---
title: "Who Wants to Replace Yili and Mengniu?"
description: "In the life of consumer Amy, milk is a staple necessity. As a child, she drank fresh milk delivered to her door, but as that old sales model faded, her family switched to classic Yili and Mengniu products and local pasteurized short-shelf-life milk. Recently, she has noticed more changes, with unfamiliar, better-packaged low-temperature milk brands appearing. Her perception reflects a broader trend: China's dairy industry has long been dominated by giants Yili and Mengniu, but now over ten dairy companies are rushing to IPO, and new brands are trying to break through with novel concepts, ingredients, and channels."
author: "深燃团队"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2022-09-27"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/v_RY0S73mJLlerSd54toXg"
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---

# Who Wants to Replace Yili and Mengniu?

> In the life of consumer Amy, milk is a staple necessity. As a child, she drank fresh milk delivered to her door, but as that old sales model faded, her family switched to classic Yili and Mengniu products and local pasteurized short-shelf-life milk. Recently, she has noticed more changes, with unfamiliar, better-packaged low-temperature milk brands appearing. Her perception reflects a broader trend: China's dairy industry has long been dominated by giants Yili and Mengniu, but now over ten dairy companies are rushing to IPO, and new brands are trying to break through with novel concepts, ingredients, and channels.

In the life of consumer Amy, milk is a staple necessity. As a child, she drank fresh milk that her family ordered, "Every day we'd put the bottle outside the door, and the milkman would knock and fill it right in front of you." After this old-fashioned way of selling milk gradually disappeared, Amy's family switched to classic Yili and Mengniu milk, as well as locally branded pasteurized short-shelf-life milk. In recent years, she has noticed more changes. "Some unfamiliar milk with better packaging has appeared, usually low-temperature milk."

Consumers' perceptions are correct: China's dairy industry has long been steered by the two giants, Yili and Mengniu. Large dairy companies like Bright, Junlebao, Wandashan, and Huishan also firmly hold consumers' loyalty.

Moreover, every Chinese person has a hometown dairy company in their heart: Jule for Sichuan, Knight for Inner Mongolia, Tianrun and Western Spring for Xinjiang.

In recent years, new consumer brands such as One Cow Raised by You, Lechun, Jane, and Beihai Ranch have risen, and although their market share is not high, they have their own unique consumer groups and scenarios.

Since 2022, more than a dozen dairy companies have rushed to IPO, and new concepts like ice bock purified milk, Jersey milk, and buffalo milk have been played with enthusiastically by dairy companies. Yili and Mengniu still hold nearly half of the market share. Can the myriad tactics of small and medium-sized dairy companies open a bright path for them?

**01**
#### **Over Ten Dairy Companies Rush to IPO**
#### **Is It Time for a Counterattack?**

This year, news of dairy company IPOs has been constant. As of September 2022, more than 10 dairy companies have launched listing plans. These include established regional dairy companies such as Wens Dairy, Junlebao, Wandashan, Weigang Dairy, and Sichuan Jule, as well as emerging dairy companies like One Cow Raised by You and AustAsia牧场.

The dairy industry is traditional and special.

Speaking of "traditional," most of the above-mentioned established dairy companies have a history of more than 20 years. Brands like Junlebao and Wandashan also have high national recognition. Emerging brands like One Cow Raised by You, Jane, Lechun, and Beihai Ranch were established in recent years and are still in their development phase.

Speaking of "special," it is because the industry chain is very long, the supply chain barriers are very high, and it spans agriculture, industry, and commerce. The industry's inherent heaviness directly makes it difficult and slow for new brands to enter and develop.

As of now, the only successful IPO this year is Jiangxi Sunshine Dairy, which listed on the Shenzhen Stock Exchange on May 20. Sichuan Jule has updated its prospectus three times in 2017, 2019, and 2022, but there has been no latest progress yet.

It's not that these dairy companies aren't trying hard; it's that the industry has long been dominated by the two oligarchs, Yili and Mengniu.

Euromonitor data shows that in 2020, Yili and Mengniu held market shares of 26.4% and 21.6%, respectively, while Bright, Junlebao, New Hope Dairy, and Sanyuan held 4.1%, 3.1%, 1.7%, and 1.7%. In 2021, Yili and Mengniu's combined market share was still close to half, at 25.8% and 22.0%, leaving little room for small and medium-sized enterprises.

By region, China's dairy industry can currently be divided into four tiers. The first tier is national dairy companies represented by Yili and Mengniu; the second tier is cross-regional dairy companies represented by Bright and New Hope; the third tier is regional leading enterprises represented by Sanyuan; and the fourth tier is regional medium and large dairy companies represented by Sichuan Jule and Jiangxi Sunshine.

Regional division fits the characteristics of traditional dairy sales, but with the broadening of sales channels, some new brands have also formed their own factions. Song Liang, a senior dairy analyst, said that Lechun, One Cow Raised by You, and Jane can be called enterprises born from new channels.

The characteristic of this industry is that there are many players, but there is a clear gap between them and the leading companies.

Take Xinjiang milk, which has become popular in recent years, as an example. Due to its unique geographical location and milk source conditions, Xinjiang milk has a stable reputation. Representative brands include Tianrun, Western Spring, and Garden. However, these brands are still more common and popular in the northwest and east and south China markets. Social media platforms have made Xinjiang milk collectively popular, and also brought Xinjiang milk into new retail channels, such as e-commerce and supermarkets like Hema.

However, Xinjiang milk is not as competitive as imagined. In terms of 2021 revenue, Tianrun Dairy had 2.109 billion yuan, Macell had 1.146 billion yuan, Xinnong Development had 685 million yuan, and Western Animal Husbandry had 1.128 billion yuan. The combined 2021 revenue of the four listed Xinjiang dairy companies was less than 6 billion yuan. Industry insiders say that even adding the remaining small dairy companies, the total may not reach 20 billion yuan.

In contrast, Yili, Mengniu, and New Hope Dairy (i.e., New Hope Dairy) had total revenues of 110.595 billion yuan, 88.1 billion yuan, and 8.967 billion yuan in 2021, respectively. It can be seen that **even Xinjiang milk, which is highly anticipated and deeply recognized by consumers, together only equals one-fifth of Yili's revenue.**

Not only is Xinjiang milk struggling to break through, but other small and medium-sized dairy companies also have annual revenues hovering around 1 billion yuan. Still taking 2021 as an example, Sunshine Dairy, Knight Dairy, Wens Dairy, and Sichuan Jule had revenues of 631 million yuan, 876 million yuan, 1.062 billion yuan, and 1.421 billion yuan, respectively. One Cow Raised by You performed slightly better, with only 2.567 billion yuan.

It can be said that other dairy companies are living in the "shadow" of the top players. Does this concentrated IPO represent an opportunity for a counterattack?

Song Liang said that in fact, strategic IPOs by dairy companies have been a trend in the past two years, but this year they have been concentrated. "After so many years of development, competition in the entire industry is very fierce, and many companies have serious capital shortages. At the same time, listing can also enable upstream and downstream enterprises to form stable cooperative relationships," he said.

Industry insiders analyze that under the combined effects of production restrictions during the pandemic, rising costs, and the market capacity of the dairy industry reaching its ceiling, small and medium-sized dairy companies have to turn to the secondary market for help. From several prospectuses, it can also be seen that the purpose of public fundraising is mostly for building pastures. Solving the problem fundamentally from production is a common idea among dairy companies.

Take the established dairy company Jule and the emerging dairy company One Cow Raised by You, which have both submitted prospectuses, as examples. In the past three years, both companies' gross margins have declined. From 2019 to 2021, Jule's gross margin fell from 36.77% to 29.03%, while One Cow Raised by You's main business gross margins were 40.95%, 30.79%, and 28.86%. The explanation in One Cow Raised by You's prospectus is mainly due to rising raw material prices and product price adjustments.

Among these companies that have launched IPO plans, established regional dairy companies represented by Jule, Knight, and Sunshine still temporarily follow the traditional development logic. New faces with differentiation, such as One Cow Raised by You and AustAsia牧场, are trying their best to become the "catfish" of the dairy industry, but breaking through is not easy.

**02**
#### **Playing with Concepts, Emphasizing Ingredients, Grabbing Channels**
#### **"New Forces" Break Through in Various Ways**

The development path of domestic dairy companies is mostly to first "rule each in their own place" locally, then go national to increase national awareness. For a long time, this has also established the industry pattern of the domestic dairy industry: Yili and Mengniu dominate the country, brands like Bright and Junlebao also have a seat at the table, and the remaining small regional dairy companies either stay in their own corner or wait for opportunities.

After 2014, some brands that "do not follow the usual path" brought new stories to the industry. From 2014 to 2016, Jane, Lechun, Biru, and One Cow Raised by You were established, and Asahi唯品 was also acquired by New Hope Dairy in 2016. In 2018, Genki Forest launched the dairy brand Beihai Ranch.

The industry once called similar brands "internet celebrities" because their tactics differ from the traditional strategy of going from local to national, but instead directly play with concepts, emphasize ingredients, and grab channels, trying to snipe at the giants.

First, let's talk about "playing with concepts." In the past year, buffalo milk, Jersey milk, and ice bock have become popular. These three are also milk, but more "high-end" milk.

Buffalo milk, unlike milk from ordinary Holstein cows, has a protein content of about 3.7-4 grams per 100 grams, according to research, which is higher than that of high-nutrition milk like Telunsu and Jindian. Brands such as Baifei, Lechun, and One Cow Raised by You have launched buffalo milk products. The listed established company Huang's Dairy has also launched "One Buffalo" buffalo milk under its umbrella.

Jersey milk is similar to buffalo milk. The milk fat content of Jersey milk exceeds 6% of the total milk weight, while ordinary milk has only 3%-4%, so Jersey milk has a richer taste. Since there are only about 200,000 Jersey cows worldwide, the price is also relatively high, with 250ml costing about 9 yuan. At the beginning of this year, Asahi唯品 launched "Thick 4.0" Jersey milk. In May, Yili Jindian and One Cow Raised by You also launched Jersey milk products, with One Cow Raised by You making a refrigerated version. Sanyuan, Bright, and other established dairy companies also have Jersey milk products.

Ice bock is a product of the emerging dairy company Biru, not a category. It is actually purified milk. Purified milk does not tell the story of cows, but focuses on extracting the most essential part of milk, making it more fragrant and pure.

In general, **the "involution" on the product side mainly focuses on whose milk is purer, more fragrant, and more nutritious.** After all, as one of the important sources of daily nutrition for Chinese consumers, the story of milk ultimately comes down to these aspects.

Looking at channels, "internet celebrity" brands obviously have natural advantages. From the beginning, they set their sights on the national market rather than fighting regional battles, which also gives them more room to maneuver.

The prospectus mentions that from 2019 to 2021, One Cow Raised by You's online sales revenue was 528 million yuan, 1.246 billion yuan, and 1.951 billion yuan, accounting for 62.30%, 77.50%, and 77.67% of main business revenue, respectively. In other words, more than half of One Cow Raised by You's revenue comes from online channels.

To a certain extent, One Cow Raised by You's channel strategy is also the strategy of other emerging "internet celebrity" brands. Xinjiang dairy company Macell has also been making efforts on major e-commerce platforms and live streaming rooms since 2021, accumulating brand awareness.

If you can't compete offline, compete online; that's one path. Another path is to detour from the B-end to the C-end. **Some milk brands originally supplied to B-end coffee shops and beverage stores, but unexpectedly became popular and also opened up sales on the C-end.**

Take ice bock as an example. It has always been a supplier to coffee and tea shops like Heytea, Lelecha, and M Stand. In 2021, ice bock opened a flagship store on Tmall, targeting the C-end. Currently, the ice bock flagship store has only three products, but data shows that ice bock's daily sales are basically in the top five of Tmall's low-temperature dairy products category.

Brands that have experienced the same story include Fino, which became popular in the summer of 2021 due to Luckin's coconut latte, and Asahi唯品, the milk used by Manner Coffee. Offline channels are more diverse, and the production process in beverage stores is more transparent, with raw materials on display and no longer a secret. Feeding back from the B-end to the C-end has brought unexpected opportunities to dairy companies.

"In the past, ToB was for large raw material suppliers. Now some new internet celebrity stores and coffee shops need better quality and fresher products, which has given rise to a group of ToB businesses that revolve around them. These ToB businesses will also extend to families, providing more personalized product needs for families. This is a trend that fills the previous market gap and also realizes the niche development of products that original suppliers could not achieve." But Song Liang also pointed out that this logic is difficult to replicate.

The original temperament and initial positioning of a brand will affect its future development. Moreover, judging from the stories of brands like Fino, entering the C-end from the B-end requires forming ultra-high awareness on the B-end and relying on the B-end's sufficiently strong influence to detour into the view of ordinary consumers. This is a long process that depends on opportunities.

**03**
#### **Can't Win, But Can't Hide**

Playing with new concepts and hitting hard on channels does not necessarily lock in victory.

It is not difficult to find that the three "new concept" milks all follow the story of purity and high nutrition, seemingly full of gimmicks. However, the method of hyping concepts has already been played out in the industry. Since Yili and Mengniu launched regular high-calcium and skim milk, and launched Telunsu and Jindian high-end lines, whether protein content is high, fat is high, or taste is pure has been an old story, but now it is being retold from a new angle.

From past cases, using concepts to encircle Yili and Mengniu will eventually be met with a counter-encirclement from the two giants. "In the development of China's dairy industry, technology leadership often relies on small enterprises. When small enterprises use technological innovation to grow a category, Yili and Mengniu use their systemic advantages to enter and squeeze them out, or acquire them," Song Liang said.

Judging from Yili's launch of Jersey milk, the two giants' counter-encirclement of other new concepts may be a matter of time.

Laying out channels, doing marketing, and using traffic to exchange for money while also burning money to exchange for traffic. One Cow Raised by You has invested a lot of money in marketing. The prospectus mentions that from 2019 to 2021, One Cow Raised by You's sales expenses increased from 190 million yuan to 480 million yuan, mainly used for product sales on e-commerce platforms and brand marketing promotion.

In three years, sales expenses tripled. In this fundraising, One Cow Raised by You will also invest 520 million yuan in brand building and marketing promotion. As for Macell, sales expenses in the first half of 2022 reached 120 million yuan, a year-on-year increase of 109.22%.

Back to the point, in front of the two giants, do small dairy companies have no possibility of competing? In fact, over the years, regional brands have lived well in their respective cities, gaining local recognition and making small but beautiful businesses.

Generally speaking, business goes from local to broader markets, growing bigger and stronger. But this logic does not seem to apply in the dairy industry. When local dairy companies go national, they face a group of unfamiliar consumers who are already accustomed to Yili, Mengniu, and other national brands, making it difficult to refresh their perceptions.

Brands like One Cow Raised by You follow the same logic. "They themselves are more about satisfying more personalized needs, not serving the masses. But if they continue to develop, they will have to face a head-on battle with Yili and Mengniu, and at that point, they may not be able to beat them," Song Liang said.

According to this logic, for all dairy companies, Song Liang believes that the most important thing is to return to the old three: product innovation, channel maintenance, and how to communicate with consumers in new ways.

Song Liang believes that for small and medium-sized brands, **narrowing categories, focusing on and serving their own consumer groups is more suitable for survival than making the category bigger and more comprehensive.** "At least locally, they can compete with Yili and Mengniu. Small brands can survive not because of differentiation, but because of how strong the sales momentum between the product and consumers is, which determines how fast the brand can run."

Beihai Ranch told Shenran that their strategy is similar. They currently do not consider making the category bigger and more comprehensive, and do not want to lose sight of one thing while pursuing another for the sake of big and comprehensive. In the coming period, they will still focus on low-temperature yogurt, and make room-temperature products more refined and specialized.

Consumer demand is upgrading, and low-temperature milk has become a key track for major dairy companies. Some emerging dairy companies even enter from the low-temperature track, such as Lechun and Beihai Ranch. Compared to the room-temperature milk market, which is dominated by giants and has a settled pattern, low-temperature milk does have some opportunities, but at the current point in time, there are also many problems.

A person from Beihai Ranch explained to Shenran that low-temperature dairy products are highly dependent on cold chain logistics. From production to transit, storage, and sales, the temperature must be maintained within a certain range. This increases the threshold and cost compared to room-temperature products. Low-temperature liquid milk, especially fresh milk, generally has a short shelf life, mostly around 21-28 days, making the problem of near-expiry or expiration more prominent.

After deducting the transportation period, the sales cycle of low-temperature liquid milk is even tighter. Under greater pressure, large supermarkets and chain stores often use promotional methods to strengthen sales momentum, such as buy-one-get-one-free and discounts, which undoubtedly increases sales expenses.

Small and medium-sized dairy companies face many difficulties, but the problems in front of Yili and Mengniu are also not few.

An industry insider revealed that in fact, the giants have been reducing internal expenses in recent years to better protect net profit data. Under the current environment, the market capacity seems to have reached its ceiling, with limited growth space. "Yili needs to consider two things: first, continue to deepen the construction of the entire industry chain system; second, transform from basic nutrition to professional nutrition, and promote the development of the whole family nutrition business," Song Liang believes.

In summary, the two giants and small and medium-sized enterprises face completely different challenges. **Small enterprises need to find ignored or undeveloped needs beyond mass demand.** Jersey milk, buffalo milk, ice bock, and even flavored milk are all beyond basic needs. **For Yili and Mengniu, they daily bear the basic demand of consumers for nutritional supplementation, and need to be more professional on top of mass demand.** At the same time, the Macell propylene glycol incident reminds the industry again that food safety is the first priority.

In the future, more novel milk types will appear. Small dairy companies cannot beat Yili and Mengniu nationwide, but in their own one-third of an acre, they can rely on segmented categories and specific groups to find their own way to survive. Small but beautiful may be their best situation at present.

*Cover image and in-text images from unsplash*

_**-END-**_

**Live Broadcast Topic:** "Discussion: Is 'RFID + Digitalization' the Evolution Direction of FMCG Supply Chain?" **Time:** September 29 (Thursday) 20:00-22:00 **Host:** Chen Siting, CEO of New Distribution **Guests:** Xu Ming, General Manager of Cainiao Logistics Technology IoT; Weng Zhangxian, Technical Director of Digital Center, Uni-President Enterprises China; Cao Zhimin, General Manager of National Operations Center, China Resources Snow Breweries; Zhao Haoyu, Senior Expert in Digital Supply Chain, Cainiao Logistics Technology

With the digitization of products brought by RFID, how can we build a supply chain digitalization system for FMCG manufacturers on this basis? How can we solve the many deep-rooted problems of the traditional supply chain we mentioned earlier? New Distribution has invited several brand managers, marketing experts, and professional service providers to connect to the live broadcast room to discuss the evolution path of the FMCG supply chain in the new era and new market environment.


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