As China's birth rate has continued to decline over the past two years, competition in the infant formula market has intensified. Anxious dairy companies are extending their reach into the adult milk powder market, viewing it as a new growth point. In just the past six months, several dairy companies have launched adult milk powder brands or new products:
In July 2022, Kabrita launched the "Baohu" series for middle-aged and elderly consumers;
In September, Danone introduced its first middle-aged and elderly milk powder series "Ganmai" for the Chinese market;
In October, Junlebao comprehensively upgraded its adult milk powder product line;
In December, Feihe's adult milk powder brand Aiben launched new products... Despite this rush of dairy companies actively positioning themselves, an awkward reality remains: adult milk powder is still a niche market with a narrow audience in China. Public data shows that in 2022, the Chinese infant formula market is expected to reach 190.852 billion yuan, while the adult milk powder market is only around 20 billion yuan—just one-tenth the size of infant formula. Moreover, although the pandemic has boosted demand to some extent, the growth of the adult milk powder market has not been particularly robust in recent years. According to Kantar Worldpanel's China urban household panel data, in 2021, domestic FMCG sales grew 3.1% year-on-year, liquid milk overall grew 4.4%, adult milk powder grew 6.5%, while the cheese segment, mainly targeting children, grew at a rapid 32.7%. So why are dairy companies scrambling for this small, not-so-lucrative piece of the pie? On one hand, compared to the shrinking infant formula market, adult milk powder, though small, offers room for growth and an undefined competitive landscape. On the other hand, against the backdrop of an aging domestic population, adult milk powder is widely seen as having huge long-term potential. As African economist Dambisa Moyo famously said, "The best time to plant a tree was ten years ago; the second-best time is now." Adult milk powder is a slow business with modest scale, but it has the potential for above-expectation growth and unexpected surprises. Therefore, industry insiders predict that in the next two years, more infant formula brands will disappear, and more companies will shift to the adult milk powder market.
Stock Game and Diversification
The infant formula industry has entered a stage of competition in a stock market. "We have decided to focus more on our growing medical nutrition business and gradually cease operations and sales of infant and child nutrition products in mainland China." Over a week ago, Abbott China announced this decision on its official website and WeChat account, sparking heated public discussion about "foreign milk powder giants retreating from China." In China's infant formula industry, Abbott was once on par with foreign giants like Wyeth, Mead Johnson, and Royal Friso. In 2017, it held a 5.4% market share, ranking fifth. However, amid intense competition in recent years, Abbott gradually fell behind, and by 2022, its market share ranking had dropped out of the top ten. Behind Abbott's retreat, the positive side is the wave of "domestic advancement and foreign retreat" in the milk powder market, especially infant formula, as domestic brands regain lost ground and take the lead. But there is also the brutal side of the infant formula market entering a stock game: consumption is determined by the number of newborns and per capita consumption. As the domestic birth rate declines, future growth in milk powder consumption is limited, and the infant formula industry has entered a stage of competition in a stock market. This is also reflected in the valuations of infant formula companies. Currently, China Feihe, Ausnutria, and other infant formula companies are valued at low levels, with PE (TTM) around 9 times, reflecting pessimistic market expectations. Especially after entering 2022, due to the decline in newborns and the economic impact of the pandemic, the industry did not bottom out and rebound; instead, sales volume and prices hit new lows. Leading companies like China Feihe and Yili (Ausnutria) have undertaken "inventory reduction" operations, which also affected their 2022 performance. Public financial reports show that in the first half of 2022, China Feihe's revenue was 9.67 billion yuan, down 16.2% year-on-year; Ausnutria's H1 revenue was 3.63 billion yuan, down 15.1%. Although the industry has entered a stock era, the game and competition in the infant formula market are far from over. In March 2021, the National Health Commission issued new national standards for infant formula food series. 2023 will be a critical year for the implementation of the new standards and the second formula registration, and infant formula brands will continue a new round of "elimination matches." Previously, industry insiders estimated that one-third of infant formula brands would be eliminated, possibly including some mainstream big brands. It is against this backdrop that Abbott chose to exit the domestic infant formula market, while more dairy companies are accelerating business diversification, especially in adult milk powder. However, the seemingly promising adult milk powder business itself faces many development difficulties and challenges.
Good Reviews but Poor Sales
The adult milk powder market has not achieved breakthrough growth, showing characteristics similar to a niche market. "Why is there no milk powder for my age group?" "Of course, because you young people don't care about your health." In the comedy show "Rock & Roast," comedian Zhang Boyang's bit about adult milk powder reveals the current situation of adult milk powder: "good reviews but poor sales." On one hand, due to the COVID-19 pandemic, consumer awareness of adult milk powder has increased, and many consumers recognize its nutritional value. On the other hand, as a long-standing subcategory, the adult milk powder market has not achieved breakthrough growth, and no professional brands or products targeting young people have emerged, showing characteristics similar to a niche market. Therefore, it is not easy to strike gold in this relatively barren land. First, due to differences in dietary habits, domestic residents—especially middle-aged and elderly people—generally do not have the habit of drinking milk. A considerable number of Chinese people are lactose intolerant, and another significant group cannot get used to the taste of pure milk or milk powder. These long-formed tastes and habits are difficult to change through consumer education. Second, compared to infant formula for infants, domestic residents' demand for adult milk powder is not rigid; it is more like basic nutrition and supplements, with its functional positioning largely limited to "iron and calcium supplementation." Therefore, mainstream adult milk powder prices have generally been low, mainly mid-to-low-end products, far from comparable to infant formula. For example, on JD.com, Yili's Gold Lingguan infant formula stage 1 (900g) is priced at 259 yuan per can during regular promotions, while Yili Xinhuo middle-aged and elderly selenium-rich multi-vitamin high-calcium formula (900g) is priced at 88.7 yuan per can—the former is almost three times the price of the latter. Due to these reasons, the profitability of adult milk powder is far lower than infant formula, so in the past, dairy companies had little motivation to enter this sub-segment, and competition within it was relatively mild. Moreover, because its market regulatory standards are not as strict as infant formula, the market is even more mixed. There are also significant differences in channels. According to Frost & Sullivan, maternal and child stores are the main sales channel for infant formula, accounting for nearly 70% of sales. According to Kantar Worldpanel, the largest purchase channel for adult milk powder is online shopping, accounting for 26% of total sales, followed by hypermarkets and large supermarkets, with 2021 sales shares of 20.3% and 18.8%, respectively. This is also a new challenge for dairy companies newly entering the adult milk powder market. Additionally, adult milk powder categories include family milk powder, middle-aged and elderly milk powder, student milk powder, women's milk powder, and special population milk powder. Unlike infant formula, which only needs to appeal to parents, adult milk powder companies need to conduct long-term market education for multiple groups: the elderly, middle-aged, pregnant women, and young people. Each group is limited in size, but each requires specific consumer education, making the difficulty several times greater.
A Long Road Ahead
The adult milk powder market is just getting started, and its support for the performance of newly entering companies is still limited. Against the backdrop of a shrinking infant formula market, the adult milk powder track with growth potential remains a must-fight incremental space for dairy companies. Currently, China has 254 million people aged 60 and above, accounting for 18.1% of the total population. In the future, with the acceleration of population aging and the enhancement of residents' health consumption awareness, the potential user base for adult milk powder will far exceed that of infant formula. Similarly, the mixed bag of players and low market concentration mean the competitive landscape is not yet set, and new players still have great opportunities. Therefore, players have been increasing their layout in the adult milk powder market in recent years to seize the upcoming demographic dividend of an aging population. To address the issues of low prices and weak profitability, players are also employing various strategies in premiumization, differentiation, and technology: In addition to cow and goat milk, Yili and Mengniu have launched camel milk powder, which is claimed to have higher nutritional value. The added nutrients have evolved from early high-iron and high-calcium to colostrum, lactoferrin, prebiotics, dietary fiber, and low-GI milk powder for consumers needing blood sugar control. However, a consumer market is unlikely to thrive merely through improved supply and consumer education. As mentioned earlier, a major bottleneck for the adult milk powder market is long-standing consumer habits, which are difficult to change in a short time. Therefore, many industry insiders have pointed out that the adult milk powder market is just getting started, and its support for the performance of newly entering companies is still limited. Mou Shanbo, chairman of Yili Dairy Group, said in a media interview that although the three-year pandemic has further enhanced the public's nutritional needs and awareness, adult milk powder cannot compensate for the decline in the infant formula market in the short term. Adult milk powder may show better performance over a 5-10 year horizon, possibly even surpassing the market space of infant formula. Therefore, although the prospects for adult milk powder are positive and align with the trend of population aging, it will still take considerable time for it to truly take center stage and replace the market position of infant formula. In the next two to three years, the main theme of the milk powder industry will remain the "stock game." Leading players still have room for growth, but this space will mainly come from cannibalizing the market share of exiting players, not from the rapid rise of the adult milk powder business.