According to field research, leading companies such as Master Kong, Uni-President, and C'estbon have already put price increases on the agenda, and the dairy industry leaders have also taken collective action.
Research reports from Guojin Securities, CICC, and CITIC Securities show that since the end of 2017, Bright Dairy, Yili, and Mengniu have raised prices on some products in their advantageous regions. Bright Dairy first raised prices on home-delivered pasteurized milk by about 5% at the end of 2017, and in January the increase covered all channels. Due to the short shelf life and fast turnover of pasteurized milk, the price increase has already been reflected at the retail level.
Bright Dairy's price increase is in its advantageous East China region, currently only for well-selling low-temperature pasteurized milk (Youbei, Zhiyou, and ordinary white milk). From the retail price perspective, Youbei (950ml) at Metro and Tesco has risen from 17.9 yuan last month to 20.2 yuan, an increase of nearly 13%, the highest increase rate, with an estimated average ex-factory price increase of about 5%. Yili and Mengniu's price increases mainly target some low-temperature yogurt and room-temperature dairy drinks, with forms including direct ex-factory price increases, reduced distributor rebates, and retail price increases.
For example, Yili's 2017 price increase model was as follows:
- Raise retail prices and reduce expense subsidies. In September and October 2017, the retail price of ordinary white milk (250ml×16) in Yili's South China region rose from 36.8 yuan per box to 40 yuan per box, and on this basis, Yili reduced subsidies for ordinary white milk;
- Direct price increases. Yili also directly raised prices on some low-temperature products, with some varieties seeing larger increases.
For Bright Dairy, overall pasteurized milk accounts for about 17% of liquid milk revenue. If the average ex-factory price increases by 5%, the contribution to revenue is an increase of about 1%. It is expected that this year Bright Dairy will continue to intensively cultivate the East China market, maintain strong channels while launching more products that meet consumer needs, and gradually promote good products to Central and North China, gradually increasing market share outside East China. It is estimated that revenue for 2017-2019 will be 21.57 billion, 23.12 billion, and 25.04 billion yuan, with year-on-year growth of 6.7%, 7.2%, and 8.3%.
In addition, a number of milk powder brands have also joined the price increase wave: In November 2017, Hongxing Meiling raised infant formula prices, with an overall increase of about 30%; in the same month, Blue River sheep milk powder raised prices on 400g/800g two specifications, with an average increase of 7-8%; on January 8, 2018, Biostime distributors officially received the company's product and price increase notice: Biostime's "Huhu", "Gold", and "Super Gold" products were renamed to "Alpha Star", "Beta Star", and "Pi Star" respectively, and from February 26, 2018, the distributor purchase prices for each milk powder product will be adjusted, with a recommendation to adjust and raise retail prices from March 1.
From January 1, 2018, the milk powder registration system was officially implemented, and all brands that have not obtained formula registration approval will stop sales. As of the end of 2017, the China Food and Drug Administration had published 34 batches of milk powder registration lists, with 130 factories, 323 series, and 952 formulas passing registration. In terms of the number of registered formulas, domestic milk powder accounts for 77% of the approved formulas, holding an advantageous position. Before the implementation of the registration system, it was estimated that there were more than 3,000 milk powder brands in the Chinese market. Therefore, since January 2018, nearly 2,000 miscellaneous milk powder brands (accounting for two-thirds of the total brands) have exited the market, and the industry structure has improved.
The report states that against the backdrop of rising overall inflation expectations in 2018, the food and beverage industry is expected to usher in a wave of price increases, with consumption upgrading and cost drivers as the two main lines. The trend of price increases for baijiu is more certain, and beer and dairy products have already shown signs of price increases, which is expected to bring profit improvements for related leaders. In addition, the short-term price increase window for mass consumer goods such as meat products and condiments has not yet arrived, but subsequent price increases cannot be ruled out.
Source: National Securities -END-