Wahaha has once again set its sights on the infant formula business. On October 11, reports emerged that Wahaha would launch several stage-3 toddler formulas. Notably, the registration numbers for these new formulas belong to Hulunbuir Youyi Dairy (Group) Co., Ltd. (hereinafter "Youyi Dairy") and Hunan Zhanhui Food Co., Ltd. (hereinafter "Zhanhui Food"), which industry insiders interpret as Wahaha "borrowing a womb" to give birth. Since 2010, Wahaha has repeatedly launched formula products, but none has yet secured a stable position in the market. "High profit margins are a key reason for Wahaha's entry into infant formula, but launching products without its own registration numbers suggests Wahaha may be 'biting off more than it can chew,'" said an industry insider.
-01- Borrowing a Womb? On October 11, reports indicated that Wahaha would launch "Shi Qingcao" infant formula (12-36 months, stage 3), with registration number YP20180151. Additionally, Wahaha plans to launch "Wahaha" toddler milk formula (stage 3) and "Wahaha" toddler goat milk formula (stage 3), with registration numbers "Guoshi Zhuzi YP20190034" and "Guoshi Zhuzi YP20190030" respectively. Notably, a query on the special food information platform reveals that these three registration numbers correspond to already-registered products: Nuobaoyou toddler formula (stage 3), Jinguan toddler formula (stage 3), and Mengzhen larger infant goat formula (stage 2). The first belongs to Youyi Dairy, while the latter two come from Zhanhui Food, and Youyi Dairy's major shareholder is Zhanhui Food. In other words, the registration numbers for the three formulas Wahaha plans to launch all come from Zhanhui Food. Wahaha's use of registration numbers from companies that have already obtained formula registration is dubbed "borrowing a womb" by the industry. In the view of dairy expert Wang Dingmian, if Wahaha wants to make a serious push into infant formula, it could acquire production qualifications and formula registrations through mergers and acquisitions. However, if Wahaha uses Zhanhui Food's registration numbers for production, it would be non-compliant and potentially involve the buying and selling of formula registrations. Dairy expert Song Liang told Beijing Business Today that Wahaha's use of these registration numbers likely stems from acquiring Zhanhui Food and Youyi Dairy through capital injection, or from reaching a cooperation agreement with the producers. The "Measures for the Registration Management of Infant Formula Milk Powder Product Formulas" (hereinafter "Measures") stipulates in Chapter 5, Article 45, that forging, altering, reselling, renting, lending, or transferring infant formula registration certificates will result in a warning and a fine of up to 10,000 yuan from food and drug regulatory authorities; for serious cases, fines range from 10,000 to 30,000 yuan; if a crime is suspected, the case will be transferred to public security authorities for criminal liability. The Measures also state that formulas registered by a wholly-owned subsidiary of the same group can be used by other wholly-owned subsidiaries within the group. Beijing Business Today checked the National Enterprise Credit Information Publicity System, Wahaha's official website, Zhanhui Food's official website, and Youyi Dairy's official website, but found no relevant acquisition information. There is also no apparent connection between Wahaha and Zhanhui Food or Youyi Dairy in terms of equity structure or personnel positions. Regarding the formula launch, Beijing Business Today contacted Wahaha's relevant person in charge but had not received a response as of press time. For the reasons behind Wahaha's use of Zhanhui Food's registration numbers and the current cooperation model between the two companies, Beijing Business Today called Zhanhui Food, but the call was not answered by press time.
-02- Formula Business "Spinning in Circles" Wahaha is no stranger to the formula market, but due to the formula registration system, it currently has no presence in the infant formula segment. In its early years, Wahaha made a high-profile entry into the infant formula market. In 2010, it announced the launch of Edison infant formula, produced under OEM agreements with Dutch and Swiss companies, and set a target of "10 billion yuan in annual sales." However, Edison formula's performance was lackluster. According to AC Nielsen data, Edison formula held only a 0.5% market share in 2010. Subsequently, Edison formula faced quality issues and controversies over employees being pressured to buy near-expiry products. Later, the new formula policy forced Edison formula to cease production. In 2018, the so-called strictest formula policy was fully implemented, requiring every company, whether domestic or foreign, to have no more than three formula series and nine product formulas in principle. Due to the registration system, Edison formula, which lacked its own milk sources and production plants, stopped production. In 2018, Edison formula experienced widespread stockouts nationwide, suspected to be due to plant shutdowns caused by the registration system. At that time, a Wahaha customer manager responded that Edison formula had indeed run out of stock and that the company had no plans to continue the product. After being blocked in infant formula, Wahaha turned its attention to the goat milk formula market. In July 2018 and April 2019, Wahaha launched goat milk formula brands "Morsia" and "Smart Superman." Morsia was mainly sold through official channels, while Smart Superman was sold primarily through offline lifestyle stores in cooperation with Hangzhou Nutrition Happy New Retail Technology Co., Ltd. But sales of these formulas have been disappointing. Beijing Business Today checked Wahaha's official Tmall flagship store and found two formula products on sale: Morsia series middle-aged and elderly selenium-enriched goat milk formula and children's DHA goat milk formula, available in bag, can, and gift box packaging. The best-selling Morsia middle-aged and elderly selenium-enriched goat milk formula had only 11 buyers, which is mediocre compared to similar products with sales exceeding 10,000. In the view of Shen Meng, director of Chanson Capital, launching products without its own registration numbers indicates that this decision is not a long-term, well-considered strategy but rather a temporary measure, which will impact the future development of these products.
-03- Seeking Growth in a Red Ocean Market In fact, the formula market Wahaha wants to enter is already a red ocean. Data shows that from 2005 to 2014, the formula market expanded rapidly, but since 2015, consumption growth has slowed. The current terminal retail scale is approximately 150 billion yuan, equivalent to about 100 billion yuan at ex-factory prices. It is estimated that by 2023, the retail market size will reach 160 billion yuan, with limited incremental space. By brand, domestic formula brands still hold a lower market share than international brands. According to Euromonitor data, in 2019, domestic major brands, international major brands, and other brands held market shares of 39.7%, 47.5%, and 12.8%, respectively. Domestic formula brands also have a relatively stable tier structure. Data shows that the first tier includes companies like Feihe, Mengniu, and Ausnutria, with Feihe's market share rising from 4.3% in 2010 to 13.3% in 2019, and Mengniu (including Junlebao and Yashili) reaching 7.6% in 2019. In the second tier, Yili's market share remained stable, while Biostime saw a slight increase. The third tier includes companies like Wandashan and Beingmate. Song Liang believes that Wahaha's renewed interest in the formula market is to gain a share, as infant formula remains a high-margin sector in the food industry. Financial reports from companies like Feihe, H&H Group, and Ausnutria show that gross margins in the formula industry remain high. In 2019, Feihe achieved a gross margin of 70%, up 2.5 percentage points year-on-year; H&H Group's gross margin was 66.16%, and Ausnutria's was 52.45%. Facing such high margins, Wahaha also wants a piece of the pie. Previously, Wahaha set a "100 billion yuan" goal, but in recent years, its performance has stagnated. Data shows that in 2013, Wahaha's revenue reached 78.3 billion yuan, then began to decline. From 2014 to 2017, revenues were 72.8 billion, 67.7 billion, 45.6 billion, and 45.073 billion yuan, respectively. In 2018, revenue recovered slightly to 46.89 billion yuan. "Wahaha is currently facing a development bottleneck and cannot find a breakthrough, so it is circling back to the relatively familiar infant formula sector," Shen Meng said. In Song Liang's view, the main problem Wahaha faces is the lack of a blockbuster product. "In recent years, Wahaha has cast a wide net across various businesses, but now every industry has strong players, market concentration is high, and homogenization is severe. No matter which field Wahaha wants to enter, it must be prepared for a prolonged battle, or it risks being eliminated directly."
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