In 2005, Telunsu made its debut, opening the era of premium white milk. Since its launch, Mengniu's Telunsu has maintained double-digit growth for over a decade. According to Euromonitor, Telunsu's terminal sales are expected to reach 16.365 billion yuan in 2018, with a compound growth rate of 23.6% from 2.431 billion yuan in 2009. Telunsu Organic Pure Milk Image source: Telunsu Its rival Yili Jindian has also surpassed 10 billion yuan in sales, with a compound growth rate of 33.43%. Besides the two leaders, the premium white milk cake is attracting new players such as Modern Farming, Shengmu, Dea, and Want Want. Jindian Organic Pure Milk Image source: Jindian Frost & Sullivan predicts that with the consumption upgrade trend, premium milk's share in the overall liquid milk market will continue to rise, reaching 80 billion yuan in retail sales by 2020. The market is increasingly attractive, competition is growing, but premiumization is approaching its ceiling. In 2005, China became the world's fourth-largest economy with a GDP per capita of $1,713. By 2018, China's GDP per capita had reached $9,780—consumers' pockets and minds have changed. When the entire industry is touting health, quality, and premium, merely using high-quality milk sources and nutritional content as selling points is no longer enough to attract the new generation of consumers. Therefore, how to innovate and upgrade to improve competitiveness is the main issue facing premium white milk brands. -01- In the next five years, the opportunity for premium white milk lies in product premiumization Definition: UHT milk with protein content greater than 3.2g/100ml and price greater than 12 yuan/L. Origin: Premium milk emerged when Mengniu and Yili both surpassed Guangming, and the competition in room-temperature milk became intense. After years of rapid growth, the overall growth rate of room-temperature white milk has declined. In 2005, China's economy was booming, and the demand for consumption upgrades was strong. High-quality, high-priced premium white milk opened new markets and became a favorite among middle and upper-class consumers. Under the influence of economies of scale, production costs of premium white milk have gradually decreased, revealing a cost-performance advantage over ordinary pure milk, and penetrating a broader consumer base, corresponding to the rising demand of middle and upper-class consumers. Kantar Worldpanel research found that benefiting from consumption upgrades, more and more consumers seeking high quality have a daily self-drinking demand for premium white milk. Premium white milk is not only for gifting but also for self-consumption, which is rapidly expanding. According to Bloomberg, in 2018, premium white milk revenue was 39 billion yuan, with a compound growth rate of 15.4% over the past five years. With channel expansion and product structure upgrades, the premium white milk category is expected to maintain nearly 10% compound growth over the next five years. Growth drivers: Channel penetration still has dividends, but growth is slowing; product upgrades bringing premium pricing will become the main growth engine. Nielsen data shows that retail sales of liquid dairy products in third- and fourth-tier cities and rural areas increased by 8.8% year-on-year, significantly higher than the growth rate in first- and second-tier cities, becoming a new engine driving dairy consumption growth. With rising rural disposable income and the cultivation of consumption habits, large enterprises' terminal sales channels will continue to penetrate downward, and dairy consumption in third- and fourth-tier cities and townships is expected to release new vitality. With the improvement of purchasing power in lower-tier markets and the acceleration of consumption habits, the industry is ushering in a new round of growth. In 2017, premium white milk revenue growth in counties and townships was 15.10% and 14.32%, respectively, higher than the overall growth of 9.20%. Benefiting from the rise of consumption in lower-tier cities, premium white milk is expected to continue to enjoy the growth dividend from lower-tier cities over the next five years. However, due to the already high channel penetration, growth will slow, and price increases are expected to compensate. For example, Jindian launched Juanshan pure milk, positioned as ultra-premium, with a price more than 50% higher than Jindian milk. In the next five years, the price contribution of premium white milk will be significantly higher than in the past five years, with growth space lying in product structure upgrades. -02- Leading players: Telunsu and Jindian begin brand upgrades The main brands in the premium white milk market are leading dairy companies (Yili, Mengniu) and large-scale pasture-owned brands (Modern Farming, Shengmu, etc.). New brands are also entering, such as Want Want and Tianyou Dairy, which launched premium white milk products this year. Currently, the market share of major brands in the premium white milk market is relatively stable. The top four manufacturers—Mengniu, Yili, Shengmu, and Modern Farming—occupy over 85% of the market share. Among them, Mengniu's Telunsu had a market share of 44% in 2018, and Yili's Jindian had 39.1%. White milk has completed its evolution from low-end to high-end, and competition in premium white milk is entering a new stage. When the layout of milk sources has reached the upper limit of existing resource capabilities, how to enhance product premium becomes the key point of brand competition. This year, we have seen both leading players begin brand upgrades. Telunsu set its brand communication theme as "Better 2019, Be a Better Self" and upgraded all series products to dream caps in July; Jindian released a new brand proposition of "Heaven-given Jindian, Open a New Organic Life" in August and launched a new high-end organic milk product for drinking. From the movements of the two companies, the upgrades are mainly divided into three directions: product, visual, and marketing. 1. Product upgrade: More convenient to drink, more nutritious At the product level, consumers are increasingly concerned about the drinking experience, and the drinking experience of premium white milk can be upgraded from the perspectives of drinking method, nutritional content, and taste. Since May last year, Telunsu took the lead in upgrading its organic milk from the original tall and thin straw packaging to a "dream cap" packaging. By July this year, Telunsu upgraded all its products to dream caps, changing the drinking method of premium white milk from straw to bottle cap, solving problems such as difficulty in carrying after opening and waste due to inability to seal, improving convenience and applicability, and broadening the drinking scenarios of milk. Telunsu series products "dream cap" upgrade Image source: Telunsu Jindian, on the other hand, upgraded its nutritional content. At the 2019 China International Health Industry Summit in August, Jindian released its new high-end organic pure milk for drinking, upgrading the protein content to 3.8g/100ml (domestic organic milk protein content is mostly 3.6g/100ml), which is more than 27% higher than the national standard for sterilized milk. This new product also uses dream cap packaging. Jindian high-end organic pure milk for drinking Image source: Jindian 2. Visual upgrade: Satisfy young people's "appearance first" In today's consumption era, packaging is not just a tool; the visual, tactile, and psychological experience it brings is also part of consumption. Especially the new generation of consumers, who are keen on social sharing, prefer to buy products that provide aesthetic enjoyment or novelty and fun visually. Telunsu and Jindian have both seized the "national trend" that young people are paying attention to and upgraded their packaging. Telunsu launched the Beijing embroidery version of Hi Milk, a product in Telunsu's ultra-premium series "Exclusive Customization." The packaging uses the intangible cultural heritage of traditional Beijing embroidery as the theme, creating three products: "Butterfly" expressing daily progress, "Crane" expressing peace and health, and "Mandarin Duck" expressing a perfect match. Telunsu Hi Milk Beijing embroidery version Image source: Telunsu On the front of the packaging, a cow face is used as the base graphic embedded with Beijing embroidery patterns, using a silver leakage process; the gift box uses embossed gold stamping to highlight the combination of embroidery hoop and design, and also includes tape, notebooks, and other extended gifts. Similarly, for the packaging upgrade of ultra-premium products, Jindian Juanshan pure milk chose a "Chinese-Western combination." In October this year, Jindian collaborated with Rolex designer Nicolas Damiens to create the Jindian 2019 National Trend Custom Edition. In the Jindian National Trend Limited Edition Juanshan pure milk, Nicolas used Art Deco style as inspiration, blending the splendor of Western decorative arts with the charm of Eastern inspiration. Jindian National Trend Limited Edition Juanshan pure milk Image source: Jindian The lines of Art Deco have a vigorous, unrestrained vitality and power, known as "organic lines of nature." Nicolas extracted a large number of elements from Chinese culture and organically integrated them with Art Deco, such as pavilions, pandas, and bamboo. 3. Marketing upgrade: Create a diversified and youthful brand image The era of conquering the market with the slogan "Not all milk is Telunsu" is over. Traditional advertising marketing is difficult to capture the attention of young people. Brands need to create their unique image from a diversified and youthful perspective. Spokespersons: In addition to bringing fan benefits to the brand, what is more important is representing the brand's image. Compared to traffic effects, the fit between the celebrity and the brand is more important. Telunsu's communication theme is "Be a Better Self," so it selects positive-energy celebrities from different age groups and life states: Chen Daoming representing successful middle-aged people, Jin Dong representing the post-80s social elite, and this year's additions Zhang Junning representing new-era women and Deng Lun representing the new generation of young people. Telunsu spokespersons: Chen Daoming, Jin Dong, Zhang Junning, Deng Lun Image source: Telunsu Yili Jindian's new brand proposition focuses on "organic life," a life philosophy that follows natural laws and returns to true nature. Therefore, in the selection of spokespersons, it highlights a gentle and natural "persona," including artistic Wu Qingfeng, family-oriented Wu Zun, natural Chun Xia, and free-spirited Faye Wong. Jindian spokesperson: Wu Qingfeng Image source: Jindian Jindian also joined forces with authoritative institutions such as the International Federation of Organic Agriculture Movements (IFOAM), Tetra Pak, and the World Wide Fund for Nature (WWF) to launch the "Jindian National Organic Life Check-in Plan," which will invite over a hundred influencers to check in on organic life across the country, with celebrity demonstrations by spokesperson Wu Qingfeng and others. Traditional marketing: Traditional marketing methods such as variety show sponsorships and commercials have not been abandoned by young people; they just need new expressions in the new era. For example, Telunsu in "Back to Field Season 3" gained a lot of consumer goodwill. As a domestic slow variety show, "Back to Field" presents a pastoral slow life picture of returning to simplicity, deeply loved by young people, and aligns with the brand tone of "Be a Better Self" and pursuing quality. Jindian, together with Zhang Dapeng, the director of "What is Peppa Pig?", launched the commercial "Life is Organic, Home has Love," telling interesting organic life stories around us. Shopping for groceries, cooking, watching TV, taking out the trash... an 8-minute video with 3 stories captures the "organic" elements of ordinary trivial life and interprets three generations' understanding of organic life. Jindian's "Life is Organic, Home has Love" commercial Image source: Jindian The entire film has no preachy lines or excessive brand logo exposure. Netizens considered this commercial "down-to-earth and heartfelt," making the public's perception of the Jindian brand more three-dimensional. Innovative marketing: Cross-border marketing is a new marketing method that major brands have been keen on in the past two years. Good cross-border cooperation can bring new fan circles to the brand. Telunsu Hi Milk joined forces with Lelecha, which is deeply loved by young people, to launch a national trend limited edition gift box called "Perfect Zero Box." The tea powder from Lelecha in the gift box can be poured into Hi Milk, and after shaking and mixing, you can easily enjoy black tea milk tea and jasmine tea milk tea. Telunsu Hi Milk and Lelecha launch Perfect Zero Box Image source: Tmall official Weibo Telunsu also created a high-value national trend pop-up store "Perfect Experience Hall" offline. The experience hall's design, from the check-in wall to various screens and fans, exudes a strong "Beijing embroidery culture" unique charm, providing consumers with an immersive experience. Jindian chose to co-brand with the British Museum, combining elements of famous paintings with Juanshan pure milk, and inviting consumers to participate in a British classic collection tour to learn about Juanshan history, British royal life and collections, and enjoy royal afternoon tea, highlighting its product tone while playing with consumers. -03- Future opportunities: Be the leader in segmented markets Category segmentation is a major trend we are discussing in all food and beverage fields. Finding a defensible segmented market and becoming the leader in that field is an opportunity for premium white milk brands to build new city walls. From the product attribute perspective, the most important attribute of premium white milk is health. According to consumers' diverse health needs, the main tracks worth paying attention to in the future include low-fat, high-protein, lactose-free, and organic milk, with organic milk being particularly noteworthy. 1. Organic milk: A must-fight place Mintel research points out that due to the demand for dairy substitutes and growth, total dairy sales may decline from 2015 to 2020, but interestingly, organic dairy products, as high-end products, are currently steadily increasing in sales, becoming an innovative driving force for dairy growth. The difference between organic milk and ordinary milk mainly lies in feeding methods, feed, and milk processing: organic milk cows are raised on natural pasture, and the pasture must be fertilized with organic fertilizers, maximizing the preservation of natural nutrients in milk. At the same time, in later processing, no preservatives or antibiotics are added, and it must be certified by an independent, nationally authoritative certification body. Image source: Pexels Ecovia Intelligence data shows that global organic food and beverage sales exceeded $100 billion in 2018, an increase of 6% compared to 2017. With consumers' increasing attention to health and natural attributes, China's organic milk has broad growth space. Looking at the current Chinese organic milk market, representative brands include Yili Jindian, Mengniu Telunsu, and Shengmu. This year, Tianyou Dairy also launched Baite organic milk. For brands, the organic milk industry has high barriers, strict production certification, huge investment requirements, and extremely complex requirements for cow breeding environment and processing technology. High barriers also mean opportunities to seize the high ground. Euromonitor data shows that from 2007 to 2017, the annual compound growth rate of global organic milk was 9.7%, and China's was as high as 116.3%. Organic milk is bound to become a must-fight place for many competitors. Taking Jindian as an example, the soil for organic milk source breeding environment needs three years of natural purification, the water source is deep groundwater below 300 meters, and the air is above 1,000 meters above sea level. This unique geographical location and climatic conditions allow the cows to live a "paradise" life. In August this year, Jindian launched a brand upgrade, launching high-end organic pure milk for drinking, with protein content upgraded to 3.8g per 100ml, more than 27% higher than the national standard for sterilized milk. Jindian high-end organic pure milk for drinking Image source: Tmall Supermarket Mengniu invested in Shengmu last year, attracted by its strong organic milk source. As of July 2018, China Shengmu had 117,000 cows, of which nearly 90,000 were organic cows. In the first half of the year, it produced 245,000 tons of organic milk, and its organic raw milk meets EU organic standards. Shengmu organic pure milk Image source: Shengmu Tmall flagship store Tianyou Dairy's Baite organic milk launched this year contains 3.6g of milk protein and 120mg/100ml of natural calcium. The milk source is selected from Juanshan cows and Holstein cows from the Baite high mountain organic cloud pasture. Tianyou Baite organic milk Image source: Tianyou Tmall flagship store 2. Low-fat, high-protein: Functional "mixing" to improve product differentiation From a health perspective, low-fat, sugar-reduced, and high-protein demands are inevitable trends in food and beverages, and premium white milk is no exception. However, every brand can provide a single health benefit claim. To enhance competitiveness and build a moat for the category, it is necessary to further strengthen product differentiation. For example, almost every brand has low-fat series products, while Telunsu launched the 0-fat Hi Milk series, and the Beijing embroidery version packaging gives the product additional value. Telunsu Hi Milk 0-fat pure milk Image source: Telunsu official website For high-protein demand, Telunsu launched M-PLUS high-protein milk, with 6g of high-quality milk protein per 100ml. On top of high protein, M-PLUS also adds taurine, vitamins, minerals, and other nutrients, suitable for sports supplementation. Telunsu M-Plus high-protein milk Image source: Marking Awards Jindian, starting from the preciousness of milk sources, launched Juanshan pure milk, positioned as ultra-premium milk. The milk source is selected from purebred Juanshan cows, known as the "noble among cattle," whose milk fat and protein content are significantly higher than ordinary cows. Each 100ml of milk contains 3.8g of high-quality milk protein and 120mg of natural high calcium. Jindian Juanshan pure milk Image source: Jindian Organic Milk official Weibo Tetra Pak launched a concept product called Qingyue this year, a high-protein, low-fat milk that combines two functional demands, suitable for people with weight management needs. This concept product uses VTIS technology and membrane filtration technology. Compared to ordinary white milk, protein content is 30% higher, and fat content is reduced by 30%. Qingyue high-protein low-fat milk Image source: Tetra Pak Innovation 3. Lactose-free: The challenge lies in technology, awaiting more players Chinese consumers' lactose intolerance makes lactose-free an important innovation direction for premium white milk. The main challenge in this category is process technology. Currently, the representative brand for lactose-free milk in China is Yili Shuhua, which uses patented LHT lactose hydrolysis technology to break down lactose that is difficult to digest in milk into galactose and glucose that are easily absorbed by the human body, solving symptoms such as bloating and diarrhea caused by lactose intolerance. Yili Shuhua milk Image source: Yili Shuhua official website However, Yili Shuhua's protein content is 3.0g, which still does not qualify as premium white milk. In the future, process technology needs to improve, and more brands need to join to provide consumers with rich choices. In addition, brands can also "re-segment" the category based on lactose-free. For example, Australia's Liddells focuses on lactose-free dairy products, with its lactose-free milk divided into whole fat, low-fat with 99% fat reduction, skim with 99.8% fat reduction, and chocolate flavor with 99% fat reduction. Liddells lactose-free products Image source: Liddells official Facebook -04- Conclusion In summary, the replacement of low-end by high-end, and the emergence of new ultra-premium replacing premium, is an inevitable trend in the white milk market. As channel dividends gradually fade, premium white milk must embark on an upgrade path, winning new market returns through enhanced product value. In the next five years, price will become the main growth driver in the premium white milk market. To make consumers willingly pay, brands need to invest in product, packaging, and marketing, provide better services at all consumer touchpoints, and continuously bring consumers unexpected yet reasonable high-end experiences. 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