"Never let children suffer" is a phrase every Chinese parent understands deeply. From birth to babbling, from learning to walk to gaining awareness, they give their all to provide the best clothing, food, housing, transportation, and play. This blind competitive parenting style has trapped countless Chinese families, but it has also provided many businesses with opportunities to make money.

Milk powder is one such opportunity. As a child's "first food," it has characteristics of rigid demand, high frequency, long cycle, and high unit price. For merchants, it is like the "donkey that spits gold coins" in fairy tales. Under the coercion of the "best" parenting concept, many foreign milk powder brands exploit Chinese parents' psychology of "giving children the best nutrition possible," dividing homogeneous products into different grades and labeling them as "premium," "original," "original packaging," or "multifunctional." While shamelessly touting high quality, they raise prices to reap huge profits in the Chinese market.

"You Don't Know Milk Powder Is Expensive Until You Have a Child"

Recently, the Hong Kong NGO "Globalization Monitor" released a report titled "Squeezed Dry: Milk Powder Companies Put Profit Above Science." The report points out that in Europe, the cost of raising an infant per month accounts for about 1%-3% of parents' monthly salary, while in China, this expense accounts for 15%-40% of monthly salary.

At the same time, the report's survey data shows that among 14 countries and regions including the United States, the United Kingdom, France, Spain, Australia, New Zealand, and China, parents in Hong Kong and mainland China spend the most on formula milk powder each month, reaching $304 and $286 respectively, while British parents spend an average of only $82 per month on formula.

NGO Report: Cost of Raising an Infant in Different Markets

The reason is that milk powder companies, in order to make a profit, can have significantly different pricing even for the same brand. Take Danone's Aptamil Profutura Stage 1 as an example; it is sold in the UK, Germany, and China. In the UK, an 800g can costs £12 (about $17); in Germany, it is slightly higher at €20 (about $24) for an 800g can; in China, a 900g can sells for 365 yuan (about $55).

Foreign Brands with "Same Powder, Different Prices"

Clearly, foreign brands have adopted a "same powder, different prices" strategy in China. Behind this is the fact that Chinese people are extremely panicked about food safety due to the "melamine" incident, and foreign brands seized the opportunity to grab market share and gain pricing power.

Since 2007, foreign milk powder brands have gradually turned the Chinese market into their "home turf," with market share rising from 40% to 50%, and then approaching 60%. Especially in first-tier cities and the high-end infant formula market, foreign brands almost monopolize the market. Domestic dairy companies, even giants like Yili and Mengniu, have to avoid competition and seek opportunities in third- and fourth-tier cities.

Market Share of Foreign Milk Powder in China (Image source: Internet)

With such strong market advantage and fervent pursuit by Chinese consumers, foreign brands have begun to show their "arrogant" nature. From 2009 to 2015, major brands such as Nestlé, Danone, Abbott, and Wyeth generally raised prices 5-8 times, with some brands increasing prices by as much as 50%, completely ignoring consumers' ability to pay.

The reasons for price increases are nothing more than the usual "cost increases" and "formula upgrades," but at the same time, the gross profit margins of foreign brands have "soared" to 60%-85%, which is like heaven compared to the losses of domestic dairy companies. In this regard, industry insiders say that even without price increases, the gross profit margin of foreign milk powder is around 60%, so the reason of cost increases doesn't hold water. As for formula upgrades, the added trace elements, when spread over each can of milk powder, have a negligible impact on cost.

So, price increases are just an excuse to obtain ultra-high profits, but they translate into an unbearable cost of raising children for every Chinese family.

In the wave of repeated price increases, many of our beloved foreign brands have gradually lost themselves in the vortex of profit, with only the rapidly growing profits in sight, leaving their original intentions behind. To maximize extraction, foreign brands have segmented homogeneous milk powder by subtle factors such as packaging, formula, function, origin, and original packaging, and then heavily marketed "high-end" and "ultra-high-end" products, creating a series of "high-price traps" such as "origin determines quality" and "price determines quality," and after layers of markup, they pass the cost on to consumers. Unfortunately, consumers, blinded by the distorted parenting concept, do not realize that these dazzling "gimmicks" hardly consider nutritional science or health benefits.

On the other hand, coveting the high profits of foreign milk powder, the OEM (original equipment manufacturer) business has quietly emerged. According to statistics, there are currently more than 130 so-called Australian and New Zealand milk powder brands sold in China, but 80% are OEM products, rarely seen abroad. Earlier media reports also revealed that for just 5,100 yuan, one could put a New Zealand milk powder trademark on a product, and for just over 10,000 yuan, one could own a brand with New Zealand as the origin.

Amidst all these chaotic phenomena, the current milk powder market is "dazzling and confusing." Fortunately, with the implementation of the "strictest milk powder new policy"—the infant formula registration system—the regulation that "any dairy enterprise cannot have more than 3 series and 9 product formulas" is like a sword of Damocles hanging overhead, which will eventually drive out of the market those companies that confuse consumers with fancy formulas, arbitrary price increases, and exaggerated marketing. Competition will return to formula quality.

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