As China's dairy industry enters the deep waters of structural transformation, the long-standing fierce competition between leading and regional dairy companies seems to have reached a turning point. Regional dairy companies, leveraging their strength in low-temperature fresh milk, are collectively 'encircling' the leading companies.
In the just-concluded third quarter, Yili's liquid milk (mostly ambient milk), often regarded as its 'cash cow' cornerstone, saw growth stall—revenue was 18.81 billion yuan, a sharp year-on-year decline of about 8.7%, dragging down quarterly revenue by 1.7%.
In contrast, regional dairy companies with low-temperature milk as their main business, such as Bright Dairy and New Hope Dairy, saw revenue increases of 1.04% and 4.42% respectively. Sanyuan Dairy, a time-honored state-owned enterprise dominating the Beijing-Tianjin-Hebei market, has made low-temperature milk a key engine for profit improvement, holding an absolute leading position in Beijing's low-temperature milk market with a 58.3% share. (Source: Kantar Worldpanel)
Ambient Milk Loses Momentum, Low-Temperature Milk Accelerates Penetration
The ambient milk market, once the foundation of China's dairy industry and a battleground for all players, has been rapidly declining in recent years amid this shift from low-temperature to ambient products.
The '2024 China Fresh Milk White Paper' shows that the national penetration rate of low-temperature fresh milk rose from 28% in March 2018 to 39% in March 2024. In lower-tier markets (such as Lanzhou, Gansu), the annual growth rate of low-temperature fresh milk alone exceeds 15%.
CICC's research model reveals that in the Beijing-Tianjin-Hebei market, for every 1% increase in Sanyuan's low-temperature fresh milk sales, Yili's ambient milk share drops by 0.7%.
For a long time, leading dairy companies like Yili and Mengniu have built near-monopolistic barriers through their absolute scale advantages in ambient milk, capturing over 80% of the market, which exceeds 120 billion yuan, making it difficult for challengers to break through.
The rapid growth of low-temperature fresh milk has given regional dairy companies an opportunity to break through.
Behind the Strong Growth of Low-Temperature Fresh Milk
- Fresh Milk Extends from Household Daily Drink to B2B Professional Ingredient
In the past, fresh milk was mainly consumed as a daily household drink, but in recent years, its consumption scenarios have been changing, with fresh milk gradually becoming a professional ingredient for B2B use. This trend is especially evident and direct in the coffee milk sector.
An industry insider from a coffee chain once said: '80% of what coffee shops sell is milk, and in China, less than 5% of people actually drink pure coffee.' Based on this, milk as a raw material accounts for a significant portion of a coffee shop's daily ingredient purchases, or rather, it determines the total cost of a cup of coffee—it's the milk, not the coffee itself, that matters.
Initially, for tea and coffee beverage merchants, ensuring the lowest cost per cup (generally, ambient milk is 3-5 yuan cheaper per liter than fresh milk, has a longer shelf life, and is easier to store) and reducing loss rates were essential considerations for coffee milk. Therefore, ambient milk was the priority and first choice for major coffee chains, with its 'cooked' taste being a secondary consideration.
However, as freshly made coffee drinks enter a fiercely competitive red ocean, taste and flavor have gradually become crucial determinants of consumer addiction.
Even a slight difference can be seen by creators as a leap from 60 to 90 points. To make their drinks superior in taste and flavor, coffee operators have commonly shifted to choosing low-temperature fresh milk, which offers better taste compared to ambient milk.
From the consumer's perspective, the smooth taste of low-temperature fresh milk is gradually replacing ambient milk, with more and more consumers actively choosing it as the best partner for coffee milk.
Therefore, to ensure the final coffee drink has a rich taste and strong aroma, the standards for coffee milk have clearly changed. Imported pure milk, represented by brands like Deya, which once dominated coffee shops, is now rarely seen even if cheaper, as it is being largely replaced by low-temperature fresh milk.
So, the definition of 'good coffee milk' now goes far beyond the coffee bean variety, origin, roasting process, or extraction technique; it encompasses a full-dimensional evaluation of flavor, taste, health, nutrition, and experience. 'Fresh milk + coffee' is becoming another main battlefield for low-temperature fresh milk in the industry chain, with its role extending from a household daily nutritional drink to a professional ingredient for the coffee industry.
With coffee brands like Starbucks, Luckin, Cotti, and Manner rapidly opening stores nationwide, accelerating expansion into lower-tier markets, and distinctive regional specialty coffee chains continuously emerging, the B2B coffee beverage market is expanding rapidly.
According to the 'China Catering Category and Brand Development Report', among the current 108,000 coffee stores, first-tier and new first-tier cities account for about 43.9%, while second-tier and below account for 56.1%. That is, for every new store opened, there is a stable, predictable demand for bulk fresh milk. As coffee goes 'downward' to tap new blue ocean markets, how local fresh milk can become the best CP partner for local coffee milk becomes one of the foreseeable growth anchors for regional dairy companies.
For a long time, fresh milk has been a behind-the-scenes role in good coffee. Now, this conventional thinking is being broken, and fresh milk is no longer just a supporting role but has risen to a main force in flavor construction.
As the soul-searching question 'What milk is used behind this cup of coffee?' grows louder, the value of the milk base is moving from behind the scenes to the forefront, becoming an indispensable part of the coffee value chain.
For example, Guiyang Shanhua has developed a coffee-specific fresh milk with flavor dominance for lattes, which account for 36.6% of coffee drinks, and has co-opened a store with local coffee brand SeekSeeking, breaking traditional business models and entering a pioneering product—coffee milk-specific fresh milk—evaluated by professional, standardized criteria beyond the basic 'freshness' perception, such as 'ultra-high protein milk, golden fat-to-protein ratio, flavor amplifier, no oxidation off-flavors, and higher clarity.'
Shanhua co-opened a store with a regional coffee brand, printing the brand name on the cup surface; Image: Shanhua official website
- 'Carrier of Fresh Milk': Infrastructure Continuously Improving
How to increase the penetration rate of low-temperature fresh milk in lower-tier markets? The key lies in the maturity of the 'industrial infrastructure' of the cold chain and the construction of a community 'last kilometer or 100 meters' network delivery system.
Community group buying, through 'centralized orders + regional cold chain delivery to group leaders', reduces dispersed delivery costs, allowing low-temperature milk to quickly reach households.
Instant e-commerce (such as Meituan Flash Purchase and Ele.me), relying on 'cold chain + front warehouses + riders delivering within 30 minutes', solves the 'emergency milk purchase' demand, an experience that traditional dairy companies' 'central warehouse + supermarket distribution' model cannot achieve.
According to the '2025 Dairy Channel Structure Report' from Mashangying, in the first half of 2025, new retail channels such as community group buying and instant retail accounted for 35% of low-temperature milk sales, far exceeding traditional supermarkets' 22%:
In addition, various stores scattered across China's streets and alleys (such as bakeries and restaurants) have incorporated fresh milk dispensing formats. These outlets are mostly within a 'one kilometer' or '100 meters' living and consumption circle of large communities, making fresh milk consumption more convenient and available anytime, anywhere. Besides these trendy stores, you can also see milk bars, milk stations, fruit shops, convenience stores, and even vegetable markets equipped with milk dispensing machines, marking a boom in immediate consumption.
For many consumers, the scene of carrying a bottle to get milk is an unforgettable childhood memory, full of warm, lively atmosphere, and also a nostalgic recollection. Without excessive packaging or heavy advertising, affordable, high-quality, safe daily drinks are the most original consumption state and form of fresh milk.
Compared with pre-packaged dairy products, freshly dispensed fresh milk, through multiple sensory experiences such as sight, touch, and smell, is beginning to stir the consumption landscape of China's low-temperature fresh milk.
Fresh milk is a daily necessity; if the convenience of the last 100 meters is missing, it becomes a huge pain point for the industry. Laying out 'fresh milk dispensing stations' between communities and pastures is a way to break through industry barriers, allowing Chinese families and consumers everywhere to easily drink fresh milk from pastures. Ultimately, it's the full flourishing of important infrastructure and convenience facilities!
An industry insider predicts: In the future, freshly made dairy products and packaged dairy products will account for 20% and 80% of terminal consumer market share, respectively.
Undoubtedly, compared with leading dairy companies, regional dairy companies with 'localization and same-day freshness' advantages are the best main force for laying out regional fresh milk infrastructure and breaking traditional operational models.
Focus on Deep Cultivation of Local Markets, Amplify Localization Advantages
Relevant data shows that the top 5 low-temperature milk brands only hold a 36% market share, with intense competition among brands. Mengniu and Yili have not replicated their absolute dominance in the ambient milk sector, and no absolute leader has emerged in low-temperature milk. Regional dairy companies, entrenched in various parts of China, are leveraging their strengths in low-temperature milk and amplifying localization advantages to focus on deep cultivation of local markets, achieving 'snatching food from the tiger's mouth'.
For example, Sanyuan Food's 2025 semi-annual report disclosed that its low-temperature milk sales in Hebei increased by 53% year-on-year. Similarly, data shows that Shanghai Bright's 'low-temperature milk + rice ball' combo sells up to 120,000 units per day at FamilyMart convenience stores in Shanghai; Tianjin Haihe chocolate low-temperature milk has a community repurchase rate exceeding 65%...
So, in the era of 'freshness' and 'active nutrition' demand, low-temperature fresh milk is the main battlefield where regional dairy companies can achieve scale and efficiency.
- Focus on Regional Characteristics and Advantages
Focusing on the region, making the region itself a feature, and forming another level of differentiated competition, is an important means for regional dairy companies to build geographical effects and establish defensive barriers.
Sanyuan's fresh milk big product with 'Beijing' as the regional feature; Image: Sanyuan Food
For example, low-temperature fresh milk is available nationwide, but the differentiation of 'Sanyuan Beijing Fresh Milk' lies not only in 'freshness' but also in 'Beijing' being the key word pulled to the C-position. Or rather, it's not about the category, but about 'Beijing'.
Other examples include Tianrun Dairy's 'Xinjiang' series yogurt and Qinghai Xuefeng's yak milk, which all focus on and highlight regional characteristics to create differentiation, strategically opening important gaps and breaking through.
- Elevate Regional Memory
Regional dairy companies are part of local people's memories, but how to rejuvenate old brands with new vitality, rather than just staying as 'childhood memories', and thus open a new growth path? This is a common challenge for regional dairy companies.
Endowing brands with profound regional cultural heritage and emotional value, and elevating symbolic memory points, is the best path for rejuvenating old brands.
Tianrun Dairy has combined with the booming Xinjiang tourism, launching a special promotion 'Xinjiang is a good place, drink Tianrun good milk and travel Xinjiang', and collaborating with Urumqi International Grand Bazaar and the trendy highway 'Duku Highway' to create exclusive IPs, achieving deep integration of time-honored brands with cultural tourism resources.
Tianrun and Xinjiang's trendy highway 'Duku Highway' jointly developed exclusive IPs to elevate regional memory; Image: Xiaohongshu @Tianrun TERUN
- 'Front Store, Back Factory': 'Fresh Milk' Enters the 3.0 Era
Low-temperature milk has a very short shelf life, essentially a game against time, testing how fast players can deliver products to consumers' doorsteps.
In the core markets where regional dairy companies focus, the acceleration of cold chain infrastructure for 'micro-pastures at the doorstep' is rewriting the time and efficiency of fresh milk delivery to households.
If traditional milk delivery to homes and the community group buying developed in recent years represent the 1.0 and 2.0 eras of fresh milk delivery, then now, regional dairy companies are establishing their own 'front store, back factory' systems, which is considered the 3.0 era of 'fresh milk' delivery.
This new, downstream-expanding full-domain model—the 'front store, back factory' network system—has more diversified functions, redefining the 'speed' race of 'freshness' flowing into consumers' hearts. It has become an important regional platform for regional dairy companies to ride the wave of fresh milk terminal consumption, integrating on-site consumption (freshly dispensed fresh milk), delivery within 30 minutes or meeting 'emergency milk purchase', and periodic subscription and home delivery.
It is also the best carrier for brand building, product sales, and user connection. The significance behind this is the grand blueprint of regional dairy companies using their 'local milk, same-day freshness' advantages to create 'doorstep pastures' for thousands of households in local communities.
For example, Xinjiang Tianrun has fully upgraded to '3.0 version' factory stores, rapidly expanding from 14 to 41 stores in just one year, accumulating over 10,000 members.
Sanyuan's relaunched offline stores, mainly featuring the 'Beijing Milk Company IP' with 'freshly dispensed fresh milk + freshly made drinks', have become a trendy check-in landmark in Beijing; in 2025, the number of stores exceeded 100, a year-on-year increase of 78%. Sanyuan Meiyuan, as the second growth curve, is a clear strategy for regional dairy companies to focus on deep cultivation of core regional markets and rewrite the efficiency and speed of 'fresh milk' delivery.
Or, integrating localized social network resources (convenience stores, fruit shops, or cold drink shops), and using the 'front store, back factory' model to lay out the community 'last kilometer', Shandong Deyi Dairy has already reached tens of thousands of terminals.
These are essentially using this as a carrier, with offline stores + deep member operations and public/private domain traffic conversion as means, boldly exploring a combination of direct sales and franchising, and quickly boarding the already booming instant retail express train, forming a new growth pole completely different from traditional business models.
Focusing is not simply resource reduction, but concentrating limited organizational capabilities, brand mindshare, and resources on core businesses with greater long-term value, strengthening differentiated advantages, and achieving scale and efficiency on the main line.
Final Thoughts
As China's dairy industry enters the deep waters of structural transformation and low-temperature milk accelerates penetration, regional 'time-honored' dairy brands have found clear footholds through 'focus' and amplifying localization advantages: a series of strategic paths such as fresh milk for immediate consumption + local coffee milk development + front store, back factory, doorstep micro-pastures, achieving scale and quality in core businesses and rejuvenating vitality; and through deep transformation, re-activating the growth potential and competitiveness of their regions, striving to gain a voice in the new round of industry landscape.
However, in fact, Yili and Mengniu are still mature players in the low-temperature milk field. Yili's 'Jindian Fresh' and Mengniu's 'Daily Fresh' have been continuously expanding into regions and markets with their long shelf life, putting considerable pressure on regional brands.
In this battle for regional discourse power, whether regional dairy companies can continue to break through from leading companies like Mengniu and Yili and form a situation of feudal separatism remains to be seen; time will tell!