Time flies. Since 2008, China's domestic infant formula industry has gone through ten years, with commercial warfare and turbulent times. Over the decade, domestic infant formula brands have forged ahead under the shadow of the "melamine-tainted milk powder incident," expanding globally and giving rise to well-known brands such as Beingmate, Feihe, and Yili Jinlingguan. Over the decade, domestic brands have innovated marketing methods under competition from "imported formula" and "international brands," introducing new products and seeing the emergence of rising stars like Shijiazhuang Junlebao and Sanyuan Dairy. Over the decade, many domestic brands have persevered in the complex environment of market and policy, seeking new market opportunities, such as Yashili and Synutra.
2008: After the "Melamine Incident," Domestic Brands: Survival of the Fittest! After the 2008 "melamine incident," as a large number of involved infant formula companies like Sanlu, Yaolan, and Gucheng were found to contain melamine, their products were pulled from supermarket shelves, leaving a vast market gap. Beingmate, Feihe, and Wandashan were among the few domestic brands that did not detect melamine, making them the survivors of the incident. The market space left by the departed needed to be actively filled by the survivors! While four major imported brands—Dumex, Wyeth, Abbott, and Mead Johnson—were expanding aggressively, domestic brands like Beingmate, Feihe, and Wandashan were not to be outdone. Around 2009, Beingmate built a massive sales and distributor team, covering the country's baby stores and supermarket channels with its baby care and distribution projects; Feihe, recognizing the market opportunity, also spread its "consistent good milk powder" across the country. The surviving domestic brands seized the historical opportunity to rise, growing from second-tier brands to first-tier brands capable of competing with imported formula. Currently, although some brands have experienced ups and downs, they remain formidable players in China's dairy industry top 20.
2010: Synutra's Forced Transformation! In 2010, the father of a baby girl in Changchun, Jilin, reported that his daughter had started menstruating at six months, twice already. However, after a series of hospital tests, the only abnormality was slightly elevated estrogen, and doctors could not determine the cause, suggesting observation for another month. The father suspected Synutra formula was responsible and took his case to the media, demanding compensation. On August 15, 2010, the Ministry of Health held a press conference to announce the investigation results of "Synutra milk powder suspected of causing precocious puberty in children," stating that tests showed Synutra's products met all standards. However, due to the lingering effects of the melamine incident, consumers were not convinced. "Even though it was refuted, we're still not at ease," reflecting the cautious attitude consumers had toward Synutra. Affected by the "Synutra precocious puberty false alarm" incidents in Changchun and Wuhan from 2010 to 2013, Synutra's market share plummeted. For example, in a prefecture-level city in Zhejiang, Synutra's annual sales before 2010 were 30 million yuan; after 2011, its market share was less than 3 million yuan per year. "When poor, change; when changed, you can pass; when passed, you can last." Under market pressure, Synutra sought a turnaround. After 2010, as the domestic baby channel market heated up, there was a boom in opening mom-and-baby stores. In coastal cities, towns that previously had one baby store quickly saw four to five competing for customers. The number of families with children aged 0-3 in a town or street is limited, and generic formula became the "cannon fodder" for price wars among baby stores. To meet the demand for customized formula for baby store channels and to reverse its declining fortunes, Synutra developed over 100 channel-customized formulas, including My Angel, Lingyu, Jiadun, Xingyue, Enheng, Xibeikang, Ailezi, Yingzhile, Maiqi, and Fuer. Today, with the implementation of the "Infant Formula Product Formula Registration Management Measures" issued by the China Food and Drug Administration, Synutra faces an unavoidable sharp decline in market share, and has had to phase out its channel-customized formulas, making painful cuts and preparing for another restart.
2011: Beingmate's Crisis Amidst Prosperity! After 2008, Beingmate seized the historical opportunity and achieved impressive results through relentless efforts! In 2009, revenue was 3.25 billion yuan, up 67.4% year-on-year, with net profit of 376 million yuan, up 243.7%; in 2010, revenue was 4.03 billion yuan, up 24.1%, with net profit of 422 million yuan, up 12.4%. On April 12, 2011, a confident Beingmate successfully listed on the A-share market. However, compared to companies like Biostime that used membership stores and precision marketing, Beingmate's marketing was more extensive. Beingmate adopted the traditional FMCG deep distribution model, relying on distributors and sales representative teams at the county level. At its peak, Beingmate had over 10,000 sales representatives and promoters, all on the company's payroll. Additionally, to activate the market and attract consumers, Beingmate implemented its "Baby Care Project," "Love Baby Project," and "Maternal Project" in every regional market, supported by TV ads, conference marketing, and outdoor promotions, which also incurred huge expenses. Beingmate adopted a high-margin, high-expense development model, and the cost bomb of deep distribution plagued the company! Starting in 2010, Beingmate's annual selling expense ratio was above 40%. Further breakdown showed two major expenses: advertising and promotion, and distributor and KA hypermarket-related costs. From 2013 onward, whenever Beingmate wanted to grow sales, it aggressively pushed inventory onto distributors and retail outlets, leading to rampant cross-region selling. Once cross-region selling became prevalent, distributors and stores made no money. With no profit, no one wanted to sell Beingmate products, and sales declined! Beingmate fell into the quagmire of extensive marketing and has not yet found an effective way to escape.
2013: Feihe's Biding Time! In 2013, nine ministries jointly issued the "Opinions on Further Strengthening the Quality and Safety of Infant Formula," aiming to strengthen supervision, improve quality and safety, and build national brands in the domestic formula industry! Consequently, Mengniu Dairy under COFCO quickly acquired Yashili, which also made Feihe's founder, Leng Youbin, see a historical opportunity for expansion. In fact, as early as May 2003, Feihe had listed on NASDAQ, becoming the first Chinese dairy company to list in the U.S. However, due to the suppression of Chinese concept stocks in the U.S. market and strict refinancing requirements, Feihe had raised little capital beyond its IPO, often facing funding constraints that hindered expansion. To grow its market share and influence, Feihe needed to return to the domestic market. At the end of June 2013, Feihe's founder Leng Youbin announced the completion of the company's privatization after eight months. Leng, together with Morgan Stanley's Asian private equity arm, repurchased about 50% of the company's outstanding shares at $7.40 per ordinary share, totaling $146 million. This marked the end of Feihe's U.S. listing, and the title "China's first U.S.-listed dairy company" was removed from its business cards. Biding time! After delisting, Feihe placed greater emphasis on channel construction, benefiting from founder Leng Youbin's decade-long investment in the upstream supply chain. Professional manager Cai Fangliang, who joined Feihe, found a rare opportunity. With Leng's foresight and Cai's efficient execution, the "Cai-Leng partnership" became celebrated within Feihe, leading to substantial development. In 2017, Feihe restarted its IPO plan to list in Hong Kong. According to the prospectus, net profits for 2014-2016 were 500 million, 381 million, and 406 million yuan, respectively. High-end formula revenue for 2014-2016 was 987 million, 1.299 billion, and 1.586 billion yuan, accounting for 27.6%, 36%, and 42.6% of total revenue. In Q1 2017, high-end formula sales surged 191% year-on-year, driving overall sales up 34%.
2014: Junlebao's Breakthrough! In March 2014, Wei Lihua, founder of Shijiazhuang Junlebao Dairy, visited France with an entrepreneur delegation. While inspecting formula, he found that the best infant formula abroad cost only 13.5 euros (about 100 yuan), but the same product sold for over 300 yuan in China. Foreign formula generally had no high-end vs. low-end distinction, except for special formulas for specific infant groups, and prices didn't skyrocket due to added ingredients. Even with the best raw materials, a can cost only tens of yuan. Back at his factory in Shijiazhuang, Wei decided to price a can at 125 yuan. But when he consulted distributors, they all opposed it, so he only added 5 yuan, selling at 130 yuan per can. In reality, such a price was hard to launch in the domestic market. Due to the layers of channel markups, a can costing 50 yuan required 50 yuan for the distributor, 100 yuan for the store, and 50 yuan for the promoter, totaling 200 yuan in channel costs, naturally leading to a retail price of over 300 yuan. How could it sell at 130 yuan? Thus, Junlebao, priced at 130 yuan per can, chose a completely different path from competitors, selling through e-commerce channels like Tmall and JD.com. With EU certification, farm and factory tours, and various promotions, Junlebao's operations team worked hard, and through continuous efforts, the 130-yuan price, solid quality, good word-of-mouth, and high cost-performance made Junlebao the "Xiaomi phone" of domestic infant formula, gradually opening up the market. With online word-of-mouth and a solid user base, baby stores and supermarkets began to stock Junlebao, hoping to attract customers. Junlebao broke through the layers of channel interests and the shackles of imported brands, emerging as a rare new star among domestic formula brands in the past decade.
2015: Yashili's Hero in Decline! On January 7, 2015, Yashili International announced that its president and founder, Zhang Litian, would step down as CEO, replaced by Lu Minfang from Danone, who would take over daily operations. In 2013, Mengniu Dairy invested in and integrated Yashili, acquiring 75.3% of shares to become the largest shareholder. In 2014, Mengniu, Danone, and Yashili signed a share subscription agreement, making Danone the second-largest shareholder. Through a series of mergers and restructurings, Zhang Litian's exit seemed inevitable. Mengniu acquired Yashili, merged Dumex, and the Zhang family exited. After 2013, Yashili's performance plummeted. Its 2015 results showed revenue fell to 2.761 billion yuan, down 22.3% year-on-year; net profit was 118.3 million yuan, down 64.4%. In 2014, revenue had decreased 27.6% to 2.816 billion yuan, and net profit fell 43.1% to 249 million yuan. In other words, from 2014 to 2016, revenue dropped from 2.816 billion to 2.203 billion yuan, and net profit swung from a profit of 249 million to a loss of 320 million yuan. In fact, after 2013, Yashili's market operations were lackluster. Facing overcapacity and slow channel sell-through, Yashili once launched a 99-yuan-per-can low-price formula, imitating Junlebao's e-commerce approach, but with little effect. On Singles' Day 2015, Yashili won the formula category sales championship with total sales of 106 million yuan. The brief joy brought long-term pain, as Yashili sold off inventory at ultra-low prices, destroying its price system. A large portion of the 106 million yuan in sales came from distributors and stores hoarding stock. One good Singles' Day led to half a year of pain. Relying on a big tree! As of August 20, the latest "formula registration system" approvals show that Mengniu Yashili has 3 factories and 7 series of formulas approved. We have reason to believe that Guangdong Yashili will continue to hold a significant share in China's domestic formula industry!
2017: A New Round of Shakeout Looms, End as Beginning! Recently, as the China Food and Drug Administration announced the approved companies and formulas under the "Infant Formula Product Formula Registration Management Measures," the "strictest formula policy" has been implemented. So far, 73 companies and 422 formulas have been registered. Many domestic formula brands are once again at a new starting point. The new policy will improve the chaotic market situation, greatly increasing market and resource concentration. According to the "China Dairy Quality Report (2017)" jointly released by the China Dairy Association and the Ministry of Agriculture's Dairy Quality Supervision and Testing Center, in 2016, the pass rate for raw milk was 99.8%, and for infant formula was 98.7%, ranking among the top in all food categories, and even by international standards, it has reached a high level. In the first half of this year, infant formula has been 100% qualified for four consecutive months. Currently, Chinese consumers' confidence in domestic formula is recovering, and the concept that domestic formula is more suitable for Chinese babies is gaining acceptance among more Chinese families. New starting point, new journey! End as beginning, forge ahead with determination. We sincerely look forward to the next decade, where domestic formula brands in China's dairy industry will fight even more bravely and report victories one after another!
Source: Mother and Baby Industry Observation (ID: muyingguancha) The 2017 (3rd) FMCG + Internet Conference will be held in Chongqing in November 2017. The conference will focus on the theme "New Forces, New Ecology," inviting 1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment institutions to jointly explore new chapters of cross-industry integration! Click the link below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: 2016 "FMCG + Internet" Summit Forum -END-