How many flavors of milk are there? It's hard to say, but the most popular among consumers is still the sweet one. When it comes to sweet milk, southern consumers will definitely mention Li Ziyuan, a brand that also has a certain position in the northern market. In recent days, it has been trending on social media. As we all know, there are only two reasons for trending: either you've made it big, or you've had a scandal. Li Ziyuan falls into the latter category. On September 11, the topic #LiZiyuanCantSell# trended, sparking heated discussions among netizens. Some netizens expressed confusion, saying, "As my breakfast sweet drink, how could it not sell?" Others provided answers, saying Li Ziyuan's problem is that its sweet milk is too sweet. The trend originated from Li Ziyuan's 2024 first-half performance report released on September 10.

Revenue Decline Rising Sales Expenses According to the financial report, in the first half of 2024, Li Ziyuan achieved revenue of approximately 679 million RMB, a year-on-year decrease of 3.08%. Net profit attributable to shareholders of the listed company was approximately 95.12 million RMB, a significant year-on-year decrease of 29.29%. Meanwhile, Li Ziyuan's sales expenses reached 100 million RMB in the first half of 2024, a year-on-year increase of 47.16%. Spending 100 million RMB on sales to generate 95.12 million RMB in net profit is clearly not a good deal. What are the reasons behind this? In response to the revenue decline, Li Ziyuan's General Manager Zhu Wenxiu stated at the 2024 semi-annual performance briefing: "In the first half of the year, affected by the economic environment, the consumer market recovery was weak, leading to a decline in revenue. At the same time, due to revenue falling short of expectations, increased promotional expenses and related costs led to a decline in profits."

What Factors Are Affecting Li Ziyuan's Revenue Decline? Of course, in the eyes of southern consumers, Li Ziyuan products are still visible in the market. But from a brand perspective, product sell-through does not necessarily mean sustained profit growth, because brand product sales growth is influenced by multiple factors. So what factors are causing Li Ziyuan's revenue decline?

First, the macro market environment. The 2024 consumer market expectations have taught many companies a lesson, especially for non-essential FMCG products. Many leading brands have been deeply affected. Weak consumer spending and low willingness to buy are the core reasons affecting the entire market. Even though Li Ziyuan sweet milk is priced as low as 2.2 RMB on some online channels, it has not escaped the awkward situation of sluggish sales.

Second, the product itself. Li Ziyuan sweet milk's full name is Li Ziyuan Sweet Milk Beverage, so it belongs to the category of milk-containing beverages. Although Li Ziyuan is one of the best in the sweet milk category, today's consumers are highly cautious about beverages. As a netizen on Weibo said, Li Ziyuan sweet milk doesn't taste good, not even as good as Nutrition Express. This indicates that the new generation of consumers is more picky about products. On Li Ziyuan's ingredient list, there are water, whole milk powder, white sugar, mono- and diglycerides of fatty acids, carrageenan, guar gum, sodium alginate, disodium hydrogen phosphate, acesulfame potassium, sodium bicarbonate, and food flavoring. Although overall it looks decent, in today's consumers' eyes, this is "technology and magic." So consumers who read ingredient lists will have a negative impression of Li Ziyuan sweet milk. Even loyal fans who have drunk it for years and highly recognize it will unconsciously reduce their purchase frequency. After all, in today's world where a single hospital visit can empty your savings, consumers are more "life-cherishing." Of course, the product itself is not Li Ziyuan's core shortcoming. After all, this sweet milk that has been sold for many years must have no issues with product quality and safety. It's just influenced by consumer psychology, but that's not the key factor affecting sales.

The most critical issue is Li Ziyuan's heavy reliance on sweet milk. Currently, sweet milk remains Li Ziyuan's core revenue source. Although in recent years Li Ziyuan has launched dairy products, fruit and vegetable juices, composite protein beverages, and plant protein beverages, and even recently rode the cilantro trend by launching a cilantro-flavored sweet milk, these products have not changed Li Ziyuan's product structure. In other words, new products have not sold as well as expected. After all, in consumers' minds, Li Ziyuan represents sweet milk.

Finally, there are many substitute products. Milk-containing beverages are not limited to Li Ziyuan. Wahaha AD Calcium Milk, Nutrition Express, Want Want Milk, and other products can all serve as substitutes for Li Ziyuan sweet milk. These brands far surpass Li Ziyuan in both influence and channel power. Most importantly, those brands have a rich product matrix that can withstand fluctuations in the milk-containing beverage market.

Consumers Have Changed Li Ziyuan, which has been selling well for many years, might not have expected that the advertisement "Youth, sweet or not? Drink a bottle of Li Ziyuan!" once attracted countless young people, but these now-grown loyal fans are beginning to dislike it. Li Ziyuan's products haven't changed, the taste hasn't changed, but consumers have. Many netizens say that Li Ziyuan sweet milk is too sweet and no longer suits them. In fact, in today's beverage market, sugar-free products are prevalent and popular, meaning consumers' tastes are becoming lighter. The overly sweet Li Ziyuan sweet milk clearly cannot provide a better experience for consumers. Additionally, Li Ziyuan sweet milk still uses the same plastic bottle from back then, which netizens jokingly call a "pesticide bottle." In today's beverage aesthetics, it's outdated. Combined with the ingredient list mentioned earlier, it's a triple threat to losing fans.

Is Li Ziyuan Done For? Of course, facing the first-quarter performance decline, some say Li Ziyuan is done. But is that really the case? In the first half of 2024, many dairy and beverage brands saw declines, including some leading brands. Li Ziyuan's decline is relatively small compared to the big players. At the same time, Li Ziyuan's investments shown in the first-half report include building offices, R&D, production line construction, and online channel establishment. These are all costs, but they won't yield returns in the short term.

So the fundamental reason for Li Ziyuan's performance decline is still the impact of the macro environment. Meanwhile, after Li Ziyuan's performance decline trended, a group of loyal fans came to support. Some directly placed orders online, while others argued with fans who had different opinions. After all, for southern consumers, they still have deep feelings for Li Ziyuan, as it's a category that accompanied their growth. Currently, there are two camps on Weibo: one supporting Li Ziyuan and one criticizing it. It's undeniable that this brand still has a lot of traffic. So Li Ziyuan is not done; it might even be considered a top student in the current environment. However, over-reliance on sweet milk products is Li Ziyuan's shortcoming.

What Should Li Ziyuan Do?

First, comprehensively upgrade the big single product, sweet milk, including formula upgrades, flavor innovation, and packaging innovation. Retain popular flavors like lychee, eliminate flavors consumers don't like, and launch new flavors to meet the needs of young consumers. At the same time, fully upgrade the packaging to cater to youthful aesthetics and enhance the product's appeal on shelves. Use healthier ingredients to meet the needs of health-conscious consumers.

Second, maintain existing channels and increase penetration in segmented channels, such as the online channels Li Ziyuan is currently building, as well as hard discount channels, snack quantity stores, catering, and community group buying.

Third, interact with consumers through content e-commerce, social media, and offline activities to strengthen connections.

Finally, vigorously develop distributors, which is key to consolidating offline channels. Of course, Li Ziyuan also needs to innovate and develop new products, and strengthen the promotion of new products to mitigate the impact of poor growth of the big single product. If Li Ziyuan can break free from being synonymous with sweet milk, it will be not far from success.

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