---
title: "The Upgrade Challenge of Liquid Milk"
description: "The milk powder formula registration system has standardized the infant formula industry, while another dairy category, liquid milk, is also undergoing upgrade challenges. The melamine incident not only affected milk powder products but also drastically reduced consumer favorability towards domestic liquid milk, allowing imported liquid milk to enter and capture market share. Currently, imported brands continue to flow in, while recovering domestic brands aim to regain lost ground, with 'upgrade' becoming a common goal for both sides. From ambient milk to low-temperature milk, and from regular milk to organic milk, categories are expanding. How to cultivate consumers..."
author: "New Distribution"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2018-01-17"
language: "en"
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---

# The Upgrade Challenge of Liquid Milk

> The milk powder formula registration system has standardized the infant formula industry, while another dairy category, liquid milk, is also undergoing upgrade challenges. The melamine incident not only affected milk powder products but also drastically reduced consumer favorability towards domestic liquid milk, allowing imported liquid milk to enter and capture market share. Currently, imported brands continue to flow in, while recovering domestic brands aim to regain lost ground, with 'upgrade' becoming a common goal for both sides. From ambient milk to low-temperature milk, and from regular milk to organic milk, categories are expanding. How to cultivate consumers...

The milk powder formula registration system has standardized the infant formula industry, while another dairy category, liquid milk, is also undergoing upgrade challenges. The melamine incident back then affected not only milk powder products but also caused a sharp decline in consumer favorability towards domestic liquid milk, allowing imported liquid milk to seize the market. Currently, imported brands continue to flow in, while domestic brands that have caught their breath hope to 'recover lost ground,' with 'upgrade' becoming a common goal for both sides. From ambient milk to low-temperature milk, and from regular milk to organic milk, categories are increasing. How to cultivate consumers, ensure product quality, and stand out among numerous brands have become essential courses for all liquid milk brands.

Pasteurized Milk Becomes a Hot Trend
Driven by the trend of consumption upgrade, consumers' liquid milk consumption is shifting from ambient milk to pasteurized milk, making pasteurized milk a battleground for domestic dairy enterprises. Pasteurized milk refers to milk processed through pasteurization. Low sterilization temperature, cold storage conditions, and short shelf life are the three major characteristics of pasteurized milk. Since not all products label their sterilization technology, consumers usually distinguish pasteurized milk by shelf life.

Recently, Bright Dairy upgraded its pasteurized milk brand Youbei and achieved a breakthrough in sterilization technology from 85°C to 75°C. With Bright Dairy increasing its investment in pasteurized milk, competition among domestic dairy enterprises in this segment has intensified. Data shows that in 2015, compared to the 2.7% growth rate of ambient milk, pasteurized milk maintained a high growth rate of 24.3%.

In recent years, besides Bright Dairy, many dairy enterprises have been focusing on pasteurized milk business. Sanyuan Foods' factory in Gansu will be put into operation by the end of the year, mainly producing liquid milk, with a significant proportion being pasteurized milk. New Hope Dairy is also expanding nationally by acquiring local dairy enterprises to develop pasteurized milk. While regional dairy enterprises represented by Sanyuan Foods, Bright Dairy, and New Hope are making efforts in pasteurized milk, Mengniu Dairy, a leading dairy company in the ambient milk camp, announced that it will formally enter the pasteurized milk sector by leveraging Modern Dairy's pasture layout. Mengniu Group President Lu Minfang once publicly stated that the pasteurized milk project is a strategic consideration after increasing its stake in Modern Dairy, and it is also the reason for the significant increase in shareholding.

Industry insiders point out that the sterilization temperature for pasteurized milk is typically stable at 80-85°C, with a sterilization time of 15 seconds and a shelf life of 5-7 days. Currently, Bright Dairy has lowered the sterilization temperature to 75°C, which will inevitably promote industrial upgrades among other enterprises. For dairy companies, pasteurized milk will be an important business in the future. As regional advantages weaken and large dairy enterprises enter, how to attract consumers again will test the operational capabilities of dairy companies.

Organic Milk Shows Impressive Growth
In recent years, ambient milk is no longer presented as a single variety; organic milk is becoming one of the hot spots for ambient milk upgrades. The demand for high-quality products represented by organic food is growing rapidly. While the growth of regular milk slows down, the increment of organic milk rises significantly, and more and more well-known dairy enterprises are joining the competition in organic milk. In fact, organic liquid milk is developing rapidly, including organic ambient milk and fresh milk brands such as Yili Jindian, Mengniu Telunsu, Sanyuan Jizhi, and Shengmu, which have greatly promoted the development of China's high-end liquid milk market. The core of market competition has gradually shifted from price to quality.

Industry insiders point out that one of the major reasons driving dairy enterprises to flock to organic milk in recent years is the high gross margin of organic milk and the not yet fully developed domestic market space. Public data shows that in Austria, France, and Germany, where the organic milk industry is developed, organic milk powder accounts for 30% of the market share, while in China, both organic milk powder and organic liquid milk account for only 1%-3%, leaving much room for growth.

Despite the impressive growth rate, organic milk still faces various problems. First, consumer cultivation needs to be addressed. Currently, most domestic consumers have only a partial understanding of organic milk, and organic certification is rarely known. Dairy enterprises need to make efforts in publicity. In addition, there are not many major customers for organic milk in China, leading to unsold raw milk for some upstream organic dairy enterprises. Coupled with the downturn in upstream dairy enterprises in recent years, the development of organic milk is still in its infancy.

Take China Shengmu as an example. As China's largest organic dairy company, China Shengmu has always been focused on upstream business, selling raw milk to production enterprises. However, the impact of imported milk and low raw milk prices have made life difficult for upstream dairy enterprises.

Industry insiders point out that organic milk follows high standards and high requirements, but this increases costs. Once organic milk solves the problems of consumer cultivation and channel upgrades, it will become a new profit growth point.

Upgrade Effects Gradually Appear
Currently, large domestic dairy enterprises still rely on liquid milk and other products as their main source of income, with brands like Mengniu and Yili being leaders in this field. With the continuous expansion of the liquid milk market, product upgrades have become a major topic in the liquid milk sector.

According to the '2017-2022 China Liquid Milk Industry Market Demand and Prospect Analysis Report' released by China Business Industry Research Institute, the compound growth rate from 2012 to 2016 was 6.3%. The production of liquid milk achieved stable and rapid development, becoming an increasingly important part of national consumption. By 2016, China's liquid milk production reached 27.37 million tons, a year-on-year increase of 8.57%. It is estimated that in 2018, China's liquid milk production will reach 32.51 million tons, a year-on-year increase of about 9.72%.

Product upgrades have begun to show results. Public information shows that Yili Jindian is focusing on high-end re-upgrades. Jindian organic products and origin series products are new areas Yili is exploring in the liquid milk market, catering to consumers' higher demands for health and nutrition. According to Yili's financial report, in the first half of 2017, Yili's total operating revenue was 33.494 billion yuan, a year-on-year increase of 11.32%; net profit was 3.368 billion yuan, an increase of 4.52% compared to the same period last year. Among them, sales of star products such as Jindian and Ambrosial increased by 31%, and new products contributed 7% to sales.

Industry insiders point out that organic milk and pasteurized milk are currently one of the main ways to upgrade liquid milk. It can be seen that more and more consumers are gradually improving their understanding of liquid milk, and the advantages of pasteurized milk and organic milk are becoming prominent, with sales gradually improving. However, while upgrading products, dairy enterprises also need to pay attention to whether the products fit consumers' consumption habits, and continue to make efforts in sales channels and publicity. Currently, the upgrade of domestic liquid milk products faces problems such as low consumer acceptance, and there is still a long way to go for liquid milk in the future.

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