Author: Shanghai Mingtai·Mingguan Dairy Marketing Consulting Co., Ltd. Strategy Director: Feng Weifang As 2015 draws to a close, compared with 2014, China's dairy industry has experienced a year of weak market growth. Latest sales data show: from January to September 2015, national cumulative dairy production reached 20.4031 million tons, a year-on-year increase of 3.86%; among which, liquid milk annual output was 18.5079 million tons, up 4.03% year-on-year. According to sales statistics, overall liquid milk category sales reached 102.4 billion yuan, a year-on-year increase of 5.0%; room-temperature products held 73.4% market share, with sales growth of 2.7% year-on-year; low-temperature products held 24.3% market share, with sales growth of 7.0% year-on-year. In contrast, from January to September 2014, overall liquid milk sales reached 97.6 billion yuan, maintaining rapid growth of 12.8%; room-temperature and low-temperature sales grew by 9.9% and 19.7% respectively. Whether in total volume or in growth across categories, sales growth rates from January to September 2015 were lower than the same period last year. Reviewing 2015, the development of China's dairy industry shows the following characteristics: I. Raw milk prices experienced a long hibernation period, intensifying price wars At the beginning of 2015, due to high feeding costs, dairy enterprises limited or even stopped purchasing fresh milk, leading to incidents of dairy farmers dumping milk and slaughtering cows in some areas. According to Ministry of Agriculture fixed-point monitoring, since 2015, the average price of fresh milk in China's dairy industry has hovered around 3.4-3.5 yuan/kg. Through market research visits to dairy enterprises across regions, it was learned that in some areas, the purchase price for smallholder farmers was around 1.5 yuan/kg! The excessively low raw milk price directly intensified price wars. Basic pure milk became a product with volume but no profit for enterprises. In some markets, Tetra Pak pillow pure milk was sold at 30 yuan/carton, with a free gift of a carton of Pali bag milk drink; slim brick pure milk had a minimum retail price of 18.3 yuan/carton; under the promotional influence of Tetra Pak pillow and slim brick, Pali bag pure milk moved very slowly. Former high-end yogurt also joined the price war. Taking Yili Changqing and Mengniu Guanyiru as examples: Yili Changqing and Mengniu Guanyiru frequently offered buy-one-get-one promotions. The most aggressive promotion was "first bottle at full price, second bottle half price, buy four bottles and get one free". For example, Yili Changqing (250g) originally priced at 6.5 yuan/bottle, after discount was 3.9 yuan/bottle, lower than the price of paper-plastic cup yogurt (usually 150-180g/cup). High-end pure milk and room-temperature yogurt were no exception; besides gift promotions, cash rebates became the most common form of promotion, such as "exchange shopping receipt for cash at the promoter" or "scan the QR code on the DM leaflet inside the box to directly receive a 10 yuan WeChat red packet". Additionally, keeping retail prices unchanged but changing the outer box to upgrade to gift packaging was another form of price war, such as Shengmu Organic Pure Milk and Huishan Jiexi Ranch. Children's milk, flavored milk, and milk drinks, despite a prosperous product category, showed weak growth. From January to September 2015, sales of children's milk decreased by 4.6%, children's milk drinks by 7.3%, flavored milk by 10.3%, and functional milk sales fell by more than 17.5%. The intensifying price war made it difficult for marketing personnel to achieve sales targets and reduced corporate profits. To boost sales, choosing promotional gifts became one of the challenges for marketing personnel. II. Continuous innovation in yogurt category, with frequent highlight products Low-temperature yogurt is the fastest innovating category. Although the price war intensified in 2015, R&D personnel at dairy enterprises did not slow down their development of new low-temperature yogurt products. Several hot yogurt categories are as follows: Brown yogurt. After lactic acid bacteria drinks won the market with the concept of "72-hour natural browning", dairy enterprises applied the "natural browning" concept to yogurt products. As soon as brown yogurt appeared, it attracted attention from some enterprises; products like "Brownie", "Brown Ning", "Roasted Yogurt", "Cooked Yogurt", "Brown Mira", "Maillard"... came one after another. Conservatively estimated, no fewer than dozens of enterprises have successfully launched brown yogurt or are preparing to launch it. Concentrated yogurt. Many regional dairy enterprises have their own "concentrated milk" or "extra-rich milk"; now the concept of "concentrated" has moved from white milk to yogurt, such as Zhuangyuan Concentrated Yogurt, Tianrun Concentrated Yogurt, Shenghu Concentrated Yogurt, Duoxian Concentrated Yogurt. Western-style yogurt. In earlier years, French pudding, Italian pudding, European-style yogurt and other products appeared on the market, but now Western-style yogurt shows a "small country craze"; some Danish yogurt, Japanese yogurt, Russian yogurt, Turkish yogurt... appear in consumers' view. Flower yogurt. Dali Ranch Flower Yogurt and New Hope Xuelan Huayang Shiguang became representatives of flower yogurt, highlighting Kunming's "Spring City" characteristics. At the same time, New Hope flower yogurt also took the form of room-temperature yogurt, differentiating itself from ordinary room-temperature yogurt and low-temperature flower yogurt, attempting to enter the national market. Meanwhile, organic yogurt (represented by Yili Changqing), minimalist yogurt (represented by Jianai Naked Yogurt), and dessert yogurt (represented by double-skin milk) also became highlight products in the yogurt category. In terms of sales growth, low-temperature yogurt leads the low-temperature category growth. Compared with the national average and the sales growth rates of dairy giants, if your dairy enterprise has not reached the average level, is it due to weak growth of old products, or failure to grasp the direction of new product development? III. Domestic dairy enterprises are all making fully imported milk, perhaps another way out for high-end milk With various promotional gifts, the rise of pasture milk in various regions, various gift box packaging, and various cash rebate direct price reductions, competition in high-end white milk became almost white-hot in 2015. How do powerful big brands respond to various forms of price wars from regional dairy enterprises? Their strategy is to use their strong capital and resource advantages to make fully imported milk! In 2014, Mengniu Global Selection and Yili Pailan seemed to ignite the trend of dairy enterprises making fully imported milk. At the beginning of 2015, Yili continued to launch the fully imported version of "Jindian Organic Pure Milk", with Tetra Fino inner packaging, gift box outer box, and the product concept of "China-EU Organic Dual Certification" and "100% European Import", selling at a retail price of 108 yuan/carton (250ml12 boxes). In October 2015, Xi'an Yinqiao Dairy launched a fully imported milk - Sunshine Aojia, with Tetra Prisma inner packaging, and the product concept of "100% Australian Original Import" and "From Australian Sunshine Pasture", selling at a retail price of 88 yuan/carton (250ml12 boxes). However, judging from current sales performance, domestic dairy enterprises making fully imported milk have not achieved satisfactory sales results. Based on the low-price competition of imported milk from abroad (especially in e-commerce channels) and the promotional pressure of various forms of high-end white milk from domestic dairy enterprises, domestic dairy enterprises making fully imported milk and taking the high-end route need to make further efforts in marketing to open up sales. IV. Infant formula industry suffers losses, low-price promotions become routine The first half of 2015 annual report showed: Ausnutria, Yashili, Beingmate, and Biostime all experienced negative sales growth rates and negative net profit growth rates. From January to September 2015, Biostime's sales data again showed that its infant formula business achieved revenue of 2.408 billion yuan, a decrease of 390 million yuan compared with 2.798 billion yuan in the same period of 2014; the company's full-year profit for 2015 will decline by about 90% compared with the same period last year. During the 2015 "Double 11" period, Yashili won first place in the milk powder category with a historical best result of 106 million yuan on that day, and Junlebao milk powder ranked third with sales of 40 million yuan. Sales performance seems impressive, but promotional intensity is equally astonishing. Junlebao's 130 yuan/can is not worth mentioning; Yashili's promotional intensity was even more shocking: all series under Yashili, including a Gold, Nenghui, and Anbeihui, were 50% off, and some products were even as low as 4.3 or 4.5 discount (for example: Yashili a Gold 3-stage milk powder 900g originally priced at 198 yuan/can, Double 11 promotional price 99 yuan; Yashili Anbeihui Gold 2-stage milk powder originally priced at 318 yuan/can, Double 11 promotional price 159 yuan). Due to the food and drug administration's increased scrutiny of domestic milk powder, the increasing number of imported brands, routine promotions and major holiday promotions for infant formula, and the increasingly transparent cost of infant formula, infant formula enterprises have been forced to significantly reduce prices, or even switch to overseas original imported infant powder. V. The Internet becomes a composite of promotion and channel Although in earlier years, dairy enterprises began to test e-commerce one after another, e-commerce platforms such as JD.com, Yihaodian, Tmall, and Taobao gradually became important sales channels for various dairy enterprises. But initially, the Internet existed more in the form of corporate brand and product promotion, such as Baidu promotion, forum promotion, Weibo promotion, WeChat promotion, etc. In the past two years, the Internet has existed more as a composite of "promotion + channel". Besides daily corporate brand promotion and product promotion, dairy enterprises have increasingly transformed the Internet into an important sales channel. Today, it is no longer new for the dairy industry to open WeChat mall or WeChat milk ordering platforms. This year, Weigang Dairy combined WeChat milk ordering with Suguo convenience store system, achieving for the first time a business model combining online milk ordering and offline pickup. Although the sales share of e-commerce platforms is still very small, with further network development, sales contribution will further increase. With the advent of Internet+, the intensive cultivation of traditional channels in FMCG faces huge challenges from the Internet. The liquid milk industry's offline channels such as KA, traditional terminals, specialty stores, and home delivery have to start considering embracing the Internet. Among them, the position of milk powder in e-commerce channels has become very obvious. VI. Dairy giants invest heavily in entertainment programs In 2005, Mengniu's sponsorship of "Super Girl" pioneered the entertainment integrated communication model in dairy marketing history, making Mengniu famous, and the sales of Sour Milk Drink also soared, with sales increasing 2.7 times year-on-year, and 20% of sales terminals even experienced supply shortages. The sponsorship fees, TV ads, online promotion, outdoor ads, and promotional costs accounted for only 6% of sales, much lower than other new product promotion costs. In recent years, dairy giants have spared no expense in investing in entertainment programs, and the trend is hot: Mengniu, as the most senior partner of Hunan Satellite TV, from 2005 to 2015, Mengniu has secured exclusive sponsorship of popular variety shows such as "Divas Hit the Road" and "Idol Coming". On October 29, 2015, Mengniu invested 800 million yuan to obtain exclusive naming rights for Hunan Satellite TV's "Run for Time" and next year's Q3 Friday new show "Summer Sweetheart" (idol girl group selection). Yili, at Hunan Satellite TV's 2015 advertising investment fair, won the exclusive naming rights for "Dad, Where Are We Going? Season 3" with 500 million yuan, beating all competitors. On October 29, 2015, it won the exclusive naming rights for both "Dad, Where Are We Going? Season 4" and "I Am a Singer Season 4" at a sky-high price of 1.1 billion yuan. In November, it again won the first bid at the CCTV bidding meeting with 175 million yuan, and obtained the exclusive celebration rights for the 2016 Olympics "China's Pride" with 89.6 million yuan. Guangming, at the 2016 CCTV golden resource advertising bidding conference, won the exclusive naming rights for the Rio Olympics "Medal Table" with 137 million yuan. Junlebao, as a regional dairy enterprise striving to expand into the national market, invested 300 million yuan at the Hunan Satellite TV investment fair to secure naming rights for two exclusive drama theaters. Dairy giants investing heavily in entertainment programs is nothing new; what is shocking is that the bids have reached sky-high prices of hundreds of millions, and regional dairy enterprises have also joined the camp of investing in entertainment programs, hoping to generate higher sales and brand premium value. VII. Regional dairy enterprises accelerate the pace of seeking capital cooperation In recent years, besides dairy giants engaging in capital operations, regional dairy enterprises have also sought capital cooperation, hoping to leverage capital to pry open the dairy market and accelerate their own development. Mergers and acquisitions: Beingmate joined hands with Fonterra and Maeil Dairy. On the evening of October 28, Beingmate issued an announcement: first, to form a joint venture with South Korea's second-largest dairy enterprise to obtain special formula milk powder production technology; second, to acquire Fonterra's Australian factory to obtain milk sources. Kedi Dairy will acquire Luoyang Juer Dairy. On November 10, Kedi Dairy disclosed its intention to acquire part or all of the equity of Luoyang Juer Dairy. Hualian Mining acquired Guangze Dairy and Jilin Dairy. On the evening of November 11, Hualian Mining announced its intention to acquire 100% equity of Guangze Dairy and 100% equity of Jilin Dairy for 806 million yuan. Yashili acquired all equity of Dumex. On December 2, Mengniu Dairy and Yashili International jointly announced that all equity of Dumex China would be sold to Yashili for HK$1.23 billion, and Dumex China would become an indirect wholly-owned subsidiary of Yashili. Seeking listing: Zhuangyuan Ranch listed in Hong Kong. Lanzhou Zhuangyuan Ranch Co., Ltd. successfully listed in Hong Kong on October 15, 2015. Lanzhou Zhuangyuan Ranch sells more than 50 different dairy products under three brands: "Zhuangyuan Ranch", "Shenghu", and "Yongdaobu". Chunhui Dairy will list in Australia in 2016. It is reported that Chunhui will complete domestic and overseas private and public fundraising in early 2016, issue an IPO prospectus, and officially list on the Australian main board (ASX) in the first half of the year. Plateau Treasure is expected to list in 2016. This year, Plateau Treasure increased distribution in first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen, and successfully entered markets such as Hong Kong and Macau, and is expected to list next year. The new dairy policy and strategic mutual needs are the core driving forces for mergers and acquisitions in the dairy industry. By introducing partners and integrating high-quality milk sources, advanced technology, market resources, and successful whole industry chain models, enterprises can accelerate their development pace. VIII. Conclusion 2015 is about to pass, and competition in China's dairy industry will become more intense and more rational. From "price war" to "value war", "continuous category innovation" to "how to lead with differentiation", from "high-end white milk price war" to "responding to fully imported milk", from "Internet+ coming" to "Internet+ for my use", from "independent operation" to "dairy industry integration", these will remain important topics for China's dairy industry in 2016. -END- Content Selection Reply with the following keywords to categorize and read related articles: Sales Supervisor, Second-tier Management, Regional Manager, Distributor Management, New Channels, City Manager, Competition, 2015, Manufacturer-Dealer Game, Product Slow Sales, Terminal Visit Management, Route Management, Deep Distribution, Internal Management, Sales Skills, Profit Improvement, Recruitment, Distribution, Daily Management, Team Motivation, Trade Promotion, Sales Misconceptions, New Product Launch, Township Market, New Product Pricing, Sales Target Achievement, Closing Deals, Market Visit Inspection, Baijiu, Beer, Sales Increase, Agency Products, Cross-region Sales, KA, Terminal Merchandising, New Market, Market Operation, Learning, Book Recommendations, Inventory Management, Sales Novice, Consumer Promotion, Execution, Old Products, Expired Product Handling, Model Market, Investment Attraction, New Media, Distributor Development, Performance Appraisal, Assessment, Annual Planning, Shopping Guide, Morning Meeting, Display, Transformation, Inventory Pressure, Holidays, Distributor Cost Control Channel Operation, Marketing Theory and Laws, Brand Truth, Order Meeting, Team Management, Training, Work Report, Work Report.