasture. As soon as the milk leaves the cow, it must be cooled immediately, and the time spent at the pasture should be as short as possible. Milk is milked, transported, and processed on the same day, and shipped to the market in the early morning. Even the last leg of transportation—the sales terminal—must ensure the temperature remains between 2-6°C.
"It's hard for ordinary people to imagine that we have a group of people every day going to various outlets to measure temperature to ensure products don't spoil due to overheating. This is an expense for the company, a management cost," said the person in charge of the Guangdong dairy company. He said he is not worried about the entry of giants like Mengniu. In his view, the game of pasteurized milk is completely different from ambient milk. "Just the 7-day shelf life means that the practice of pushing inventory to distributors won't work."
But Mengniu Dairy believes that with the layout of major domestic dairy companies in pasteurized milk, domestic consumption upgrades, and further improvement of cold chain transportation networks, the consumption demand for low-temperature milk will further open up and achieve rapid growth. **"The scaled development of domestic pastures and the continuous improvement of milk source indicators will provide good development opportunities for pasteurized milk."**
On August 20, the National Dairy Science and Technology Innovation Alliance officially released the "China Quality Milk Engineering Technical Specifications," including three technical specifications for high-quality raw milk, high-quality pasteurized milk, and high-quality ultra-high temperature instant sterilized milk, and established a quality milk labeling system. It is reported that dairy companies must pass qualification level assessments, and only those that pass all product categories can use the quality milk label on their products.
According to data, the China Quality Milk Project is a special research project authorized by the Ministry of Agriculture for the "Dairy Innovation Team of Beijing Institute of Animal Husbandry and Veterinary Medicine, Chinese Academy of Agricultural Sciences" to achieve sustainable development of China's dairy industry. Since 2013, it has focused on promoting pasteurized fresh milk processed with pasteurization technology. In 2016, the National Dairy Science and Technology Innovation Alliance was established to push the quality milk project from theory to practice and from enterprises to the market.
To date, 38 dairy companies in 22 provinces across the country have implemented the quality milk project, with 23 passing acceptance. The reporter learned that Mengniu's raw milk pasture for pasteurized fresh milk is now Modern Dairy. In addition, Mengniu itself is also applying, hoping to use the endorsement of quality milk to enhance brand recognition.
"Last month, we spent a month inspecting 10 of Mengniu's enterprises to see if they meet the conditions. The conclusion has not yet been reached, so we cannot say yet," Gu Jiasheng said.
Source: 21st Century Business Herald
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