This year's fresh milk market is chaotic, with Mengniu, the second-largest player, encroaching on Guangming's territory, while Guangming counterattacks by promoting its new fresh milk product in Sanyuan's stronghold, and Junlebao makes a surprise move into East China. To capture new growth, the giants are engaging in relentless price wars, which benefits consumers who can now buy fresh milk cheaper than purified water. Source: AI Finance and Economics (ID: aicjnews) Author: Shao Lanjie, Editor: Sun Jing -01- Fresh Milk Market: Gods at War 5 yuan can buy two 550ml bottles of Nongfu Spring in a supermarket, but now the same price can also buy a 950ml carton of fresh milk. This means fresh milk is almost as cheap as water. Recently, Sun Li, a resident of Tongzhou District, Beijing, bought seven cartons of Guangming's "Fresh Pasture" from Lotus Supercenter in one go, at 5.5 yuan per 950ml carton—a deal too good to pass up. On the Hema APP, the regular price for Fresh Pasture is 12.8 yuan per carton, but during a flash sale at the end of July, it was only 5 yuan. Customers who grabbed the deal commented in unison, "So cheap! What a bargain!" According to Hema APP data, nearly 25,000 people purchased this product in the past 30 days. In Wumart supermarkets, Fresh Pasture is priced at 7.5 yuan, down from the original 19.9 yuan. On the shelves, Guangming's "Youbei" next to Fresh Pasture is also on promotion, reduced from 21.1 yuan to 16.9 yuan. In comparison, although from the same company, Fresh Pasture's low price is obvious. Indeed, this year, consumers may need a calculator to find the best fresh milk deals in supermarkets. On the fresh milk shelves at Xingfu Supermarket, besides the shockingly low price of Fresh Pasture, Beijing Sanyuan's new 72°C fresh milk product, 450ml per bottle at 10.5 yuan, is on a buy-one-get-one-free promotion. Mengniu's Daily Fresh is 8.9 yuan per bottle, also buy-one-get-one-free, effectively 8.9 yuan for 500ml. At Bianlifeng convenience stores, spending 8 yuan on hot food allows you to add 1 yuan to get a 450ml bottle of Junlebao's Yuexianhuo milk, which normally retails for 11.9 yuan. In other words, it's quite hard to buy fresh milk without a discount in supermarkets. A milk promoter with years of experience told AI Finance and Economics that promoters have some authority: if the product is five to six days from expiry, they can offer buy-two-get-one-free; if only three to four days remain, it's usually buy-one-get-one-free, pairing one normal-date product with one near-expiry product. If there are many near-expiry products, buy-one-get-two or buy-two-get-two is also possible. Since the fresh milk shelves are stocked with big brands, consumers are unlikely to be loyal to any one. So in 2020, with new products flooding in, competition in the fresh milk market starts with price wars. Another hidden battle is in the half-year reports of dairy giants. On August 27, Mengniu emphasized in its half-year report that its fresh milk brand "Daily Fresh" strongly focused on East China in the first half, with increasing market share. East China is, of course, the stronghold of another giant, Guangming. Junlebao also revealed to AI Finance and Economics that its fresh milk brand "Yuexianhuo" is growing well in East China. Guangming, of course, is not sitting idly by. Months ago, a new fresh milk category, "Fresh Pasture," appeared on supermarket shelves in Sanyuan's home turf—Beijing. On the Duodian APP, Fresh Pasture, with a simple promotional price of 7.5 yuan per 950ml, knocked Sanyuan's bagged fresh milk, which Beijingers have drunk for over a decade, out of the top 10 rankings and won the "Order Star" title. At Guangming's 2020 half-year results meeting, Chairman Pu Shaohua was clearly satisfied with the new product's market performance. He said Fresh Pasture helped Guangming Dairy "block competitors and expand sales radius," and in the second quarter, Fresh Pasture drove double-digit growth in Guangming's channels. Guangming's new product appears to be an offensive strategy. But in terms of market entry timing, the defensive posture is more obvious. An anonymous dairy industry insider said that Daily Fresh, relying on Mengniu's cold chain capabilities, is penetrating various regions. While it won't knock out regional dairy companies overnight, it will make their lives difficult. Since the beginning of this year, fresh milk has suddenly become a category where dairy giants break out of their respective "spheres of influence" and clash head-on. Even Xia Hailong, founder of the trendy yogurt brand "Jane's," has sensed business opportunities from market changes. This yogurt brand, which never hides its preference for OEM, recently imported a batch of dairy cows, expecting to import 2,000 by the end of the year. Jane's is raising cows not for its yogurt products but to enter the fresh milk market. In the past six months, competition in fresh milk, though less visible than the new-style tea industry, has been more thrilling, because only the "deep-pocketed" can afford to do fresh milk and fight price wars. **-02-**A "New Species" of Fresh Milk Emerges? Interestingly, the new fresh milk products mostly choose high-temperature pasteurized milk with a 15-day shelf life. In Hema's reviews for Fresh Pasture, besides unanimous praise for being "cheap," there are some faint voices: "Unfortunately, it's high-temperature pasteurized milk," "Note, this is not pasteurized; those wanting fresh milk should steer clear." In previous consumer perception, milk on refrigerated shelves was pasteurized milk with a 3-7 day shelf life; milk on regular shelves was UHT sterilized milk with a 6-month shelf life. Pasteurization typically uses 75°C-85°C for 15-20 seconds; UHT uses 137°C-145°C for 4-15 seconds. Pasteurization retains more of the milk's original flavor and active substances, but it only kills pathogens, not all bacteria, so it requires cold chain storage to prevent spores from recovering and producing toxins. UHT milk, in contrast, kills all bacteria and can be stored at room temperature, but the process destroys the milk's original flavor. The new fresh milk has upended consumer perceptions. Guangming Fresh Pasture's packaging has all blue text on the front, but at the bottom there's a small gray line: "High-temperature pasteurized milk"—although it differs by only one word from "UHT sterilized milk," it marks the emergence of a new species in fresh milk. Guangming Dairy explained to AI Finance and Economics that high-temperature pasteurized milk uses a slightly higher temperature than pasteurized milk, killing bacteria and miscellaneous bacteria while retaining some active substances, but it's not the same as UHT; although high-temperature, it still needs refrigeration. The source added that Fresh Pasture is similar to Yuexianhuo. When Junlebao launched its fresh milk brand Yuexianhuo last year, it claimed to use high-temperature instantaneous sterilization with a sterilization time of only 0.09 seconds and a shelf life of up to 19 days. On Yuexianhuo's bottle, it's labeled "sterilized milk," using Junlebao's internal corporate standard. A Junlebao insider said, "Pasteurization is a technology over 100 years old; it's just a basic technology, not a must. With technological progress, we can achieve the same effect as pasteurization with better taste." But a dairy industry insider bluntly stated, "Currently, national standards only cover UHT sterilized milk and pasteurized milk. There are no corresponding standards for sterilized milk or high-temperature pasteurized milk; they can only follow corporate standards, including ESL (extended shelf life), which is still at the corporate standard stage." Guangming Fresh Pasture also uses a corporate standard, with a 15-day shelf life, double that of regular pasteurized milk. Japan's Meiji Junichi and Wei Chuan's Yanxuan Ranch are similar products. Not pasteurized but placed on refrigerated shelves, high-temperature pasteurized milk was once seen as "fake pasteurized milk" or "ultra-pasteurized milk." On March 1 this year, the State Administration for Market Regulation issued a new food production license catalog that added "high-temperature pasteurized milk," giving it official recognition, but no national standard has been set yet. However, high-temperature pasteurized milk has mixed reviews in the industry. New Hope Dairy said at a mid-term investment strategy meeting with securities firms, "The greatest value of low-temperature products is freshness; consumers taste higher quality. Milk is a biological substance; the fresher, the better the taste. Second, it's more nutritious and higher quality. Five- or seven-day products typically use pasteurization. To preserve active nutrients like lactoferrin and immunoglobulins, manufacturers are lowering temperatures. The process for 15-day products differs from pasteurization; 15-day products have almost no active nutrients." Sanyuan Dairy, whose market is being taken by Mengniu, Junlebao, and Guangming, agrees. Its spokesperson told AI Finance and Economics that high-temperature pasteurized milk uses higher temperatures than pasteurized milk, resulting in greater loss of vitamins and active nutrients. In fact, even Guangming itself strongly advocates pasteurization. Chairman Pu Shaohua, at the first China Dairy Freshness Summit in 2019, heavily promoted its 75°C, 15-second sterilization process and 4°C, 7-day freshness guarantee. Pu mentioned that experiments show that as sterilization temperature increases, the activity of active substances like lactoferrin gradually decreases, especially lactoperoxidase, which has immune-regulating and antioxidant functions and becomes completely inactive at 80°C. But just half a year later, high-temperature pasteurized Fresh Pasture appeared. Of course, Guangming Dairy believes that Fresh Pasture's launch doesn't contradict its emphasis on 75°C sterilization; it will continue to promote pasteurized milk, but high-temperature pasteurized milk has a slightly longer shelf life, allowing it to cover more regions. "All our fresh milk products advocate 4°C, 7 days, but by the time products arrive, there are only a few days left before expiry. Now Fresh Pasture can reach more cities, such as northern Jiangsu and Anhui," a Guangming spokesperson told AI Finance and Economics. Research by Max Capital found that per capita liquid milk consumption in China was 4.51 kg in 2003, growing to 18.33 kg by 2015. Considering urban-rural differences, future growth in per capita liquid milk consumption will mainly come from rural areas, leaving room for further growth. This is why new fresh milk products mostly choose high-temperature pasteurized milk with a 15-day shelf life. Previously, the lower-tier market was dominated by room-temperature milk, with few fresh milk categories. This is because fresh milk has high requirements for milk sources, which are foundational. First, the milk source must be high quality; second, it must be close to sales areas, as distance increases costs. The shorter the time from milking, production, transportation, and shelving, the longer the selling time. This has led to a phenomenon where pasteurized milk is mostly produced by regional companies, produced and sold locally. To expand nationally, milk sources must be supported in different regions; those with milk sources win. So in the past six months, the drama of dividing pastures has continued: In May, New Hope Dairy acquired Ningxia Xiajin Dairy's parent company, Huan Dairy, for 1.711 billion yuan. At the end of July, Mengniu became the single largest shareholder of China Shengmu for 356 million yuan. In early August, Yili subscribed to about 433 million shares of Zhongdi Dairy through a subsidiary for HK$203 million. **-03-**Why Must It Be Fresh Milk? Industry data repeatedly emphasize that room-temperature milk growth is sluggish, and fresh milk is the future and the blue ocean. Some even predict that around 2029, the low-temperature milk market will surpass room-temperature milk. This is why giants are increasing their investment in fresh milk. An indisputable fact is that room-temperature milk has become a stock market, and as consumers increasingly focus on quality of life, awareness of fresh milk has significantly improved. At Bianlifeng, there are over 20 fresh milk products on shelves this year, a 20% increase from last year, including a newly launched private-label pasteurized milk. In the first quarter of this year, Hema's fresh milk sales increased 37% quarter-over-quarter. Fresh milk has become an area where giants can see growth quickly after entering. In 2019, Mengniu's fresh milk business, in its second year, saw triple-digit growth, with Daily Fresh sales up nearly 500% year-on-year. Even as the base grew, in the first half of 2020, its fresh milk growth was nearly 100%. Image source: Visual China Sanyuan revealed that the average price per liter of fresh milk has been rising in recent years, mainly due to the trend of premiumization. Currently, the major players in low-temperature fresh milk are big players. One camp is regional giants like Beijing Sanyuan, Nanjing Weigang, and Guangzhou Yantang, with years of accumulation in fresh milk. Another camp is national giants and new entrants, who may also be harvesters. They all spare no expense to pave the way, such as Mengniu, Yili, Guangming, and Junlebao. Big brands are making waves, while small brands dare not act rashly because low-temperature fresh milk is too difficult. The fresh milk chain is long, with high requirements for milk sources, production quality control, cold chain logistics, distributor operations, shelf date management, order management, and consumer trust. It's hard to build a team overnight. Zheng Zhong, managing director of Max Investment, believes that low-temperature fresh milk is more homogeneous than yogurt, with higher equipment and process requirements, and faces direct competition from room-temperature milk, especially imported liquid milk. "It's hard for startups in low-temperature fresh milk; otherwise, Coca-Cola wouldn't have chosen Mengniu." He refers to the alliance between Coca-Cola and Mengniu. In the third quarter of 2021, a new high-end low-temperature milk brand backed by Coca-Cola and Mengniu will appear. Coca-Cola didn't act on a whim; it had been planning since at least July 2018, which is also a time point for the national development of low-temperature milk. As big players enter one after another, market share is about to be redistributed, and the only means is price. Big brands are best at trading price for market share. It's foreseeable that fresh milk brands will start spending real money and fight a hard battle. For consumers, the time for fresh milk freedom has arrived.